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April 28, 2005
Economic slowdown confirmed, Thur., April 28, 2005, 9:11 AM
The USD has taken it on the chin after the first quarter 2005 shows that the U.S. economy slowed at an alarming rate, well under expectations of leading economists. I expected a slowdown, but this report shows it to be much worse than I had thought. The USD sold off immediately.
Weak spending slows US Q1 growth
www.RTE.IE April 28, 2005 8:45am EDT
"The US economy grew at its slowest pace in two years during the first quarter this year, slowing to a 3.1% annual rate of expansion as consumers and businesses curbed spending in the face of rising prices.
The Commerce Department figures showed that growth in gross domestic product was the weakest since a 1.9% pace during the first quarter of 2003 and was a surprisingly sharp slowdown from the 3.8% rate registered in the fourth quarter of 2004. Wall Street economists had forecast Q1 GDP growth of around 3.6%.
Since the first quarter GDP data was compiled, oil prices have continued to rise and fears have grown they will feed into the broader economy, with many analysts expecting growth in the second quarter to be affected further. The softer than expected start to 2005 is likely to boost expectations that Federal Reserve policymakers, who meet again next Tuesday to consider interest rate strategy, will stick to a policy of smaller, gradual rate rises.
There was evidence in the GDP report that price pressures are growing. A price index favoured by Federal Reserve chairman Alan Greenspan - personal consumption spending excluding food and energy products - rose by 2.2%, up from 1.7% in the final quarter of last year.
Growth in consumer spending - which fuels about two-thirds of national economic activity - slowed, with personal consumption expenditures easing to a 3.5% annual rate in the first quarter from 4.2% in the closing quarter last year and from 5.1% in last year's third quarter.
The fall-off in the rate of growth of business investment was more striking, down to a 4.7% annual rate from 14.5% in the final quarter of 2004. Spending on equipment and software grew by 6.9% in the first quarter after an 18.4% surge in the closing months of 2004."
Leakage or anticipation of this news apparently was a factor in yesterday's capital markets. The cyclical stocks sold down, probably on expectation that the Fed can now take it easy on tightening.
But do you really think that is likely to be the case? Don't be so quick to pull the trigger by selling cyclicals and buying financials. I see no reason here to be accumulating the banks. And the cyclicals (i.e., energy and basic materials) are not in such bad shape.
Posted by Posted by Bill Cara on April 28, 2005 09:14:54 AM | Category: Cara Today in the Market
Discourse
Don't get me wrong; I think Cramer is right about a lot of things, but I wish he would stop his nonsensical attack against the Fed -- at least the arguments he put forth until last evening. Last evening, he said he wanted Greenspan to lift the interest rates as high and as hard as necessary -- one time -- to kill speculation and allow the real investor to regain control of the capital market. That won't happen overnight, but I believe Cramer's heart/brain is in the right place.
As to recommending financials and consumer staples, I think Cramer is wrong. The Fed will tighten until the back of speculation is broken. That will hurt the financials in the process. As for the 'defensive' consumer staples, buying (most of) them means losing a little less capital, but it still means losing capital.
The analogy to medicine is appropriate, in that traders have to stop the bleeding. Physicians practice according to the Hippocratic Oath, which simply says, don't take an action unless you know it is going to help the patient. Cramer is a lawyer and businessman; he probably wouldn't appreciate the significance.
But there are times like today when the owners of capital have to take actions that protect their capital. Cramer is a gunslinger who ought to holster his pistols, and hunker down without his beer (Coors) and cigarettes (Altria).
Bill,
So, what's next?
I would expect that 2d QTR will be as bad, if not worse.
Any thoughts on 3d and 4th in light of your Trading Wars post?
Posted by: Movie Guy at April 28, 2005 11:30 PM [link]
Even beer and tobacco getting smoked now - what does that mean
Cramer recommending Coors a few weeks back - down 10 today
Posted by: Howard Lindzon at April 28, 2005 12:13 PM [link]