Economic "Intel"-igence.

Remember about 6 weeks ago, how Intel (INTC) reported blowout earnings, ushering in a great earnings season and convincing investors that the so-called "recovery" was finally gaining steam?  Well, just moments ago, INTC warned on the revenue line.  Not good.

The company says it now expects revenue for the quarter of $10.8 billion to $11.2 billion.  That compares with a previous forecast of $11.2 billion to $12 billion.  Not good.

This is why data points like earnings are so irrelevant when it comes to assessing either the market or the economy.  They're backwards looking and of absolutely NO use. 

The Gross Domestic Product (GDP) estimate for the 2nd quarter was also revised much lower.  Originally, economists had it pegged at 3.5%.  Then, it came in a 2.4%.  Today, it was reported at 1.6%.  Not good.  But, "better than expectations".  Whose?  Not mine!

A common notion is that looking at prior earnings and economic data is like driving a car while looking in the rear-view mirror.  No wonder investors, even sophisticated ones, have so much trouble making money.

The market, with 4 Hindenburg Omens under its belt, and maybe a 5th today, has, in its infinite wisdom, anticipated the economic slowdown.  The reason markets are able to anticipate with such deadly accuracy is that investor liquidity and preference for risk is reflected in stock prices.  When investors are liquid or are interested in taking on risk, stocks go up.  Simultaneously, the same factors are filtering their way through the economy.

That's how the market mechanism works.  Investors express themselves both through economic actions and how they allocate resources.  However, these do not react simultaneously.  Markets are more sensitive.  One can think of the market as the proverbial "canary in the coal mine".  The canary's health indicates the economy's health.  Not that mysterious, now, is it?

Of course, not every market move is significant.  Markets can go up or down for a variety of reasons, including interest rates or the Dollar or problems with sovereign debt.  But, significant market moves, especially when they're at odds with our economic expectations, should NEVER be ignored.

This is how "Intel"-igence works.  As you understand the market's unique language, investing becomes much, much more straightforward.

Marko's Take

GDP Grows By 5.7%: Has The Recovery Finally Taken Hold?

On Friday, the Bureau of Economic Analysis (BEA) gave its initial guesstimate of 4th quarter Gross Domestic Product (GDP) of 5.7% - a number much higher than most analysts had expected.  At first, this number appears to be pretty solid and follows a downwardly revised 2.2% figure for the third quarter.

The first problem is that this preliminary estimate is nothing more than a guess and is subject to at least two more revisions before the figure becomes finalized.  Of the 5.7% number reported, a full 3.4% was the result of inventory shrinkage, as companies pulled more goods off their shelves.  In so doing, there was NO positive effect on employment, which continues to remain at unacceptably high levels.

While the fourth quarter figure is robust, GDP still remains nearly 2% BELOW the peak reached in early 2008.

The largest contributor to growth was consumer spending, which grew at 2% but was down from 2.8% in the prior quarter, when sales were boosted by the "cash for clunkers" program.

One sign from the GDP report of improved confidence at companies was an annualized 13.3% increase in spending on equipment and software—the biggest gain in nearly four years. In the past, rises in capital spending have tended to signal an increased willingness to hire.

Marko's Take?  The fourth quarter will mark the end of the "recovery" and a more severe contraction will begin to gain steam.  Without an increase in employment, no economic upturn of any duration can possibly be sustained.  Unfortunately, the oncoming "second dip" is likely to be far WORSE than the first one. 

Other ongoing economic problems include restrictions in credit availability and percolating inflation - which will undoubtedly begin to accelerate shortly.

Have a great weekend.  Disagree?  Agree?  TAKE ME ON!

Marko's Take

Are We In An Economic Recovery or Not?

Christmas sales are finally in, so we can gauge the nature as to whether a bona fide recovery is indeed taking place.  Of course, there is bad news and good news.

The bad news is that the so-called recovery is much weaker than originally reported.  Third quarter GDP or Gross Domestic Product was first reported at 3.5%.  It has since been revised downward twice to 2.2%.

Of course, the revisions are courtesy of the Bureau of Labor and Statistics, an entity known for "juicing" the real numbers.  If you follow Shadowstats.com you get an entirely different picture.  According to them, GDP currently is tracking at MINUS 3%!

According to Reuters, online spending ROSE 5% from the beginining of November through December  Activity tracked by SpendingPulse, a unit of MasterCard Advisors, showed retail sales ROSE 3.6 % in the period from November 1 through Christmas Eve on December 24.

The Wall St. Journal has weighed in on home sales.  The Case-Shiller index of home prices for 20 cities increased a seasonally adjusted 0.4% from September, the fifth consecutive monthly increase. Before the seasonal adjustment, the index was unchanged.  Home prices are 7.3% lower than a year ago..

Furthermore, the situation for mortgage redefaults has improved.  Some 18.7% of loans modified in the second quarter of 2009 were at least 60 days past due three months later, according to the report, by the Office of Comptroller of the Currency and the Office of Thrift Supervision.  That compares with a redefault rate of 30% or more after three months for loans modified in the previous four quarters.


"Net net" it's still impossible to formulate a definitive conclusion.  What we do know for now is that some signs of recovery are present.  Yet, we still don't know to what extent.  As Confuscious once said "I'm confused"!

If you think you know the answer to the question at hand, PLEASE hit me with your best shot.  Fire away!
There is a comment section below in case my constant repetition of the existence of such a section somehow  escaped you!

Tomorrow we'll return to another "California Crisis Deepens Series"

Marko's Take