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Realistbear

Huge Drop In U S Gdp May Portend Recession

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http://uk.biz.yahoo.com/28072006/214/open-...dp-figures.html

Friday July 28, 04:25 PM

US open: Wall Street surges on GDP figures
LONDON (ShareCast) - Wall Street surged ahead in opening deals as signs of an economic slowdown raised hopes of an end to interest rate hikes.
The Commerce Department said GDP grew 2.5% in the second quarter, against expectations of a 3% growth, and down from the 5.6% growth registered in the first quarter.

IR hikes may be over given the dramatic turnaround in the US economy which may suggest a slowdown in earnings next Q which in turn may make stocks less attractive. This could be the news Gordon has been waiting for as our GDP will follow with exports and US trade falling. On the other hand, if the US economy still has inflationary pressure IR hikes may stil be on the cards in which case the threat then becomes stagflation. This is an interesting set of circumstances. What seems certain is that the spending binge appears to be over and the crippling debt still has to be repaid in a slowing economy. :o

What next?

DJ INDUSTR AVERAGE (DJI:^DJI) Edit

Index Value: 11,225.07

Trade Time: 5:09PM

Change: Up 124.64 (1.12%)

Prev Close: 11,100.43

Open: 11,102.11

Day's Range: 11,102.03 - 11,235.95

52wk Range: 10,098.20 - 11,709.10

Volume: 123,685,840

Edited by Realistbear

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"Stagflation occurred in the economies of the United Kingdom in the 1960s and 1970s and the United States in the Nixon administration of the early 1970s "

Oddly enough, the last time we had a Labour government.

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The problem with the world (and a problem with low inflation low interest rate environments) is that people need and seek "returns" like nothing else and will persist in ignoring the underlying problems presented and respin them to justify things to their needs.

GDP growth down by >50% in two quarters is a SIGN of something. Why does the market jump on the news? because interest rates may fall (or not rise) because of it. Madness.

We are in thrall to the strength and depth of the new investor class- the hedge fund and his imitators (which includes the city and wall street - noone wants to belive the truth) - short term fluctuations and volatility are king. They ignore the real message and that will, like his judgement, come soon enough.

People tend to call the top of markets too early and the bottom of markets too soon. We all called it in 2004. I think it is winter 2006/07 for the top (which probabaly means 2007/08!).

Edited by Tempest

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Guest Charlie The Tramp

"Stagflation occurred in the economies of the United Kingdom in the 1960s and 1970s

I would agree with the 1970s but I cannot agree there was stagflation throughout the 1960s.

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From the BEA:

The deceleration in real GDP growth primarily reflected the following:

1 ) Consumer spending decelerated, increasing 2.5 percent after increasing 4.8 percent. The slowdown in

consumer spending accounted for more than half of the slowdown in real GDP growth.

This is undoubtedly due to a rapid deterioration in the US housing market, now believed to be in recession by certain economists (Northern Trust, Chicago), which in turn has impacted on the mortgage equity-withdrawl market. Last year that released $600bn into the economy and is credited with being the primary cash machine for overstretched US shoppers (according to Ambrose Evans Pritchard, Telegraph).

The stock market is supposedly cheering the end of rate rises. Who cares whether that is the real reason. The fact is investors have been massively bearish wrt stocks, especially around the recent nadir. With housing looking a dodgy investment it does not surprise me that folks are rethinking stocks. Consumer cyclicals however don't strike me as an intelligent home for funds, but inmy experience, intelligence is something best left at the doors of the exchange ...

As for "Huge Drop In U S Gdp May Portend Recession", as RB put it, well, no, not in itself. There was a bigger drop in Q4 2003 and that produced 10 successive quarters of positive growth averaging ~3%!

What might be differernt this time? The housing market. Yep: it can fall under its own weight and it can make recessions. Always could, always will. Don't believe the guff about recessions preceding house price falls: house price falls can fall all by themselves and make a recession all by themselves as easy as zippiddy-do.

Edited by Sledgehead

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I agree - the stock market today surprised me - a slow down in spending will impact upon profits in due course. I thought today's exuberant rise irrational. I do not believe that interest rate rises will stop in the US just yet as CPI is so rampant, but I suppose knocking down GDP figures is a step in the right direction.

I am giving shares a wide berth for the time being. I would expect a further kicking of the indices very shortly.

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I agree - the stock market today surprised me - a slow down in spending will impact upon profits in due course. I thought today's exuberant rise irrational. I do not believe that interest rate rises will stop in the US just yet as CPI is so rampant, but I suppose knocking down GDP figures is a step in the right direction.

I am giving shares a wide berth for the time being. I would expect a further kicking of the indices very shortly.

try not to put too much faith in the picture you receive wrt fundamentals on stocks. Do you for instance know how many more rate rises have been factored into stocks already? Do you know how far the equity / dividend or earnings yield ratios are away from their long term norms? Do you know what percentage of stock market profits come from outside the economy? These are difficult questions to answer in a timely and accurate manner and frankly, unknowable in any meaningful way. You are far better off trying to judge the overall mood or sentiment within the market. People don't make money in stocks by knowing the facts but by assessing what is known and factored in. You cannot know whether the rise today was any more irrational than the fall was that preceded it, because you simply don't know what is driving the market.

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try not to put too much faith in the picture you receive wrt fundamentals on stocks. Do you for instance know how many more rate rises have been factored into stocks already? Do you know how far the equity / dividend or earnings yield ratios are away from their long term norms? Do you know what percentage of stock market profits come from outside the economy? These are difficult questions to answer in a timely and accurate manner and frankly, unknowable in any meaningful way. You are far better off trying to judge the overall mood or sentiment within the market. People don't make money in stocks by knowing the facts but by assessing what is known and factored in. You cannot know whether the rise today was any more irrational than the fall was that preceded it, because you simply don't know what is driving the market.

On the basis of what you say, no one should ever invest in the market!

My feeling is bearish, so I will not invest.

Thx for your advice, unneeded but well meaning no doubt.

Edited by nimmmm

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On the basis of what you say, no one should ever invest in the market!

not at all. there are many ways to judge investor sentiment

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The problem with the world (and a problem with low inflation low interest rate environments)...

????

Low inflation envionments?

Please don't tell me that you believe the govenments official inflation figure?

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  • 338 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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