After the Bell: GDP Report Not Enough

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GDP Report for Q4 Not Enough

Fourth Quarter GDP was widely expected to post a strong increase thanks to inventory restocking, and that’s exactly what Friday’s report showed. GDP improved a stunning 5.7%, marking the largest surge in six years. Economists were looking for 4.5%, so no matter how you look at it (relatively OR absolutely speaking), the data was overwhelmingly positive.

The market rejoiced in the news too, which was released in the pre-market. The S&P 500 gapped open higher (that means it opened above where it closed the previous day), but then proceeded to give away the early gain and more. “The Greek” was so busy this week taking care of behind the scenes matters here at WSG Central, that I never published my note planned for GDP. Guess what it forecast… I know those of you who have been reading for a while will believe me, the rest will just have to trust in the oracle. – So, I wanted to write a note preparing you for a strong GDP report, and at the same time, I wondered how long any short-term lift might hold. I hate when I don’t publish prescient ideas. There’s only one thing worse, publishing bad ideas! Later in this article, I’ll re-share a good one with you.

More Than Just GDP

The economic data flow has been solid of late, and on Friday too, as Chicago PMI and Reuters/Michigan Consumer Confidence both came in improved and better than expected. The Purchasing Managers Index jumped to 61.5, where economists were looking for a decline to 57.0. The Consumer Sentiment Index reached a 2-year high, moving to 74.4 in January, up from 72.5 in December. So what’s going on then? Why did the market drop?

Against The Goad

Well I think it’s clear. The communal investor mindset is well trained, and the market is well aware; regulation tends to get overdone when enacted post some significant economic failing (this last one qualifies). To this point, “The Greek” was on board with President Obama’s economic moves, but the Financial Crisis Responsibility Fee just “stinks of mafia state”(can I quote myself?)! I’ll do it again, “the road to hell is paved with good intentions.”

In an article published last Friday, we wrote “We suggest you take your profits NOW, because this has trouble written all over it; and IF the bill can pass OR if the Administration takes on China next, read that as “big trouble.”

The Strength of our Union Leader

Gosh I like Obama though (bear with me as I get all mushy), and I was reminded of why while watching his inaugural State of the Union Address. Where many of you may have viewed parts of his speech as weak, I saw rare strength, because it’s harder to reach out than it is to lash out. I believe that if he draws on the support of the people, he could get anything done (Republican support or not); and I believe in alternative energy (since I argued for it over fighting a war in Iraq when George Junior had only just started his campaign – “Let them choke on their oil!” is still echoing through the halls of Greek Central; as I was saying… alternative energy, health care reform and taking the hard road to do what’s right – I believe in those things.

I’m hearing a lot of, “and I’m speaking to Democrats too” from Obama. Think I heard the same from Clinton, and others like Reagan and Kennedy had a special unifying voice that spoke truth of heart (I know what you are going to say! Just not sure which of the three you will choose.). There’s something about that Oval Office that makes a man reach though, that’s for sure.

That said, you can’t indiscriminately tax shareholders because you feel like their CEOs gamed you. Obama basically scared the bejeebers out of stockholders with that one, and that’s inclusive of a whole lot of Americans. It took the market a little while to smell the stench, but when a second idea was proposed to limit the size and scope of financial institutions, an attempt at solving the “too big to fail” problem, well then the market took notice of trend. Stocks have rediscovered volatility and downticks ever since. We’ll see if these bills pass into law, as Republicans will oppose unless the people revolt. Some of these proposals might be for our better good, but that’s of no concern to shareholders’ at the moment.

The problem with AIG (NYSE: AIG) was more due to the lack of a super-regulator, who could see the whole schematic of AIG’s nebulous web of activities. Whatever the case, the market does not like tangential regulation, new taxes and such. What she dislikes more is an active government getting its hands too deeply into things it might not understand, because when the rules change, the market has to learn new rules and that means she knows nothing today. Uncertainty! That’s what it’s called, and stocks tend to trend lower when it’s in the room.

Earnings News and Pooh-Poohs

We had good earnings reports from Amazon.com (Nasdaq: AMZN) and Microsoft (Nasdaq: MSFT), and from Ford (NYSE: F) from the day before. However, Mr. Softy, Honeywell (NYSE: HON) and others cooled enthusiasm in their conference calls with sour notes of the days to come. Microsoft’s CFO Peter Klein said the company had not yet seen a return of enterprise spending growth. So, even after posting a 60% gain in profits, MSFT shares slipped 3.4%. Honeywell dropped 3% as well, even after it beat results, because HON also provided an outlook that offered less hope than analysts had projected. So, it began to look as if many pundits were right, that we had already priced in as far as we had come, and had grown too hopeful for the year ahead. Thus, despite the hot GDP figure, many questioned its driving factors and its sustainability. Within “many,” I include myself.

The rest of Friday’s earnings included news from Chevron (NYSE: CVX), Arch Coal (NYSE: ACI), Avery Dennison (NYSE: AVY), Fortune Brands (NYSE: FO), Horizon Lines (NYSE: HRZ), Idexx Labs (Nasdaq: IDXX), Mattel (NYSE: MAT), Mizuho Financial Group (NYSE: MFG), Newell Rubbermaid (NYSE: NWL), NTT DoCoMo (NYSE: DCM), Oppenheimer Holdings (NYSE: OPY), PACCAR (Nasdaq: PCAR), Provident Financial (NYSE: PFS), RBC Bearings (Nasdaq: ROLL), Saia (Nasdaq: SAIA) and Wilmington Trust (NYSE: WL). Also look for data out of ABG Shipyard (Bombay: ABGSHIP.BO), Accordia Golf (OTC: ACGFF.PK), All Nippon Airways (OTC: ALNPY.PK), AsiaInfo Holdings (Nasdaq: ASIA), Autoliv (NYSE: ALV), Center Financial Corp. of California (Nasdaq: CLFC), Central Pacific Financial (NYSE: CPF), Dover Corp. (NYSE: DOV), Enbridge Energy Partners (NYSE: EEP), Encore Bancshares (Nasdaq: EBTX), Graham (NYSE: GHM), Great Southern Bancorp (Nasdaq: GSBC), KT Corp. (NYSE: KT), L.B. Foster (Nasdaq: FSTR), Mahanagar Telephone Nigam Ltd. (NYSE: MTE), Makita Corp. (Nasdaq: MKTAY), MetroCorp. Bankshares (Nasdaq: MCBI), NuStar GP Holdings (NYSE: NSH), United Community Banks (Nasdaq: UCBI), West Bancorporation (Nasdaq: WTBA) and Yucheng Technologies (Nasdaq: YTEC).

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