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Tuesday, April 30, 2013

Q1 GDP & ECRI Clarification on Recession Call

On April 26, 2013, US Bureau of Economic Analysis released its first estimate of real gross domestic product, GDP.
Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.5 percent in the first quarter of 2013 (that is, from the fourth quarter to the first quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 0.4 percent. 
The Bureau emphasized that the first-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see the box on page 3 and "Comparisons of Revisions to GDP" on page 5). The "second" estimate for the first quarter, based on more complete data, will be released on May 30, 2013. 
The increase in real GDP in the first quarter primarily reflected positive contributions from
personal consumption expenditures (PCE), private inventory investment, exports, residential investment, and nonresidential fixed investment that were partly offset by negative contributions from federal government spending and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.
We had a good discussion of this release in my "Investing for the Long Term" Facebook group where many questioned how could ECRI think we are in a recession with 2.5% GDP growth.

 Lakshman Achuthan from ECRI posted the following comments:  (Text follows image)

Text for my articles

Lakshman Achuthan You're not alone in thinking our recession call was wrong. Still, the facts are that the GDP release on August 28, 2008 – with the economy eight months inside the Great Recession – revised Q2/08 GDP growth to 3.3% from 1.9%, up from 0.9% in Q1/08. But both of those data points, as well as GDP data for the first two quarters of the 2001 and 1990-91 recessions, were subsequently revised by 2 to 4 percentage points over time. This is how real-time data often behave during recessions.

Lakshman Achuthan Hardly any economists recognized the severe 1973-75 recession until almost a year after it started. Indeed, that recession began with the ISM at 68.1, and payroll jobs growth did not turn negative for eight months.

In 1970, unaware that the economy was nine months into recession, none other than Paul Samuelson said that the NBER had worked itself out of a job, meaning that improved policy expertise had made recessions very unlikely.
Nine months ago we knew that, sitting here today, most people probably would not realize that we are in recession – and we do believe we are in recession.

Lakshman Achuthan Just to clarify, a recession is not defined by two successive quarters of negative GDP, rather it's a self-reinforcing downturn in economic activity, when a drop in spending leads to cutbacks in production and thus jobs, triggering a loss of income that spreads across the country and from industry to industry, hurting sales and in turn feeding back into a further drop in production - in effect a vicious cycle.
Recession? Or just a slowdown? Some will tell you it doesn't much matter - that it's a distinction without a difference. Nothing could be further from the truth - or as dangerous a delusion.

Monday, April 22, 2013

Market Trying To Bottom Here

Bull markets do well with many three to five percent corrections.  The latest pullback qualifies and this rather complicated chart showing Bollinger Bands and Keltner Channels indicates the market is trying to make another bottom after penetrating its 50 day moving average or MA(50) on my chart.
  • Recent High = $159.71
  • Recent Low = $153.55
  • Difference =  $6.16 or 3.86%

Click for full size Image

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Saturday, April 20, 2013

Sy Harding STS Unfavorable (Sell in May) Season Starts Today

According to Sy Harding, author of Seasonal Timing Strategy™ (STS), "Riding the Bear" and "The Street Smart Report," now is the time to watch the MACD indicator to look for the favorable exit point from the market based on the "Seasons in the Sun Strategy." 

click chart courtesy of for full size image

Harding applies the Moving Average Convergence Divergence indicator, or MACD, to the S&P500 after the average best time to leave the market, April 20, following the "sell in May and Go away" strategy. Likewise, around the best days on average to enter the market, October 16, Harding's STS looks for positive MACD to enter the market again.

For more information, see

Thursday, April 11, 2013

Jeremy Siegel & Ed Yardeni - The Bulls are Out

Today the DOW and S&P500 are making new all time highs.  CNBC had two bulls on who said the markets are not over-valued.
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Jeremy Siegel, author of "Stocks for the Long Run" has the following targets
Ed Yardeni, a good economist, is more "worried about a meltup."
  • "Fundamentals aren't that bad for the market"
  • Yardeni isn't a fan or tech or materials but says a case could be made for a secular bull market based on energy and robotics with the latter good for bringing production back to the US but not good for jobs.
  • Yardeni's biggest worry?  "worried about a meltup."
DOW JONES INDU ^DJI - More charts
S&P 500 - More charts

Both Yardeni and Siegel cited something I've written about for awhile.  That is money seeking yield from around the globe will probably find a home in "safer" US stocks that are leading the markets now. 

The Core and Explore portfolios in "Kirk Lindstrom's Investment Letter" are at all-time highs.  It is not too late if you missed out of the market's great gains.  If you fear a major correction or bear market, then subscribe today then do the following
  • Divide your money for one of the core portfolios into 12 or 24 equal amounts. 
  • Put one payment in right away into the core mutual funds or ETFs I recommend.
  • In a month on the same day, if the market is flat or higher, put another payment into the same funds.
  • If the market drops 5%, then make a double payment when it happens and start the monthy counter from this new date
  • If the market drops another 5%, then make another payment.
  • This way, if the market drops 50% you make 10 payments and get all in with the majority of your funds at a level much closer to the prior lows than today's new high.
  • But... if the market continues higher as many think it will, then you are getting SOME in now and get more in with time.
  • Remember too that ALL my core and explore portfolios have significant cash reserves to take advantage of market declines.   Thus even if you get "fully invested" at a market top, such as with a lump sum today, my portfolios have reserves to take advantage of any unexpected bear markets.
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