There is a Word For This Kind of Market: It's Bubble

Phoenix Capital Research's picture

 

We are now seeing clear signs that the US is moving back towards a recessionary territory.

 

The first quarter US GDP data showed the US economy growing at an annualized rate of just 2.5% (3.0% was expected).

 

The only reason growth was even this high was because the Government understated inflation, recording a GDP deflator of 1.2%. This is bizarre given that the “official” inflation data point, the Consumer Price Index or CPI, is currently pegged at 2.1%.

 

Had the GDP number been based on the CPI, first quarter GDP would have been just 1.63%. And had it used real inflationary data, it would have been even lower than that.

 

We get additional confirmation of a slowdown in the economy from corporate revenues.

 

Corporate profits can be manipulated in a variety of ways. This is why I tend to ignore profits when assessing the state of the economy.

Revenues on the other hand cannot be fudged. Either money comes in the door or it doesn’t.

 

With that in mind, only 45% of companies in the S&P 500 have beaten revenue estimates for the first quarter of 2013. This is down from 66% in the fourth quarter of 2012. And it’s well below the average of 50% for the last five quarters.

 

We addressed the trend of missing revenue forecasts in older articles. That trend remains intact with recent revenue misses coming from:

 

·      Proctor and Gamble

·      Starbucks

·      AT&T

·      CB Richard Ellis

·      Safeway

·      American Express

·      IBM

 

This does not bode well for the economy.

 

Taken as a whole, corporations in the S&P 500 are expected to see a decrease in revenues of 0.3% in 1Q13. Yet against this slowdown, analysts believe we’re going to see a 6% increase in revenues for this year! Unless the global economy absolutely erupts higher, the market is far too optimistic about the state of affairs in the world.

 

We get additional indications of a looming recession when we remove the “deflator” aspect of GDP entirely and simply look at nominal GDP change (not adjusted for inflation) on a year over year basis.

 

When you do this you get a clear picture of a looming recession. Every time the rate of change for nominal GDP breaks below 4, a recession hits. As you can see in Figure 1 below, we’ve just broken this level.

 

Against this economic slowdown, stocks are priced quite richly. There is a word for when markets are totally disconnected from reality: it’s a bubble.

 

Investors take note, now is the time to be preparing for a market correction.

 

For insights on how to prepare for one visit us at:

 

http://gainspainscapital.com/protect-your-portfolio/

 

Best Regards

Graham Summers

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Savyindallas's picture

Why is everyone so rude and critical of Graham? I never read a column I don't find to be true and based on the fundamentals - Who would have ever thought the criminal Bernanke and his Wall Street Gangster Bankster friends could push the Dow and S@P to where they are now? maybe the criminal insiders knew, because they made it happen, with the complicity of the media and their criminal whores in Congress, THEIR President and THEIR media  -THEIR SEC, DOJ --just as they also have made it happen at the expense of most other Americans, and all of our children as they have stolen future wealth and lead us to eventual war, depression and servitude (unless we grow some balls and choose to hang these psychopathic criminals) Timing is everything. Timing is something they apprently have absolute control over, as we know longer have free markets -Most of us know Graham is right. Quit blaming him because the insiders and ignorant sheeple have lucikly done well   because they followed jackass stooges like Cramer and rode the wave up. Those psychopaths just as easilily have used these rigged markets to steal our wealth by driving the Dow down to 2000 - something they very well may do in the immediate or distant future.

FreedomCostsaBuck-o-Five's picture

"Now is the time to be preparing for a market correction" = buy my newsletter.

President Palin's picture

Maybe I should start a newletter?  Why not - my track record wouldn't be worse than this bozo's...

Frastric's picture

There's a name for Graham Summers: Captain Obvious.

RottenAlpha's picture
disabledvet's picture

wow...looks like we're bringing out the A-listers this weekend. Like a Phoenix rising from the ashes http://www.youtube.com/watch?v=q1lWBs79LW0

SILVERGEDDON's picture

" The older white boy version of Reggie Middleton "

Not only white, but less filling - no fucking chart porn. 

Frastric's picture

Yeah without chart porn there's nothing for my brain to masturbate to...

max2205's picture

You are one fucking genius pal

philipat's picture

But Graham,  do you expect anyone to believe a single word you say, let alone invest with you? You predicted that the Eurozone would  collapse in June 2011. Then again in June 2012. Now what?