MACRO MIXER - BEING BEARISH AT THE RIGHT TIME

The first revision to 2Q 2010 annualized real GDP is due out on Friday.  According to Bloomberg estimates, there is an expectation for a large downward revision to 1.4% from an original 2.4%.

 

With the S&P down 4.2% this month and 3.7% year-to-date, the down shift in GDP growth is being reflected in the equity markets ahead of the print.  Tomorrow we could be setting up for manic media to make the last Friday in August to a “the-economy-is-not-as-bad-as-consensus-thinks” day.   Away from the media spin, the data shows that the economy is decelerating and revisions are bringing growth to lower and lower levels. That said, it appears that the downside impact of the weaker June trade data and expectation of lowered inventory levels may be overdone on an immediate term basis.

 

The Hedgeye estimate is for a revised GDP growth figure of 1.7% for 2Q.  Our view is that positive adjustments to the consumption figures will offset the negative trade data.  As always, it is in Washington’s best interest to dress up the numbers as much as possible. 

 

As Keith has been hinting to our clients on the daily Hedgeye Morning Macro call, our 3Q GDP estimate of 1.7% (consensus is at 2.5%) is headed lower.  Consensus estimates are even more out of line when looking at GDP growth in 4Q 2010 at +2.6%.  We will be adjusting the models accordingly over the weekend, but suffice to say that we see the chances that the economy contracts in 4Q10 growing by the day.

 

To be sure, the street is very bearish on the GDP print.  Today GS pushed up its second quarter real GDP growth to 1.2% from 1.1%.  We are bearish, but not quite bearish enough to short the S&P coming into the last Friday in August.

 

Howard Penney

Managing Director

 

MACRO MIXER - BEING BEARISH AT THE RIGHT TIME - 1


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