Today's Data: Are Economists Too Bearish?

Economists have a long history of not being able to forecast economic data with all that much accuracy, but they were way off the mark today. Today's data came in much better than expected, especially in light of the consensus forecasts which called for more declines. Maybe economists are too bearish right now?

To wit, new home sales for February increased +4.7%, which is far better than the -2.9% decline that was expected by economists. The positive surprise is helping boost the housing index by roughly +8% this morning. Also, February durable goods orders increased +3.4%, vs. estimates which called for a decrease of -2.5%.

This was the first increase in durable goods in six months. What is interesting to me is that February was widely believed to be a horribly weak month for the economy. But if these datapoints are indicative of a trend, then maybe the economy didn't contract as much as widely believed.

Yesterday, Goldman Sachs (GS) said it would like to pay back the TARP funds to the government. Today, Bank of America (BAC) is saying the same thing. It seems the banks don't like the onerous oversight and regulation that comes with receiving these bailout funds. If it doesn't worry the market, I say go for it.

Asian markets were mostly lower in overnight trading on profit taking; the dollar is lower this morning, while gold is higher; oil is also lower, but still hovering above $53; the 10-year yield is up to 2.72%; and the VIX is again testing its 200-day support around 41.82.

Trading comment: Was that it for the pullback?!?? One day?? Man, it looks like underinvested portfolio managers really want to put cash to work ahead of quarter end. Add to that a dose of performance anxiety and this rally really didn't give the bulls a good chance to jump on board.

Yesterday, we were stopped out of our short bond etf (TBT) at break even after the Treasury said it would begin buying long-term Treasury notes today. While I still think bond yields will move higher longer-term, this buying pressure in the market from the Fed could keep yields low for the time being.

I will be looking to start dipping my toe in the water today by adding some biotech (XBI) exposure. I like the growth profile for this group, as well as the acquisition activity coming from big pharma. I might also look to add to our consumer staple stocks (XLP).

Comments

[hmorgan:]

Good post, thanks. I'd be interested for you to expand on your biotech thesis, perhaps in another post.
Herb

Mar 26 11:03 AM

[Chris B:]

What do you suppose a bottom would look like?
----------------
a) All key economic measurements rising at once.
b) A slow trickle of good economic news that increases through the recovery.

A bottom would be marked by:
------------------
a) Widespread acceptance that this is as low as stocks could go.
b) Mockery and name-calling of anyone who suggests the crazy idea that prices might go up.
c) Widespread acceptance that stocks MUST go even lower.
d) B and C

Submit your answers to this brief test and I'll get back to you after grading them. If you fail the test, you should never invest in stocks again. You'll make more money in bank CD's in the long run if you got these two questions wrong.

Mar 26 02:45 PM

[Conan the B...:]

Chris B: D) B and C.
But I would also add one, Stocks rising on Bad News.
B: like in Butler maybe?.

I can't wait for your first Article if it is Butler, I like your Credentials.

Mar 26 05:31 PM

[wise:]

As a trained economist, I agree that the economists are bad at inflectin points, as is true in any field.
As a student of markets, I would like to see many examples rather than just one to make the anecdotal case

Mar 26 11:06 PM

[Conan the B...:]

Cetin: why not 16,000?

Mar 27 08:31 AM

[TracingError:]

Uhh, it was the worst February for new home sales on record, and the second worse month ever, with prices falling. Oh, and the 4.7% gain is off a negatively adjusted January.

Still, for six months we've had data coming in below consensus, and now we've had a few data points above consensus, which shows that expectations have finally adjusted, perhaps slightly overshot, at least in the short term.

Mar 27 09:01 AM

[Chris B:]

paultaut,

You get an A, therefore you should continue to invest in the stock market. :)

I don't write articles b/c I think there's more to gain from identifying and shooting down failed thought processes than there is in gathering data and trying to persuade other people to invest their money like I'm doing (why should I care?). With the former activity, I'm training myself to avoid the types of thinking mistakes I can see being made by others and practicing contrarianism and skepticism - two key investing traits. With the later activity, I'd just be another dude contributing to the banter or seeking meaningless validation from the herd. B is not for Butler.

Mar 27 12:58 PM