Goldman Sachs (GS) pulled the mother of all sucker punches on Thursday, cutting estimates on GPD from 3.0% to 2.7%. Most bears piled in on the short side only to get destroyed when GDP came in at 3.5% and the market blasted 2% higher in one day. The dollar rolled over and precious metals, including gold skyrocketed. Talk about a bear trap…
Speaking of GDP, it’s worth noting that the 3.5% was annualized. REAL GDP growth of the quarter was 0.875%. Let’s consider this for a moment. Thus far, the Stimulus spending/ Bailouts have cost the US more than WWI, WWII, and the New Deal combined… and we get GDP growth of 0.875% for the Third Quarter?
Let’s be blunt here. This is some truly PATHETIC growth given the unbelievable amount of money we’ve thrown around. We were literally subsidizing home and car purchases an unprecedented amount that quarter… and for what? 0.875%? And investors cheer this?
This is like putting a comatose patient in the care of the best doctors on the planet, with the best technology, best facilities, and best drugs… and celebrating because the patient wiggles one finger.
It also proves that MOST of the bailout/stimulus money never went into the real US economy. Unemployment continues to rise, food stamp use continues to rise. Meanwhile Goldman and pals are paying out record bonuses a la 2007… coincidence?
Elsewhere in the world, the Japanese Yen did a massive reversal this week, and has begun forming a head and shoulders pattern. The Yen has been on a tear since August. The fact it failed to make a new high after its early October peak doesn’t bode well.
With the US Dollar making a brief two-day rally this week, the question is: could this be the start of a dollar rally and potential reversal in the Yen (other non-dollar currencies, e.g. Euro)? That Head and Shoulders doesn’t look too bullish.
This brings us to the big question: Was this week’s action the start of something NEW (stock collapse, dollar strength) or was this another fake-out? If stocks break above 1,070 on the S&P 500, we’re likely going to make new highs. If this happens, the Dollar is likely going to 72: its 30 year low. Any move below that and we're in uncharted territory.
Keep alert… something very serious may be afoot in the market. I suggest focusing on the Dollar in particular. The Fed’s Quantitative Easing Program just ended, which means part of the market’s life support has been taken away.