Dan’s Blog

OverHyped

Dan Calandro - Tuesday, October 11, 2011

Two stories hit today that sent the Dow Jones Industrial Average soaring, ending up 339 points and almost 3%. A deal to restructure Greece’s debt was struck in Europe, and the US Bureau of Economic Analysis issued that Real GDP increased 2.5% – that’s growth from last quarter, not for the year. 

Here’s quarterly GDP growth for the year thus far:

                        Quarter           Growth

                        1Q’11               .4%

                        2Q’11              1.3%

                        3Q’11e            2.5%

                        Average           1.4%

First, this is an advance estimate for the third quarter. The advance estimate for the first quarter was revised down one full percentage point. Keep in mind that this estimate can change.   

Second, and should this third quarter estimate hold up, 1.4% annual GDP growth stinks. A number that low can never improve the employment situation – and that’s what “the market” really needs right now. Until that changes, days like these are a trader’s dream.

Here’s how the stock market action looks year to date. (DJIA +5.5%, 15-51i +12.9%.)

ytd2011-10-27-11


Over-hyped markets are the markets to sell in.  If you haven’t rebalanced your portfolio (both macro and micro) now is a good time to do it. Remember, it’s sell high – not sell at the highest.

PS: [10/29/2011]  There is relatively little to celebrate when Real growth is less than half the rate of inflation.  There's no reason to buy into the hype.


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