One wonders if January 30 of 2013 may be one of those days like they write into movies set circa 1929: "Oh, Father, don't be such a bore. 'Gross domestic product' is for the university men. All I know is, my Radio Corp shares are up and I'm taking my best gal Millie out for a malted." Or something like that.
On that day the news came down from the Bureau of Economic Analysis that its initial estimate for gross domestic product in the fourth quarter of 2012 was very slightly negative, that's to say, the United States economy actually shrank a bit in the final few months of 2012. Barack Obama ought to praise Almighty God that the BEA doesn't issue those initial estimates as projections and before November 6, because the exit polling found a clear plurality of voters on Election Day holding to the quaint notion that the economy was affirmatively improving, where we now know it was in fact contracting, or at best standing still, at just about that time.
Time was, the stock markets were dependent on what we fusty traditionalists insist on calling "the real economy". A BEA report like the January one showing Q4 2012 GDP at -0.1%, making the first decline since the official, statistical end of the recession in '09, would've been received by the markets as bad news and sent them lower -- and indeed the markets did go lower, only just, but they dusted themselves off and carried on toward their sunlit uplands such that all of two days later, the Dow Jones Industrials and S&P 500 were registering 52-week highs, with the NASDAQ not far off a 52-week high of its own and the Dow crossing 14,000 for the first time since October of '07 when its record of 14,165 was set, putting it one good day away from a new record high. The stocks-and-economy headline for those few days might read something like "U.S. economy shrinks, markets rejoice."
The markets and the real economy were seen in public together hand-in-hand until sometime after the economy found its bottom in '09; as the economy bounced along that bottom in 2010 and '11, neighbors overheard the real economy and the markets squabbling acrimoniously, with the markets becoming by times accusatory; by 2012 as the markets went from strength to strength, the real economy was known to be sleeping on the couch while the markets took the master bedroom upstairs, with the real economy stopping on the way from work for a hamburger while the markets had salmon and risotto at home on the good china; and finally when the Dow crossed 14,000 points two days after GDP came in negative on January 30 of 2013, the divorce papers came through. It's now official: the real economy and the stock markets are well and truly divorced, and they don't much feel like speaking to one another for the time being, either.
I'm not a writer of upper-middle-class American vernacular dialogue circa 1929, and I'm certainly no market analyst, so I offer herewith the considered assessment of Bob Janjuah who despite the funny name was Chief Markets Strategist at the Royal Bank of Scotland, via the pseudonymous Tyler Durden at ZeroHedge.com:
"Real wealth can only be created by innovation and hard work in the private sector, with policymakers, the financial sector and financial markets there to aid and encourage/incentivise. Real wealth is not created by the printing press and by excessive government spending. We simply cannot turn wine into water – after all, if it were that easy, why have we not done this before...
"Sure, central bankers through [quantitative easing] can create a chemical/synthetic concoction that may well get us even more intoxicated than real wine, but like most chemical processes that are focused on by-passing the rules and focused on immediate quick fixes, the "wine" they are synthetically creating will I fear ultimately lead to either a large market hangover (at best) or – at worst – to the "market equivalent" of serious liver poisoning or something even worse.
"The scale of the fallout will I feel be determined largely by how far markets and policymakers are willing and/or able to stretch the elastic band between real world reality and liquidity fed asset markets. Past experience shows us that this band can be stretched a long way, and we know that central bankers have a bad track record at both spotting and managing asset bubbles."
Thus spake Janjuah. And that looks about right. Every ridiculously overinflated boom must bust; the trouble with this bubble is, it's the product of the wholesale printing of dollars and profligate deficit spending, and built on an economy that's arguably recessionary and inarguably enervated. The United States could absorb a crash in 2000 and again in '08, because by those times it was near enough to full employment and coming off good long stretches of healthy expansion in GDP, plus which the American dollar hadn't been debased wantonly in the inflation of the bubbles that were popped in those crashes.
There is just no reconciling the Dow Jones skipping giddily toward its record high, with -0.1 percent GDP and 14.4 percent effective unemployment. A crash in these circumstances, and affecting the dollar that all Americans deal in, could be a catastrophe.
On that day the news came down from the Bureau of Economic Analysis that its initial estimate for gross domestic product in the fourth quarter of 2012 was very slightly negative, that's to say, the United States economy actually shrank a bit in the final few months of 2012. Barack Obama ought to praise Almighty God that the BEA doesn't issue those initial estimates as projections and before November 6, because the exit polling found a clear plurality of voters on Election Day holding to the quaint notion that the economy was affirmatively improving, where we now know it was in fact contracting, or at best standing still, at just about that time.
Time was, the stock markets were dependent on what we fusty traditionalists insist on calling "the real economy". A BEA report like the January one showing Q4 2012 GDP at -0.1%, making the first decline since the official, statistical end of the recession in '09, would've been received by the markets as bad news and sent them lower -- and indeed the markets did go lower, only just, but they dusted themselves off and carried on toward their sunlit uplands such that all of two days later, the Dow Jones Industrials and S&P 500 were registering 52-week highs, with the NASDAQ not far off a 52-week high of its own and the Dow crossing 14,000 for the first time since October of '07 when its record of 14,165 was set, putting it one good day away from a new record high. The stocks-and-economy headline for those few days might read something like "U.S. economy shrinks, markets rejoice."
The markets and the real economy were seen in public together hand-in-hand until sometime after the economy found its bottom in '09; as the economy bounced along that bottom in 2010 and '11, neighbors overheard the real economy and the markets squabbling acrimoniously, with the markets becoming by times accusatory; by 2012 as the markets went from strength to strength, the real economy was known to be sleeping on the couch while the markets took the master bedroom upstairs, with the real economy stopping on the way from work for a hamburger while the markets had salmon and risotto at home on the good china; and finally when the Dow crossed 14,000 points two days after GDP came in negative on January 30 of 2013, the divorce papers came through. It's now official: the real economy and the stock markets are well and truly divorced, and they don't much feel like speaking to one another for the time being, either.
I'm not a writer of upper-middle-class American vernacular dialogue circa 1929, and I'm certainly no market analyst, so I offer herewith the considered assessment of Bob Janjuah who despite the funny name was Chief Markets Strategist at the Royal Bank of Scotland, via the pseudonymous Tyler Durden at ZeroHedge.com:
"Real wealth can only be created by innovation and hard work in the private sector, with policymakers, the financial sector and financial markets there to aid and encourage/incentivise. Real wealth is not created by the printing press and by excessive government spending. We simply cannot turn wine into water – after all, if it were that easy, why have we not done this before...
"Sure, central bankers through [quantitative easing] can create a chemical/synthetic concoction that may well get us even more intoxicated than real wine, but like most chemical processes that are focused on by-passing the rules and focused on immediate quick fixes, the "wine" they are synthetically creating will I fear ultimately lead to either a large market hangover (at best) or – at worst – to the "market equivalent" of serious liver poisoning or something even worse.
"The scale of the fallout will I feel be determined largely by how far markets and policymakers are willing and/or able to stretch the elastic band between real world reality and liquidity fed asset markets. Past experience shows us that this band can be stretched a long way, and we know that central bankers have a bad track record at both spotting and managing asset bubbles."
Thus spake Janjuah. And that looks about right. Every ridiculously overinflated boom must bust; the trouble with this bubble is, it's the product of the wholesale printing of dollars and profligate deficit spending, and built on an economy that's arguably recessionary and inarguably enervated. The United States could absorb a crash in 2000 and again in '08, because by those times it was near enough to full employment and coming off good long stretches of healthy expansion in GDP, plus which the American dollar hadn't been debased wantonly in the inflation of the bubbles that were popped in those crashes.
There is just no reconciling the Dow Jones skipping giddily toward its record high, with -0.1 percent GDP and 14.4 percent effective unemployment. A crash in these circumstances, and affecting the dollar that all Americans deal in, could be a catastrophe.
