GDP And The Three Bears

This week we learned that Q1 GDP rose more than expected (3.2% vs. 2.5% estimates. But that’s just the headline. More importantly, there is the rest of the story.

If you look “under the hood” you’ll find three bears.

  1. Exports were pulled forward due to increasing trade tensions with China, which suggest exports will decline in the future.
  2. An increased level of inventories. This suggests production may decline in the future.
  3. Consumer spending declined relative to recent quarters, which suggest that the driver of 2/3 of GDP is potentially weaker than the headline numbers suggest.

For the skeptic, these are all factors that artificially inflate the long-term prospects of the U.S. economy.

However, the market didn’t agree, and neither did Goldilocks (the White House).

For example, Larry Kudlow (Director of the United States National Economic Council) described the report in an interview with CNBC as…“a blow out number”; “U.S. is in a prosperity cycle”; “an ideal situation” and “these numbers are beating what everyone thinks is happening.”

Furthermore, Mr. Kudlow suggested that the Fed should cut interest rates because inflation numbers are declining. That sounds like Goldilocks is not at all worried about the three bears.

Plus, if your concern is China…Mr. Kudlow also suggested that the U.S. has the upper hand, and therefore, will be “very aggressive” on the Chinese trade talks. Don’t worry, this week’s video explains exactly how you can see if that matters by looking at the ETF, FXI.

Predicting the economy and the importance of the GDP report is like trying to nail Jello to a wall.

I’ll leave that to Mr. Kudlow.

However, as you’ll discover in this week’s video, profiting from the market’s reaction to the GDP report doesn’t have to be that difficult. You simply need to look at how the markets reacted to the announcement, and that’s where this week’s market Outlook video begins.

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Leslie Miriam 7 months ago Member's comment

Revision coming to 5 lololl