Terry Connelly is dean of the Ageno School of Business at Golden Gate University and is frequently quoted on business, financial, and economic issues by Bay Area local, as well as national, news media.
This week we will see the whites of the eyes of third quarter GDP: again, the number itself will almost certainly be wrong by a factor of 10% to 25%, owing to the fact that it will contain mostly proejctions for the month of september rather than hard data. Nevertheless, it may clue the next turn in the financial markets, more so than various consumer confidence and other measures expected by Friday.
That said, which way would a “good” number turn the markets in terms of the US currency, oil, bonds and stocks?
At week’s start, stocks were under stress due to a snap-back of the US dollar (since almost the whole world was short, this should be no surprise and is probably interim). Bonds suffered a bit due to the overhand of huge Treasury issues in the next few days. Gold traded off along with hard commodities (but sugar and coffee stayed sweet and perky).
So let’s say GDP comes in at 3% or better: does this encourage the stock market that the rally over the past six months is somewhat more justified than many believe (especially those sitting on the sidelines waiting for a chance to come in and dress up their portfolios)? Or does it foretell an earlier than expected increase in the Fed funds rate and thus a panic out of stocks? Could go either way on the same data. Practically everyone would discount the sustainability (if not the credibility — see above comment) of a number with a “3″ on it; perhaps, then, there will be less panic about the Fed moving more quickly.
It is also evident that hedge funds that have missed the rally will be trying to drive the market south in advance of Thursday’s GDP announcement in anticipation of getting some stocks on the cheap by nightfall Wednesday, ahead of a GDP-induced run-up.
Also on deck this week are Senate action on extending or phasing out the new homebuyers tax credit..look for this by mid-week or not at all. First inklings of a stretched out “compromise” on this sent bank and homebuilder stocks reeling. We do love ou own bailouts but not the others guy’s.
Also coming will be weekly unemployment numbers, with perhaps a clue to where the monthly report wil come out Friday November 6.
Meanwhile the Congress and the Fed will also progress their work on financial institution reform and banker pay limits, and the Yankees will be in at home in the World Series against some pretty tough pitching from the left-side (and featuring a couple tough lefty hombres of their won): perhaps there is someting to this rise of Socialism theory of Rush Limbaugh’s; but only rich traders can afford World Series tickets, so let’s hope they are not disappointed by the Yankees, the Congress or the Fed (the latter two, however, lack a Derek Jeter as captain).
And speaking of banker pay: remember, Warren Buffett tried to rein that in single-handedly (I believe he’s a lefty, too) when he ran Salomon Brothers in 1991-1992; but in his own words he failed to do so, because the other firms took out his best talent rather than follow his lead. No wonder then that only the Government can serve as the great equalizer and save these institutions from themselves.
