Economic Data


GDP: Goodnight

Now that’s a crap report.

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 0.1 percent in the first quarter (that is, from the fourth quarter of 2013 to the first quarter of 2014), according to the “advance” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.6 percent.

What do we find inside?

Exports and investment, mostly.  These are very bad places to take deceleration as they will flow through to PCE in coming quarters.

PCE was up 3% (annualized) which compares reasonably well against 3.3% from last quarter right up until you realize that nearly all of it was due to government “social benefits” (read: Welfare in various forms) paid out.

Non-residential fixed investment was down 2.1% and the bad news was not in structures; it was a equipment (down 5.5%.)  Yuck.  Oh, residential “investment” was down 5.7% too.  Housing is now hosing.

Exports were down a massive 7.6%; that’s nearly into collapse territory.  Imports were also down, but not much — just 1.4%.  Note that imports are considered a subtraction from GDP while exports are an addition.  The relative balance is going the wrong way.

Oh, and we’re still spending more than we take in, which means we’re accumulating more debt.  So much for the “improving personal balance sheets” that the clown-car brigade likes to cite — it’s been a lie all along, and still is.

In a word: Meh.

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What Can We Learn About Tech Earnings?

I have long pointed out that the premise of engagement and eyeballs (or “MAU” — monthly active users) — is crap, and attempting to value companies on these metrics is not only stupid it is going to wind up costing you a lot of money at some point if you’re buying stock on that basis.

It appears that the marketplace is starting to figure it out.

Twitter set an all-time low (from its IPO) this morning on the opening print after getting monkey-hammered for about 12% on its “earnings.”  EBay got spelunked for roughly 6% on the same basis.  Facefart has thus far been levitating fairly well compared to everything else, but IMHO this is your opportunity to get the hell out of there because its premise is that it can go “wide and flat” to try to prevent the flat-line rate of actual earnings compared against spending.

They will fail at this; Whatsapp won’t change their trajectory one iota and Zuckerburglar has said it won’t be a contributor to net income for a good long time, if ever.

Indeed, one of the ways you know that a company is grasping at straws is when it uses its stock as currency to buy other things.  That tells you two things immediately about any firm:

  • They don’t have an organic investment opportunity in their current line of business 



  • The firm itself believes the stock is overpriced because otherwise it would use cash!


Who am I to argue with the firm’s own internal opinion on its stock price?  As for the first point the risk of going outside of your core competence by acquiring someone, especially when you do it with little or no due diligence on a deal that effectively is announced and closes at the same time, is extremely high.  It is flatly impossible to value a privately-held concern without significant investment in time and effort going through material that is non-public and which cannot be done without the employees and others knowing about it.

Been there done that folks, remember, I used to live in that industry and sold my ISP.

For the broader markets this is a huge problem because so much of the “valuation” of the indices is predicated on these high-flying, floating things that are rather like the Caddyshack floater in the pool.

The question remains this: Is that a Baby Ruth or a turd, and are you really brave enough to take a big fat bite to find out?

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