[emersonbiggins]

GDP Report Gooses Stocks

Stock prices advance after GDP report
Thursday October 30, 2:27 pm ET
By Tim Paradis, AP Business Writer
Stocks show broad advance after better-than-expected GDP report, Fed's interest rate cut

NEW YORK (AP) -- Wall Street was feeling more upbeat Thursday after a government report showed the economy contracted in the third quarter by less than expected and after the Federal Reserve's second interest rate cut in a month. The major stock indexes jumped more than 1 percent, including the Dow Jones industrials, which rose 100 points.

The Commerce Department reported that the nation's economic output was the weakest since the third quarter of 2001, but it wasn't as bad a showing as Wall Street had feared. The department said the gross domestic product, the measure of all goods and services produced within the U.S., fell at a 0.3 percent annual rate from July through September, rather than 0.5 percent as expected.
...

Yahoo

[crude_intentions]

Double+ Good

[MrBean]

Personal consumption drops by 3,1% - triple good!

[Armageddon]

That's like somebody saying your wife was caught getting gang banged by 30 guys but finding out it was really only 10.

[MrBean]

That's like somebody saying your wife was caught getting gang banged by 30 guys but finding out it was really only 10.

Each to his sexual perversions.

[Armageddon]

That's like somebody saying your wife was caught getting gang banged by 30 guys but finding out it was really only 10.

Each to his sexual perversions.

I was referring to the expected GDP report not being as bad as thought. You didn't like my comparison ?

[Tyler_JC]

Personal consumption drops by 3,1% - triple good!

Wait, WTF?

How can personal consumption, a figure that makes up 2/3 of GDP, fall by 3.1% and we decline a mere .3%?

That would mean that we would need 5.3% growth in the rest of the economy to compensate for the decline in personal consumption. Where did that 5.3% come from?

Well, let's see, we have C + I + G + NX = GDP.

Consumption declined. That takes out the C. Surely investment must have soared in the third quarter!

"Real nonresidential fixed investment decreased 1.0 percent in the third quarter...Real residential fixed investment decreased 19.1 percent, compared with a decrease of 13.3 percent."

So...looks like investment wasn't so hot either.

What about import/exports?

"Real exports of goods and services increased 5.9 percent in the third quarter, compared with an increase of 12.3 percent in the second. Real imports of goods and services decreased 1.9 percent, compared with a decrease of 7.3 percent."

Well that's good. But it only reflects crashing demand for imported goods. That's a sign that we're getting poorer, not richer.

What's left? G. Government.

Real federal government consumption expenditures and gross investment increased 13.8 percent in the third quarter, compared with an increase of 6.6 percent in the second. National defense increased 18.1 percent, compared with an increase of 7.3 percent. Nondefense increased 4.8 percent, compared with an increase of 5.0 percent.

Government is now the only growth engine in the United States right now.

God help us.

[MrBean]

That's like somebody saying your wife was caught getting gang banged by 30 guys but finding out it was really only 10.

Each to his sexual perversions.

I was referring to the expected GDP report not being as bad as thought. You didn't like my comparison ?

I thought you meant not being as good as thought.

[MrBean]

Personal consumption drops by 3,1% - triple good!

Wait, WTF?

How can personal consumption, a figure that makes up 2/3 of GDP, fall by 3.1% and we decline a mere .3%?

That would mean that we would need 5.3% growth in the rest of the economy to compensate for the decline in personal consumption. Where did that 5.3% come from?

Well, let's see, we have C + I + G + NX = GDP.

Consumption declined. That takes out the C. Surely investment must have soared in the third quarter!

"Real nonresidential fixed investment decreased 1.0 percent in the third quarter...Real residential fixed investment decreased 19.1 percent, compared with a decrease of 13.3 percent."

So...looks like investment wasn't so hot either.

What about import/exports?

"Real exports of goods and services increased 5.9 percent in the third quarter, compared with an increase of 12.3 percent in the second. Real imports of goods and services decreased 1.9 percent, compared with a decrease of 7.3 percent."

Well that's good. But it only reflects crashing demand for imported goods. That's a sign that we're getting poorer, not richer.

What's left? G. Government.

Real federal government consumption expenditures and gross investment increased 13.8 percent in the third quarter, compared with an increase of 6.6 percent in the second. National defense increased 18.1 percent, compared with an increase of 7.3 percent. Nondefense increased 4.8 percent, compared with an increase of 5.0 percent.

Government is now the only growth engine in the United States right now.

God help us.

LOL. But very observant WTF. And no, even the US governement is not a "growth engine" - military is by definition pure waste and the rest of the Gov Growth seems to be printing bailout money. The only growth engine are the little bureaucrats who dream up these funny GDP numbers. They have no relation to reality, they are pollyanna numbers of a Potemkin economy.

IIRC Shadowstats has been saying the GDP has been growing by -2% for a while, so this quarter would be somewhere around -4, -5, if GDP was counted the way it used to be couple decades ago.

[Alcassin]

Government is now the only growth engine in the United States right now.

Yeah, in that case mainly by Iraq and other military adventures on borrowed Chinese money with no hope for return on that investment.

[cube]

That's like somebody saying your wife was caught getting gang banged by 30 guys but finding out it was really only 10.

Can you imagine the news media saying:

"The stock market went up today and we honestly have no idea why it did."

There would be so much truth to that statement but unfortunately a story like that doesn't sell too many newspapers.
Society demands an explanation from an authority figure.
Even if such "authority figure" doesn't know the difference between his ass and a hole in the ground.

[Tyler_JC]

To be fair, military spending doesn't automatically mean wasted money.

The salaries of soldiers are spent on goods and services.

The bombs are wasted but the salaries of the people producing the bombs are spent on real good and services.

Worst case, maybe half of all military spending is utterly wasted.

[kublikhan]

That's like somebody saying your wife was caught getting gang banged by 30 guys but finding out it was really only 10.

Can you imagine the news media saying:
"The stock market went up today and we honestly have no idea why it did."
There would be so much truth to that statement but unfortunately a story like that doesn't sell too many newspapers.
Society demands an explanation from an authority figure.
Even if such "authority figure" doesn't know the difference between his ass and a hole in the ground.

It's really not that confusing why stock markets go up when expected bad news is released.

Q: What is the rationale (if any) behind the phrase, "Buy the rumor, sell the news"? -- H.Y., Los Angeles

A: "Buy the rumor, sell the news." Ah, a tried-and-true phrase that makes its utterer sound oh-so-intelligent. Ultimately, we think that buy-and-hold investors aren't going to be too concerned with what the rationale behind the phrase is (it plays a bigger role in a short-term trader's stock moves), but let's take a quick crack at explaining it.

Oftentimes a rumor will circulate around a stock or a company. The rumor might be that the company is going to be acquired by a competitor, or that an exciting new cure for the common hangover is about to be released. When a company is rumored to be acquired, those who are acting on the rumor can mentally fill in more or less any acquisition price that they like -- until an announcement turns the rumor to fact. Should an actual acquisition ever be announced, the facts rarely end up being as attractive as the upper limits of the rumor. Because all the best possibilities have already been "priced into" the stock before the real news breaks, the actual announcement tends to reveal the limits to the good news, rather than just the positives that are at the center of any rumor.

Taking a real world example from the recent past, consider what happened last year to Pixar Animation, the company that has produced the hit films Toy Story and A Bug's Life. Prior to the 1998 Thanksgiving release of A Bug's Life, rumor was spreading around about the potential for the film. Upon this speculation, Pixar's stock rose from a low of $20 a share at the beginning of 1998 to $53 right before the film opened. When A Bug's Life did open, it broke all the box-office records for an animated film opening on Thanksgiving weekend. And yet the stock quickly lost about 40 percent of its value over the next month and is still substantially below its November 1998 price.

This was a classic "buy on the rumor, sell on the news" scenario. Although A Bug's Life was a very successful film, ultimately grossing more than $350 million worldwide, it was not nearly as big as the rumors would have had it being. To sustain the price that the rumors and speculation had created, A Bug's Life would have to have been as big as Disney's The Lion King, the most successful animated release of all time.

While A Bug's Life was as big a success as an investor could rationally have hoped for, it wasn't as big as the rumors -- because few things ever live up to those types of hopes. When a rumor becomes "news" and there are real numbers and real facts attached to it, a lot of short-term investors will find that a good time to sell, and over the short term that will affect the price of a stock.

Don't buy on the Rumor

The converse of the above is also true. When the rumor is the expected news is going to be really bad, people sell and short a stock to a level that is some really low value. Then when the actual news comes out, it is usually not as bad as people were expecting. For example, the rumor may have been that GDP shrunk 2% last quarter, and the DOW was priced accordingly. When the actual news is released and GDP "only" shrunk .3%, the DOW rallies because the news while bad, was not as bad as the rumor.

[cube]

.... Don't buy on the Rumor

The converse of the above is also true. When the rumor is the expected news is going to be really bad, people sell and short a stock to a level that is some really low value. Then when the actual news comes out, it is usually not as bad as people were expecting. For example, the rumor may have been that GDP shrunk 2% last quarter, and the DOW was priced accordingly. When the actual news is released and GDP "only" shrunk .3%, the DOW rallies because the news while bad, was not as bad as the rumor.

I think the "Buy the rumor, sell the news" rational helps explain why prices may trend for weeks or months or even years.
A good example would be the dot com boom. On the upslope everybody was all hyped up talking about the "new economy".
The truth of course did not live up to the rumor and hence the crash afterwards.

However I do not think that explains everyday price gyrations.
Why did the price go up or down today or yesterday or whatever is any body's guess. I have yet to fine a satisfactory explanation for daily fluctuations.
ohh well I don't expect to find an answer to every question in life.
There are two things that I am certain:
1) the market is not efficient
2) the market is not random