Posts Tagged ‘financial crisis’

Is an Economic Asteroid Coming?

Tuesday, December 1st, 2009

asteriod-impactThe question really is not whether one is coming but would they tell us if it were? In the movies when an asteroid is headed towards Earth, the government decides to keep the impending doom from its citizens to protect them from the horrible truth. Then typically about 3 days from impact, the secret of the approaching fate is revealed along with a plan to save the day. Is it possible that the US government is sugar coating the truth to protect us, shelter us?

The Chinese government is notorious for embellishing their economic numbers. Is the US government taking a page out of their red book on crowd control.

One possible sign of the potential sugar coat could be in economic data revisions. When data is released the markets react based on whether they meet, miss or exceed expectations. If a market rallies on exceeded expectations, shouldn’t that same market give back those gains if that data is revised down the following month? Most of the time the market ignores these revisions and may actually rally again if the data shows another exceeded expectation even though the data may have actually been negative.

For example; if monthly retail sales went up month over month 1.4%* then the next month they revise this number to -.4%*, but the current month over month sales went up 1.8%. Has retail sales really gone up that much? The markets probably would have rallied the 1.4%* and the 1.8%* if they exceeded expectations. But the data is misleading. Lets simplify this information by using small numbers:

Month 1: $100.00 in retail sales
Month 2: $104.00 in retail sales (1.4% improvement over the previous month)
Month 3: $107.57 in retail sales (-.4 revision plus 1.8% improvement)

*The numbers from the above example are made up and are not real.

So on the surface retail sales going up 1.8% looks good, but retail sale really only went up 1.757% over 2 months. This data becomes even more confusing if it is revised the following month.

Economic data did not predict the beginning of this financial crisis, what makes you think that it will predict the end?

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Over Shooting Expectations

Friday, May 1st, 2009

In the first week of March 2009, the sentiment on Wall Street was very negative. Analysts started adjusting their earnings expectations down to match sentiment. By the end of the week the sellers were overtaken by buyers and now the stock market has moved over 20% in record time.

The general expectation was that the stock market would retrace some in April due to earnings season. So far nearly two thirds of earnings released have beaten expectations. Since expectations have been better than expected, the stock market has held up.


Sales and earnings for most of the companies who released are way off over last year. Companies who beat typically had their earnings expectations adjusted lower at one point during the first quarter.

When the market was heading into the abyss of 6500 on the Dow Industrial average, Wall Street lowered their expectations of the future. Expectations now are being raised since the market has made a record jump to speedy recovery.

Wall Street seems to always over shoot their expectations. When they are bearish, the worst is expected. When Wall Street is bullish, the best case is expected. Expectations are just that, what someone expects to happen.

The markets generally move on expectations. If expectations are high then the bear is advantaged. If expectations are low, then the bulls have the leg up. Can the lofty expectations being set now be achieved? Some of Wall Street is starting to forecast the conclusion to this financial crisis by summer’s end, what if it does not happen?

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What Happens if the Economy Gets the Flu?

Monday, April 27th, 2009

Every couple of years the term “Flu Pandemic” makes headlines. The term refers to a global medical disaster where a large part of the world population gets the fast spreading flu. Every year the flu kills thousands; during a flu pandemic it could kill millions. A side effect of this type of crisis is felt in the world economies. Fear of illness keeps people in their homes and out of the malls. Sick people miss work that leads to less productivity.

Several agencies have done research for the USA into the potential economic impact of a flu pandemic. Their research has estimated that the US GDP could contract from 4% to 6% in a severe flu pandemic. They also estimated that if there is a mild flu pandemic it could shrink GDP by 1%. The report also noted that the effect in other countries could be much worse. The real impact is the loss of life the side effect is the contraction of economic growth. The report does indicate that economies should snap back after the crisis from pent up consumer demand.


A global flu pandemic would make a time of prosperity difficult let alone its effect during a time of crisis, as we are in right now. The economy is at such a fragile point that even a pandemic scare could have a measureable effect.

With Wall Street and Washington citing glimmers of hope, a flu pandemic, or even a scare, could sidetrack their hopes for the near future. At this point, the health of the people who make up the world economies should be the concern then worry about the economic side effects.

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