The first estimate of US GDP today came in at 5.7% Q/Q annualized for Q4. This was the second consecutive quarter of GDP growth, and the first of 2009 to resemble anything like a post-recession bounce. The print came in stronger than market consensus for 4.7%.

On an annual basis, U.S. GDP growth is now up 0.1% Y/Y, which is an improvement from the -2.6% Y/Y pace seen in the final Q3 report. Based on the advance estimate the pace of growth during Q4 clocks in at the fastest since Q3-2003.

The key factor pushing GDP higher during the quarter can be attributed to the slowing pace of inventory liquidation after deep cuts early in the year. In Q4, the change in private inventories contributed a large 3.6 ppt to the headline print. Not surprisingly, residential investment was also quite positive during the quarter as favourable mortgage rates and good affordability spurred construction and renovations. (Caution: the next wave of foreclosure-induced inventory is coming soon to markets all over).

A few things to keep in mind here: the market was already expecting a big number for Q4. If we could not get a decent bounce in Q4 after massive inventory depletion and with enormous government help, then recovery would seem hopeless in deed. But it is also worth noting that the originally reported 3.5% Q/Q ann. gain in Q3 was eventually revised down to 2.2% Q/Q ann. We don't expect the Q4 number to be revised substantially lower at this point, but it is likely to get marked down somewhat on the next round of tabulations.

Lastly, the issue of focus here is what will the next two quarters of growth look like? Governments are beginning to pull back a bit from extraordinary measures (and Q4 GDP will encourage them to keep pulling back), meanwhile the real economy is still trembling with the after shocks of the credit bubble and on going deleveraging.

World markets have taken quite a drubbing in January, a relief rally here might be likely, but questions about "what kind of recovery?" will plague us for some time yet. Any euphoria over last quarter may be short-lived.   more »

George Soros did a 30 min interview with Bloomberg from Davos, and explains why he supports Obama's proposals to limit proprietary trading at banks. See the clip here.   more »

Honestly, I think everyone should watch some of this testimony and cross-examination from the hearing today. It is remarkable. I was trying to explain what happened to my kids as they watched some of it. No small feat to explain.

Each person is entitled to form their own opinion on the facts. Getting to the facts here is not simple. From what I can ascertain to date, I do not believe that Geithner, Paulson and company were acting in the best interests of the American tax payers first. Maybe they told themselves that they were; maybe they were wilfully blind and actually believed that they were. But this comes down to the fiduciary duty the government officials owed to the American people who they represented in their deliberations with the banks. They had a duty to put the tax payer ahead of all other interests. They had a duty to declare all conflicts of interest. They had a duty to disclose any secret profits being made. Not only did they not honour these duties in my view, but they sought to keep the details of the dealings confidential and closed from public review until 2018. Those who were footing the bill, where not supposed to see the math.

There is a strong apprehension of bias here. The stink is thick. And in my view, there is so far no clear evidence that bailing out AIG served the best interests of Main Street first...   more »

Good update from Roubini today on the present level of stock and commodity prices within the context of slow economic growth in 2010.

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Ms. Park was a guest with Michael Kane on Business News Network (BNN) this morning, Wednesday January 27 at 8:35am. The clip is available on BNN web site here.

Here is a link to the McKinsey Institute report she mentioned in her appearance.   more »

Hedge fund manager Jim Chanos has been garnering quite a bit of attention the past few months talking about the growing risks in the Chinese economy and the danger it presents to western countries that are banking on China's growth to carry them through a secular western slowdown.

Chanos, who predicted the fall of Enron and the financial crisis of 2008, says China is the next bubble to burst and is 1000 times worst than Dubai. He is looking at short opportunities there and in countries (like Australia and Canada) that ship large exports of commodities to China.

See his CNBC interview today (sadly CNBC seems to be preventing embedded clips now too, so you have to go to the site to find it) as well as this Bloomberg clip of his recent keynote presentation in England here (unfortunately the sound quality is poor, but the content is worthwhile).

Here is the Krugman article from 1994 The Myth of Asia's Miracle that Chanos calls "brilliant' in his keynote.

A key take away from all of this is an important understanding: China starts with its target GDP and then drives government spending and liquidity to meet the target. Presently China is making up an unprecedented 60% of its GDP target via forced fixed asset investment. Their growth story is not about end demand. This has created enormous over-capacity and over-supply across most sectors. The situation is not self-sustaining or durable and those banking on it continuing are doing so at ballooning financial risk.   more »

"With big banks revealing massive 2009 bonuses, Fed chairman Ben Bernanke now supporting a "full review" of AIG's bailout, and Treasury Secretary Tim Geithner due to testify on the same, this is shaping up to be a watershed month in the bailout backlash department: "This whole situation is a mess for Bernanke, it's a mess for the banks ultimately and I'm not sure how we get out of it because the public wants blood," says Christopher Whalen, managing director at Institutional Risk Analytics, and a longtime and critic of both Bernanke and Geithner."



See Tech Ticker story with Aaron Task.   more »

This afternoon Obama called for new restrictions on the "size and scope" of financial institutions. In what some are calling "Glass-Steagall Light" Obama proposed a "Volcker rule" that places restrictions on banks' ability to "invest in or sponsor a hedge fund or a private equity fund, or proprietary trading operations unrelated to serving customers."

"If it’s a fight they want, it’s a fight I am ready to have" he said. Watch the Bloomberg clip here.

Leadership in this area will require a mandate of top down rules; negotiated principles are not likely to secure the changes needed. No more Mr. Nice guy Obama, we need to get this job done.   more »

The Democrat oust in Massachusetts yesterday has apparently spurred the Obama administration to serious control proposals for the banks this morning. At last? We shall see. I do want to hope that Obama can find the strength to lead rather than keep following Tiny Tim and company; but until we get the details later today from the President's press conference we will have to remain sceptical. The first year of Obama has taught us to be sceptical. Different facts: but on similar principles, both Obama and Tiger Woods have let their believers down these past few months.

Meanwhile good article this morning in the Huffington Post (Hat tip Ray T.): see Paul Volker Prevails ... Let's hope.   more »

Our technical work has been suggesting the likelihood of a US dollar rally for some weeks now. Today we are seeing that positive dollar trend continue with the now familiar accompanying sell-off in risk assets.

Today Mike Mish Shedlock gives a good summary of the likely macro reasons spurring the U dollar rally here. See Global Accidents Support US Dollar Rally.

Note that an American market commentator, Mike lists the "Canadian property bubble bursting" as one of his US dollar positives. My sense here is that most Canadians do not understand the potential risk we are facing with our over-indebted population and over-bought realty market.   more »

I had a great trip to Vancouver. Weather was spring-like, even sunny. Scenery there is stunning. And the new rapid transit line takes you from the airport to downtown in 25 minutes for $3.75; fantastic. Many natives are complaining though about the inconvenience and economic cost to local business leading up to the Olympics next month. Apparently, tourism and skiing traffic so far have been way down this year as people avoid Vancouver, thinking it will be too hectic and booked because of the Olympics. That is unfortunate because it really is a lovely and unique part of the world to visit.

I noted quite a sentiment shift over last year among attendees at the 2010 Vancouver Investment Conference. The remarkable rally in stocks and commodity prices the past few months has buoyed animal sprits again it seems. There is quite a bit of hope that the crisis is behind us and that pre-crisis price levels are a reasonable target up from here.

Watching the incredible news coverage out of Haiti the past week, I am of course, dumbfounded. The loss and suffering, the heroic acts it inspires in many: all surreal and all important points of reference for those of us presently in more fortunate circumstances.

As I mentioned in my talks in Vancouver: over the past couple of years, I have periodically likened the enormous shock of the financial crisis to the idea of an earthquake. Although the risks were building for a long period of time, and although Richter-like risk measurements were foreboding, too few people were taking note of the warning signs. Few saw the crisis coming; even less took active steps to avoid the loss and damage. Today, it strikes me that few people are now prepared for a likely long-period of after-shocks that will continue to ripple through financial markets and the economy for the next few years. We have to expect and navigate the after-shocks if we are to survive and thrive this challenging era in the world...   more »

Sovereign default is the main threat facing the world economy in 2010, according to the World Economic Forum. John Drzik, CEO of Oliver Wyman, looks ahead to this year's WEF in Davos, Switzerland:

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I am off to Vancouver today to speak at the 2010 Vancouver Investment Conference put on by the excellent team at Cambridge House. There is a solid line up of speakers and presenters. You can register in advance on line for free with the key word "Park". Here is the agenda for Sunday and Monday.   more »

The foreclosure crisis is far from over, according to RealtyTrac's Rick Sharga. The company will release its year-end report on Thursday showing foreclosures rose 20% over the previous year: "We are setting new records almost every day...the problem is getting worse...we are in the second wave of a three wave foreclosure cycle."



Also re commercial realty and next wave of bank losses see: As Buildings Empty, Banks' Credit Woes Pile Up.   more »

*Google has caused quite a stir with its talk of pulling out of China rather than censor its search engine as ordered by the Chinese government. In suggesting that freedom of speech is more valuable than' more market share' Google is expressing a rare and admirable stance of principles over money. And in doing so they are taking a very public opportunity to direct some international scrutiny on the Chinese government and its oppressive policies. The fact is that much of the world has been so desperate and indiscriminate for more and more stuff and more and more sales, that they have made 'deals with devils' all over the place; the Chinese government is just one of them. See Wall Street Cheat article: Do the right thing: Google chooses freedom of speech over profits.

Also see Thank you Google from a Humble Immigration Lawyer from Canadian legal expert, Michael Niren.

I say: good for Google. At the end of the day success should bring some choice about how and with whom one chooses to do business. If not then what is success? Hopefully other companies and countries will follow suit and understand that profits 'at any cost' are worthless in the end...   more »

"The Bank for International Settlements has reportedly summoned central bankers to Basel this weekend on fears banks have returned to the risky behaviour that led to the crisis in 2007-08, and some inside the Fed are already calling for a more hawkish rate policy. Kansas City Fed president Thomas Hoenig, a voting member of the FOMC, said yesterday the Fed should move "sooner rather than later" to "curtail its emergency credit and financial support programmes, raise the federal funds rate from zero back to a more normal level, probably between 3.5% and 4.5%, and restore its balance sheet to pre-crisis size and configuration".

See Rate rise stress tests must be more severe: banks warned

"Stockmarkets are still shy of their record peaks in most countries. The American market is around 25% below the level it reached in 2007. But it is still nearly 50% overvalued on the best long-term measure, which adjusts profits to allow for the economic cycle, and is on a par with two of the four great valuation peaks in the 20th century, in 1901 and 1966."

See The Economist: Bubble warning: Markets are too dependent on unsustainable government stimulus. Something’s got to give   more »

Mort Zuckerman is a commercial real estate expert who serves as Chairman of the Board of Directors of Boston Properties in the US. This Bloomberg interview offers his current insight on the commercial real estate sector as well as the present state of the US economy and expected recovery. He also goes pretty easy on Geithner.

See the Bloomberg clip here.   more »

Thanks to a reader who recently sent me a link to the Canadian Housing Price Charts blog site. This is a good source for up to date data on Canadian housing, interest rates and other asset price trends. Bottom line: Canada is historically over-valued in several key markets. See this Major Cities Chart. A reversion back to the mean could mean a 25% decline in the areas that have rallied strongly over the past year.   more »

Bill Moyers Journal interviewed MOTHER JONES journalists David Corn and Kevin Drum on the obstacles to real reform of the financial industry.

Watch Part 1 and Part 2 and Part 3.

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This morning Bloomberg reported the email trail now confirms that the New York Fed pressured AIG to pay Goldman Sachs and other banks 100 cents on the dollar to make whole 62 billion in deeply compromised credit default swaps and URGED AIG TO SUPRESS DISCLOSURE OF THE PAYMENT DETAILS TO THE AMERICAN PUBLIC. Tim Geithner was the head of the NY Fed at this time, then just stepping over to become Treasury Secretary.

The US public was funding this nightmare and they were to be kept in the dark on the sordid details of which buddies paid each other what. (!) This is a freakin' outrage. If Tiny Tim gets to keep his job after this, honestly, God help America and democratic ideals everywhere. Obama, where the **!!& are you? Whatever happened to the doctrine of fairness: basic tenants of disclosure and that there cannot be an ‘apprehension of bias’ as justice must not only be done, but must also “be seen to be done’ in order to uphold respect for legal process.

Watch this morning's discussion with two of the more useful commentators, the always lucid Josh Rosner of Graham Fisher & Co and Keith McCullough of Research Edge. See: Time to say goodbye to Tim Geithner.

Meanwhile sceptics continue to mount about the poor volume, breathtaking stock rally the past few months. ..   more »

This holiday season shopping prices were remarkably discounted at most stores. Sales of 50-80% off were the norm. I have never been much for shopping, but I have to say, I bought more retail goods over the past couple of months than I have done in a long time. It’s hard to resist a real bargain; and if you have the cash, buying can be a rational thing to do. I wish we could say the same about investment markets presently.

Stock, commodity and real estate prices (in many areas) are quite simply back to wacko-land coming into 2010. Government stimulus has provided injection-fuelling directly to asset prices. The stated goal was to re-inflate demand and the economy, but the actual result has been to re-inflate global asset bubbles that are just as unsustainable and economically menacing now as they were before.

This week several respected economists such as Stephen Roach, Paul Krugman and Martin Feldstein all said they see 30-40% odds that the US will enter a double dip recession in the second half of 2010. If the stock market is supposed to see these risks 6-9 months in advance, you would think it might have to at least acknowledge the risk at some point here.

Never mind double-dip, I still think there is a greater than 50% chance that the world has actually not yet left the 2007 recession. Remember that we will not know the final end date until probably another year from now once all the retrospective data has been calculated. But we must admit that so far after herculean deficit spending in 2009, at great fiscal detriment and cost to longer-term growth, the US economy only managed to clock a 2.2% annual growth rate in Q3 2009. If this is the US coming out of recession then that is a very poor start indeed!...   more »

Sorry for the lack of writing the past ten days. I suppose I have been “making rather merry” as Bob Crachet would say. We have been having some fun with our family and friends, visiting a few clients, reading, snowshoeing, dog-sledding, board games, fresh air, big fires; all good. Now we are weather delayed at the airport; a typical end to a much savored break.

For me New Year's is the most significant holiday of the year. It is a natural point for reflection back and looking forward for what may be next to come. A new decade is particularly poignant. I cannot help but note how I am now in the midst of my 5th decade. If we are lucky in this life, we can hope to get maybe 8 or 9 decades. It’s amazing how fast our tiny handful of decades run by.

I think 2010 will be a fascinating year for the world. I wish I could see that the credit crisis is behind us. I believe that it is not. I can see that we have made some progress toward the new world order; but in truth the massive government intervention during the later half of 2009 did not solve but only slow and prolong the rebalancing period needed. Price risk in most asset markets in the world again measures unfavorably high going into 2010. This time last year we had hoped more progress would have been made by now in the re-pricing needed. I will be writing more on this next week.

Reckless behavior is no option, so patience and care will always be a virtue of great value in managing real life risk; such is the price of a thoughtful life. As Churchill said so eloquently, we will “keep buggering on” confident in our belief that notwithstanding near-term risks, today’s problems too shall eventually pass, and that the future holds great promise for the human race.
Happy New Year.   more »