13 August 2009

"Une hirondelle ne fait pas le printemps"

So GDP in Europe contracted less than the consensus at 0.1% vs. 0.5% during Q2 2009? Germany and France showed positive numbers at +0.3% each? So, the recession is over?
  1. Economists have proven so many time that they are wrong, that my confidence in consensus numbers and forecasts is at an extremely low level. Numbers are better than the consensus, so what? It just shows that economists are bad at forecasting.
  2. As Barry Ritholtz recalls on his blog, The Big Picture, in 2001 Q2 was also positive whilst Q1 and Q3 were negative; a positive quarter does not imply the end of the recession: "Une hirondelle ne fait pas le printemps".
  3. French GDP +0.3%: yes. And according to Christine Lagarde, public sector investment had a strong impact, whilst exports contributed for 0.9% thanks to exports in the automotive sector to Germany and private sector investment for -1.8% (still very weak). Consumption stood at 0.3%, due to government trade-in schemes for old cars and falling prices, particularly among big retailers.
  4. German GDP +0.3% (see graph below) on exports and government help for new car purchases.

Is the financial crisis over? Yes (or at least most of it -watch however commercial real estate bad loans as well as credit card delinquencies for the coming quarters): OIS and TED spreads are back to normal, financing costs is next to zero, competition is slimmed down, bank profits are therefore up (even if profits from trading generally is volatile).

Is the economic recession abating? Yes, but we are still not out of the woods as yet, and claiming that the recession is over, is over the top. However, my sense is that we still are several months away, say 6-12 months. Don't forget: "Never fight the FED".

Markets are rallying on the news, after yesterday's drop. I am still of the view that a consolidation is overdue and that markets could loose anywhere between 10% and 15% until early Q4 2009 to start rallying again late Q4 for the next leg. Then watch commodities going through the roof in 2010-2011.


Bloomberg: Euro-Area Economy Contracted 0.1% in Second Quarter

XE: French Q2 GDP rises 0.3 percent-minister

Eurostat: Newsrelease

Finfacts: Business News Centre