Daily Clueless Musings 2/25

Fourth quarter GDP real growth was revised down from 3.2%saar to 2.8% in the BEA’s second estimate of the 4Q10 data. The major reason for the downward revision is government consumption, which was from -0.6% to -1.5%. Lower spending level were mostly on state and local government level. It is just a pre-show for a fiscal drag in 2011. The slower fiscal spending is coming. The coming budget crisis in many states will pressure the spending at lower level governments. On the federal level, Obama is likely to make concessions to the republican proposed budget cut. Oil price stabilized as Saudi raised oil output as Libyan exports disrupted. Market took a break from the panic mode. "Buy the dip" spirit is still live and strong for equity traders. Yield curve did not move too much from yesterday's settlement even as GDP number is a disappointment. Consumer confidence is still strong. The final February reading of consumer sentiment from the U of Michigan was better than expected up more than two points from the preliminary report to 77.5, the highest mark since January 2008. It is interesting that the record high consumer confidence does not translate into the sales number for big retailers like Wal-mart, Target, Kohl's and the likes. As long as the job market remains soft, the spending of less wealthy consumers will be depressed. The inflated asset prices only stimulates the impulsive spending of the wealthy. Those spending is going to disappears as soon as stock market corrects. As Fed is pouring liquidity into the punch bowl, market acts like any drunk person, whose perception of risk is often detached from the real world. Both consumer and fiscal might become a drag to the expected recovery in 2011.