This is the time of year when various talking heads make their predictions for 2012. Looking back, we can safely say that 2011 sucked, even in official measurements. Although nobody else seemed to notice, Rick Davis of the Consumer Metrics Institute wrote to say that the BEA lowered their estimate of 3rd quarter GDP again.
In their third estimate of the third quarter 2011 GDP, the Bureau of Economic Analysis (BEA) revised the headline growth number downward once again to an annualized growth rate of 1.81%. This revision represents a drop in the reported growth rate of well over a half percent (-0.65%) from the BEA's original reading of the third quarter, now moving the latest growth rate closer to the second quarter's anemic 1.34% growth rate than the misleadingly optimistic numbers provided to us just two months ago.
... the public's per-capita disposable income was still reported to be shrinking (at an annualized -1.9% rate), which does not bode well for the real economy moving forward.
This revision to the prior month's report does not reflect actual changes in the economy, but rather another month's improvement in the BEA's understanding of what was happening in the prior quarter. But such revisions continue to tell us much about the timeliness of the BEA's data collection processes, and the quality of the data that we can expect from their earliest reports.
As the BEA's understanding of what was happening in the previous quarter grows, the annualized rate of GDP growth shrinks. Disposable income continues to fall, which does not bode well for the real economy moving forward.
For the optimist, none of this matters. A rosy view of the future is built into the very fabric of his being. It is always extremely annoying to be around such people—they are completely out of touch with reality, although excessive optimism is not diagnosed as a mental illness—but imagine the consequences if such a person is your financial advisor! The Daily Ticker's Aaron Task interviewed a member of this dangerous sub-species in Political Gridlock Is Bullish for Markets: David Kotok (video below).
David Kotok, chairman and chief investing officer of Cumberland Advisors, continues to see the glass as half full.
Back in August, Kotok told Aaron Task and Henry Blodget that the market sell-off could be attributed to political concerns, not market fundamentals. As investors sprinted for the exits, Kotok reiterated his view that the S&P 500 index would close the year at 1,450, arguing that stocks were in fact attractive and an extraordinary buying opportunity.
With less than two weeks until the end of the year, Kotok remains resolute in his market prediction, noting markets have retested - but not broken - their Aug.3 low. He's tweaked his S&P year-end target to 1,350 ("give or take 50 points" he says) and maintains that markets will have an "upward bias" in the early part of 2012. If Kotok is correct, stocks will rally almost 11 percent from current levels in the final eight trading days of 2011.
The S&P stands at 1268.61 at this moment. Only three and half days left! Here's Kotok on the economy—
... the U.S. economy didn't double-dip into recession [in 2011] and it's not gonna double-dip into recession, and it even looks like it's getting a little stronger. Slowly, steadily, but gaining strength. So that's a positive outlook for 2012.
That is indeed a "positive outlook," Mr. Kotok. That's precisely what it is, and that's all it is. Whether this outlook is even peripherally related to Reality is another question.
I never give out advice (financial or otherwise) on DOTE. Today I will break my usual rule. For those few readers who have money to invest, and must choose a financial advisor, never choose a glass-half-full optimist like David Kotok. Avoid Cumberland Advisors like the plague.
The role of delusional optimistism in the boom & bust cycle of the last 15 years has been woefully underestimated. Strictly rational views of our economy would have told us we were deep trouble years ago. There were such people prior to 2007, so-called "pessimists" who saw the bubble in house prices, the very low (if not negative) savings rate, the huge rise in debt levels (as a percent of GDP) and other worrisome indicators.
These realists were ignored or laughed at. But the worm has turned. Who's laughing now? Deal with Reality or it will deal with you.
So if you're looking for a financial advisor, you know what not to do. Caveat emptor!
People are in real bad shape Dave, and it's going to get worse.
I've never seen a person break down our trajectory the way Wepollock on YouTube has. I strongly encourage anyone with 20-30 minutes of free time to watch this forecast:
https://www.youtube.com/watch?v=Q0CZV4So_0M
Posted by: Honesty | 12/27/2011 at 10:53 AM