The Market and some Truth!

"Only two things are infinite: the universe and human stupidity, and I'm not sure about the former." Albert Einstein. The media is all giddy over this morning's news, and the talking heads on CNBC are clamoring that the recession is behind us. But those in the know understand that there's more to the economic data than just the headlines. While others might simply report the numbers - let's take a deeper look and see things as they really are.

The Commerce Department reported that the "Advanced" (the first of three readings) 3rd Quarter Gross Domestic Product (GDP) rose by 3.5%, higher than estimates of 3.2%. This was the first GDP gain in a year and the strongest reading in two years. "Holy Mackerel" is all they could say on CNBC...suggesting that the economy is back, and the stimulus plans have successfully bought our way out of the recession. But hold on - if we were to remove the government subsidized "Cash for Clunkers" program from last quarter's GDP, the reading would have been a lot lower...closer to the tune of 1.9%. Further - if we removed the $8,000 first time home buyer tax credit, the GDP number would have been lower still! Remember, these are temporary programs with temporary results...so once the "temporary" life support is unplugged, the numbers will be far worse, and more importantly, will be realistic.

And the euphoria continued, as a leading indicator on the health of the labor market, Initial Jobless Claims, was reported "Less Bad" than expected. Here we go again, as the media and other commentators lose their mind with excitement over these numbers. Check this out...the Initial Jobless Claims were "just" 531,000 in the latest week, slightly worse than the 525,000 that was expected. So more than half a million people each continue to get pink slips and shown the door - is this rally good news? The Continuing Jobless Claims number fell to a 7 month low, revealing that "only" 5.8 Million people are collecting unemployment benefits. The media jumped all over this dramatic drop in Continuing claims, spinning it as being an encouraging sign for the labor market. This is flat wrong - so many people have been receiving unemployment benefits for so long, that their benefits are expiring, without them having found new jobs. As I've been saying - this number is so awful, that to the inexperienced and untained eye, it actually appears to be good. And think about this - if the labor market were indeed improving, and the signs appear to be encouraging, then why the urgency to extend the unemployment benefits?

Some encouraging news on the extension of the $8,000 tax credit...while it is not a done deal, as it still must be reconciled between the House and Senate and then voted on for final approval, it's looking good. And it's not only looking good for the extension, but there are some additional enhancements to the credit in the works as well. Yesterday, the Senate reached an agreement to extend the $8,000 tax credit for first time homebuyers. They also added a $6,500 tax credit for other primary home purchasers, meaning not just limited to first time home buyers. They also raised the qualifying income limits in a very meaningful way - singles were increased from $75,000 to $125,000, and joint taxpayers from $150,000 to $250,000. Buyers must have executed purchase agreements in hand by April 30th, and then will have until June 30th to close. More details are likely to come, and changes could be made as reconciliation and voting takes place! Stay tuned...!