Feb

17

I just finished browsing the 2012 Federal Budget Proposal. If you believe the Economic Assumptions, Dow 36,000 is a no-brainer. But see my comments at the bottom.

Here's the link. see Table 2-1

Here's the meat:
2012 Real GDP = 4.0%
2013 Real GDP = 4.5%
2014 Real GDP = 4.2
2015 Real GDP = 3.6%

2012 CPI = 1.8%
2013 CPI = 1.9%
2014 CPI = 2.0%

Wages & Salaries:
2012 Growth rate YOY= 5.8%
2013 Growth rate YOY= 6.5%
2014 Growth rate YOY = 6.5%
2015 Growth rate YOY= 6.2%

Average Tbill rate:
2012= 1.0%
2013= 2.6%
2014= 3.7%
2015 = 4.0%

Average 10 year rate:
2012 = 3.6%
2013 = 4.2%
2014 = 4.6%
2015 = 5.0%

I don't have a crystal ball. And it's certainly possible to have nominal GDP growth of 6-ish percent. However, the historical anamoly would then be in the interest rate forecasts. Since the 1950's, and except for two very brief recessionary periods, the 10 year Treasury yield has ALWAYS exceeded the year-over-year change in real GDP — with the average (eliminating the 1975-85 inflation) — being about 200 basis points. So, if you accept their real GDP forecast, the interest rate forecast is implausible. And if you accept their interest rate forecast, their GDP forecast is implausible.

BUT IF YOU ACCEPT THEIR ENTIRE FORECAST, YOU SHOULD BUY STOCKS NOW!

Ralph Vince writes:

Out of curiosity, maybe George Z can chime in, are these GDP assumptions typically unrealistically rosy?

George Zachar obliges: 

Well, since you asked…

2013 Real GDP = 4.5%
2013 CPI = 1.9%

That gives us NOMINAL GDP of 6.4%, which happens to be the high end of the range going back two full decades.

Not bloody likely given the current configuration of economic, demographic and political forces.

Wages & Salaries:

2013 Growth rate YOY= 6.5%

With existing slack/low participation rates? No way.

I think these figures were calculated by guesstimating what they could publish without folks bursting out laughing…and then multiplying by 1.2.

Rocky Humbert comments:

 Might I suggest that the interesting reactions to my post regarding the 2012 Budget/Economic Projections should cause some introspection.

As I noted, the projections seem historically improbable and incredibly optimistic — but just like that Goldman Sachs economist who projected the outlier of 6% or 7% growth this year — they are NOT impossible. And if they turn out to be even close to correct, the upside in the stock market could be mind-boggling. That was my point. And for the umpteenth day in a row, Mr. Market is again voting for the improbably bullish outcome even though GZ's helpful comments have much better odds!!. See this old post.

I cannot overlook that Mr. Rogan in his replies, yet again, mistakes ZeroTruth (excuse me, Zero Hedge) to be a source of wisdom. It's particularly ironic when Mr. Rogan writes "to be an intelligent liberal today is to actively promote lies" when in fact, actively promoting lies is the essence of Zero Truth's business model. A question for Mr. Rogan: Why is the propaganda on the White House Website more troubling to you than the propaganda on Zero Truth website? Perhaps you only object to "lies" when they are from someone who doesn't share your idealogy?

One of these days the stock market will decline. And cotton will go down. And we'll have another recession. I only wish that I was smarter so I could know when that will happen. I don't know. And that's why I always hedge my bets. And that's not just bearish hedging. It's bullish hedging too. And I'm glad I'm hedged bullishly right now!!


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