Santelli Slams The "Self-Sustaining Recovery" Myth

One glimpse at the following chart and it’s clear that the US economy has not reached the much-vaunted “escape velocity.” As CNBC’s Rick Santelli explains in this succinct summary of the quandary of GDP hopes, inventory-build fears, and extrapolation-dreams, “many of these programs, procedures, and plans offered by the Fed – or the government – actually work to jump-start the economy… but they can’t reach sustainability.” His simple analogy of the economy as a heart-rate in a chronically sick (if not dead) person and Fed juice as a defibrillator seems very fitting. As the chart below shows, the US economy is very much still on life-support.



What’s the real issue with inventories? The issue is when you build widgets, that figures into GDP – but the real question is, the drawdown of that inventory… How aggressively does it get consumed?


So, if you look at 2013 in its entirety and break it up mid-year, the inventory build at the end of the year was close to 2 1/2 to 3 times as large as the inventory build in the first half of the year.


Why is this important?


Because, first of all, we are seeing all the revisions that I look at for the next addition of our second look at fourth quarter gdp most likely to be under 3%.



If you recall it was originally 3.2, but maybe more important is the fact that many shops are also downgrading Q1… and it isn’t from 4% to 3%, you know, we were all thinking we were going to get the lofty numbers. We’re looking at Goldman, for example, at 1.9%.

Simply put, that is not the kind of “growth” and “consumption” needed to cover the massive inventory build and so once again – thanks to Federal Reserve intervention – managers have been ‘fooled’ into believing in the future sustainability, have mal-invested, and next comes another stagnation (and the cyclical downturn that we noted here).

(h/t @Not_Jim_Cramer)


As an aside, we note this little tidbit (via Bloomberg):

S&P’s Jan. Drop May Be Recession Signal: Nautilus Capital


There are 19 instances since 1900 where S&P 500 falls in January after two or more years of gains; in 14 of those occurrences, it pre-dated the onset of a U.S. recession, writes Nautilus Capital research team led by Tom Leveroni in note.


Considered a positive signal if a recession commenced within 15 months (using NBER recession dates); avg. onset of recession after signal was 7 months


Positive signals occured in 1910, 1913, 1920, 1923, 1926, 1953, 1957, 1960, 1970, 1973, 1981, 1990, 2001, 2008


False signals occured in 1928, 1956, 1977, 1984, 2005


via Zero Hedge Tyler Durden

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