An Awful GDP Number Could Not Keep the Stock Market From Going Higher.
NEW YORK ( TheStreet) -- The downside follow-through in the stock indexes I expected for Wednesday did not materialize. After the drubbing on Tuesday, this resilient stock market closed higher.
The DJIA closed higher by 49.38 points at 16867.51 while the S&P 500 was up 9.55 at 1959.53. The Nasdaq climbed 29.40 at 4379.75 and the Russell 2000 was up 9.44 to close at 1182.68.
This higher close came on the heels of a revised U.S. Growth Domestic Product number of -2.9% . That was an awful, nasty number. There is absolutely no way that we can get a 3% to 4% U.S. GDP economy, something the Federal Reserve has been counting on.
If the government used a real inflation number it is probably a lot worse.
The fact of the matter is, inflation slows real consumption growth and consumption is 71% of the U.S. GDP. If the government and the Federal Reserve wants you to believe there is no inflation, they are lying to us.
We not only have inflation, it is accelerating. The Fed will not be able to do anything about inflation when it picks up steam.
This has become very clear. The Fed is between a rock and a hard place. If it withdraws easing by tapering the money printing, it will blow up the asset bubbles. If it keeps printing money, inflation will continue to gather strength. As weak data over the rest of the year come in, the Fed will realize it has tapered into economic weakness. This will cause it to launch new money printing, or quantitative easing, QE4, in 2015.
As you can see, there is no way out for the Fed.
So today's stock market move to the upside has me very skeptical. The volume on Wednesday was not very convincing. The technology sector was the leader with stocks such as Facebook
As long as the markets continue to believe the Fed will backstop any major downside move, the markets can continue to move higher. Keep in mind, this is an asset bubble that will ultimately blow up. When that will occur is anyone's guess.
I will continue to be cautious and opportunistic in my trading. As I mentioned Tuesday , Apple
Risk management with a repeatable process is the key.