Interesting piece by John Mauldin this weekend. He mentioned that an outfit called Macroeconomic Advisers is forecasting a negative Q3 GDP. I don't know anything about the track record of these guys and it's just one firm's opinion but what I found interesting was the mention that the typical forecast for GDP by economists is in the 2.5-3.5% range which leaves quite a bit of room for disappointment. With the recent negative Philly Fed index reading and the 10 year near 2.6% I have to give the edge here to the bears especially with the 10 year at 2.6% which is yelling and screaming that a significant soft patch at the very least in coming. Double Dip? Quite possibly but it could also be just a soft patch. A negative GDP number would likely create a huge amount of fear mongering in the media and a sharp selloff in the market unless perhaps the market was already selling off significantly prior to the release of the data which I believe will be on October 29 (the advance estimate). Mark that day on your calendar.
I know I'm getting way ahead of things but if we do see a negative Q3 GDP number it's going to light a massive fire under the asses of those in Washington and all this talk about austerity is going to go out the window. I believe the Bush expiring tax cuts will be renewed.
In the interim it's going to be tricky. Last week's $9 Billion withdrawal out of equity funds is a very good ST bullish contrary indicator. The last 3 times a weekly withdrawal of similar magnitude occurred was early July, mid May and late January which were either close to or precisely at ST bottoms. The only time it's worth ignoring any extreme action of these mutual fund "investors" is when the market is in blow off mode. Since the market is not firmly in the grips of a downtrend this notion doesn't apply. I'll be looking for long set ups next week. The market is only modestly oversold here so ideally I'd like to see a little bit more downside bit it's not a pre-requisite
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