US GDP RISES by 4.9%, best Quarterly number in 2 Years

Good morning!

I decided to wait until today in anticipation of what is our most important quarterly report, the Gross Domestic Product. As you can tell from the title, we saw some massive growth over the past 3 months, the best since the 4^th quarter of 2021.

Taylor Swift Concert Tickets

I can’t believe this, but the Swifties can actually take credit for some of this growth, 1.62% of the 4.9%. Those tickets, as we all saw, came at a massive price and personal savings dropped like a rock, down 23% from last quarter ($776B vs 1.04T in Q2). Surely there’s more that plays into it, but I like this narrative.

The Last Good Report?

While this report beat over 50 of the 69 forecasts, it was largely expected that we would see solid growth over the previous quarter. However, as student loan repayments go into effect along with the highest interest rates we have seen in 20 years weigh, the expectations for the 4^th quarter are not so rosy. Analysts across the board expect muted growth moving forward, hoping to stay positive through the end of the year.

Lindsay Rosner of Goldman Sachs noted “while this number is unsurprising, our expectations are for slower GDP going forward as positive contributions from volatile net exports and inventories are unlikely to be repeated.. While this one number makes the FED weary of cutting rates, it does not move the needle for the November FOMC meeting which is certainly a skip (hold). Higher and hold, yes. Higher and hiking, no.”

Dennis DeBusschere, founder of 22V Research, echoed the sentiment “This was objectively strong, but focus is on 4Q now (clearing event) and most think 4Q will be slower. Also some seemed worried about a 5+ handle on the number.”

Higher and hiking or higher and pausing?

While this was great news, I would expect the FED to keep rates steady for now, using the Euro Central Bank decision as a guide to their next plan of action. They will need to see how the economy performs over the coming months, in an unenviable position between trying to slow inflation without collapsing the economy. Certainly would help if we slowed our spending.

Holding our Core Positions

So what do I make of the report? Things went well overall over the past few months, but the full effects of the rate increases, housing/mortgage prices, and student loan repayment are yet to be fully felt by the overall economy.

That said, I am holding my bearish positions in SPY, Airbnb, Wells Fargo, et al. I will start adding in calls on gold, which I believe to be the best hedge in a downturn where inflation is yet to be fully contained. I like shorter termed bonds, but will continue to avoid anything longer dated like the plague.

What do you make of this? Excited to see how the rest of the year plays out.

Have a great week!

Ryan