More recession talk

Good morning. The chief executive of home builder Hovnanian Enterprises is joining Countrywide's Angelo Mozilo on the "it really looks bad out there" bandwagon. Like Mozilo, Ara Hovnanian went on CNBC and worried aloud about a recession. Pull quote:  "The credit market disarray is real."

CNBC's Bob Pisani observed that what's really going on here is that Mozilo and Hovnanian are appealing to the Fed to cut rates.

Today's gross domestic product number (4% annualized growth in the second quarter) is, as Joe Pesci would say, "a mystery wrapped in a riddle inside an enigma." How do you go from 4% growth -- pretty darn good -- to needing a rate cut in five weeks? We know, we know: credit freeze, mortgage meltdown, etc. Still, the strong number weakens the case for a rate cut.

Thoughts? Comments?
Photo Credit: Reuters

Comments

[brettdl]

Some questions.

1. Does anyone really trust the GDP numbers? Hasn't anyone noticed that home-price medians are misleading? Why should we trust GDP numbers?

2. Why should the GDP go down? Wasn't the money for that quarter already circulating in the economy?

3. Doesn't second quarter GDP end in June? Didn't the credit shocks hit after that?

3. Aren't there any more revealing numbers that say what is happening today rather than a few months ago?

[Sinclair]

I can remember being out in Rancho Cucamonga, on a dirt lot with a trailer, where the sales guy from KB Homes warned us that any chance of getting a house in the tract they were GOING to build depended on us making a deposit and winning a lottery. People were losing their noodle over buying houses not even built yet, while KB and all the other builders fostered the hysteria and jacked up the prices. We looked at all the young families with their brand new SUVs and their Coach purses, feverish to win the KB lottery and put down their money, and wondered how they were going to pay for a $500,000 house in San Bernardino County. Surprise, they couldn't.

A pox, really, on all the builders and all the lenders who got all the rest of us in this mess.

[Eurotrash]

Some answers.

1. Yes, all serious economists and market-participants trust these numbers.

2. Not sure what you mean by "already circulating in the economy". GDP measures the value of goods and services produced in an economy in a set timeframe, i.e. Q2 in this case.

3. Yep, the credit shocks hit after Q2 ended. That's one reason the market isn't really responding. Another is that the 4% revision is exactly what was expected.

3 (2). Lots of numbers that are more current, consumer confidence, jobless numbers etc. But GDP numbers are crucial.

[Kathy]

This may have been linked before, if so, sorry, but it's a good assessment of why Wall Street is circling the wagons:

http://www.msnbc.msn.com/id/20414777/site/newsweek/

[brettdl]

Thanks for the answers

1. Should they?

2. I was referring to the fact that it takes time for money that has disappeared from the markets to disappear from the economy as a whole.

3. Thanks. (Oops, didn't realize I used 3 twice.)