Barry Ritholtz says, A Bad Economy Could Spell Good News on Wall Street for Years to Come

The economic recovery isn’t as strong as first thought. Revised GDP figures released this morning show the economy grew at a 2.8% annualized pace in the third quarter, less than the 3.5% initially reported. The revision was in-line with expectations but shows the economy didn’t have as much momentum heading into the fourth quarter as previously believed.Unlike Wall Street traders, consumers seem to know the recovery is “anemic,” as Barry Ritholtz, CEO of Fusion IQ, describes it. The Conference Board’s latest confident survey shows Americans feel worse about the current economic situation than they did in March, when the stock market was making new lows. (Thanks to Dan Greenhaus of Miller Tabak for pointing this out this last fact.)Yet, stocks are still near their highs of the year. Going into the final hours of trading Tuesday, stocks were in the red but well off the lows of the day. What’s driving the disconnect between Wall Street and Main Street?Ritholtz says it’s a classic example of bad news being good news on Wall Street. “We’re in a cycle that’s not based on profitability, not based on expanding economy but based on all sorts of government supports,” he says. “Bad news is going to be good news for the next couple of quarters probably.”That’s because low interest rates and liquidity provided by the Federal Reserve, coupled with government stimulus are enticing traders to buy into the market. “Cash is trash,” says Rithotlz, who remains bullish on stocks.Ritholtz is confident that eventually fundamentals will prevail and thinks the market will take a hit once the economy shows signs of improvement, meaning the “extraordinary” stimuli can be removed. But predicting the timing is anyone’s guess. “You could have this disconnect that goes on for not days, weeks or months but years and years,” he says. So, in the meantime, Ritholtz – who correctly predicted the 2008 crash and told Tech Ticker’s audience “the mother of all bear market rallies,” was upon us in March – is still long stocks and likes commodities (thanks to a weak dollar) and emerging markets.

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One Response

  1. In general, you’re right. Before now I’ve cuaght myself creating complexity by combining charts that don’t naturally go together. But this particular case is actually a good one for combining.Re. is the data encoded in the thickness, or the area it’s intuitively both. Both the pies above, and MikeM’s suggestion, have appeal for a layperson thinking visually and intuitively because you can immediately see the amount of shares actually being sold the focus of the story by the total amount of green: more green on the page, more actual shares being sold. They can then see the details that make it up, and the way these fit together in the graphic helps them understand how they fit together in real life. They see visually and intuitively that X is a fraction of Y, that Z is determined by X and Y and that X changes over time but Y doesn’t so it is X that drives changes in Z. A bit of scaffolding like this helps people who aren’t naturally numerate to a) understand the relations between variables with less effort and b) be more confident they’ve understood it right.Your chart is a good one for someone coming at this like an analyst, thinking numerically and analytically. In your chart, you see the raw variables accurately. Any analyst is then capable of figuring out the composite variable of the amount of shares actually being sold. The way these 3 variables fit together is trivially easy and obvious for a highly numerate experienced analyst: scaffolding and visual aids for this element of the story just get in the way. The other presentations are actually probably more difficult for an analyst than a layperson because you approach it analytically Which variables map to which dimensions, with what transformations applied? as opposed to simply More on the page means more . (Of course it all goes to hell if a chart is badly made: if it doesn’t actually reflect how the real world variables fit together and if more on the page doesn’t actually mean more. This all assumes competence by the people making the chart. Shaming people who balls it up is a separate topic!)Conclusion: different presentations for different audiences.

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