Fun with Numbers

As the S&P 500 index races above 1,000 we have now reached a 50% re-tracement from the low of 666. The upbeat GDP report had GDP coming in better than expectations of -1.5% instead it was -1% on an annualized basis. So SPY goes wild!

However, is there more to this than meets the eye? Let us consider that also in this GDP report that the 1st quarter GDP was revised downwards from -5.5% annualized to -6.4%. 2008 had revisions in the first half with 1Q08 from 0.9% to -0.7%; 2Q08 from 2.8% to 1.5%. So taking the 3Q08 as -2.7% and 4Q08 as -5.4% we have a complete series in which to compare.

Thought experiment. Take 01/01/2008 as 100 and follow the path of the revised statement and compare it to the path of the original statement. Where is the ending point? Well 1st off all these statistics are annualized so we have to divide each by 4 and then we can grow or contract in a linear fashion.



Since a picture is worth a thousand words here is the enormous gap just exposed by the revision.



So the economy is about 4% worse than we thought and yet the rally. Baffling. But as a wise French queen once said, "let them eat cake!"