US GDP came in showing gains of 3.5 percent. The markets took this as wonderful news with the stock market reversing it’s losses from the past few days and the dollar turning around and heading downhill as risk taking came back into focus.
The thing that I thought about after seeing such a strong GDP number was that the government has been stimulating most of what is being reported in there. Zero percent interest rates, FHA, and tax credits fueled real estate buying. Cash for clunkers fueled auto buying. Where is the real growth?
US Consumers continue to lose jobs, so I would be hard pressed to believe that too many of them our out there spending real money. It’s more likely that the government has borrowed against future consumption, to create a little consumption now. The government and any consumers that are spending have gone into debt, that may never be repaid. Even if it is repaid, it’s going to impact spending later on.
In other words, the “growth” we are looking at, isn’t real. It’s all just based on stimulus spending that will run out at some point.
So for the moment, risk is back on the table, but you can bet that it won’t last very long. Although I have no real faith in the US Dollar, it can be used as a guage of risk taking here. When market participants are taking on risk, the dollar will continue to decline. When risk aversion is in play, the dollar will rally.
I’m just thinking out loud, but I wouldn’t be surprised to see more dollar strength in November. Only time will tell.