Looking at yesterday’s post, it is clear that there’s a disconnect between consumers and business again—but in the opposite direction from what’s been happening recently. Over the past couple of years, consumers have spent while business sat on its cash, refusing to invest or, more particularly, hire. While consumers had led the recovery thus far, it was apparent that, to take the next step, business had to start to hire and invest.

I mentioned yesterday that consumer confidence had declined since the shutdown, while business surveys had come in much more strongly, indicating that this transition might be starting. Today’s data points suggest that, while consumers are closing their wallets somewhat, businesses are beginning to open theirs.

Today’s news included a stronger-than-expected growth figure for the U.S. economy, which expanded 2.8 percent in the third quarter. Before we get too excited, though, we have to note that the increase came from inventory buildup—not exactly a sustainable growth engine. In fact, you can argue that the reason inventories increase is because sales are less than expected. If you take away the inventory effect and net foreign trade, you end up with a 1.7-percent growth rate for sales to domestic purchasers for the quarter, down from 2.1 percent in the previous quarter, which supports this argument.

Unfortunately, other data points confirm a slowdown last quarter. Personal consumption grew more slowly, at 1.5 percent (down from 1.8 percent the previous quarter), while business investment dropped from a growth rate of 4.7 percent to 1.4 percent.

This will be a very short post as I’m off to Commonwealth’s National Conference in Phoenix. It’s always a great week—with a wide range of interesting content, wonderful events, and even better people—and I’m excited for it.

I’ll try to post something else later this afternoon, but for the moment, the interesting story of the day appears to be politics. The reelection of Chris Christie in New Jersey and the defeat of the Tea Party candidates in Virginia and Alabama suggest that the center may be getting some traction. Hopefully this will translate to a more businesslike, less confrontational environment in Washington.

I have been shamelessly avoiding writing about the Affordable Care Act, better known as Obamacare, because it was both inherently too political and economically too nebulous to really get my hands around. Apart from noting that it would inevitably create additional headwinds to growth and job creation—which isn’t a value judgment, but an economic fact—I haven’t weighed in on the law itself. An opinion on the law has to be a value judgment between competing goods, a relative cost-benefit analysis that everyone has to do for himself or herself.

Now, however, we’re at a place where the law itself is not at issue, but the implementation is, and that is having (and will continue to have) economic and market implications that we should be aware of.

http://www.youtube.com/watch?v=xRIhIbwhwNg 

Watch Brad's interview on Bloomberg TV here, where he responds to the question, "Will the rally continue?"

I took down a tree over the weekend, using a handsaw, branch cutters, and a ladder. I had to do it piecemeal, one branch at a time, as it was right next to my house. That’s a lot of work, and I was sweating hard by the time I got down to the main trunk and had dragged the rest of the tree to the back yard. Yesterday, when I was cutting down the remains for disposal, the weather was a lot colder. A sweater, a fleece, and gloves weren’t keeping me warm. It was a big shift from one day to the next—but hey, I live in New England.

The change in the market weather hasn’t been nearly as quick, but it has been even more pronounced. Taking a look at the market over the past couple of months, it’s clear that the narrative has changed, which probably portends continued strong performance.

That headline should give you a hint about the contents of this post. Now that we’re well into earnings season, I thought I’d take a look at how we’re doing and what that might mean going forward.

First, a bit of context. Earnings estimates, being estimates, change over time—usually downward. Dr. Ed Yardeni, a terrific economist and market analyst, regularly presents charts like the one below on his blog. You can find the original here.)

The real news from yesterday is, of course, that the Boston Red Sox won the World Series at Fenway for the first time since 1918. Nothing else even comes close. End of post.

I’ve written before about the potential problems lurking in the financial system. LIBOR, for example, was something I started covering last year. Looking at the papers today, though, even I am surprised by the sheer number—not to mention magnitude—of the problems that are showing up.

In just one of today’s papers, the Wall Street Journal, we have the following articles:

• A1 – “SAC to Plead Guilty to Securities Fraud”
• C1 – “Rabobank Is Fined, CEO Is Out in Libor Settlement”
• C1 – “Troubles for J.P. Morgan in Its Effort to Settle”
• C3 – “Currency-Trading Probe Gains Momentum”
• C4 – “NASDAQ Glitch Prompts Trading Halt in Some Markets”
• C16 – “European Banks Trapped in Legal Limbo”