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9:00 AM EDT, Friday, October 30, 2009: There you have it. Conclusive proof I'm an idiot. Just as I'm telling everyone the market is going down (yesterday), the market bounds up 200 points. Why? Great economic news. Our GDP bounced up 3.5% in the September third quarter quarter.

The number is bullshit. From today's Wall Street Journal:

Gross domestic product expanded at a 3.5% seasonally adjusted annual rate in the quarter ended in September, a rise that leaned heavily on government spending. Some of the largest components of growth came from spending on cars and house building -- two areas propped up by federal programs.

Without stimulus programs such as "cash for clunkers" and a first-time homebuyer's credit, "real GDP would have risen little, if at all, this past quarter," Christina Romer, president of the White House Council of Economic Advisers, said in a statement.

Here's the Journal's chart showing where the 3.5% came from:

You can read the Journal's piece here.

Here's Clusterstock's Chart of the Day. First their words:

If anyone mentions the just-released 3.5% U.S. third quarter GDP growth, just throw this chart in their face. Cash for Clunkers clearly distorted the U.S. economic figures in an unsustainable fashion.

According to the Bureau of Economic Analysis (BEA), motor vehicle output spiked a seasonally-adjusted 157.6% quarter on quarter. This is completely unprecedented. Vehicle output is clearly going off a cliff next quarter. The question will be how low can the blue line below go.

Next quarter, we won't just be returning to business as usual for auto output. Don't forget that Cash for Clunkers pulled future auto demand, ie. some of Q4 demand, into Q3. Thus Q4 is likely to be very weak since many people who planned to buy a car in Q4 probably took advantage of Clunkers and bought in Q3.

To put this into GDP terms, according to the BEA the spike you see below added 1.66% to the U.S. GDP growth figure reported. Thus without it, GDP growth would have been only 1.89% (3.5% - 1.66%) in Q3.

Now imagine if next quarter the blue line below goes down into negative territory as it did just two quarters ago. Next quarter, not only are we unlikely to get Q3's boost, but motor vehicle output data could subtract from GDP as well. So watch out for the cliff. (My emphasis.)

In short, we're still in a bear market.

Every day brings "Wall Street" a new sales opportunity. By "Wall Street" I mean the entire financial product purveying community. By "every day" I mean whatever the climate, whatever the prevailing sentiment, whichever way the winds blow in the economy.

I own parts of two "distress" funds. They're meant to do well when the economy is not -- like now.

Well, you guessed it, neither is doing well. They're both losing money. Today's story is of a distress real estate fund. It buys buildings in trouble, fixes them up. It buys mortgages on failing buildings, forecloses on them, takes over the building, fixes it up, rents it out and sells it. Neat business plan, you think?

Well, there's always a "Gotcha!" -- meaning Got Ya.

This fund is down 3.65% this year and 9.38% from inception. If we're lucky, the fund will "essentially" break even over its life, whatever that turns our to be. Whoopee! Here's the explanation from yesterday's epistle to sad fund holders (like me):

During the 3rd quarter Fund II completed the foreclosure on one loan and took title to the property. This is the first quarter since inception that no loan was paid off. This is the result of the continuing illiquidity of the commercial real estate market and the slow pace of foreclosures in New York (City), where most of Fund II's loans are located.

The difficulty of completing a foreclosure in New York has now manifested itself in various ways for Fund II. It takes the Kings County (Brooklyn) Clerk's office up to one year to process a motion to appoint a referee to compute the amount due on a defaulted loan, one of the preliminary steps in the foreclosure process. This motion then needs to be submitted to and signed by a judge, which can take additional time.

With one of Fund II's loans the borrower was able to prevent foreclosure by declaring bankruptcy four times. Only after the fourth time did the Bankruptcy Court dismiss the matter "with prejudice" thereby preventing a fifth bankruptcy filing. In another foreclosure the borrower was permitted by the Court to contest the foreclosure not only after the Court had granted a foreclosure judgment, but after the foreclosure sale had taken place. (We were eventually able to have this matter dismissed.)

Building owners (also called borrowers) don't like to lose their precious buildings. They believe in hope. One day, the market will magically turn around. Their building will be worth zillions. They'll sell it. They'll pay their lender off -- the bank, GE, or whoever -- and they'll pocket the difference.

Now, markets do turn around. Buildings can suddenly be worth more (or less). To many owners, the cost of hope is the cost of lawyers delaying the foreclosure process.

The carousel goes round and round.

The future doesn't look bright. Commercial real estate prices have dropped 41% since their peak in the third quarter of 2007 according to Moody's Investor Services. A September 30 report by Goldman Sachs figured a further expected drop in commercial real estate prices of 17% by the end of 2010 as a result of scarce credit and rising vacancies.

Meantime, one part of commercial real estate is booming -- short-term, temporary retail stores. These stores sell seasonal stuff -- like Halloween costumes, Christmas ornaments and Easter eggs. They pay maybe one-third the rent of a full-time, long-term tenant. But their lease is month-to-month. There are no tenant improvements by the landlord. And the tenants typically make none, though some sweep the floor and paint the walls.

The moral of this story is simple: Stay away from fashionista funds -- funds created for a fashion.

What happens when mineral prices drop. This is Kagara, an Australian mining company I like. Australian companies end their financial year on June 30. (I don't know why.) These are Kagara's latest financials:

This mess happened when average copper and zinc spot prices fell by 36% and 46% respectively during the financial year compared to the previous financial year. Since June 30, prices have recovered a little.

This is what happened to its stock:

This year copper has doubled in price and zinc is up about 50% and the company is profitable again. There's been a lot of heavy buying, suggesting the stock could go much higher. The company is much stronger and bigger today than what it was in 2007. So the hope is the stock price will rise strongly.

The health care bill moves (ahead?). My belief is simple: Get our country's priorities in order. Spend money on keeping Americans healthy. Don't spend money on useless wars in Afghanistan and Iraq. Don't spend money on keeping troops in peaceful, friendly countries like Japan, Germany, South Korea etc. etc.

So, where do we stand? We now have 1,990 pages of proposed legislation. You can read this 5 meg PDF monster. Click here.

This proposed legislation must now be passed by the House and when the Senate passes its version, both bills go to joint conference to try to iron out their differences. It then goes back to each body for a final vote and then to the President for signature or veto.

This could take another several months; The final legislation may bear little relationship to this monster. It could be even bigger. It's already doubled in size from a previous version. Ithe end, the president could refuse to sign it, i.e. veto it, or I’m guessing, send it back for further changes.

I rememmber Obama telling us it was going to be “free.” It’s now estimated to cost $900 billion a year. And I bet several trillion by the time it's all through. Owning a printing press has its charms.

What a wonderful life.
My dermatoliogist has called me back for more slicing and dicing this morning. I don't know if this will save my life. But it certainly would have saved Joey from having his brain radiated. He didn't get his skin checked in time. He delayed on visiting a dermatologist. His melanoma spread to his brain. Now he's on heavy chemo and his hair is out. I pray he makes it.

Depressing weekend reading. Jeremy Grantham is a legendary money manager. His latest quarterly report, "Just Desserts and Markets Being Silly Again," is withering in its criticism of the administration management of the economy and his predictions depressing -- more booms and busts. Sample: The size of the financial system continues to grow and shows every sign of being out of control."

For his 14-page paper, click here.

Weekend "jokes"
The only jokes I can think of this morning all revolve around "Washington being eight square miles surrounded by reality." You don't want to hear the rest. I voted for the guy. Right now, I can't imagine him having the management skills to organize a queue for an outhouse.

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads on this site. Thus I cannot endorse any, though some look interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. Read more about Google AdSense, click here and here.