GDP

by Larry Levin

Equities traded higher again today with the help of another good report: GDP. The Commerce Department reported today that gross domestic product rose at an annual rate of 3.3% last quarter, which was well north of the initial estimate of 1.9%.

However, not everyone sees the euphoria lasting a long time. This is an environment in which we're likely to get a lot of head-fakes both on the upside and the downside, said Bill Urban, principal with San Francisco-based Bingham, Osborn & Scarborough, referring to economic data. He noted that the initial reading on the fourth quarter last year had been positive before revisions revealed the economy contracted. This is just sort of data that trickles out that can be very positive one day and negative the next. We don't yet think it signals a trend.

Here's my problem with this GDP report, and almost all government reports: the numbers just don't add up. Real GDP is the Nominal GDP (overall number) subtracted by inflation.

The government says the nominal GDP last quarter was 4.6% and overall inflation was 4.2%. Well, if my math is correct, that's a real GDP number of just 0.4%. Of course the government wouldn't use overall inflation data, even though it collects it. Naaah, waste of time. However, if one uses the core Personal Consumption Expenditures (PCE) price index, which strips out non-essential things like food and energy prices and was 2.1%, we still have a real GDP number of just 2.4%. So either way, 3.3% is wrong.

Volume is in a word: pathetic. Be careful if you trade Friday; oh, and keep an eye on Gustav.

Real Time Trading Signals*for

Trade Date: 8/28/08

E-Mini S&P Trades*
(before fees and commissions):

1) B/away buy @ 8:30am at 1289.75 = +1.75 (1 lot)

2) Engf sell @ 9:00am at 1289.25 = -1.75 (1 lot)

3) Engf sell @10:20am at 1291.50 = -1.25 (1 lot)

4) IDVA sell @10:45am at 1291.75 = -1.25 (1 lot)

5) FT buy @ 11:45am at 1293.75 = b/e (1 lot)

6) Engf sell @1:05pm at 1295.50 = -1.25 (1 lot)

7) Algorithm positions (3)...combined total...-2.75


ZB (30 Year Bond) Trades*
(before fees and commissions):

1) Sell @ 8:07am at 118.155 = -2.0 & -1.5

2) Sell @ 10:04am at 118.105 = +2.0 & -2.5*2

3) Buy @ 11:50am at 118.135 = -2.0 (1 lot)...combined total...-8.5


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