GDP

by Larry Levin

The GDP report was horrible - Yeeeeeee Haw, was the response on Wall Street. Although it was very bad, it could have been worse, they said.

The GDP report showed a -.3% decline in economic activity from last quarter's fictitious 2.8% reading. The massive reversal, however, was read as good news because some economists had predicted a -.5% reading. Asked about the 4th-quarter, economists believe GDP will contract at a -2.8% rate. Therefore, if it comes in at say, -2.5%, we should expect a nice rally. (Sarcasm)

Here are some specifics of the report:

1) Final sales to domestic purchasers fell 1.8%, the largest decline in 17 years.

2) Consumer spending dropped 3.1%, the first decline in 17 years and the biggest drop in 28 years.

3) Business investment fell 1%.

4) Investments in homes fell for the 11th straight quarter.

5) Spending on nondurable goods fell 6.4%, the largest decline in 58 years. Non-durables? Yikes, that's some real retrenchment in spending.

6) Inflation-adjusted after-tax incomes fell 8.7%, the largest quarterly decline since the record-keeping began in 1947! However, incomes fell more during the Great Depression, so we got that goin' for us.

7) Government spending increased 5.8%, adding 1.2% points to growth. Of course, this was done with borrowed money.

8) Federal spending jumped 13.8%, including an 18.1% rise in defense spending, the biggest growth in five years. Of course, this was done with borrowed money.

9) Spending by state and local governments rose 1.4%. Of course, this was done with borrowed money.

As you can plainly see, this data is horrifyingly bad. There is no way a sane person can read this and come to the conclusion that it's not so bad. Unfortunately, it has only just begun; it will get worse from here.

As I have been saying for some time now, the government's money pumping will do nothing and this is proof positive. Much like the old saying - You can lead a horse to water but you can't make him drink - you can give money to a bank but you can't force it to lend. Moreover, you cannot force a consumer to borrow money.

The consumer is broke. The country is broke. We need time to work off the debt, and nothing the government does will fix it any sooner than what would happen over its natural course of time.

But that won't stop the morons in Washington and in the Federal Reserve from trying - oh no. The FDIC wants a new homeowner bailout of $600-billion! That's right, the prior several TRILLION wasn't good enough, so they want to piss away another $600-billion. The entire debt bubble was intentional since we refuse to save. One could argue that the government felt compelled to encourage the debt to keep the economy moving along. Now that said bubble has been pricked, however, we're getting screwed as a taxpayers in an insipid and outrageous attempt to keep those who wrote all this bad paper from having to eat it.

But it doesn't stop there either. The Fed is lending more money out to more foreign governments; Brazil , Singapore , South Korea , and Mexico . Each will receive $30-billion. Aint that nice?

The list of participants dependent on the Fed increases every day - literally. The Fed is not the lender of last resort in the USA , but is now the lender of only resort to Brazil , Mexico , South Korea , and Singapore - perhaps the world. When those loans are used up, what's next? More loans? Bigger loans? When will it end?



Previous Day's Trading Room Results:

Trade Date: 10/30/08

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


1) VA buy @ 9:15am at 948.50 = -1.75 (1 lot)

2) 80% sell @ 10:15am at 949.75 = +2.25 (1 lot)

3) FT buy @ 12:20pm at 943.25 = -2.00 (1 lot)

4) Algorithm positions (4)...combined total...-4.25

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


1) No trades today.



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