Friday, January 30, 2009

Q4 GDP Comes In Less Than Feared, But Still Lowest Since 1982

The market is lower in early trading, despite a better than expected GDP report and some positive earnings reports as well.

Q4 GDP came in at -3.8%, which is the weakest reading since 1982. This highlights how weak the economy was in Q4, but we already knew that. The Street was expecting the figure to come in at -5.5%, given the sharp dropoff in economic activity at the height of the credit crunch.

What is more important is what GDP will look like in Q1 of this year, as well as 2009 as a whole. Many are looking for a stronger second half to the year, which would make sense in light of the fact that most stimulus programs work their way into the economy with a lag. Since these programs ramped up in 2H08, they should begin to take hold later this year.

In corporate news, Exxon (XOM) and Amazon (AMZN) both reported strong earnings, and their stocks are higher. AMZN trounced consensus estimates and even slightly raised revenue guidance. Amid low expectations, that was enough to spur a +18% spike in the stock today.

Asian markets were mixed overnight, following a huge droppoff in industrial production in Japan (-9.6%). The dollar is also mixed, while oil and gold are both higher this morning.

The 10-year yield is a bit higher to 2.81%, as deflation fears ease and investors start to worry a bit about the prospect of inflation down the road. The VIX is also higher, to 44, but given the declines in the broad market the last 2 days I am surprised its not higher (good sign).

Trading comment: Yesterday I took final profits in my short bond etf (TBT) positions, and rolled the proceeds into the gold etf (GLD). Gold looks strong technically (and fundamentally), and is breaking out. I am also looking for an entry point to add back to some of the index etfs that I took profits on a few days ago, but would like to see some signs of stabilization first.

My work points to this pullback finding support soon, and hopefully it will just be a 2-3 day pullback. But with ailing hedge funds still the dominant sellers in this market, there is always that wildcard that is difficult to quantify.

long GLD, SSO


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