Thursday Wrap-Up

There's the consolidation we've been looking for.

Nothing to worry about but nothing to get excited about either.  We held our critical levels and survived a disappointing GDP report at just .6%, our lowest level of growth since Q4 '02.  Rising imports and a decline in business inventories each shaved a percentage point off first-quarter economic growth. But continued strength in consumer spending carried the economy forward. Consumer spending, which accounts for more than two-thirds of GDP, jumped 4.4% after gaining 4.2% in the fourth quarter.

The main culprits for the poor report were the bloated trade deficit and businesses cutting investment in supplies of the goods they hold in inventories.  “We are still keeping our head above water — barely,” said economist Ken Mayland of ClearView Economics.

This data seemed to take the Fed further off the table but at the same time the Chicago PMI came in a little stronger than expected and in the confusion the yield on the 10-year note snuck up to 4.89%, the highest level since August which sounds bad until we remember that August was pretty much the beginning of this 1,000-point rally.

It's OK though, we just need to embrace the fact that America has slipped from first to worst on this planet and accept our place as the ball and chain that is dragging down the global economy.  India is expanding at a comfortable 9.4% clip while the Philippines are growing at 6.9% and Malaysia clocked in with 5.3% growth among reporting countries this week.

We've been talking about the housing crisis, the one the Fed thinks will be "contained" all week but let's remember that some of the really bad housing data we've seen lately – the rising inventories, the drop in home prices, the explosion of delinquencies – have been in data reports that have come to light since the last Fed meeting.  I find it impossible to believe the Fed really thinks housing is not a huge problem, the fact of the matter is that they need ANY excuse not to cut rates, because the thing is – they can't.  Our rising deficit (we just approved another $100Bn we don't have for the war that was "off budget") and declining dollar are simply making our Treasury notes downright unappealing and it really would be the straw that breaks the camel's back if all that "non-core" inflation were to slip into the core.

The problem with having a bunch of egg-head policy makers and their highly paid consultants all living in Washington, DC is that they are pretty clueless as to what goes on in the rest of the country.  Washington is a pretty small city where their big problem is a LACK of affordable housing so this is exactly the kind of crisis that slips into the "somebody else's problem field" that seems to surround much of our nation's capital this decade:

Barry Rhitholtz has a whole bunch of charts this evening and the last time he and I fixated on housing problems at the same time was late February and that did not end well at all for the markets so consider this fair warning!

We should be so happy with this chart and we did get the change in leadership we wanted with the Nasdaq and the SOX and the Transports putting in a hard day's work but the pullback on the Dow was disturbing as was the nonsense in the oil pits this afternoon.  The Russell is rebalancing so I'm not putting much stock in the action there until next week.

Oil was a farce today with Criminal Narrators so eager to Boost Crude that they actually spent the whole day talking about hurricanes and actually issued a warning that they had already named a storm Barbara.  This sent the NYMEX July contract flying back from $62.45 at noon (when Europe closed and the American traders had the market to themselves) all the way back to $64.01 at 2:35.  What makes this even more ridiculous, as ZMan astutely pointed out to our members, is that Barbara is a PACIFIC hurricane and poses no threat to the Gulf.  You would think the "news" people at CNBC would know this or that maybe they employ a fact checker or perhaps the NYMEX people who trade Billions of dollars worth of oil for a living would know the difference…  But noooooooooooo! 

The best CNBC moment of the day came when Maria tried to get Cramer to jump on the Hurricane bandwagon but he said he didn't buy into the hurricane hoopla as it all came to nothing last year and they cut his mike and went to a picture screen before he could finish his thought.  Kudos to Cramer for being uncontrollable and if anyone has this on Tivo and can put it on YouTube please let us know as we are going to start collecting this nonsense.

The Dollar was flat for the day and gold finished right at my $666 target and oil did halt right at the 50 dma but we are waiting until tomorrow to get back on that horse.  We caught the perfect top and bottom of oil today as Z and I did a show on MNI Radio around the inventory reports which may become a regular Wednesday feature.  You can download today's podcast here.

It was a wishy washy day but once we cashed out our DNDN calls first thing in the morning the rest of the day was comparatively relaxing.  We went back into that stock with some fun spreads but we certainly lucked out with a 1,400% gain on our $7.50 calls!