GDPhursday

Here we go again!

I could just reprint Tuesday's morning post because we're right back at Tuesday's levels but today is GDP Day so nothing matters until those numbers are released.

Tuesday's post was about denial but it was easy to call a drop that morning because there was no data and no market moving news that I thought would save us that morning. Today we have The GDP and the deflator but tomorrow we hear from the big Kahuna – Uncle Ben addresses the nation to wrap up a week of sun and fun and economic chit chat over in Jackson Hole.

Ben had better mind his Ps and Qs when he speaks because we've already gotten the warning I mentioned from the German Economic Advisory Board and today the language was taken up a notch by OECD deputy director, Adrian Blundell-Wignall, who said: "The US Federal Reserve should not cut interest rates in response to the recent turmoil in financial markets. The Fed should only cut rates to meet its fundamental objectives of controlling inflation and maintaining the health of the US economy. If the US economy is threatened by a slowdown in activity, then a rate cut would be justified. But if this is not the case, then a rate cut would merely help to bail out investors who have taken ill-considered risks."

We are not the world's #1 economy anymore, we need to get used to being treated like this!

It's just 5 minutes until the GDP as I write this so I'll get the fact that Asia rallied back (woo-hoo!) and Europe had a weak finish, making it all the more baffling how the big boys on Wall Street knew to start rallying almost an hour before the Senator from New York announced he had a letter from the Chairman of the Federal Reserve (what time does mail get delivered?) that said (but not really) they will come to the rescue. Just remember boys, when the SEC asks what prompted your buying remember to DENY, DENY, DENY!

GDP is up 4% vs. 4.1% expected vs. 3.4% last quarter. The PCE index is up 4.2% but don't worry, the "core" is just 1.3% for all you non-food eating non-energy consuming investors. DENY, DENY, DENY! The GDP chain deflator, which measures the change in prices in total GDP came in as expected at 2.7%, not terrible as it's the broadest measure of inflation BUT it includes housing prices, which are heavily weighted and dropping like a rock:

Government: "Good news citizens! Although the food and energy you MUST buy every day are up over 6%, the value of your home (possibly your only asset) fell 3.3% so we're going to call it a win at 2.7% – now get out there and gas up the car!"

I thought that a GDP over 4% would give us a rally, silly though it may be with everything else falling apart, but the 8:45 market reaction makes it seem kind of like they would have preferred a weaker number, which would give the Fed a proper excuse to cut. As our French friend pointed out: We can't give a rate cut to that would merely help to bail out investors who have taken ill-considered risks! Well can't is a funny word, shouldn't – really, really shouldn't – really, really, REALLY SHOULD NOT – that's the right word…

Ah well, back to the news:

Australia's Basis Capital Fund Management hired BX to sell its assets and filed for bankruptcy protection for it's second biggest fund. The Yield Alpha Fund has assets of $100 million. That's down from $436 million on Jan 31st, according to Bloomberg data. Creditors of the Basis fund include JP Morgan Chase Bank NA, Goldman Sachs International, Citigroup Global Markets Ltd., Morgan Stanley, Lehman Brothers International (Europe) and Merrill Lynch International, according to court documents. Those creditors all issued default notices to Basis Yield following its June 2007 devaluations (while telling you the sub-prime issues were "contained.").

In a separate report, Moody's Investors Service estimated revenue losses of 10 percent or less due to loan markdowns for the five largest U.S. investment banks in the second half of 2007. “These funds are coming out of the woodwork and you have so many of them, no one is really sure how much exposure to the subprime market is out there,'' said Charles Wiggins, senior dealer at Custom House Global Foreign Exchange in Sydney. Investors in the Yield Alpha Fund should know within two weeks if they have "any hope'' of a return on their investments, said Paul Billingham, a liquidator for the Basis fund at accounting firm Grant Thornton.

German state-owned wholesale bank WestLB AG, who presumably are NOT a hedge fund, still managed to lose $826M in "proprietary trading losses." "This figure is depressing," Chief Executive Alexander Stuhlmann said, referring to the charge. "On the other hand, it would have been wrong to delay our withdrawal from proprietary trading with spread positions, as it would have exposed WestLB to dangerous and incalculable risks of destabilization," he said. Wow – these guys don't get that denial thing at all!

In the "sorry to be right" department, our friends at Carlyle Capital Corp (who we discussed Tuesday) "Wednesday said it will seek new forms of financing and reduce its target leverage after problems funding its virtual portfolio of U.S. residential mortgage-backed securities." Mr. Stomber said the fund's assets are now limited to the Triple-A-rated agency securities and to about $125 million in bank loans it expects to hold onto – that's after raising $880M in their July IPO!

China's finance minister, who had warned of runaway markets, resigned for "personal reasons" today. Mr. Jin will be reassigned to be the deputy chief of a cabinet think thank called the Development Research Center — a far less senior position than finance minister…

FRE (our Monday put play) posted a 45% drop in earnings with a $320M loss on new mortgages and warned for Q3 but we stopped out of them already, HRB also took a hit as perhaps expanding into the mortgage business may not have been so clever!

On the whole, I'll be impressed if we hold our levels: