Friday – GDPhew!

Well that wasn't so bad was it?

The GDP of the United States fell "just" 3.8% in Q4 after falling 0.5% in Q3 and that is way better than expected by analysts who had gone to down 5.5% as the average prediction with the Whitney/Roubini camp screaming that we would be lucky to be down 7%.  We got a wiff of this last night with AMZN earnings and I rushed and update of our notorious "Stocks to Buy" list out to members because, as I said early this morning ahead of the report: "we may want to use it today."

I was all gung ho for a sell-off and we went short on Wednesday afternoon but we got most of what we expected yesterday and I think now we should hold our usual buy levels (8,066 on the Dow, 820 on the S&P and 1,450 on the Nas doesn't even seem to be an issue) and it's time to do a little fishing.  We are in no means out of the woods but maybe the woods aren't as deep and dark as some people think.  XOM surprised me with a beat off low expectations but a beat is a beat and we tip our hat to them for doing an incredible job managing a tough quarter.  We covered our long puts with the $75 puts "just in case" and thank goodness we did but I still like shorting them at $80 as the reality of $7.8Bn being the new $14.8Bn (last quarter) finally sinks in.

Before we get all back slappy about the GDP, let's note that inventory buildup added 1.3% and rising inventories aren't always a sign of an improving economy – sometimes it just means things aren't selling, especially after the holidays.  So add that back in and we do have a 5.1% contraction in GDP – either way it's the worst since 1982.  On the other hand, our final GDP for 2008 was UP 1.3%, the weakest since 2001 and 2002 was no party either!    Core inflation for the quarter dropped 0.6%, down from up 2.4% in the third and amounting to up 2.2% for the year while headline inflation fell 5.5%, a record due to the precipitous drop in energy prices and the end of the Ag bubble.  Consumer spending fell 3.5% with a 22.4% decline in spending on non-durable goods – the worst since Bush the First in 1988. 

Thanks to deflation of food and energy, real disposable income rose 3.3% and that money went into the bank as savings rose 2.9% in Q4.  Business investment fell 20.1% in Q4 and that alone cost us 2.3% of the GDP.  Software and equipment spending was off 27.8% and once again I will point out how amazing AAPL's numbers were given the circumstances.  Non-defense spending by the government went up 14.1% but State and Local government spending fell 0.5%.  Overall government spending added 0.4%.  So, not a good report by any measure but hardly the end of the world stuff many have been expecting. 

Over in Asia this morning, Japan followed us down 3% on news that their own Industrial Output fell 10% but the Hang Seng gained a point and NEC announced 20,000 job cuts along with Toshiba's 17% drop as their ratings were cut.  I mentioned yesterday that I saw about 100,000 jobs cut in the earnings repors and the WSJ has put up a nice summary chart that shows I was way under – it's actually 233,000 announced cuts this month!  Europe is flat ahead of our open and Pharma stocks led the declines as Roche's bid for DNA turned hostile as Roche went around the board, trying to push a lower priced offer out to the market.

Europe is mixed, even after our BTE GDP report and we can expect the same from our own markets most likely as we head into the weekend waiting for more clarity from the government about the next $2Tn in aid for the economy.