1st Quarter GDP Misses Expectations

Equities start the day lower as 1st Quarter GDP misses expectations. When was the last time GDP beat? Can anyone remember? Is it WW2? I just picture Bernanke sitting in a lounge at the Fed watching his Bloomberg terminal and saying “………I gotta have more cowbell!” 2.5% vs expectations of 3.0% but thankfully Personal Consumption beat so it’s not all bad news. So what did we learn this week, other than the fact that Manti T’eo really hosed himself. We learned that the market doesn’t care about weak earnings or a deflationary scare. The drop in commodities has been completely forgotten and the fact that top line numbers are softer than my midsection appears to have had zero effect on risk appetites. All sorts of charts repaired themselves this week like the Dax, Housing, Transports, and Financials so anyone leaning bearish continues to be offsides. 2.5% GDP….unreal….we continue to be stuck in a “muddle thru” world. But at least we have SOME growth, and that’s not lost on big-time investors. Oh and one final thought, which is 100% sustainably grown organic writer opinion (WFM should sell some of that): anyone who thinks Bernanke is stopping QE anytime soon needs to seriously reconsider their position. Why on Earth would he, especially given the data, and who would want to fight that? More cowbell? How about all cowbell. I mean look at this: Jim O’neill of Goldman is talking about Central Banks owning equities for crying out loud!!

After the open, equity markets had a decidedly weak tone but interest in playing the game was virtually nonexistent. Client activity was extremely muted which I’m chalking up to it being a Friday in spring, with kinda warm temps and a small dose of earnings exhaustion. We went nowhere on no volume so let’s take a walk over to Rwanda shall we? (have you ever seen a transition like that before in your life? I’m going somewhere with this trust me) Since it was a bit slow I sauntered over to Fixed Income land to see what was going on there. I ran across this bond deal from Rwanda and here’s the juicy deets: They issued $400mm of 10yr paper today with a yield of 6.875%. Original guidance was 7% and according to bloomy this thing came in 8.75x covered. You know what was trading at these levels last fall? Spanish 10s. After a little digging on the internet I found this quote about their economy: "In spite of Rwanda’s prudent monetary policy, modernization efforts and budgetary discipline present serious obstacles to macroeconomic stability. Rwanda depends on significant foreign imports. To reach an acceptable balance in its current account, Rwanda needs a massive influx of foreign aid." So here’s a nation who gets 38% of its budget from foreign aid issuing debt that is over 8x covered and yielding what SPAIN did last autumn. Should this make me nervous or no? I won’t profess to be “Gundlach genius” about bond investing but all I can picture here is a T-rex trying to grab a piece of Rhinoceros off the ground. Reeeaaaaaachhhhh. Anyway by lunch we sat on 1,583, down 13bps, on a VERY quiet trading day. Anyone know what airline might get me from Chicago to the Cook Islands?

The back half of the day saw us briefly touch unchanged but a last minute selloff kept us from the promised land. Winners JCP / DHI / PBI / CERN / ABBV. Losers PKI / EXPE / KLAC / AMZN / COV. So more mixed earnings, a weak GDP report, a decent sentiment survey, and a whole lot of quiet price action. Not exactly the freaky Friday we were looking for but we play the game put in front of us. If you are bullish then this was a good week for you. The market had plenty of reasons to sell off and it didn’t, which means the pain trade is probably higher (I bet we see 1,600 next week). The Fed’s actions are a large part of the current bull market and I’ve seen nothing that leads me to believe that will change anytime soon. Stay the course Captain Ahab. Final Score: Dow +8bps, S&P500 -18bps, Nasdaq -28bps, Rus2k -53bps.

News Highlights:

I’m going to end today by guaranteeing you a smile. Its Friday, the sun has finally come out in the Midwest, so let’s end with a grin. If by the end of this video you aren’t laughing with this kid then go hunt down Kristin Stewart because you are soul mates (look at the range of emotions he goes thru)