GDP Less Than Expected, Inventory Build Coming to an End, Goldman/Paulson Issue Heating Up

I expressed my belief last week via twitter that this GDP number could be interesting. I suggested the number may be less than expected as the inventory build is coming to an end. Now real intrinsic growth will need to surge in order to satiate the appetite of the GDP prognosticators and I believed that would be a tall order.  Well results are in and the number was in fact less than forecast. I  expect this may be the beginning of a trend…

ECONX GDP Increases for the Third Consecutive Quarter

As expected, growth remained positive for the third consecutive quarter as GDP increased 3.2% in Q1 2010 after rising 5.6% in Q4 2009. The consensus estimate called for a rise of 3.3%. Similar to last quarter, the bulk of GDP growth was allocated between consumption and inventory investment. Consumption expenditures rose 3.6% and contributed 2.55 percentage points to GDP growth. Inventories turned positive for the first time since Q1 2008 and contributed 1.57 percentage points to GDP growth. Construction expenditures deteriorated in both the nonresidential and residential space as investment fell 14.0% and 10.9%, respectively. This was the first decline in residential investment since Q2 2009. Net exports contributed negatively to GDP as export growth (5.8%) increased at a slower rate than import growth (8.9%). Government spending declined for the second consecutive month as state and local expenditures decreased 3.8%. Federal spending was up 1.4%.

Meanwhile, the markets continue to try and ignore the Goldman Sachs (GS) issue. However, I fear the morass (emphasis in the last syllable) is only growing thicker. Hairs are beginning to stand on the back of my neck as the current disregard for the severity of the GS issue creates a déjà vu feeling. I can recall countless talking heads on CNBC down playing Bear Sterns’ troubles in ‘08….

Criminal Probe Launched Into Goldman Sachs

Time for the media circus to go nuts. The AP reports that the Feds have just opened a criminal probe into Goldman: now it is getting interesting. And everyone was thinking that Eric Holder is a toothless puppet (well, that still has to be refuted).

As the AP reports, “The investigation by the U.S. attorney’s office in Manhattan stems from a criminal referral by the Securities and Exchange Commission, a knowledgeable person said Thursday. The person spoke on condition of anonymity because the inquiry is in a preliminary phase.”

Read More…

The following post by Zero Hedge is a must read if one wants to really understand the issues of the Goldman/Paulson case.

Did Paulson Have A $2 Billion Bear Stearns CDS Short In Late 2006? Novel Observations On Abacusgate

…Most relevantly, in what could be damaging disclosure by Fabrice Tourre, the Frenchman notes that as a result of Paulson’s mistrust of Goldman’s counterparty risk, the Abacus AC1 deal was structured in a novel way in which “they would be acting as protection buyer, facing the ABACUS SPV (as opposed to a structure where Goldman is protection buyer as is usually the case).” This little legalistic variation could make a world of difference in an Attorney General’s hands…

…Direct from Tourre E-mail, “As you know, a couple of weeks ago we had approached GSC to ask them to act as portfolio selection agent for that Paulson-sponsored trade, and GSC had declined given their negative views on most of the credits that Paulson had selected….

Read More…

About Bret Rosenthal

Interpreting the news that moves markets. Principal of RCM, LLC, and founding partner of the Fortune's Favor Family of Funds
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