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http://zerohedge.blogspot.com/2009/04/spin-on-6-gdp.htmlWednesday, April 29, 2009 The Spin On -6% GDPPosted by Tyler Durden at 1:02 PMMore sanity from David Rosenberg:

We have to keep an open mind and respect Mr. Market

There is an old adage that a market which does not respond bearishlyto bearish news is clearly not a market in a bear phase. As financialeconomists, we have to keep an open mind and respect the verdict thatis being turned in by Mr. Market as he continues to shrug off weakdata and embrace whatever sprinkle of good news that can be gleanedfrom the incoming data releases.

Worst back-to-back GDP performance in 50 years

Indeed, the vast majority of economic data remain very soft even iftreated by investors at this point as old news. Not only did 1Q realGDP contract sharply -- at a 6.1% annual rate versus consensus

expectations of -4.6%, it followed on the heels of a 6.3% decline inthe fourth quarter of 2008. That marks the worst back-to-backperformance in 50 years.

A few reasons that the stock market is rallying on this news

1) The second derivative can only get better from here

The market believes that the back-to-back declines of 6%+ in real GDPis a cathartic event and that the 'second derivative' (i.e. change inthe rate of growth) can only get better from here.

2) Investors like the knife companies took to inventories

Inventories were cut by $103.7B in 1Q and accounted for nearly half ofthe decline in real GDP last quarter. While demand was also soft, theview is that we entered the second quarter with an inventory/salesratio that was quite a bit lower than many forecasts, including ours,and as such we should see a much 'less negative' 2Q print on real GDP.It is hard to argue with that point, and again, this is a marketwilling to trade off of 'second derivatives' in the economic data.

3) Government spending contraction, a one-off event

Government spending also contracted, mostly on defense, whichsubtracted 0.4 percentage points off of the headline GDP number.Again, a market that has been very selective in its interpretation ofthe data is viewing this drag as a one-off nonrecurring event.

4) Upside surprise to consumer spending

If there was an upside surprise in the data, it was consumer spending,which managed to post a 2.2% annualized advance. Many pundits arepointing to this as a sign of stabilization in the most critical

segment of domestic demand. Then again, we know from the monthlyretail sales data that the bulk of this first quarter growth took holdin January, which followed a record 30% annualized plunge as 2008 drewto a close.

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