This morning GDP QOQ (Annualized) was released at 2.4% vs. the estimate of 2.6%.  At first glance, you think uh oh.  Then, there was the revision to last month’s number.  It was a big revision UP.  You put it all together, and it shows a economy that slowed down very fast last month.  As you know, I watch this number carefully because it correlates so well with the S&P 500.  (Below is the picture including today’s data).

As you can see, really what we need right now is some stabilization.  I believe that if the economic data that continues to be released over the next few months is mediocre, the stock market can rally further.  What the market has been reacting to over the past 3 months has been the sharp drop in all the leading economic indicators.  Some stabilization in the Europe & the U.S. combined with continued growth in the emerging markets could be just what the bulls want.

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The market was off to a reasonable start this morning after great earnings by Apple last night. But, for most of the day, the major indices were basically flat. Then, Ben Bernanke began to speak to Congress giving his semiannual monetary policy report. The more he spoke, the more equity prices fell. I immediately flashed back two years ago when I used to see some politician on television and down we’d go. I’d look on my Bloomberg machine and see that a speech was scheduled later in the day and you’d watch the put options. The speech would start, the market would fall, and S&P 500 put options would fly. Maybe that trade is back on. It sure was today.

I was able to listen to most of the speech and watch the reaction tick by tick in the markets. And what I heard was Ben Bernanke (who I do like) give ALL his various options if the economy gets worse. This wasn’t in his statement but rather in response to a question. Remember, the complaint has been that the Fed is out of bullets. “Helicopter Ben” confidently said there are plenty of tools in his belt. First, he said he can change the language to let people know that the Fed will be more accommodating for a longer period of time. This will give the market more confidence that higher rates aren’t in the cards. Second, he said he could lower interest rates. Third, he said he could buy more bonds to keep rates down and inject more into the system.

Let’s analyze each of these options. First, he can change the language. So, basically that means do nothing. It’s jawboning and cheerleading with no real action. Second, he said he can lower interest rates. ALL the way down from .25% to 0%. Really? Remember when the Fed had rates at 5% or 6% back in the day? We would all wait to see if they were going to drop rates by .5% or .75%. Now, does he really think dropping rates from .25% (basically nothing) to 0% (literally nothing) will do any good? Last, he talked about buying bonds. That’s legitimate and certainly gives us a green light to buy more bonds. But, these different tools don’t sound like tools to me. They sound like the Fed is running out of bullets. I first thought to myself no wonder the stock market is falling. But, then I thought wait a second. This is the problem. We’re still relying on the government to fix everything. Hasn’t the Fed done enough? They’ve done their job. They’re finished. They’ve injected more capital in the last two years than we’ve ever seen. They’ve lowered rates to practically nothing to encourage activity. They’ve purchased bonds to keep rates low for longer than we had originally anticipated. And, they purchased all the “junk” that bank couldn’t sell. What more should we want? But, we saw the market sell off because the Fed wasn’t giving us any new information and inventing any new tools they could whip out of their belt that would surprise us and get the economy back on track any faster.

All those smug politicians asking questions to Ben Bernanke as if they have a clue about finance always cracks me up. I wish he would have asked them “What are you guys (& gals) going to do to get the economy back on track?” How about lowering taxes to stimulate small business growth which in turn creates jobs? But, no. What I saw was Congress cutting Ben Bernanke off in mid sentence so they could look smart and act like bullies.

This evening, I heard a politician say in an interview the Fed has a lot of options because they have so much on reserve. However, it’s not about the reserves. That’s like buying a stock because the company has a lot of cash. When a company has a lot of cash, that’s great but it’s what they do with that cash that’s important. We’re relying on the management to earn a return on that cash, not just sit on it. If the Fed has reserves, that doesn’t help anybody.

Again, I’ll reiterate. The Fed has done their job and it’s time for Congress & the President to step up to the plate and figure out how to grow our economy. All I see right now is other countries growing and the U.S. is about to embark on massive tax hikes which will drive capital offshore to these faster growing countries. America has a tremendous opportunity in front of it. We can capitalize on emerging market growth if we choose helping those unemployed find work and grow our economy. Instead, I think we’re wasting that opportunity.
Today’s drop wasn’t Ben Bernanke. It was a reminder that the Fed isn’t going to really do anything else. It’s up to someone else to take over. Ultimately, that’s not good in the long run.

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Google (GOOG) releases their earnings after the bell tonight.  Below is a picture of Google in the last year.  Three out of the last four times they’ve reported, the stock has fallen after the report (the “E” labels are the dates earnings were released).  Given the recent run in Google, we probably shouldn’t expect anything else.  Implied volatility is somewhat elevated right now so buying puts on the stock to protect yourself might not be the best way to play it.  Perhaps if you own the stock look to sell out of the money calls.

Click here to listen to Through A Trader’s Eyes Podcast 24 – July 6, 2010

I have an iPhone 4 on the way.  I checked the shipping history this morning and it actually showed it starting out in China.  I’ve never seen shipping history actually start in China and work its way to the United States.  Obviously I know most products start there but generally show a state in the U.S.  Back to my story.  I ordered the iPhone 4, found out about the antenna problem, and didn’t cancel my order.  I talked to a friend last night who knows about the antenna problem, and he told me which case he’s going to purchase for his iPhone so the reception  problem won’t happen.  Are we crazy?  What other product would cause intelligent people to act this way?  A known defect with the phone but we don’t care.  That’s Apple’s power.  I continue to drink the Kool-aid.  Below is how I feel when it comes to Apple products.

A few days ago, I posted a picture of initial jobless claims on top of the S&P 500 to show you the correlation of jobs and stock prices.  You’ll hear from some “pundits” that jobs don’t matter.  We’re a service economy now and manufacturing here in the states is never coming back.  And while I believe that, my job is to figure out what makes stock prices go up or down.  Job growth is one of the many components that affect stock prices.  Today, we got another confirmation that jobs do matter. The change in non-farm payrolls figure came out at 7:30 a.m. CST.  The number (which will be revised) came out at a -125,000.  This was a little better than estimates, but once again this number is going in the wrong direction.

I know it’s hard to believe government numbers and we know they change over time but the point is this:  If you believe we’ll have more jobs and a robust economy, you buy stocks.  If you believe we’ll have stabilization like we did in the mid 2000s where jobs were created even at a slow pace, you buy stocks.  If you think unemployment is going to stay over 10% and increase, then you avoid stocks.  This is a longer-term indicator and while things look very bearish based on the above graph, I think we are setting up for a tradable rally in the next few days.  As always, we have to monitor the strength to determine whether or not it should be shorted or not.  We often get rallies into holidays that are somewhat patriotic.  This year, it may be the opposite.  I think the rally comes after the holiday.

Short-term (starting in the next few days) – Bullish
Medium-term – Bullish
Long-term – Bearish