Summary: * The dollar index traded below 94 for a good part of the day, but it did manage to close up at 94 even, down just .20 * Gold was up another $19 * Silver really shined brightly today, up .54, just below $16/oz. * Mining stocks, of course, were on fire; GDX was up just under 6% on the day, GDXJ up just under 7% * This followed a spectacular day for the mining stocks on Friday * In fact, even though gold itself was down a couple of bucks, we had a huge up day in the gold stocks * Between Friday and today, I think this is the biggest two back-to-back gains for gold stocks all year * The catalyst was the Atlanta Fed Q1 GDP estimate downgrade all the way down to .1 * If you remember, from listening to my podcasts, the very first time the Atlanta Fed came out with its upward revision, with a lot of fanfare, to 2.7%, I said that that was all political and that they would have to walk that back all quarter long, and now they have eliminated the entire estimated gain * A fair estimate might have been -.1, but President Obama is still saying we have the strongest advanced economy in the world * I don't know what his definition of "strong" or "advanced" is, but we might have one of the weakest of the advanced economies * It's just that nobody wants to accept that fact yet * Here's where it really gets interesting: CNBC was very dismissive of the weak economic numbers * They are characterizing the weak Q1 as similar to previous years' weak Q1, where the weather pushed back some economic activity to Q2, causing rebounds * They said the same thing is going to happen this year. No it's not. * This year is different from last year * First, let's talk about inventories: February and January Wholesale Trade Inventories have been revised down from +.3 to -.2 * Last year, companies were still building up inventories, believing in the recovery narrative, boosting GDP * The inventory unwind that I have been talking about for the last year is just beginning * It started in Q1 of this year, and this inventory sell-down is going to subtract from GDP * Here's another factor: the weather * The weather for the last two first quarters was very cold, pushing economic activity to Q2, helping Q2 to rebound * That's not what happened this year. The first quarter of this year was the warmest in over 120 years * So obviously there was no economic activity pushed forward due to weather, if anything, the weather might have pulled some activity from Q2 to Q1 * As weak as Q1 was, it might have been weaker if cold weather had suspended some economic activity * The third difference is the trade deficit, which is rapidly growing this year * I think the growing trade deficit will continue to put a drag on Q2 GDP * The inventory liquidation will continue to be a drag on Q2 GDP * What that means is had the government properly seasonally adjusted Q1 for the unusually warm weather, I think Q1 GDP would be a lot lower * Q1 will be a contraction, and we are going to fall from there * If that is true, then we are in a recession * I think this recession will be longer in duration that the preceding one * The question is: What is the government going to do about it? * There was a meeting today between President Obama, Joe Biden and Janet Yellen * They have to figure out how to throw the economy a lifeline without admitting that it is drowning * The first thing the Fed can do is signal that they are not going to raise rates - change their forward guidance * By just not raising the rates, the specter of a hike remains * The question is what story will they use in order to not damage Obama's recovery narrative and Hillary Clinton's campaign? * Maybe they will blame it on the global economy, even though the U.S. is much weaker than many other economies * The Fed can't cut much - one cut and they're done, unless they want to venture into negative territory, which would be a disaster
