Morning Report - 4Q GDP revised upward

Vital Statistics:

	Last	Change	Percent
S&P Futures	1516.7	0.9	0.06%
Eurostoxx Index	2616.7	4.9	0.19%
Oil (WTI)	92.98	0.2	0.24%
LIBOR	0.287	0.000	0.00%
US Dollar Index (DXY)	81.58	-0.024	-0.03%
10 Year Govt Bond Yield	1.88%	-0.02%
RPX Composite Real Estate Index	194.2	0.2

Markets are flattish after 4Q GDP was revised upward, but less than forecast.  4Q GDP has been revised upward to + .1% from -.1%.  Initial Jobless Claims came in at 344k. NAPM Milwaukee came in BTE at 56.5. Bonds and MBS are up on the news.

The US GDP number was disappointing (the Street was at + .5%) and a drop in defense spending was a big factor.  Don't forget 3Q GDP came in at + 3.1%, well in excess of the current 1.5% trend.  The government's fiscal year ends in September, and there is a "use-it-or-lose-it" dynamic that goes on.  In other words, if an agency doesn't spend their entire budget, it will be cut next year.  So even if they don't actually need to spend the money, they will. The net effect is that government spending tends to accelerate in Q3 and then fall in Q1. You can see this in Table 1 of the official press release.  Punch Line:  Take 3Q and 4Q GDP numbers with a grain of salt. Of course, there is a battle royale going on between the right and the left about how to frame this whole issue as everyone deals with the sequester, so the signal to noise ratio is miniscule.

Tidbits from the Bernank's House Testimony yesterday:  A "significant majority" of the FOMC is supportive of current policy.  The Fed would prefer that US fiscal solutions be less front-loaded. They note some progress in the labor market and haven't seen any significant problems in market functioning. He also gave some insight into the planned exit strategy:  to let the assets run off and then drain reserves.  He said it is a "reasonable guess" that unemployment will get to 6% by 2016.

It is getting easier to raise money in the housing market. There should be an uptick in IPOs for homebuilders this year as there is still a chasm between ease of financing in the private and public markets.  While yield pigs will jump on bond issues from the recently dead, non-public entities still struggle to get access to construction loans. The homebuilders are pretty rich at the moment, sporting P/Es around 30 or so.

Jack Lew was confirmed as Treasury Secretary.  His job will be the pit bull defending government spending and pushing for tax hikes. How this affects the dollar I have no idea.