This economy (and the stock market, too) is mostly running on cheap credit, so watching lenders throwing good money after bad is the key in understanding where we are. The main events of this week:

  • GDP came at 30% below consensus. When a stock misses estimates by 30% it is usually punished. Let see how investors will punish this weak GDP
  • Immediately after GDP report Rick Santelli said the word “stagflation” 10 times on CNBC
  • Q1 GDP had only two positive components – jump in aircrafts (because of collapsing dollar) and strong consumer spending (because stock market is high and gas expensive)
  • Housing numbers early in the week were ugly
  • Employment is still holding
  • Emerging problems of Japanese economy reduce the risks of carry trade unwinding

What to watch next week:

  • Stock market is mostly running on destruction of equity by private acquisitions. Watch if the stream of crazy money is not drying yet
  • Remember, May is the month when the first huge wave of ARM mortgages will reset. If you think you already saw ugly mortgage defaults, think again
  • What consumer did in April? Auto sales?
  • Usually I’m not watching nonfarm payrolls data, as it is not a leading indicator. But this time we are getting so close to recession that I expect that in one of those coming months nonfarm payrolls will suddenly plunge