Contraction Confirmed; Stocks Jump

Wall Street is a strange and mystifying place. What often occurs on a given day often is the opposite of expectations. Thursday was one of those days.

The Commerce Department concluded, in their initial 3rd quarter estimate, that GDP contracted at an annual rate of 0.3%

Both the GDP report and the weekly initial unemployment claims figure of 475,000 were released an hour before markets opened, but investors seemingly have already discounted the news and were cheered that the GDP figure was less of a contraction than predicted.

With opinions on whether or not we're in a recession ranged from the taciturn and pedantic - recession is defined as two consecutive quarters of contraction - to the ridiculous and sublime. Nouriel Robini, the economist from NYU who has been predicting a harsh recession for some time, testified at a congressional hearing, "if it walks and quacks like a recession duck, it is a recession duck and we are in a recession."

Dow 9,180.69 +189.73; NASDAQ 1,698.52 +41.31; S&P 500 954.09 +24.00; NYSE Composite 5,975.03 +200.14

Roubini, who made the same kind of quirky quack on his blog in July pointed out then that the recession may have begun in the 4th quarter of 2007.

Roubini is obviously on the right track. Considering how desperate Republicans were to steer clear of a recession with the all-important election coming up in 2008, it doesn't take such a leap of faith to believe that 2008 1st and 2nd quarter GDP figures were largely fudged to obfuscate the obvious and that we've been in the throes of a contracting economy for more than a year.

Why else would stocks take their cue and rise smartly on the news of a smallish contraction? Smart money on Wall Street is betting that the recession will be largely over by the 2nd quarter of 2009 at the latest, making it a rather long and deep one, but one which is now in its latter stages.

Also weighing into the equation no doubt it the upcoming election, in which almost all indications favor the election of Barack Obama as the nation's first black president and a powerful majority in congress for the Democrats. Investors seem to not mind at all that Obama is a Democrat or that both the executive and legislative branches of government will both be in Democratic Party control.

That big money interests would think along those lines also does not take much of an imagination. Apparently, not many in the financial and business realm are too worried that Obama is going to do anything that will significantly upset the economy. All through the long primary and election seasons, Obama has displayed a cool and calm demeanor - and business loves predictability and a sure hand.

Just watch over the next few months how the argument shifts away from the economy. The banking crisis is now becoming ancient history. The Fed and Treasury panicked and congress went along to give banks much more assurance than they ever needed. As the money is now rolling out of the government coffers and into the hands of the slimy, scheming bankers, they'll be sure to cooperate lest Mr. Obama and a forthright congress take away their fat bonuses. That cake - and the deal - has probably already been taken and eaten. With Nancy (off the table) Pelosi in the mix, there's probably no chance of prosecution of these conniving masters of shadow finance, either.

The trading on Wall Street also was much calmer than it has been lately, a sign that volatility is on the wane. The extremes seen over the past month are difficult to maintain for long. Eventually, everything returns to some semblance of sanity and normalcy, even Wall Street.

On the day, advancing issues galloped past decliners, 4866-1401. The gap between new lows and new highs also continued to compress. There were 244 new lows, and just 13 new highs, but the difference is much smaller than it was just a few days ago.

This could be setting up for an enduring bounce rally extending through election day, when there will finally be some assurance of a positive change of leadership in Washington.

Crude oil took another small step backwards, losing $1.54, to close at $65.96 on the December contract. Gold got back to losing value, dropping $15.50, to $738.50. Silver lost 2 cents to finish at $9.79.

Exchange volume was moderate.

NYSE Volume 1,375,164,000
NASDAQ Volume 2,591,070,000