GDP up 3.2% in Q1

This was definitely an interesting report. In general, the country might have some reason to be optimistic, as Personal Consumption Expenditures (PCE), the largest component of GDP, was up 3.6% in Q1. On the other side of the story, Residential Fixed Investment (RI) got completely obliterated, down 10.9%. One has to wonder what the stagnation in the housing and job markets will ultimately mean for the country going forward. So far it seems, Americans will be Americans, that is they'll continue to forego fiscal responsibility and savings in favor of present day consumption. The savings rate declined in the quarter, contributing positively to that nice looking PCE number. Change in private inventories were up 1.7% contributing positively to the headline number, and non-residential fixed investment was up 4.1%, implying that businesses are making investments in capex which, at least in theory, implies they expect future opportunities and returns. Increasing opportunities for businesses point to an increase in jobs and eventually higher wages, which will spur consumption even higher, though I'm still weary of that savings rate.

I've said this before and I'll say it again, but at some point, family households will have to come to terms with their situations and begin to repair their balance sheets. At this time one would expect the savings rate to go up, and consumption to go down but I'm definitely leaving the door open to other possibilities. I wouldn't short U.S. market indices, and for now I don't think I'd short U.S. treasuries either. It's still the safest investment around. The Greek mess helped bring down the yield on 10-y to 3.67 yesterday, down from about 3.9 two weeks ago. It's easy to worry about America's debt and possible inflation, but don't lose site of this trend: When a negative exogenous economic shock happens somewhere in the world, U.S. t-bills benefit. It's the same flight to quality we've seen for decades now, and I don't expect it to end any time soon.