Hello Darkness, My Old Friend

"Hello darkness, my old friend"-Simon & GarfunkelThis morning we saw second quarter GDP come in much weaker than expected, as the economy grew 1.3% annualized in the second quarter. Expectations were for a reading of 1.7%.The real kick in the pants was the revision to first quarter GDP which was revised to 0.4% from an initial reading of 1.9%. We saw revisions to previous quarters that were so sharp it made your heard turn. The Commerce Department said the economy contracted 5.1% between the fourth quarter of 2007 and the second quarter of 2009. It was initially estimated that the contract was 4.1%. If you really want to take some Pepto Bismol this morning, the economy fell 8.9% annually in the fourth quarter of 2008, the worst in 50 years.That was not a recession folks, that was a Great Depression of a magnitude of the likes most of us have never seen in our lifetimes. The economy actually decline 0.3% in 2008, as opposed to being flat. All of the revisions included retail sales from the Census Bureau, which were not in the original numbers. In 2009, the economy fell 3.5%, much worse than the original 2.6% decline that was previously estimated.On the bright side, the economy grew faster than expected, growing at a rate of 3%, compared to the 2.9% previously reported.Despite this better than expected news, we are awash in a sea of negativity, as nothing seems to be going right this morning. It is nothing more than a harrowed mess that appears to be a rolling stone. Speaker of the House John Boehner's (R-OH) planned vote was cancelled last night because he could not get the required 218 votes needed to pass his plan. His own party is against him, and there are deep structural problems within the Republican party. The Tea Party subset is really making things difficult for the Republicans. The Democratic led Senate is trying to get something done, and Harry Reid (D-NV) said this morning, "We have hours to act" before a default happens. We are less than 100 hours away from defaulting, and it does not look like anything is going to get resolved today. Perhaps there will be a last minute compromise between both parties, but it does not look like it, at least as of right now.The Federal Reserve and the U.S. Treasury are making contingency plans for a potential U.S. default, and they are meeting with primary dealers today at the New York Fed to discuss the plans. We will see details leak out as the day happens, but it may do more harm than good, as the devil is always in the details. With a weak Q2 GDP, the potential for a U.S. default and a potential double dip recession, Simon & Garfunkel's song has never been more appropriate. At least since 2008.ACTION ITEMS:

Bullish:
Traders who believe that the Federal Reserve will enact a QE3 to try to save the day might want to consider the following trades:

• With a weak Q2 GDP, and the potential for a weaker than expected July jobs report, the odds on a QE3 appear to be increasing. Agricultural stocks, like Potash Corp. (NYSE: POT), CF Industries (NYSE: CF) should do well. Consider agricultural ETFs like PowerShares DB Agriculture Fund (NYSE: DBA) and Market Vectors Agribusiness ETF (NYSE: MOO) as well.

• Other commodity related names should do well, such as Gold ETFs, like Market Vectors Junior Gold Miners ETF (NYSE: GDXJ) and Market Vectors Gold Etf Trust (NYSE: GDX).

Bearish:
Traders who believe that QE3 will happen may consider alternate positions:

• The middle class will be crushed, as will the U.S. dollar, and both will be on the precipice of ceasing to exist as we know them. QE3 will kill the middle class, with gasoline prices soaring, and food costs spiraling out of control. The definition of insanity is doing the same thing twice and expecting different results. What about doing the same thing three times?

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