Love them or hate them, when Goldman speaks you should listen. The Goldman Economic Research team, headed by Jan Hatzius has spoken out on Friday's impressive GDP numbers. Hatzius notes the two recovery "camps" that have emerged among US economic forecasts. The first camp is the "V-shaped" recovery camp which believes the crisis pushed production , employment, and consumer spending to excessively low levels and that economic activity will rebound strongly. Their key piece of evidence is the belief that deep recessions produce strong recoveries:

They illustrate their case by pointing to the historical regularity that deeper recessions have typically been followed by stronger recoveries. Exhibit 1 illustrates this point by plotting the peak-to-trough decline in real GDP against the average growth rate over the two years following the business cycle trough.1 Based on a mechanical extrapolation of the historical relationship, real GDP growth in the current recovery should average nearly 6%. To our knowledge, no forecaster actually predicts such torrid growth, but the first camp views the historical relationship as a strong indication that the recovery should be very solid.

The fact that the S&P closed below the support of 1182/3 for the second day in a row would seem to indicate that some more downside might well be in the offing. Having said that, some sort of rebound on Monday wouldn't shock me, as bulls might rally to the cause, in an effort to turn things around, aided by weary value investors, who were finding "cheap" stocks in increasingly short supply, and may have decided that, in relative terms, present prices meet the definition of "cheap".

From a value perspective, however, I think that, at least in the short term, such buyers might find themselves catching "falling knives", a seemingly popular pastime about 18-24 months ago, as the support level is residing down around 1030 on the S&P. With SDS currently comprising a 13.8% weighting in the portfolio, and another 13.7% in cash, I think I'm fairly well positioned to take advantage of any opportunities that may present themselves, if my interpretation of events to come is at all accurate.

Another week another 100 points lower.

Yep, that’s all it was, we lost all of 100 points more than last week, when we fell from 10,725 to 10,172 (553 points) and this week we dropped from Friday’s Dow close of 10,172 all the way down to 10,067. Yet you would think the world had come to an end to hear the media and the traders freaking out. I’m not going to try to explain it, I can’t. Maybe it’s because going into last week we were very bearish but, starting on the 22nd, we let ourselves finally get a little more bullish AND THE MARKET BETRAYED US!