Exports Give GDP a Boost

Second-quarter GDP was reported up 3.3%, a nice surprise to Wall Street. Exports, buoyed by a weak dollar, carried the day. Trade alone was up 3.1%, so without that, GDP would have been a meager 0.2%. Even with a strengthening, the dollar trade will not go away, and the dollar can rally a lot more before the benefit of a weaker currency would be reversed, but take note that it is exports (and to a lesser extent the tax rebates) that created the strong report.

Initial unemployment claims came in about as expected at 425,000, and the four-week moving average fell 6,000 but is still firmly in recession territory above 400,000 at 440,250. Next week brings the Bureau of Labor Statistics report on job creation (or destruction). The last few reports have shown far fewer job losses than in past downturns. Consensus is for a continuation of that trend.

Fannie Mae (FNM - commentary - Cramer's Take) and Freddie Mac (FRE - commentary - Cramer's Take) continue to trade well in today's market. The stocks have been helped by recent reports from Citi and Goldman that the worst might be averted.

They are also trying to recover capital by letting their books of business shrink. In June, for example, FNM entered into $55 billion of mortgage purchase commitments as some of its existing book of business got paid off. In July, the new business created was only $16 billion, as the company chose not to enter into new business commitments but rather choose to keep the capital that had supported the retiring business in house.

That's probably the prudent course to take, but it leaves the mortgage market without a source of liquidity, and fewer new mortgages will be made. This would indicate to me that there will be government involvement at some point, as renewed health of the mortgage market is essential to our economy.

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Vincent Farrell Jr. is chief investment officer for Soleil Securities Group and a regular guest on CNBC and other national print and broadcast media.

Prior to joining Soleil in August 2008, Farrell was a principal of Scotsman Capital Management. Before that, he was chairman of Victory Capital Management of Cleveland and chairman of Victory SBSF Capital Management in New York. He was a founding partner of Spears Benzak Salomon & Farrell, which was acquired by KeyCorp in 1995. Vince held a variety of positions in his 23 years at SBSF, including chief investment officer, and he served as the portfolio manager on a number of the firm's largest client relationships.

Prior to joining SBSF, Vince spent nine years at Smith Barney as a vice president, sales.

Vince graduated from Princeton University in 1969 and received his MBA from the Iona College Graduate School of Business in 1972.