The Santa Claus rally continued Tuesday as stocks were unfazed by a weaker than expected GDP reading. As tends to be the case during these holiday weeks, there were simply no sellers to be found. Stocks melted higher by 0.35% with little selling resistance. Volume was extraordinarily light once again. The market also shrugged off the rising dollar as investors continue to pile into the risk trade. The VIX fell almost 5% on the day and closed below 20 for the first time since August 2008. Daily Futures wraps up the action from all markets:

U.S. Economy
The U.S. Commerce Department said that real GDP was up .6% in the third quarter and down 2.6% from a year ago, less than last month’s estimate. The March 2011 eurodollars closed down .085 at 98.265.

Today’s FX View from IB:

The dollar remains on an uptrend [today] despite disappointment surrounding earlier third quarter GDP data showing that the economy rebounded less vigorously than was first expected. Nevertheless consumer spending didn’t fail in that same regard and as the dust clears the tendency towards higher yields continues to underpin the dollar heading towards year end. The only major doing better than the greenback is the Canadian dollar, which had been sheltered from rising yields on the prevalent view that the Bank of Canada meant what it said about maintaining a lax monetary stance through the first half of next year. Today’s U.S. report is insufficient to derail the entire growth recovery story and both North American units are pressing home that point as investors position for future yield.

This must see three part interview details Faber’s 2010 outlook. He likes commodities (wheat and natural gas in particular), Japan & hates the U.S. He continues to forecast hyperinflation as the government prints its way out of the crisis (this is very similar to Julian Robertson’s outlook). He still believes the capitalist system will fail in spectacular fashion.

Part 1:

Retail sales continue to come in relatively strong compared to 2009. Redbook reported robust weekly sales of 1.9% and the ICSC reported sales higher by 0.4%. Retailers have said the winter storms will hurt sales, but could actually boost online shopping (i.e., Amazon (AMZN) will continue its trajectory towards the moon). In the grand scheme of things retail sales are still quite weak and the year over year gains look less impressive when you look at the broader picture: (Click to enlarge)

The only way to become a great investor is to have a strong strategy, a good plan and superb execution.

But, like any business or profession, things don’t always go as planned. Mistakes occur and unforeseen events impact life in curious ways. The greats in industry study their mistakes and learn from them. Ali didn’t become the greatest until he lost, learned from his losses and then used these lessons to succeed. The investment business is no different. You’re going to make mistakes. Own them and learn from them. (For more on this please see our 9 rules of trading and why you likely trade like a loser).

Deutsche Bank recently released their 2010 investment outlook and although they remain bullish in the near-term (specifically through Q1) they are increasingly cautious as we head into the back end of the year. They see sovereign debt and inflation as potential hurdles to the continuation of the rally. After assessing all of the risks they came up with four potential outcomes for the market in 2010 and applied the probability of each:

Scenario 1 –This is the super bullish scenario. Stimulus continues to impact markets to near perfection. Reflation continues to work and money pours out of low risk assets and into high beta assets. Stimulus continues to pour into the system as the long-term repercussions of stimulus are ignored in favor of short-term gains. Rates stay low as a goldilocks scenario unfolds. Equities outperform and credit spreads continue to tighten.

Doug Kass released his 20 surprises for 2010 on Monday and they are always worth a read. As far as full year predictions go, Kass has been pretty good the last few years. He was very bearish about 2008 and a bit more optimistic in 2009. He is a bit less optimistic this year as the recovery begins to falter and signs of a double dip become evident. Among his calls are some very contrarian predictions which include a gold collapse and a dollar surge.

1. There is a glaring upside to first-quarter 2010 corporate profits (up 100% year over year) and first-quarter 2010 GDP (up 4.5%). It grows clear that, owing to continued draconian cost cuts, coupled with a series of positive economic releases and a long list of company profit guidance increases in mid to late January and early February, there is a very large upside to first-quarter GDP (up 4.5%) and, even more important, to S&P profit growth (which doubles!). The upside on both counts is in sharp contrast to more muted growth expectations. While corporate managers, economists and strategists raise earnings per share, full-year growth and S&P target estimates, surprisingly, the U.S. equity market fails to respond positively to the much better growth dynamic, and the S&P 500 remains tightly range-bound (between 1,050 and 1,150) into spring 2010.

The Shanghai equity market has served as an important indicator of the equity market over the last 5 years. As we all know, China is the fundamental driver of much of the commodity growth and economic growth in the global economy. In January I penned a piece titled "The tail that wags the dog". In it I said:

China led us into this recession and it’s likely that China will lead us out. And after a 70%+ decline, China’s not looking like a bad long-term bet to me….

It’s smooth sailing for the recovery into 2010. At least according to the Economic Cycle Research Institute (ECRI) and the latest data from their leading indicators report. the ECRI’s weekly leading indicator surged to 130.7 resulting in a year over year growth rate of 24.7%. This was the third straight week of gains and a 17 month high.

“With the WLI rising to a 17-month high as its growth rate reaccelerates, a resilient economic recovery is poised to persist well into the New Year,” said Lakshman Achuthan, Managing Director at ECRI.

Despite the fact that Goldman Sachs (GS) isn’t exactly the most popular bank on Wall Street these days there is no denying the fact that their trading desk is a money machine. Much of that is due to their spectacular trading in commodities. In addition to their favorite trades for 2010 (see here for the full details) Goldman also recently released their outlook for commodities in the coming year. Their outlook for a rather robust global economy is in-line with their continued bullish view of the commodity markets. Easy money and stronger than expected demand should help to keep many of the recent trends alive. Full details follow:

• Oil: A slow developed markets recovery amid an emerging markets revolution

Price target: $90

Rail freight continues to report dismal figures despite improvement in the sequential data. The latest data showed carloads are down 10.2% vs 2008 and 18.5% vs 2007. Intermodal traffic is down 3% year over year and down 14.3% vs 2007. Despite the weakness, some industries are beginning to show some signs of relative strength.

While 12 of the 19 carload freight commodity groups were down compared with the same week last year, increases were seen in grain mill products (16.1 percent), chemicals (14.8 percent), metallic ores (14.7 percent), motor vehicles and equipment (11.2 percent), grain (8.1 percent), waste and scrap metal (6 percent) and nonmetallic minerals (2.2 percent). Declines in commodity groups ranged from .7 percent for farm products excluding grain to 24.9 percent for crushed stone, sand and gravel.