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Brian Kelly: 3 US Trades From UK's Shocking GDP

Tuesday, 25 Jan 2011 | 6:07 PM ET

To the surprise of investors world-wide, new data showed Britain's economy contracted by half a percent in the last three months of 2010.

The data had been expected to show a continued recovery.

According to Britain’s government, severe winter weather in December had a strong impact, particularly on the construction sector.

Not counting the effect of the snow, which kept people away from shops before Christmas, the government estimated GDP would have been flat — still well below market expectations for at least 0.4 percent growth.

Jonathan Loynes, chief European economist at Capital Economics, said the results were "shockingly bad". Graeme Leach, chief economist of the Institute of Directors says, “Expectations of 1.3 percent growth in 2011 would have to be downgraded.”

It’s worth noting that the figures are preliminary, leaving them open to revision, and they followed four quarters of growth — including 0.7 percent in the third quarter.

Nonetheless, the new data "raises serious concerns over whether the economy is in a strong enough position to withstand the (potential of) fiscal tightening," says Loynes.

There had been chatter that the BofE was looking to raise its base interest rate. However, now the Bank faces pressure to resume pumping money into the economy, instead.

Fear: Global Stagflation
Copper, oil and silver all fall on fears of slowing growth in Europe and rising rates in Asia.

How should you trade it?

Fast trader Brian Kelly has a few ideas.

Though industrial commodities may be dragged down by China tightening, he thinks Britain’s GDP is a sign that the price of grains and food commodities will continue to rise, simply because in this environment the Bank of England can’t tighten. On the thesis, “I’m a buyer of Agriculture ETF DBA,” he says.

And while China and other nations tighten Kelly think Western central banks (such as the US and perhaps Britain) extend easy money policy, creating tension in world markets. “As a result I’m bullish gold and silver,” he says.

And as the imbalances become exacerbated, “I’d be a buyer of volatility with a long position in the VXX ,” he adds.






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Trader disclosure: On Jan. 25, 2011, following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Adami Owns (AGU); Adami Owns (C); Adami Owns (GS); Adami Owns (INTC); Adami Owns (MSFT); Adami Owns (NUE); Adami Owns (BTU); Adami's wife works for (MRK); Terranova Owns (UPL); Terranova Owns (VRTS); Terranova Owns (PVH); Terranova Owns (GM); Terranova Owns (CVI); Terranova Owns (CNQ); Terranova Owns (LTD); Terranova Owns (C); Terranova Owns (PEP); Terranova Owns (CPX); Terranova Owns (ARUN); Terranova Owns (MS); Terranova Owns (RSH); Terranova is short Gold; Terranova owns (POT); Terranova owns (CRM); Terranova owns (FCX); Brown owns (AAPL); Brown owns (BAC); Brown owns (C); Brown owns (GLD); Brown owns (GDXJ); Brown owns (GOOG); Brown owns (JPM); Brown owns (MSFT); Brown owns (QCOM); Brown owns (WFC

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