Stocks are confused, and looking for direction. You see some big days up, and some big days down. See article below for where I think stocks are heading.
Bonds, on the other hand, are definitely heading up in value (down in interest rates). The FED is buying US Treasuries, and that is driving the price down. It increases the thought of “deflation” in the economy. The economy appears to be heading into some “rough” waters, so markets are reacting accordingly.
Oil/gasoline are declining as the economy appears to be slowing. Also, supplies of oil are at an all time high – driving prices lower. All good news for drivers.
The Dollar and the Euro are both inflated currencies and play off each other for which one will fall or rise. The Yen is stronger, and is only rising – but it too will suffer sometime in the future.
Gold is trending upward, and continues to have all the fundamentals in place for higher, and all time high, prices.
In the news today…..
Unemployment Claims – hit 500,000 (surprisingly??), and is the highest number in the last 9 months. Sort of starting to look like those halcyon days when the US economy melted down, and companies fired people right and left. Remember that unemployment is one of those ugly problems that is holding the US economy back from any type of recovery. Other problems include declining housing values, and residual losses held by banks and the FED. Plus, of course, the excessive current spending of this out of control Congress.
US Budget Deficit – was reported today as 9.1% of GDP by the CBO. I want to use this report as a lesson in how either stupid or manipulative the US press really is. My question to you is “Who cares what percentage of GDP that the deficit is?” Does anyone really use that number for anything? Isn’t is much more important what the percentage of GDP that the TOTAL deficit is – not just a single year’s deficit? Naturally, it is interesting to know how fast the % deficit is growing, but the total deficit is what really matters as this determines how much interest the US must pay each year to US Treasury holders.
Mortgages Rates – continue to sink as the 10 year US Treasury bond interest rate continues to fall. The fixed 30 year mortgage is now 4.42%, and the fixed 15 year mortgage is 3.90%. I follow the mortgage market, and there is a very ugly trend starting right now as about 80% of all mortgages are “refi’s”, rather than a new home buyer’s mortgage. Naturally, you would expect refi’s to jump as people snap up lower interest mortgages. The US government continues to FAIL in its efforts to encourage lenders (banks) to “forgive” some of the money in an “underwater” mortgage. I ask you, What bank would voluntarily “forgive” any principal amount? With the FED announcing that it will be purchasing more longer term US Treasuries, it is predicted that interest rates will continue to fall, and the 30 year fixed mortgage rate may go as low as 4.00% sometime in the future. Oh, one more thought. What are the “unintended consequences” of lower mortgage rates? You know, the ones that the government has never even thought of. Well, one will be an increase in mid-size banks across America either going out of business as they can’t compete with these lower interest rates, or merging with other banks to survive. Either way, the US will have a weaker banking system.
GM to have $15B IPO –and should you buy it? I say “stay away.” I say that because I don’t like stocks in any circumstance, and GM in particular because it is run the the government. Do you think the government has the best interest of an investor in GM in its heart? Is the President going to buy some GM stock? There are just too many unanswered questions, like how is the underfunded GM pension fund going to be made up? How much money is coming back to the US Treasury? How many shares will the US Treasury sell (which would hurt any buyer of the shares.) We just don’t know if this new GM is a viable company – it’s just too eaerly to know.
Financial Reform Bill – will allow Hedge Funds to be regulated by states, rather than the SEC, if they manage less than $100M in funds. This number used to be $25M, but was increased in the new bill. About 1000 hedge funds are considering moving to state oversight. The problem? – states don’t have anyone to oversee the hedge fund operations. You just can’t make these things up. Who’s running the asylum?
US Stock Market – On Monday, Richard Russell had this to say about the Dow… “The Dow appears to be in a huge head-and-shoulders top. Note that this top has formed almost three years after the Dow hit its high back in October 2007. The fact that we now have declining tops, meaning a lower distribution pattern [below the primary top of October 2007] is bearish. In the most recent pattern, the Dow seems to be working on an expanded “right shoulder” of its H&S top. The breakdown of the whole formation would come with a Dow close of 9600 or lower. The RSI has turned down decisively… and the on-balance-volume is in an ominous downtrend.” “As I see it, the top we are witnessing began forming in October 2007… and is still in the process of formation. This makes it the greatest top, in duration, in history. Fantastic.” Here is a chart to see it:

Tonight’s Dinner Conversation…..
Greece, and you don’t get good news. I know you are aware that the US news services stink. Those of you who have had the opportunity of seeing almost any overseas news reports know that you aren’t getting anything approaching good news reporting in the US. So, I thought it would be good to bring you a German news report from “Der Spiegel” that is reporting on what is going on in Greece. This story is telling the truth of what happens when a government messes around with an economy. And, more importantly, all governments must mess around with their own economies over the next few years. So, this microcosm of Greek news actually applies to the US, and your neighborhood. This is what you can expect to see coming down the pike.
The austerity measures that were supposed to fix Greece’s problems are dragging down the country’s economy. Stores are closing, tax revenues are falling and unemployment has hit an unbelievable 70 percent in some places. Frustrated workers are threatening to strike back.
The feast of the Assumption of Mary on Aug. 15 is the high point of summer in the Greek Orthodox world. Here in one of the country’s many churches, believers pray to the Virgin for mercy, with many of them falling to their knees.
The newspaper Ta Nea has recommended that the Greek government adopt the very same approach — the country’s leaders have to hope that Mary comes up with a miracle to save Greece from a serious crisis, the paper writes. Without divine intervention, the newspaper suggested, it will be a difficult autumn for the Mediterranean state.
This dire prognosis comes even despite Athens’ massive efforts to sort out the country’s finances. The government’s draconian austerity measures have managed to reduce the country’s budget deficit by an almost unbelievable 39.7 percent, after previous governments had squandered tax money and falsified statistics for years. The measures have reduced government spending by a total of 10 percent, 4.5 percent more than the EU and International Monetary Fund (IMF) had required.
The problem is that the austerity measures have in the meantime affected every aspect of the country’s economy. Purchasing power is dropping, consumption is taking a nosedive and the number of bankruptcies and unemployed are on the rise. The country’s gross domestic product shrank by 1.5 percent in the second quarter of this year. Tax revenue, desperately needed in order to consolidate the national finances, has dropped off. A mixture of fear, hopelessness and anger is brewing in Greek society.
Unemployment Rates of up to 70 Percent
Nikos Meletis is neatly dressed, and his mid-range car is clean and tidy. Meletis used to earn a good living at a shipbuilding company in Perama, a port opposite the island of Salamis. “At the moment, I’m living off my savings,” the 54-year-old welder says, standing in front of a silent harbor full of moored ships.
Meletis is a day laborer who used to work up to 300 days a year; this year he has only managed to scrape together 25 days’ work so far. That gives him 25 health insurance stamps, when he needs 100 in order to insure himself and his family — including his wife, who has cancer. “How am I supposed to pay for the hospital?” Meletis asks. Unemployment benefits of at most €460 ($590) per month are available for a maximum of one year — and only if he can produce at least 150 stamps from the past 15 months.
There’s hardly a worker in the shipbuilding district of Perama who could still manage that. Unemployment in the city hovers between 60 and 70 percent, according to a study conducted by the University of Piraeus. While 77 percent of Greek shipping companies indicate they are satisfied with the quality of work done in Perama, nearly 50 percent still send their ships to be repaired in Turkey, Korea or China. Costs are too high in Greece, they say. The country, they argue, has too much bureaucracy and too many strikes, with labor disputes often delaying delivery times.
Perama is certainly an unusually extreme case. But the shipyards’ decline provides a telling example of the Greek economy’s increasing inability to compete. Barely any of the country’s industries can keep up with international competition in terms of productivity, and experts expect the country’s gross domestic product to fall by 4 percent over the course of the entire year. Germany, by way of comparison, is hoping for growth of up to 3 percent.
Sales Figures Dropping Everywhere
Prime Minister George Papandreou’s austerity package has seriously shaken the Greek economy. The package included reducing civil servants’ salaries by up to 20 percent and slashing retirement benefits, while raising numerous taxes. The result is that Greeks have less and less money to spend and sales figures everywhere are dropping, spelling catastrophe for a country where 70 percent of economic output is based on private consumption.
A short jaunt through Athens’ shopping streets reveals the scale of the decline. Fully a quarter of the store windows on Stadiou Street bear red signs reading “Enoikiazetai” — for rent. The National Confederation of Hellenic Commerce (ESEE) calculates that 17 percent of all shops in Athens have had to file for bankruptcy.
Things aren’t any better in the smaller towns. Chalkidona was, until just a few years ago, a hub for trucking traffic in the area around Thessaloniki. Two main streets, lined with fast food restaurants and stores catering to truckers, intersect in the small, dismal town. Maria Lialiambidou’s house sits directly on the main trucking route. Rent from a pastry shop on the ground floor of the building used to provide her with €350 per month, an amount that helped considerably in supplementing her widow’s pension of €320.
These days, though, Kostas, the man who ran the pastry shop, who people used to call a “penny-pincher,” can no longer afford the rent. Here too, a huge “Enoikiazetai” banner stretches across the shopfront. No one wants to rent the store. Neither are there any takers for an empty butcher’s shop a few meters further on.
A sign on the other side of the street advertises “Sakis’ Restaurant.” The owner, Sakis, is still hanging on, with customers filling one or two of the restaurant’s tables now and then. “There’s really no work for me here anymore,” says one Albanian employee, who goes by the name Eleni in Greece. “Many others have already gone back to Albania, where it’s not any worse than here. We’ll see when I have to go too.”
No Way Out
The entire country is in the grip of a depression. Everything seems to be going downhill. The spiral is continuing unabated, and there is no clear way out. The worse part, however, is the fact that hardly anyone still hopes that things will improve one day.
The country’s unemployment rate makes this trend particularly clear. In 2009, it was 9.5 percent. This year it may rise to 12.1 percent and economists expect it to reach 14.3 percent in 2011. Those, though, are only the official numbers, which were provided by Angel Gurría, secretary general of the Organisation for Economic Co-operation and Development (OECD). The Greek trade union association GSEE considers those numbers far too optimistic. It considers 20 percent to be a more likely figure for 2011. This would put the unemployment rate as high as it was in 1960, when hundreds of thousands of Greeks were forced to emigrate. Meanwhile, purchasing power has fallen to its 1984 level, according to the GSEE.
‘Things Are Starting to Simmer’
Menelaos Givalos, a professor of political science at Athens University, has appeared on television, warning viewers that the worst times are still to come. He predicts a large wave of layoffs starting in September, with “extreme social consequences.”
“Everything is getting more expensive, I’m hardly earning any money, and then I’m supposed to pay more taxes to help save the country? How is that supposed to work?” asks Nikos Meletis, the shipbuilder. His friends, gathered in a small cafeteria on the pier in Perama, are gradually growing more vocal. They are all unemployed, desperate and angry at the politicians who got them into this mess. There is no sympathy here for any of the political parties and no longer any for the unions either.
“They only organize strikes to serve their own interests!” shouts one man, whose name is Panayiotis Peretridis. “The only thing that interests me anymore is my daily wage. A loaf of bread is my political party. I want to help my country — give me work and I’ll pay taxes! But our honor as first-class skilled workers, as heads of families, as Greeks, is being dragged through the dirt!”
“If you take away my family’s bread, I’ll take you down — the government needs to know that,” Meletis says. “And don’t call us anarchists if that happens! We’re heads of our families and we’re desperate.”
He predicts the situation will only become more heated. “Things are starting to simmer here,” he says. “And at some point they’re going to explode.”
Here are the closing numbers for today:
Dow Jones 30 Industrial – 10.277 (down 144)
10 Year Treasury Bond – 2.58% (down 0.06%)
Euro – $1.2820
Gold – $1234 (up $4)
Oil – $74.40 (down $1.03)
Gasoline – $1.93 (down $0.03)