The Economy Guy

Stocks retraced their loss from yesterday – almost.  The bears are taking their profits.

Bonds moved sideways, and the Dollar lost some ground.

Oil and gasoline moved a little higher, on the higher stock market.

Gold lost $26 today as profit taking hit the market, and people took some of their gains off the table.

In the news today…..

Consumer Confidence hit an ALL TIME LOW in February.   It scored an index value of 25, down from the previous month’s index value of 37.4.  The numbers have no real meaning, but are only indicative – but hitting an all time low is meaningful in my opinion.

FED Chairman Bernanke spoke today, and here are the highlights:

1. The US economy is in a “severe contraction.”
2. It will continue for at least the 1st 6 months of 2009.
3. The economy could bottom in 2009, and start recovering in 2010 – IF certain  conditions exist:
   1. The US financial system needs to be propped up.  The securitization market is “frozen” today.  The banking system needs to be fixed
   2. Other countries might have a severe decline, and this would result in reduced exports from the US, thereby reducing industrial demand when we most need it.
   3. The “vicious downward spiral” of consumer spending must be stopped.  It is caused by 3 things – home values falling, unemployment increasing, and the depletion of individual “nest eggs.”

In my opinion, none of Bernanke’s 3 conditions may come to pass in 2009.  If true, this means that the economy will NOT bottom in 2009 as Bernanke – who was spinning the positive – told Congress today.  The toxic debt held by banks could be eliminated by government actions, but it may not be eliminated too – we’ll have to wait and see.  Exports will decline – the global slowdown led by America is already spilling over in our trading partner nations.  And, the “vicious downward spiral” in consumer spending will continue throughout 2009.  It may plateau at some new low, but it will not reverse course.

When I combine Bernanke’s opinion with the recently passed Stimulus Bill, my opinion regarding 2009 is unchanged.  I believe the US will NOT bottom out of the recession in 2009.  Unemployment will continue upward throughout 2009 – ending at about 10%.  Housing prices will continue to fall – but could be slowed (but not stopped) by the government’s housing bailout.  Stocks will rally sometime in the first half of 2009, and then fall again – and this will now be a technical rally, rather than one pushed by the Stimulus Bill spending which looks like minimal stimulus in 2009.

Tonight’s Dinner Conversation…..

What predictions would you make regarding 2009?

What about the oil price?   An increase in oil and gasoline will further slow the US economy.

What about the Dollar?  Where will it go, and why?  What are the major driving factors behind a Dollar move up or down?

What about Gold?  Do you believe, as I do, that gold will be breaking new highs throughout 2009?

What about Bonds?  Where will Treasury interest rates go?  What will happen in the Corporate bond market?  What about Municipal bonds?
 

Here are the last numbers:
Dow Jones 30 Industrial – 7351 (up 236 points)
10 Year Treasury Bond – 2.80% (up 0.02%)
Euro – $1.2841
Gold – $970 (down $26)
Oil – $39.96 (up $1.52)
Gasoline – $1.08 (up $0.04)