The Economy Guy

The stock market fell 175 points today, and was a basically meaningless movement.  Still sideways.  179 points up yesterday and 175 points down today means absolutely nothing.  Just sideways momentum.

Bonds had the real story today.  Bonds broke down, and hit a recent new interest rate high – 3.82%.  This was caused by the testimony of Bernanke to Congress today.  Bonds good the fresh smell of inflation, and did what it always does – get’s scared, and drops its price (increases its interest rates).  This is very significant as the market is now saying that it really sees inflation in the future – as well as recession.

Did you make that fortune by betting on the “spread” of bonds.  The slop of the bond curve steepened significantly today, and is now double the slope when I started reporting that this was the best bet you could make in the market.

Oil and gasoline spiked up today – bad news for all of us.  The Euro continues to strengthen slowly while the Yen is unwinding its short positions, and is making a recent high.

In the news today….

Fed Chairman Bernanke testified today to Congress.  This was bad news for all Americans.  He said the economy was deteriorating (FED speak for watch out for that recession) and he will lower interest rates as long and as far as necessary.  He predicted that the economy would have “sluggish growth” (actually he is predicting we won’t go into a recession by this statement) and we will have stronger growth later this year.  He expects to see the following 3 things to happen for us to come out of the “sluggishness”: (1) Housing Stabilization, (2) Labor Stabilization, and (3) Improvements in the Credit Market.

My interpretation is that he actually expects a recession, but won’t utter the “r” word.  Housing stabilization won’t happen for at least another 2 years.  Mentioning labor stabilization implies he is worried that a lot of people are going to lose their job.  It’s the improvement in the credit market that he must be most worried about.  We are in a real credit squeeze, with banks pulling in the red welcome mat from in front of the building.

More importantly, he scared the heck out of the bond market today.  By saying he’ll continue to lower interest rates, he is in effect saying that he’ll print as much money as he needs to print to pull us out of any recession.

Trade Deficit falls

The 2007 Trade Deficit came in at $712B, just 6.2% lower than 2006.  Our trade deficit with China increased (of course) to the largest one year trade deficit every (a little over $250B).  The improvement (if you consider a $712B deficit okay) was caused by the falling dollar, and having other nations start to purchase US goods.  This trend should continue for the next few years.

Mortgage Rates rise

The latest mortgage rates are 5.72% for the 30 year mortgage, and 5.25% for the 15 year mortgage.  This increase is a direct result in the inflation scare going through the market over the past 2 or 3 weeks.  I’m very sorry to say that Bernanke’s testimony today will only make matters worse.

Here are today’s Numbers:
Dow Jones 30 Industrial - 12,377 (Down 175 points)
10 Year Treasury Bond - 3.82% (Up 0.12%)
Euro - $1.4640
Gold - $911 (Up $1)
Oil - $95.46 (Up $2.19)
Gasoline - $2.48 (Up $0.09)