It has been awhile since I talked about how the various markets are doing in the US, so now is a good time to look at these markets and explain a little of what is actually happening.

Gold – as this is my recommendation for all readers to consider for inclusion in their personal investments – has been falling from its 2010 year end high of $1420, and hit $1340 the end of last week.  There are many reasons for this fall off in price, but here are the main ones that I believe are in play:

1. People are taking profits from the 29% increase of last year – and there are lots of profits to take.
2. The Euro was used last year as play against gold – sell the Euro and buy gold with the money.  This is being unwound right now as the Euro is gaining while gold is falling – normally they go in the same direction.
3. China is raising interest rates to cool off their massive growth in GDP – it is growing too fast for comfort of the Chinese leaders, and could lead to a fast growth in Chinese inflation – something that could cause unrest in the country, and something the Chinese leadership would avoid at all costs.
   

However, having said all that, I believe that the selling in gold is approaching its finish, and will resume its uptrend to new highs in the near future.  The fundamentals for gold have not changed one iota.  It has been a long time that I have given a “buy signal” for gold, but if the price goes below $1330/ounce where there happens to be some good support, then a purchase of gold would be called for.  (On the Silver front, I have stayed away from Silver for the main reason that I don’t follow it too closely.  However, Silver is also much more volatile than gold – down 10% versus 5% for gold’s decline – so that’s another reason I don’t recommend it.  However, if you believe it is a great investment, I would say go for it if you have done all your due dilligence homework.)

Stocks – have been going up when measured by the DJ30 or the S&P indices.  This is being caused by the Quantitative Easing 2 money being poured into our economy by the FED finding a home in stocks (plus other places too).  However, there is an underlying trend that you should not miss.  The small cap stocks are underperforming the rest of the stock market.  In other words, money is coming out of small cap stocks and going into large cap stocks (like the DJ30) stocks) – go and check out what is happening to those small caps, and you will be happy if you are not invested in them.

Bonds – are falling in value as interest rates trend upward.  This is the unexplained phenomenon as the FED is trying to reduce interest rates, but the market is defeating that goal, by raising interest rates.  Also, I have been reporting on the beginning of the end of the Muni Bond market which will also have a negative affect on bond values sometime later this year.

Dollar – started the year going upwards, but has fallen off sharply during the past week.  The Euro is now standing at 1.36 Dollars/Euro.  We will have to wait a little longer to see if the Dollar confirms its downward trend against all currencies.

Oil – started the year going upward, and went as high as about $92/barrel.  It is now standing around $88/barrel, as the OPEC have “hinted” they may increase the supply of oil.  You can ignore just about anything the OPEC nations ever say, and history shows they don’t follow up with their promises too well.  Oil wil probably hit $100/barrel by the first half of 2011.

Other News……

The Irish Government fell last week, and they called a general election on March 11th.  The ruling party will be wiped out in the next election as just about everyone in the country sees how incompetent they truly are.  They have earned their fate.  However, the much more interesting thing to follow is whether of not the next government to come into office will “repudiate” the deals made with the EU and IMF.  If they repudiate them, it will cause a shock waive heard around the world, and Greece will probably line up to do the same thing.

Spain is planning a restructuring of its banking system.  Effectively, I believe there will be a Spanish bailout of its banks as part of the restructure plan.  This sounds way too similar to what the Irish Government did before it found out how bad the banks really were.  There is a natural tendence for any bank to hide its real problems – assuming it has some bad problems.  Spain is no different.  People in Spain are demonstrating with “Donde Esta Mi Donera?” signs.  Spain is just further behind the power curve than Ireland.  Watch out for Portugal and Italy too.

Dubai built those beautiful islands off its shore so massive resorts and hotels and residences could be built on them.  I find it amusing that those islands are being reclaimed by the sea (sinking in effect), as the waves and tides due their endless work.  I wouldn’t have wanted to be one of the millionaires who bought one of those lots and built a mansion on it.

The Dollar gained back its 1 cent move down yesterday.

Gold continued its seesaw movement going down $10 today.

Oil and gasoline were the other big movers – moving down.  This is good news for us energy hogs.  Let’s hope the lack of faith in our comeback economy keeps energy prices in check.

In the news today…..

Unemployment Rate – hit 9.5%, up 0.1% from last month.  And, I might add, this is only June.  There were 476,000 jobs lost in June.  The Democrats will blame Bush.  The Republicans will blame Obama – the stimulus just hasn’t worked to “create or save 3 million jobs.”  If you include those people who are stopped looking for a job, and settled for a part time job, the unemployment rate is 16.5%.

So, where is the good news in these figures?  It’s hard to find, but the 476,000 jobs lost is less than those months when it was 500,000 or over 600,000.  So, less people are being laid off.  It’s still very hard for those who lost their job.

Factory Orders – ROSE 2.1% in May, and represents two back to back months when factory orders rose.  This is the good news for today.  Hopefully, this will result in fewer layoff, and possibly even some hiring.

Executive Pay – is a cloud of smoke.  Do you really know what executives make??  The SEC wants to change things (naturally driven by Obama’s pay czar). For example, the CEO of Citigroup reportedly made $10.8M in 2008 – and that’s the year that Citigroup fell apart.  I don’t think this scumbag should have received anything, personally speaking.  In reality, he earned $38.2M if his stock options were included in his compensation – but the company didn’t have to report it that way – so the SEC wants more clarity and transparency in executive compensation – and I agree.

California – is paying its vendors in “IOUs” starting today.  The state has run our of money, and they HOPE to be able to pay those IOUs sometime in the future.  Good luck, all of you who provide services to California. I bet you can’t eat those IOUs.

Tonight’s Dinner Conversation…..

Why did the government bailout AIG with $180B of TARP money?  The government certainly knew that the first thing AIG would do was to send a bunch of billions to Goldman Sachs and Morgan Stanley – didn’t they???  

Why didn’t the government just give that money directly into those two companies and take an equity stake?  Those stocks have gone up 4 fold and 6 fold since then.  The taxpayer could have been part of that gain.  

But, instead, the taxpayer is holding a $180B bag with AIG who will probably end up going bankrupt, and we will get NOTHING back, but those friends of the Treasury, got the big bucks – our bucks.

Remember to thank you local Congressman and Senator by sending them home without a re-election.  They let YOU down big time.


Here are the last numbers for today:
Dow Jones 30 Industrial – 8281 (down 223 points)
10 Year Treasury Bond – 3.50% (down 0.05%)
Euro – $1.4001
Gold – $931 (down $10)
Oil – $66.73 (down $2.58)
Gasoline $1.79 (down $0.07)

Bonds got clobbered (interest rates way up) as the amount of bonds coming on the market next week spooked the traders.

The Dollar, oil and gasoline all went sideways.

Gold went down again today below $900/ounce.  This might be another buy opportunity, but wait for the fallout next week.

In the news today…..

The Unemployment Rate jumped to 8.5% in March from 8.1% in Feb.  During the month of March we lost 663,000 jobs.  Also, given the current weekly unemployment claims being made in April, this trend of a massive unemployment gain is expected to continue.

Fannie and Freddie are going to give their employees $210M in bonuses this year.  And, I might add, they are paying for it with your tax dollars.  So, where is the outrage in DC this time?  It doesn’t exist because everyone knew about it, as they did about AIG.  What a bunch of scumbags.

10% of the population of the US are getting Food Stamps.  That is 32.2 million people.  The average payment in January was $113 to each person.  A typical family of 4 will get an $80 boost to their Food Stamp money starting soon, and that added money is coming from the Stimulus Bill.

Food for Thought – Tonight’s Dinner Conversation…..

Remember Geithner’s plan to solve the “toxic asset” problem that our big banks have???  It’s called the Public-Private Investment Program, and also please remember that YOU will be paying big incentives to the “investors” who are putting in their own money!!!!!!!!

Well, here is the rub.  The exact same banks who are holding those assets are putting together plans to purchase the other banks’ “toxic assets.”  

Does this sound insane to you?  Or, am I just smoking something?????

So, the TAXPAYER is giving money to those greedy, incompetent banks, and they are going to use that money to buy more toxic assets.  Only this time, they will be on the receiving end of the “incentives” promised by Geithner and make a bundle of money out of the deal.

Are you hearing anything about this scam on the news yet???  I haven’t seen it yet, but this is so explosive that it must hit the news sometime.  Enjoy the blast when it happens.

Here are the last numbers for today:
Dow Jones 30 Industrial – 8018 (up 40 points)
10 Year Treasury Bond – 2.91% (up 0.16%)
Euro – $1.3487
Gold – $897 (down $12)
Oil – $52.51 (up $0.13)
Gasoline – $1.49 (down $0.02)    

Bonds moved sideways.

The Dollar lost some ground today.

Oil and gasoline gained a little.

Gold gained $7 today – a nice day, but I declare it a sideways move.

In the news today…..

President Obama is off to the G20 Meeting in London.  What’s going to happen?  Well the news so far has been about the disagreements among the various leaders.  This is probably mostly grandstanding for their individual constituents.  For example, Germany’s leader, Merkel, is saying that stimulus is stupid as it leads to inflation or hyperinflation, and the Germans know more about this than most countries.  France’s Sarkosy is telling Obama that he is WAY TOO Socialist – and this coming from France is almost laughable – but he’s serious about it.  Is there anything that will be agreed at this meeting?  Probably not in the area of economic stimulus.  Most countries are just mad at the USA because we started this mess.

But, way back in the shadows of the meeting is something that could get agreed.  It’s the international regulation of the financial institutions that caused this mess.  And here is where the dirty little secret may be hidden from the public.  The idea on the table is for the IMF to regulate international financial institutions, and our FED/Treasury would dance to the tune of the IMF.  This is not the same question of whether or not the US Dollar will remain the world’s reserve currency.  For now, that question is settled; it will remain the world’s reserve currency.

Are we willing to give up our financial sovereignty????  That’s the secret question being asked, but totally ignored by the press.  See if you can find this story in your press readings.  The real discussion will be between the idea of the IMF being in charge versus each nation being in charge and harmonizing “how” to regulate within their borders.  Conspiracy theorists are saying this could really be a big step toward a “one world government.”

Housing Prices fell 19% in January 2008 to January 2009.  And the price fall is ACCELERATING.  This is the real bad news.  This one measure of the US economy is probably the most important measure today as it drives everything else.  I am sorry to say that our economy is still tanking in spite of the fact that this measure is a “lagging” measure of the economy, and not a predictor of the future.  It just doesn’t look good.  If we were looking for a more positive picture it would include the stabilization of home prices in a few areas, rather than a drop in all areas as was reported.

2009 Predictions

I continue to believe that the economy will have a negative GDP growth each quarter of 2009 with the first quarter being the worst number.  2010 should turn this around, and we will have positive growth in 2010 overall, but probably less than 1% growth.  Another way of describing our condition is that we are having an L-shaped recovery, and not a u-shaped or v-shaped recovery as many have predicted.  An L-shaped recovery is one where there is little or no recovery when we hit the bottom, and that’s what 2010 will look like.

I continue to predict that unemployment will hit 10% in the 4th Q of 2009, and will stay at 10% throughout 2010.

The stock market has seen a recent “bear market rally” and as the poor economic news continues to disappoint everyone, the market should retest its lows.  It probably won’t crash through those lows, but it certainly should hit them again.   When it hits those lows, that’s the time to jump back into stocks.

Inflation remain the hardest thing to predict.  We have seen no inflation so far in 2009, but have seen the slight increases in prices that could be a precursor to inflation.  I’ll continue to watch inflation closely.  I am predicting that inflation will hit in the 4th Q 2009.

Bonds are a very complex story.  US Treasuries will be controlled by the FED in the foreseeable future, and remain at low interest rates.  Corporate bonds are a different story, and depends on the underlying business.  Some bond holders will lose some of the capital as they will be asked to take a “haircut”.  For example, this will happen to GM bondholders.  Why hasn’t this happened to Wall St firm bondholders?  I suspect that no one wants to face the fallout of that happening – probably a renewed credit crisis.  However, it is definitely “unfair” to ask GM bondholders to take a loss, and not have unsustainable bank bondholders to do the same.  How about Citigroup?  How about B of A?  It depends on the results of the “stress test” that the government is performing right now.

Tonight’s Dinner Conversation…..

I am very grateful my wife suggested having a “Dinner Conversation” part of this article.  Here is today’s thought.

Barney Frank, one of the scumbags in Congress who caused our housing mess, has come up with a bill that gives Secretary of Treasury, Geithner, the power to set the pay of ALL employees of companies that receive TARP money or Fannie/Freddie money.  Can you imagine what this means?

1. Total control (prosecutor, judge and jury) of everyone’s salary in that company.
2. The need to expand the Treasury to establish a department to evaluate everyone’s compensation and establish “reasonableness.”
3. The ability to SET an employee’s salary.
4. Oh, by the way, did I mention this power is RETROACTIVE?
5. This is socialism at its core.

So, the question for you tonight is “Is this the type of CHANGE that you voted for (if you voted for Obama), or is this the type of America you want to live in?”

Don’t get too excited yet.  The bill has to pass the Senate before it would go to the President for signature.  And, you can bet that Obama would sign it, and not veto it.  Would you want our President to sign or veto a bill like this?
 

Here are the last numbers for today:
Dow Jones 30 Industrial – 7608 (up 87 points)
10 Year Treasury Bond – 2.69% (down 0.03%)
Euro – $1.3287
Gold – $925 (up $7)
Oil – $49.90 (up $1.49)
Gasoline – $1.42 (up $0.03)

The Dollar gained against most currencies and gold fell a little after opening up.

Oil and gasoline were the big movers, falling below $50/barrel and being concerned about the fall in confidence caused by the GM actions.

In the news today…..

President Obama’s taskforce for the auto industry has spoken, and GM Chairman Wagoner has been fired.  Don’t believe all the rhetoric about how great a job he’s done over the past years.  He was clearly viewed as a problem in the restructuring of the US auto industry.  So, he was summarily pushed aside.  And, don’t forget that Wagoner presided over the demise of GM as we knew it.

So, the government is stepping in and is wanting concessions from the GM bond holders and the unions.  The government is threatening bankruptcy to get these concessions.  Under Wagoner’s plan, the bond holders would take a 15% loss on their bonds, but the government is saying “that’s not enough!”  

My conclusion is that the government is playing TOUGH, and in my opinion, that’s GREAT.  GM needed a swift kick in the pants, and just got it.

As an aside, why didn’t the government play TOUGH with AIG???  I suspect it was because then Senator Obama was the largest recipient of AIG money for his campaign.  The complete difference in approach makes you ask these hard questions.  Not only were the Wall St financial organizations given a pass, there was no special financial industry panel created like there was for the auto industry.  I wonder why???

Dinner Conversation Tonight…..

Could there be another financial bombshell coming down the road???  Let’s look at Commercial Real Estate mortgages.  This is a multi-Trillion Dollar market, and a lot of loans come up to payment in the next two years.  So, what’s the problem?  Well, the problem is that in our current environment, these loans won’t be able to be refinanced – as was the original business plan when the loans were first taken out.

What does that mean??  It means an ever increasing default rate on Commercial Mortgages.  The trickle of bad commercial loans is already starting, but what happens if it melts down like the home mortgage market did?  

It will bring another batch of bad debts being held by our big banks, and that will mean another crisis in our credit market.

So, the question for you tonight is “Will the government have enough money to bail out the commercial real estate market too?”

Here are the last numbers for today:
Dow Jones 30 Industrial – 7522 (down 254 points)
10 Year Treasury Bond – 2.71% (down 0.05%)
Euro – $1.3189
Gold – $918 (down $8)
Oil – $48.41 (down $3.97)
Gasoline – $1.38 (down $0.11)

Oil and gasoline gained on this latest news as speculators are gambling that this major Treasury step will lead to a recovery in the economy.

Gold held steady, only losing $4 on the news.  The steady gold price shows the battle between the “economic recovery proponents” which would bet on lower gold prices, and “inflation hawks” who would bet on higher gold prices.  I believe in the latter.
 
In the news today…..

Treasury Secretary Geithner today announced his not too hidden plans on solving the toxic mortgage securities problem that our big banks have.  Here it is in a nutshell:

1. He plans that $1TRILLION of this “toxic waste” will be purchased
2. It will be purchased by 3 groups
   1. 7% by Private individuals  
   2. 7% by the Government  
   3. The remainder (86%) by the government – probably the FDIC – as a “loan”.
3. The “toxic waste” will be valued by the private sector.
4. Not much detail in this plan, but a lot more than the “hope and a prayer” stated before.  The devil is in the detail!!!

Here is my observation and opinions on this plan:

1. Geithner thinks that the problem with the economy is that banks aren’t lending,
2. and they aren’t lending because they have these “toxic securities” on their books, and they are worried the future value of these securities will be going down making them insolvent.
3. So, let’s question this basic assumption.
4. Is that banks aren’t lending, or people aren’t borrowing?  I think it’s the latter, and my opinion is backed by the decreased public spending and increased public savings.  Remember that at least 2/3 of the economy is driven by the general public consumption.
5. Banks are lending because they don’t want to lend to deadbeats anymore. Remember that the government forced them to lend to people who couldn’t possibly pay back their mortgages.  They fully understand the ramifications of that line of action in spite of the fact that they make a ton of money doing it, and loved it.
6. Banks believe that house prices will continue to decline, and therefore, the value of their toxic securities will continue to decline.  A future decrease in their value if taken onto their balance sheet would force the FDIC to take them over – probably today.
7. The value of these assets are worth less than the banks state they are worth.
8. Geithner’s belief that our economic recovery will be lead by the banks if false.  It will be lead by consumers.
9. Geithner must believe there is no alternative.  Naturally, this is false.  The tried and true FDIC takeover of banks has a proven track record.
10. Only 7% of this “deal” will be offered to the private enterprises, like pensions and insurance companies and rich individuals??  WHY ONLY 7%?????  If this is such a great plan, don’t you think that private investment would want more than 7% of it?  Or, is this the maximum amount of money that the government thought they could get out of private investment?  Just the 7% figure raises a big RED FLAG for me.
11. If the value of this great investment actually goes down in the future, who bears the loss?  Do the 3 classes of investors share in the loss proportionately, or will one class (and I’m thinking the taxpayer) bear the entire loss?   Another way of addressing this question is “Are there any guarantees for the private investors?”  Details, details, details.

What is wrong with this plan???

1. The debt remains. It isn’t going to be written off.  
2. The taxpayer is holding the bag, and the banks get off scot free – well, that hasn’t been truly determined yet because the banks should have to sell this junk at less than they think it’s worth.  We’ll have to wait and see.  I wonder how “transparent” the valuing process will be???   For sure, the banks won’t have to worry about their future as they do every minute of every day today.
3. A major portion of this toxic waste will never be paid back – and no one – neither the banks, nor the government – has addressed this issue head on.  You and I will be stuck with the loss.
4. Oh, by the way, when this additional cash comes home to roost, there will be more inflation created.

My conclusion:

This should help the big banks take a deep breath, and allow them to go back to business as usual.  I don’t like business as usual, as the banks were one of the major factors in getting us into this mess.  Where’s all the needed regulation by the government that was missing the last time around????

Without knowing the details, it is impossible to determine exactly how badly the taxpayers will get screwed, but you can count on it.

Without a complete destruction of this toxic waste, it will linger and be an albatross around the President’s neck.  The press will try to hide the truth of the demise of the money going down this rat hole.  

I think this is just another nail in the inflationary coffin that will hit the US in the future.  The only way this won’t be a major inflationary force is IF the housing prices of the US stabilize immediately and start back up.  I don’t see that happening soon.

 
Here are the last numbers for today:
Dow Jones 30 Industrial – 7775 (up 497 points)
10 Year Treasury Bond – 2.66% (up 0.04%)
Euro – $1.3655
Gold – $953 (down $4)
Oil – $53.80 (up $1.73)
Gasoline – $1.49 (up $0.03)