DJ30 – 11,559   up 19
US Treasury 10 Year Bond – 2.18%    down 0.09%
USDEUR  -  1.4465
Gold – $1842     up $50
Oil – $88.86    up  $1.59

Stocks sideways, bonds up (interest rates down), gold way up, Dollar level to down, and sneaky oil is going back up.

FED Member Evans Speaks…..

FED member Evans spoke out publicly today and said that he thinks that more quantitative easing is needed to help the economy.  He said he would follow the lead of FED chairman Bernanke, but it is his job to speak out with ideas on how to help the economy.  He went on to say that previous quantitative easing did not result in inflation or inflated prices.

I am astounded that a FED member can say that monetizing debt – which is FED-speak for printing money – does not cause inflation or inflate prices.  QE2 definitely caused commodity prices to go up, and to say otherwise is either misleading, or not well educated – and I don’t believe either of those with respect ro Mr. Evans.

This is more than my personal opinion.  The traders on the floor of the Chicago Board of Trade stood opened mouthed when Evans made his statement.

More positively, I can state that there is a voice at the FED advocating more quantitative easing, and this is good for gold prices.

As shown in the minutes of the August FED meeting, there was a big disagreement with the action taken.  Many members wanted to take bolder action.  This backlog of support for something greater – like a QE3 – is positive for gold too.

Confidence level drops…….

The confidence level came in at a very low, low level this morning with not having it this low since 2009 – right after the market shocks.

While this measure is one that I generally ignore because it is so subjective and fickle, I believe it does reflect the general public’s concern for the US economy and it does portend a drop in consumer purchases – and this will directly lead us into recession.

What’s Happening with Gold…….

Gold has tested its low in the last downdraft – and hit about $1700 twice – forming a nice support level.  This is the low for this time in the gold rise.

Now gold is going back up, and must break through the $1900 to $1910 level that it hit at the high.  I can bet that gold will test that level in the next week or so, and the gold bullion banks will be doing everything in their power to make sure gold doesn’t go through that level.  It will be a titanic battle.

If gold goes through $1900, it will go straight up to $2000.  If it can’t make it through, it will go down again, and probably go sideways for a month or so.  Time will tell.

Bonds are now hovering at 3.5% for the 10 Year Treasury.  This is a 1% increase in interest rates over the past 6 to 9 months.  I consider this a very bad sign for the economy as other interest rates will remain high and choke off any recovery.

The Dollar, Oil and gasoline all moved sideways.

Gold fell about $11 at the start of the day, and ended down $5 for the day.  Was this people taking profits? – Maybe.  The N. Korean activities over the weekend generally causes a rush to Gold and Treasuries – but not this time.  Why???  In the spirit of full disclosure, I took the opportunity this morning of purchasing more gold when it pulled back $10 from its Friday close.

In the news today…..

Consumer Confidence – soared again in May after April’s massive jump in this subjective index.  This caused a stock rally today. The consumer confidence is about the same as it was last September. However, this index is still well below 100, the breakeven point between growth and contraction.

Home Prices – fell 19.1% in 1Q 2009, and has fallen 32.2% from its peak.  Home prices continue to fall, but at a slower pace.  This is the most important statistic to be watching because when home price hit bottom, we should be at the bottom of our problems.

Nationalized Medicine – UnitedHealthCare spent $1.5M in lobbying Congress during the first 3 months of this year.  The fight between the health companies and the US Government has gone underground, as the health companies do not want to start a fight with Obama.  However, they are lobbying for their life as they see their future income stream possibly disappearing.  

San Francisco FED Economist – predicts the FED funds rate will be low for “several years.”  He goes on to say that the FED rule for interest rates (if it could be followed) would say the FED funds rate should be MINUS 5% right now.  But, the FED can’t go negative.  He went on to say that it would be fairly easy for the FED to “unwind” its $2TRILLION money injection when it’s time to do that.

Here are the last numbers for today:
Dow Jones 30 Industrial – 8473 (up 196 points)
10 Year Treasury Bond – 3.49% (up 0.05%)
Euro – $1.3984
Gold – $953 (down $6)
Oil – $62.45 (up $0.78)
Gasoline $1.85 (up $0.01)                                

The Dollar gained dramatically today.

Oil and gasoline fell on the poor economic news.

GOLD….

Gold ended up today.  During the day gold hit $974/ounce.  If you remember, I told you that gold would test the $975 level.  It did it today.  It should pull back for a few days, and will then test the all time high for gold.  There is little doubt in my mind that we will be seeing an all time high in gold prices in the near future.

What’s pushing gold prices up?  Both people who are scared of the economic situation, and want a place to park their money, and gold investors.  The amount of people buying gold is growing each month.  January had a very high volume for gold purchases.  If you go to Zurich, you will have to wait 3 weeks to get delivery of your gold purchase.  

In the news today…..

Japan’s GDP fell 12.7% (year over year) in the 4th Q 2008.  This is a staggering figure.  It is more than triple the decline in the US GDP in the 4th Q.  Japan is the world’s second largest economy – so this will have an impact.  Exports fell 13.9% (from the previous quarter) in the 4th Q 2008 – WOW.  You can see that international trade is slowing, slowing, slowing.

Worry that the failing Eastern European economy will severely damage some Western banks hit US stocks today.  You can see we are truly in an international marketplace.

One more fraudster, R. Allen Stanford in Texas, has been busted.  His fraudulent scheme was for only $8B.  Not bad if you can get your hands on it.

Consumers Rule……

I’ve been reporting recently that consumers are starting to save.  Today, the average consumer is saving about 3.5% of their income.  Not bad, but it is anticipated to become 9% in a few years.  9% was the savings rate in the US when Reagan became President.

What does this mean??  Well, the savings by Americans just compounds the problems in the US economy.  Not only is the consumer stopping its spending in malls, it is spending less in the grocery store.  How?  Well, consumers are buying store brands rather than name brands, and they are buying bulk rather than smaller packaging. The overall reduction in spending by consumers is the sum of their reduced spending which is now more than 6% PLUS their savings rate at 3.5%.  So right now, consumers are spending 9.5% less than last year, and this percentage will only grow.

What does our government tell us to do?  SPEND!!!!!!!  However, consumers are not stupid.  They are NOT spending – they are REDUCING their spending and also saving.  The consumer’s got it right.  The only way the US will come back as a powerhouse nation economically is to save money, invest it in new enterprises, and create our unparalleled productivity.  This will take years, but it is the only way out.  In the meantime, our government is spending, and is using OUR charge card so our grandchildren will have to pay off the interest on the credit card.

Lesson Today:  Consumers are SMART.  They are instinctively doing the right thing for the nation.

Foreclosures and US Housing Prices…..

The following graph clearly shows that the number of foreclosures is still increasing in the US.  As long as this trend is up, our crisis will continue and will get worse.  Even when it turns downward, it must get back down to normal levels (about 1%) before we are back to normal.

Here are the last numbers:
Dow Jones 30 Industrial – 7552 (down 298 points)
10 Year Treasury Bond – 2.66% (down 0.22%)
Euro – $1.2614
Gold – $968 (up $25)
Oil – $34.93 (down $2.58)
Gasoline – $1.11 (down $0.09)