Bonds hit another near term HIGH today as the US Treasury auction didn’t go that well.  Higher interest rates coming – see stories below.

Oil and gasoline also hit a near term HIGH today as oil is now over $71/barrel.

In the news today…..

Supreme Court doesn’t hear Chrysler bondholders claim – and they are allowing the sale to Fiat to advance.  So, why am I including this news story in the economic news???  Because it represents a legal precedent in my opinion that can be used in the future.  The government won this round, and did it by ignoring commercial law.  The legal system of the United States doesn’t appear to work well when it must move FAST.  We are in an emergency situation according to the government.  We can’t wait to think about the ramifications of decisions – we must act, and act the way the government says to act.

Here is the rub.  The government now has a precedent to ignore Commercial Law that can be used in future actions, and has the backing of a Supreme Court.

Mortgage Rates – are still rising.  The 30 Year fixed rate is now 5.57%, up from 5.25% last week. Interest rates are now a full percent higher than their low, and mortgage applications are falling accordingly.  This is the proof of the statement I made a few days ago that the FED program to save the mortgage market has failed.

Citibank – announced today that it will be converting $25B of the $45B of TARP money (YOUR money) from its current status as “preferred shares” into “common stock.”   Naturally, the Treasury made this decision “on your behalf.”  What’s the difference?  Well, preferred shares are paid a fixed dividend ahead of common share dividends – a dividend that you are NOT guaranteed by being a common share holder.  In fact, why would Citibank ever pay a dividend to common share holders when they need so much more capital injection???  With the conversion of $25B preferred shares into common shares, the government (that’s YOU) become the owner of 34% of Citibank.  

Congratulations.  Do you think the Treasury was doing this in YOUR best interest?  If so, what was that interest?  (My guess is that this conversion keeps the wolf away from the Citibank door for a little longer – and the Treasury believes this is in YOUR best interest.  The Treasury is betting the economy will turn around and these failing banks will find a way out of their quagmire someway.)  If not, what should the government have done?  (My answer is let Citibank fail and be broken up into smaller entities.  This course of action would cost the taxpayer less in the long run.)  You will now be earning LESS interest on your TARP investment in Citibank.  Why didn’t the government convert MORE of the $45B into common shares??  The reason – isn’t it obvious??? – is that the government would have owned a MAJORITY of Citibank in that case.  So, why didn’t the government go for the majority???  My guess is FEAR – the fear that Citibank might just go under, and if the government owned (controlled) the bank when it went under, it would be obvious that the government didn’t know how to run a bank.

10-Year Treasury Auction Fails – as the interest rate paid went as high as 4.01%.  While there were plenty of investors bidding for these new bonds, they got more interest than they anticipated.  This is a major increase in interest rates over the recently high interest rates; so, hold onto your socks folks – it’s going to get expensive.

FED Beige Book – says the “economy’s downward trend is moderating.”  The FED Beige Book is a look at the US economy through the eyes of the 12 FED Bank Regions.  Let me parse these words for you.  It means the economy is still GOING DOWN.  Just not as fast downward as it was going down before.  In fact, only 5 of the 12 regions said they saw “moderating” going on.  Is that good???  It’s in the eye of the beholder.  From my perspective, this is BAD news as the economy is WORSE today than it was a month ago; and until the economy starts getting BETTER, I will be looking at this glass as “half empty.”

FED lost $5.6B in 1Q 09 – on the assets they took over from Bear Stearns and AIG.  Those assets, including mortgage securities, fell in value by $5.6B.  Another way to look at this is that the FED is gambling with YOUR money.  Rather than sell these assets off, the FED chose to hold onto them, hoping they would increase in value – that’s my definition of gambling.  How much more will it lose???  Yes, the FED did earn some interest on its emergency loan programs – it earned $1.2B.  That’s just not enough to offset the losses.

Tonight’s Dinner Conversation….

Stagflation is here today.  What is stagflation?  “A condition of slow economic growth and relatively high unemployment – a time of stagnation – accompanied by a rise in prices, or inflation.”

Doesn’t the reality of the current US economy exactly fit the definition of stagflation?

Oil at over $70/barrel is the first price rise that will cause real pain to the US economy and the US people.  High oil prices will cause high gasoline prices (here today) and will be shortly followed by higher natural gas prices, higher electricity prices, higher home heating fuel prices, etc.  Higher energy prices will have kicked in by the end of the year.

And, what’s next?  The big threat is higher food prices in my opinion.  Commodities are controlled by world demand, and food is no exception.  This too will hit the American pocketbook, and will probably hit this year as a second major CPI measured inflationary force.

Here are the last numbers for today:
Dow Jones 30 Industrial – 8739 (down 24 points)
10 Year Treasury Bond – 3.94% (up 0.08%)
Euro – $1.3992
Gold – $955 (no change)
Oil – $71.33 (up $1.32) – another near term high
Gasoline $2.02 (up $0.05)

Gold rose $70 today, a big blast.  This was also a unintended consequence, but a good one for those holding gold.

In the news today…..

Our new Attorney General is considering releasing some of the Guantanamo detainees (I’d call them terrorists) in the US. How would you like to have one of them as your neighbor?  They would probably go straight onto welfare too.  There are some folks from  a region of China being held there, and we don’t want to send them back to China because the (bad) Chinese think they are from a separatist group – so they want to get their hands on them, and kill them (with only one bullet of course).  I just don’t understand that kind of thinking.  It is wonderful to be humanitarian, but?????  These guys were trying to kill Americans, so this is what happens in war.  Okay, I know this isn’t a real economics story, but it is interesting, and you might not see it on the news.

President Obama has made his pick for the NCAA Basketball Tournament – March Madness.  The nickname of March Madness is highly appropriate to describe our President wasting his time on such a mundane thing – and not spending his time solving our economic problems.  Bad choice Mr. President.  You may think this is my opinion (which it is), but it also the opinion of a lot of prominent basketball personalities.

Unemployment Benefits – are at a RECORD level this month – no surprise there.  Should we be really excited about that?  Well, the trend is more important than the number or being a record.  The trend is going up – and that’s bad.  Any month’s record is just a backward looking statistic, and is therefore not a great predictor of the future – only a a story from the past.

New Unemployment Claims – this week were 646,000 – and this continues to be bad news, and portends a rise in the unemployment rate in the future.

Mortgage Rates – The 30 Year Fixed Rate Mortgage rate is 4.95%.  This is a direct reaction to yesterday’s FED announcement that it will be buying Treasury bonds.  Past history of the relationship of the 10 Year Treasury and the 30 Year Fixed Mortgage rate would indicate that mortgage rates could come down a small amount more.  LIBOR is also falling dramatically in response to the announcement.  This is all good news for the economy.
 

Here are the last numbers for today:
Dow Jones 30 Industrial – 7401 (down 86 points)
10 Year Treasury Bond – 2.60% (up 0.05%)
Euro – $1.3660
Gold – $959 (up $70)
Oil – $51.61 (up $3.47)
Gasoline – $1.44 (up $0.07)

Bonds increased in interest rates again, and this is much more dangerous to the future economy than where the stock market ends up.  If interest rates go up another half point, then mortgages will just be so expensive that people won’t buy that first time home.

The Dollar lost a little value today, and so did Gold.  Gold did not turn around yet, but when it does, it will be a “buy” signal.

Oil and gasoline recovered all their lost territory, so prices are just bound to bounce up in the near term.

In the news today….

FDIC – How safe is your money in the bank?  Fairly safe, but there could be a bump in the road.  The head of the FDIC said it was running out of money, and could be out of money in 2009.  The solution???  Charge all banks an additional fee to go to bolster the FDIC fund.  The smallest banks are outraged.  The fee could wipe out half to all of their 2009 profits.  But, don’t worry.  Congress would always pony up more of your money to cover FDIC losses if the fund ever goes negative.

Job Losses – 697,000 jobs were lost in February – more than in January.  February is on Obama’s watch – so he has to take the heat for the big number.  His policies were well known before February, and could have stopped the layoffs, but businesses just don’t have that much trust.  January’s numbers were revised upward from 522,000 job losses to 614,000 job losses.  The trend is going in the wrong way for the economy to look like it’s going to turn around soon.

Underwater Mortgages – One if five homeowners with mortgages are underwater in the US.  That’s 8,310,000 homeowners who are underwater.  Remember that the cause of the current economic laments come from the housing price meltdown.  As more people go underwater, the number of foreclosures and short sales will continue to increase, and house prices will continue to decrease.

Home Values – The total value of all homes in the US was $21.5TRILLION last September, and now it’s $19.1TRILLION.  From an absolute deflation amount, homes have lost $2.1TRILLION – now that’s a lot of loot.  Here is another little tidbit.  Half of that loss is in the state of California.
 

 
Here are the last numbers:
Dow Jones 30 Industrial – 6875 (up 150 points)
10 Year Treasury Bond – 3.01% (up 0.07%)
Euro – $1.2660
Gold – $907 (down $7)
Oil – $45.38 (up $3.73)
Gasoline – $1.38 (down $0.06)

Oil continued its fall, BUT gasoline has been stubbornly staying at a higher range relative to oil.  This means increases in gasoline prices at your pump.  This smells like manipulation of some sort as this type of market movement is out of line with past oil/gasoline relationships.

In the news today…..

Retail sales fell off at a pace that was the weakest showing for retail sales since 1969.  Not a good sign for the economy.

US Citizens are borrowing much less on their credit cards last month, and it is beginning to show.  This lack of borrowing translates into reduced spending and that is just bad, bad news for the GDP calculation for 4th Q 2008, and ongoing quarters too.

The 30 Year Fixed Rate Mortgage is now 5.01%, and the 15 Year is 4.62%.  Time to get those refi’s going!!!!!!

The Bank of England reduced their key lending rate to lowest it has been since the 17th Century – that should impress you.
 

Here are Today’s numbers:
Dow Jones 30 Industrial – 8742 (down 27 points)
10 Year Treasury Bond – 2.45% (down 0.05%)
Euro – $1.3708
Gold – $855 (up $13)
Oil – $41.70 (down $0.93)
Gasoline – $1.09 (up $0.01)

In the news today…..

The 30 Year Mortgage Rate is 5.06%, and the 15 Year Mortgage Rate is 4.92%.  The movement downward of mortgage rates is breathtaking, and these rates are following the US Treasury’s down to new lows.  I fully expect the mortgage rates to continue falling in the near term.  This is a great opportunity for any of you who are thinking about refinancing to start that process.  When the rates get low enough to be meaningful to you, ACT and lock in that new rate.

Here are Today’s numbers:
Dow Jones 30 Industrial – 8605 (down 219 points)
10 Year Treasury Bond – 2.07% (down 0.12%)
Euro – $$1.4277
Gold – $860 (down $9)
Oil – $38.20 (down $1.86)
Gasoline – $0.96 (down $0.04)

In the news today…..

The dramatic fall in bonds is pushing down mortgage rates.  The 30 year fixed rate mortgage is now 5.53%, and the 15 year is 5.33%.  If you need a mortgage, or were thinking about it – now is the time to dust off those files and starting thinking again.  Contact your favorite mortgage broker, and get started.  Wouldn’t it be great if the rate kept falling???

Here are Today’s numbers:
Dow Jones 30 Industrial – 8591 (up 173 points)
10 Year Treasury Bond – 2.67% (down 0.02%)
Euro – $1.2705
Gold – $771 (down $13)
Oil – $46.79 (down $0.17)
Gasoline – $1.04 (down $0.02)

The other major market mover is now oil, as it is dropping well below $90/barrel.  The reason for the drop is the assumption that the US economy is heading into recession, and will use less oil.  Simple supply and demand equation.  Probably oversimplified if you ask me.  What about the rest of the world’s demand for oil?  We’ll that’s where you get into the US economy just sneezed, and the rest of the world is going to use less oil too.

Here is today’s news….

The US Government Fiscal deficit is predicted to be $250B in 2008, and this is before any stimulus package.  As that package is predicted to be around $150B, that means the real deficit would be $400B.  Can you guess what that means in the long run?  Here is where the US Government is looking at the short term gain (re-election), and not the long term cost.  Somebody’s going to pay this $400B back with interest.  And that’s the young people in America today.  Who’s going to buy the bonds to pay for that deficit?  Less and less people as the Treasury interest rates drop like a stone.  This could get ugly later this year.

Sallie Mae, the student loan organization, is declaring a loss of $1.6B.  That means there ‘s a lot of students who are not paying their loans back – and that’s something to talk about over dinner.  Why??  Maybe they’ve lost their moral compass???  This will mean there will be less loans available in the future.  Students going to 4 year universities will be eligible, but people who could drop out at the 2 year (AA degree) level probably won’t qualify for loans.

Are you getting saddled up to REFI your home mortgage?  The 30 Year Fixed rate mortgage today is 5.31%.  Can you remember the last time it was that low?  I will get very itchy to refinance when the rate breaks below 4%.  I sure hope it gets there.

From the historic viewpoint, I’d like to show you the 30 Year Treasury Interest rates in the US over the past decades.  It is the LOWEST that it has EVER BEEN.  It is 4.31% today, but was 4.2% yesterday.  Hard to believe?  Take a look.  Do you think this is good news, or bad news, or nonsense news?  It’s hard to say.  It looks like good news if you are trying to borrow money for the long term.  But if you’re trying to earn interest to live on – it’s bad news.  From the overall US economic viewpoint, it’s terrible news.  It’s telling us that something is way “out of whack” in the economy.  The last country to suffer low interest rates was Japan, and it took them over a decade to pull themselves out of the quagmire.

Here are today’s Numbers:
Dow Jones 30 Industrial – 12,270 (Up 299 points) – but was down 323 points in the morning.
10 Year Treasury Bond – 3.43% (Down 0.06%)
Euro – $1.4633
Gold – $883 (down $7)
Oil – $86.99 (down $2.22)
Gasoline – $2.25 (down $0.03)