DJ30 – 11,494   down 120
US Treasury 10 Year Bond – 2.15%    down 0.07%
USDEUR  -  1.4270
Gold – $1825     down $1
Oil – $88.81    up  $0.11

Jobless Claims and Productivity……..

Jobless claims came in at 409,000 for last week, and this continues to be bad news for the US economy – as anything over 400,000 just makes things worse.  The previous week was revised upwards to 412,000 from 417,000.

Productivity came in at MINUS 0.7% for the 2Q 2011.  This is the third quarter in a row with DECLINING productivity.  Okay, I hear you ask, what is productivity?  Well, from the layman’s point of view, productivity is a measure of how much better (more valued product) production is with the same employees.  In other words, if the same number of employees produce twice as much (in value) as last year, the productivity of that group of employees rose by 100%.

Generally productivity increases come about by capital investments in computerized production gadgets (like robots and computers, etc).  So, the way that industry has raised productivity in their company before was to buy sophisticated machines to replace employees.  This resulted in less employees producing MORE goods – ergo an rise in productivity.

So, why is productivity declining, and is this good for America?  Well, I think that industry is at the end of its good ideas for automation of production lines right now – and has stopped investing – as well as stopped hiring new employees.  They are waiting for a time in history when an investment will pay off with greater profits for the company – and that isn’t now with unknowns coming each day from Washington DC.  In other words, I believe that the decline(s) in productivity that we are seeing in America today are coming from (lack of) decisions coming out of our federal government.  And, to make it clear to you all, a decline in productivity is just another sign that the US economy is going into (or is already in) a double-dip recession – aka a stagflation right now.

Today’s Re-Financing for Housing…….

I would like to bring to your attention a speculation that the big banks in the US together with Fannie/Freddie have conspired to maintain a high income of past mortgages – at the expense of the average middle class family.

Here is how it worked:

1. The world blew up in 2008 with the Mortgage Securities junk bonds – but not all bonds were equal.
2. These bonds were sliced and diced into various pieces – and some were AAA, some AA, some B+, some C, some just junk – you get the idea.
3. The big banks bought up the good stuff – the AAA – these are the ones where people actually paid their mortgage payment.  Fannie/Freddie are major holders of these good mortgages too.  (Perhaps you might see some self interest in this story.)
4. These mortgages were written in the 2002 through 2007 timeframe when interest rates were higher than today.
5. The 2008 came along, and all the rules changed – Fannie/Freddie put out rules to make “refinance’ much harder to qualify.  Rich people could qualify, but middle America hard a very hard time qualifying.  Basically, refinancing dried up.
6. This mean that all those “new low interest loans” out there over the past couple of years were unattainable for the average person.
7. The net result = more profits for the banks who held the right AAA bundles of mortgages.
8. As an aside, you might ask who got the junk?  Well, the FED is holding quite a bit of mortgage securities – and I wonder about its quality.  But, most of it probably went overseas to the EU banks – and you wonder why they might be introuble today?
   

That gets us to today.  We have a broken housing market today.  We have 25% or so of mortgage holders “under water”.  We have a declining value in the housing stock.  The future is not bright for the housing market.

So, what could the government do?  Well, with the previous story, you can see that the government could order the GSEs (Fannie/Freddie) to rewrite the rules on refinancing so the Average American can get a lower priced mortgage, and that savings would go directly into the consumer’s pocket.  It would come out of the big banks and GSE pocket.  (Remember the WE own the GSE, so any less money going to a GSE is less money going to US).  More money in the consumer’s pocket would be good for the economy – as consumers tend to spend.

As we move back into the Congressional sessions next week, and the President gives his ideas for kick-starting the job market, we should look for discussions coming out of Congress on the subject of “refinancing” regulations.  Barbara Boxer has proposed legislation along this line, and you might hear something about this.  The President has proposed forcing mortgage holders to be “forced” to take principle write-downs as part a solution to the mortgage problem.  This would put a big burden on the big banks (like Bank of America) and that would create a new problem to be solved.  The solution could easily be the breakup of the big banks to spin off the mortgage portion of the banks.  Chaos would rein, of course.  Politics would run wild too, and the public opinion of Congress would fall lower than scum.

So, there is my thoughts on one of the biggest rip-offs in American history.  What bothers me most is that the federal government (which we think is there to protect us) is actually working with the big banks to prop them up and fill their coffers with our money.  I know – I shouldn’t be surprised – and I am not surprised – just very sad for the country.

Gold fell $13.

Oil and gasoline fell also, below $70/barrel.

In the news today…..

Consumer Confidence – fell last month.  But, this is a flaky statistic, so I would ignore it.  Stocks thought it was terrible, so the stock market fell on the news.

Home Prices – fell 18.1% from last April.  And this shows a slowing trend in the house price decline – good news indeed.  However, the price falls haven’t stopped yet.

Jobless Rates – rose in ALL US economic metro areas in May.  Bad news for the unemployment rate to be released on Thursday.

George Soros – in a recent interview by the WSJ said that fear of inflation will drive up interest rates, and kill off the recovery and kill off the housing sector too.  He said that stock markets will be hit by that factor too.  Regarding regulation, he said that the government “regulation” over the past 25 years caused the current crisis, and that regulation just doesn’t work.  He said that bubbles will happen, but the control of self-reinforcing bubbles is possible.  Soros was critical of the current spending pattern of the Obama administration as it is causing deficits that are too large

Here are the last numbers for today:
Dow Jones 30 Industrial – 8448 (down 82 points)
10 Year Treasury Bond – 3.52% (up 0.03%)
Euro – $1.4026
Gold – $927 (down $13)
Oil – $69.89 (down $1.60)
Gasoline $1.90 (down $0.03)

Bonds moved sideways.

The Dollar significantly strengthened, and is now at the level where it was prior to the FED announcement that it will buy long term Treasuries.

Oil and gasoline both gave up some of their recent gains as we approach the weekend.  The week was a positive gain for oil and gasoline, and the price increases are already showing up at the pump.

Gold gave up some its “FED announcement” gains, but is still ahead of where it started.

In the news today…..

Good news in the market – at last:

1. Consumer Spending – up 0.2% in February.  It was up 1% in January.  This two month run is very important as at least 2/3 of our economy is driven by the consumer.  If this trend continues, it looks like the consumer spending has bottomed.  But, has it???
2. Personal Savings – was down 0.1% in February to 4.2%.  Personal Savings had to decline to pay for the increased Consumer Spending as consumers earned less in February as more people were being let go.  I have predicted that Personal Savings will increase back to the 9% range within a year or two.  As this increases, consumer spending must go down by the same amount of money, or be replaced by increased wages to keep Consumer Spending constant.  And we don’t want “constant”, we want a growing Consumer Spending. So, if Personal Savings does increase in the future, that percentage will come out of Consumer Spending – and that just doesn’t help our GDP calculation.
3. Consumer Confidence – increased in February.  This is a more subjective measure, but it is encouraging to see an improved confidence.
4. Jobless Claims – rose to a record last week (as reported yesterday), but my look at the chart of jobless claims says that this measure of the economy is flattening off – rather than growing as it has over the past 6 months.  It is imperative to have this measure not only flatten off, but to decline back to the “normal” level of about 400,000 claims per week.

So, does this mean we are out of the woods, and the future is rosy??  Not yet.  Increased unemployment just makes those previous statistics worse, as less money is earned by the American worker, and I believe unemployment is increasing.  The jobless claims even at no increase in the future is way too high.  If it stays there, we will have continued increase in the unemployment rate as long as this measure if above 400,000 per week.

Jobless Rate – is above 10% in the following states: Michigan, S. Carolina, Oregon, N. Carolina, California, Rhode Island and Nevada.  The number of states over 10% unemployment has increased from 4 to 7 in two months.  The smallest unemployment rate is in Wyoming.

Tonight’s Dinner Conversation

The S&P stock index is up over 20% from the current low.  This is a measure of a “bull” market for stocks.  The question for you to ponder is whether we are in a new BULL market, or just a BEAR market rally.  Here is something to chew on:

1. Stocks have fallen about 50% from their high
2. Stocks must rise 100% just to get back where they started
3. Stocks have risen about 20% of that 100% already.
4. My prediction was that we were going to have a stock rally in the spring, followed by another decline in stocks in the 3rd and 4th Quarter of 2009.  I’m sticking to that prediction.
5. Lots of financial experts have stated that the bottom has been reached, and now we are in a bull market.

Here are the last numbers for today:
Dow Jones 30 Industrial – 7776 (down 148 points)
10 Year Treasury Bond – 2.76% (up 0.03%)
Euro – $1.3294
Gold – $925 (down $17)
Oil – $52.38 (down $1.96)
Gasoline – $1.49 (down $0.04)  

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)

How is the economy doing today??????  (HINT: It stinks)

There are 10 million people jobless in the US – the most in 25 years.  I predict this number will hit 15 million in 2009.

How are our taxpayer investments doing to save the economy of the world?????

The Treasury has said it will NOT tell anyone WHO is borrowing the $2 Trillion it has lent out recently – NOR will it tell anyone what security it has taken for those loans.  In other words, we the people do not have any “transparency” (promised by both Bernanke and Paulson) of the dealings of our money.  In my opinion, this stinks since the amount of trust of the people in the management of our money by Washington is at an all time low.

Why is the market going down??????

The election is over, so I’ll get more political.  There is a rumor going around by the Republicans that the wealthier Democrats are selling all their shares so they won’t have to pay the higher tax that President-Elect Obama promised during the campaign.  Let’s think about this rumor a minute.  Why just Democrats?  Are Republicans stupid?  No, they would be selling too.  So, any run on the market by individuals is bi-partisan.  However, their motivation is real – save taxes.  Obama has been asked recently if he was going to institute the higher taxes – and he has avoided the question.  That’s interesting – why would he avoid the question?  I don’t know.

Here are Yesterday’s numbers:
Dow Jones 30 Industrial – 8871 (down 73 points)
10 Year Treasury Bond – 3.76% (down 0.02%)
Euro – $1.2760
Gold – $747 (up $12)
Oil – $62.41 (up $1.37)
Gasoline – $1.37 (up $0.02)  

In the news today….

The Unemployment Rate increased from 5.5% to 5.7% in July.  So far there have been 463,000 jobs lost in the US economy – not a pretty picture as July continues the trend of every month in 2008 has lost jobs so far.

Here are today’s numbers:
Dow Jones 30 Industrial – 11,326 (down 52 points)
10 Year Treasury Bond – 3.95% (down $0.03)
Euro – $1.5546
Gold – $918 (down $5)
Oil – $125.10 (up $1.02)
Gasoline – $3.08 (up $0.01)  

In the news today…..

I love the way the government calculates GDP.  It just keeps revising it until the truth finally comes out.  Here is a great example.  Today, the government declared that 2nd Quarter GDP came in at 1.9%.  This was disappointing to the markets as they expected a much higher number as this was the quarter of the IRS rebate checks!!!!  So, the economy is doing worse than people had expected, or hoped for.  I know you’re not surprised!!!!

Dinner Conversation Tonight….

The weekly jobless claims for last week came in at 448,000!!!!!!!  Remember to think that anything over 400,000 is just plain bad news for the economy, and further pushes us into the recession.

Here is a graph of the weekly jobless claims made over the past few years, so you can put these statistics into context:

 Please note the steady rise since July 2007!!!!  You can also see this number is highly volatile, BUT the trend is very clear over the past 9 months.  

Here are today’s numbers:
Dow Jones 30 Industrial – 11,378 (down 206 points)
10 Year Treasury Bond – 3.98% (down $0.07)
Euro – $1.5607
Gold – $923 (up $10)
Oil – $124.08 (down $2.69)
Gasoline – $3.07 (down $0.07)   

Oil and gasoline climbed a little – if you think $1/barrel to be “a little” – as rumors of major oil derivative company in Tulsa going bankrupt.

In the news today…..

Existing home sales fell 2.6% from May to June.  This is the news that rattled stocks today.  The stock market was expecting a slightly smaller fall in sales.  From my own viewpoint, 2.6% doesn’t seem like a big drop in sales volume – does it to you??  Also, EconomyGuy readers are totally aware of the forces at work moving the housing market lower.  These forces have not changed one iota.

Here are today’s numbers:
Dow Jones 30 Industrial – 11,349 (down 283 points)
10 Year Treasury Bond – 4.02% (down 0.13%)
Euro – $1.5680
Gold – $923 (no change)
Oil – $125.49 (up $1.06)
Gasoline – $3.03 (up $0.03)

In the news today…..

The number of jobs in the economy fell by 79,000 jobs in manufacturing, and an additional 3,000 jobs in the service sector.  While this is expected, it’s also bad news as people get very nervous, and spend less money when their job is jeopardized – and this should continue to drive the economy south.

Here are today’s numbers:
Dow Jones 30 Industrial – 11216 (down 167 points)
10 Year Treasury Bond – 3.96% (down 0.03%)
Euro – $1.5881
Gold – $947 (up $2)
Oil – $143.57 (up $2.60) – New Highs are so Boring???
Gasoline – $3.55 (up $0.04)

Oil and gasoline jumped up today.  It looks like the speculators are active again.  Could be seeing some new highs next week.

Gold moved up just a little, and remains a good buy.

In the news today….

The of pink slips handed out in March was 80,000, the most in 5 years.  This brings the number of lost jobs to 232,000 in the last 3 months.  This is a great measure of the economy as jobs equate to spending power by the general public, and that public spending power represents the overwhelming majority of the US economy.  This is a great number to point directly to a recession.

The unemployment rate, on the other hand, is now 5.1%.  I strongly recommend you just disregard the unemployment rate.  It is a rigged number to make you feel good.  It has very little basis in truth.  The definition of the unemployment rate, like the CPI (consumer price index), has been changed so many times over the past decades that you wonder if anyone can really understand what these terms mean.

Have a great weekend.

Here are today’s numbers:
Dow Jones 30 Industrial – 12,609 (Down 17 points)
10 Year Treasury Bond – 3.48% (Down 0.11%)
Euro – $1.5739
Gold – $913 (Up $4) – This is still a major buying opportunity.
Oil – $106.23 (Up $2.40)
Gasoline – $2.76 (Up $0.03)