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.

Everything else moved sideways today.

Notably, oil is no above $68/barrel, and should portend higher energy prices.  Gasoline is not behaving itself very well.  You see that gasoline prices are going up at the pump for the last 3 days.  However, there is a massive glut of gasoline around the US, so prices should be going down.   The conclusion – speculators are playing havoc with gasoline prices right now.  I hate speculators who invade my spending.

In the news today…..

The economic news is really that stocks are at such a high level, and the bulls are coming out now making the case for a bull run that will go on forever.  There was a WSJ article today stating just that.  To interpret this enthusiasm, you must believe that the stock market will recover in a “V-shaped” method.  That’s what happened so far.  And, you must believe we are at the bottom of this recession.  And, you must believe that good things will continue to happen in the economy without any bad thing happening.

The reasoning that I believe that stocks are so strong is as follows:  There are a bunch of money managers out there who were sitting on the sidelines waiting to see what would happen.  Now these guys are judged by comparing themselves to all other money managers.  Their funds must be at least in the middle of the pack, and hopefully better.  Otherwise, their bonuses and even their jobs are at stake.  So, these guys are seeing the market going straight up, and they fear missing the bus more than making a wrong move.  Everyone is jumping on the bus, so the bus is moving up.

Warren Buffett has said to buy stocks no – even thought the DOW is at 9000.  And, he’s no sluff.  
 

Here are the last numbers for today:
Dow Jones 30 Industrial – 9093 (up 24 points)
10 Year Treasury Bond – 3.67% (up 0.04%)
Euro – $1.4214
Gold – $953 (down $2)
Oil – $68.05 (up $0.89)
Gasoline $1.92 (no change)

Bonds moved sideways, as did the Dollar, as did gasoline and oil.

Gold moved sideways too, and this was great news after yesterday’s massive move up.  It’s held its value for today as we move into the weekend.

In the news today…..

None.

I will mention that I think Congress’ action to pass a bill, and send it to the Senate to tax the AIG bonuses recipients, was dumb.  This is a precedent that we don’t want or need in America.  How would you like to be singled out by a bill that targeted YOU individually with a tax, or anything else Congress wanted to impose on YOU individually.  That’s what this bill opens up.  If passed, there is no doubt in my mind that it will be tested in the courts – and guess who will pay for the lawyers???  YOU!!!!

 
Here are the last numbers for today:
Dow Jones 30 Industrial – 7278 (down 122 points)
10 Year Treasury Bond – 2.63% (up 0.03%)
Euro – $1.3570
Gold – $956 (down $3)
Oil – $51.06 (down $0.55)
Gasoline – $1.46 (up $0.02)  

Bond interest rates rose again, and the Dollar gained also.

Oil and gasoline fell slightly.

Gold fell again, and is now below $900/ounce.  Gold continues to be a “buy.”

In the news today…..

Citigroup was profitable the first two months of 2009.  The large rise in Citi stock prices was caused by short covering (buying back existing short positions) and a technically oversold stock market condition (sort of like a coiled spring ready to push back.)

So, are stocks ready for a long rise in the positive direction???

I don’t think so as the credit markets have been tightening recently as measured by the key credit spreads (like Libor).  Also, even though Citigroup was profitable, it doesn’t change its “toxic securities” holdings one iota – and these provide the negative drag on the share values.
 

Here are the last numbers:
Dow Jones 30 Industrial – 6926 (up 379 points)
10 Year Treasury Bond – 2.98% (up 0.10%)
Euro – $1.2679
Gold – $896 (down $22)
Oil – $45.71 (down $1.36)
Gasoline – $1.30 (down $0.04)  

Bond interest rates fell today as safe haven buying ensued from the stock players.

The Dollar moved sideways.

Oil and gasoline fell dramatically, stopping the recent rises in oil.

Gold fell a little, as people took some of their profit to balance their stock losses.

In the news today….

Stock markets around the world fell today.  The US was no exception.  The main worry is the strength of the banking system, and the continued bailouts of “key” organizations, like AIG, who are too big to allow to fail.

AIG has been given $150B in bailout money so far.  Today it is being given an additional $30B.  The CEO of AIG said he thinks he will need more money in the future.  Why??  Well, the main business of AIG is insurance, and they insured those “toxic securities” which are falling in value each day – so their future is not too bright.

The government now owns a majority of AIG, so why don’t we just “nationalize” it as we are guaranteeing its losses anyway?  Politics is the answer to that question.

As part of the new $30B bailout money, we also reduced the interest AIG is paying of the previous “loans.”

Consumer Spending rose 0.6% in January.  Don’t hold your breath, as I predict it will fall in future months.  The biggest contributor to this increased spending was on food.  Think about that a minute – are people starting to buy in food for the upcoming hard months?

Personal Savings rose to 5% in January.  This increase is as I believe will continue to happen.  The savings rate should get back to 9% or higher before we’re done with this crisis.
 

Here are the last numbers:
Dow Jones 30 Industrial – 6763 (down 300 points)
10 Year Treasury Bond – 2.92% (down 0.12%)
Euro – $1.2577
Gold – $940 (down $3)
Oil – $40.15 (down $4.61)
Gasoline – $1.29 (down $0.09)

Bonds went sideways as did the Dollar, as did oil and gasoline.

Gold soared to new recent heights – this was the confirmation of gold going higher that I was looking for.  Gold is now a “buy.”

In the news today…..

A year ago, and last December, I told you about the statistical significance of having a down month of January in stock prices.  Well, guess what happened this January????  It is the BIGGEST DOWN MONTH EVER.  It was down 8.84% in the month.  The last greatest down month was in 1916.  That should get your attention.  It certainly has my attention.

If you were a betting person, this means there is a very high probability that 2009 will be a down year in stocks.  Also, if you were a betting person you would bet it would go down.  How do you bet on that?  Well, there are two fairly straightforward ways.  You can short stocks or indices, or you can purchase “puts” on stocks or indices.  Betting on a downward trend is very risky, so I only recommend this for people who know what they’re doing.
 

Here are Yesterday’s numbers:
Dow Jones 30 Industrial – 8001 (down 148 points)
10 Year Treasury Bond – 2.84% (up 0.02%)
Euro – $1.2816
Gold – $928 (up $22)
Oil – $41.68 (up $0.24)
Gasoline – $1.27 (up $0.03)        

In the news today…..

The Consumer Price Index (CPI) fell 1% in October.  THIS WAS THE BIGGEST FALL IN CPI EVER.  I am very excited about this because this is a real measure of DEFLATION.  The cause of the drop was lower energy prices – no surprise there.  In fact the CORE inflation rate was negative 0.1% – that’s without energy and food.  And food actually had a positive inflation impact – in other words food costs more in October.  This means that when oil stops dropping like a rock, inflation will grip the United States and you will immediately forget about these bad times – because they will just get worse.  Sorry for the bad news, but that’s what coming.

Tonight’s Dinner Conversation….

Have you noticed over the last few weeks that I’ve said “lowest since xx years,” or something similar???  I hope this is starting to trigger some thoughts in the back of your mind.  Like – “Is this a new record?”  “Is this going to get worse?”  “Is this the way it was back in the Great Depression?”

Here are Today’s numbers:
Dow Jones 30 Industrial – 7997 (down 427 points)
10 Year Treasury Bond – 3.39% (down 0.14%)
Euro – $1.2495
Gold – $735 (up $3)
Oil – $53.62 (down $0.77)
Gasoline – $1.11 (down $0.03)

In the news today…..

Existing Home Sales in September rose 5.5% over August – and most of the sales came in the West.  Does this mean the housing crisis is over?  Nope!!! – the easy answer.  Here’s why:

1. Housing prices kept falling – 9% year over year.
2. The new house inventory is 9.9 months – too large to declare any turnaround.
3. The future is a recession – and this is bad news for any housing sales.
4. There continue to be record foreclosures – and used houses compete with new houses.  The entire housing market must turn around, not just new homes.
   

The FED is thinking about bailing out insurance companies now.  The first two companies that they have talked to are MBIA and AMBAC.  If you remember, I talked about those two companies months ago.  They are the ones who insure cities/counties/companies so AAA ratings can be put on bonds.  This just looks more and more like a bailout.

Here are Today’s numbers:
Dow Jones 30 Industrial – 8379 (down 312 points)
10 Year Treasury Bond – 3.70% (up 0.17%) – a major increase in interest rates
Euro – $1.2618
Gold – $730 (up $16)
Oil – $64.15 (down $3.69)
Gasoline – $1.48 (down $0.10)

In the news today….

Last week’s jobless claims were 478,000 claims.  This just another data point that we are headed straight at the recession.

Here are Today’s numbers:
Dow Jones 30 Industrial – 8691 (up 172 points)
10 Year Treasury Bond – 3.53% (down 0.08%)
Euro – $1.2910
Gold – $715 (down $21)
Oil – $67.84 (up $1.09)
Gasoline – $1.58 (up $0.01)  

In the news today….

The wholesale price index – the PPI, or Producer Price Index – dropped 0.4% in September.  Great news.  It’s caused by declining energy prices, and declining commodity prices.  The core PPI (the one without energy and food) actually increased 0.4%.  The Core year over year increase is 4%, and the total PPI year over year is 8.7% – the highest since 1991.  That is a sign of coming inflation – and the bond market is reacting accordingly.

Tonight’s Dinner Conversation….

The housing market is the primary cause of the illiquidity, banking sector meltdown and bailout actions.  So, what’s the housing market doing?  Where is the bottom of this market?  When will prices stop dropping?  One key measure in this complex equation is the number of people buying houses.  Here is a graph of the number of mortgages and refi’s that happened historically to date:

  Look at the RED line going down strongly for the last year.  It is currently still falling, and that’s not a good sign.  This means there are fewer and fewer people willing to purchase a home in the US.  REFI’s, on the other hand, are increasing slightly, and I believe this is because some people are getting some tremendous real estate buys (buying for little money, or for cash), and are putting mortgages on these properties after they buy them.

Here are Today’s numbers:
Dow Jones 30 Industrial – 8578 (down 733 points)
10 Year Treasury Bond – 4.01% (down 0.01%)
Euro – $1.3500
Gold – $839 (down $1)
Oil – $74.54 (down $4.09)
Gasoline – $1.78 (down $0.10) – another major drop in wholesale gasoline price.