DJ30 – 11.952   down 172
US Treasury 10 Year Bond – 2.97%    down 0.03%
USDEUR  -  1.4347
Gold – $1532     down $10
Oil – $99.13    down $2.80

Oil prices tumbles today as the Saudi’s said they were increasing production 500,000 bpd to a total of 10,000,000 bpd – and this is after OPEC snubbed the Saudi’s by saying that OPEC would not increase oil production.  Concensus oil traders think that oil will go down to $92/barrel if Saudi comes through with increased production.

Stocks are now definitely testing the “bear” proposal that stocks are going lower as QE2 is coming to an end at the end of June – as you know, stock prices are ahead of reality as they predict the “future” value of the equity.  Next test will be S&P 1250.

Gold got clobbered early this morning and fell about $20/ounce, but recovered some as there are more buyers than sellers out there.  The Dollar strengthened today and was a major negative for gold and oil.

Stock Market Investing……

I just saw a great interview by one of America’s top traders in stocks.  Here is what he said.

Stocks are in a trough between S&P 1250 and 1300, and they could go either way.  He is trading very short term, and all his long term money is in “cash” right now and has been for many months.  He is afraid to go “short” as when he does interviews he is taking a big risk that he will lose a lot of money.

What does this mean to you?

1. Stocks are impossible to predict.
2. The long term uptrend is “not” a sure thing.
3. Don’t go short unless you can sit in front of your computer 100% of the time to reduce your trading risk.
   

If a true professional is thinking this way, it is good information to pass on to economyguy readers.  Take this pro’s advice to heart.  I, personally, do not trade in stocks as I don’t want to take the time to research what it takes to make “smart” trades.

Chinese say US has already defaulted…….

A top Chinese official has stated that the US has already defaulted on its debt.  Usually a default means that the US is not paying its interest or not paying back the principle on the original loan.  But, this Chinese official did not mean that type of default.

He very clearly said that the US has defaulted by allowing the US Dollar to fall in value – by design – and therefore the Chinese are losing money from their US Treasury investments.

In addition, the Chinese have sold almost all of their short term US Treasury bills (at least 95% of them) as they are positioning themselves for a possible increase in US interest rates.  The Chinese are slowly selling their long term US Treasuries, and have done this every month for the last 5 momths.  The US FED currently owns more US Treasuries than the Chinese own.  All of these facts should scare you.

What does all of this mean to you?

1. The Chinese are smart, and recognize the game that the US FED is playing with the US currency. And, they don’t like it.  You should also recognize that your Dollars will buy much less in the future.
2. The FED continues to play the devaluation game by buying US Treasuries.
3. The Chinese are getting out of US Treasuries – so you shouldn’t be holding them for the long term either.
   

FED reviews more banks……

The FED is expanding its requirement for banks to provide annual plans to insure their capital requirements are met.  They currently require 19 banks to do this, but are changing the requirement for any bank with $50B in assets.  This means there will be 35 banks required to make these annual reports.

What does this mean to you?

1. Nothing.
2. The FED is only trying to make you feel “safe”.
3. You know that most banks are bankrupt and that they capital requirements are a phony measure as they allow the banks to value its assets at anything they want to value them at.  Asset values hold no relationship to reality.  If banks were forced to “mark to market” they would be declared bankrupt.
4. Just realize that all institutions use “smoke screens” at times.
   

NATO in jeopardy……

The bulwark of security in Europe, NATO, is in jeopardy of becoming irrelevant.  NATO is the one institution that can claim to have kept the peace in Europe since WWII.  The US spent tons of money on the Marshall Plan and on NATO to create a strong, united Europe long before the EU was a glimmer in the eyes of Europeans.

But, we now have a bunch of European leaders who don’t remember WWII, and don’t recognize the value of NATO.  The new leaders are caught in the vice of being complacent in the security realm (relying on the US, of course) and short on funds (as Greece, et al, are being bailed out).

All this leads to a very dangerous place for Europe to find itself, as its history for war is not one to be envied.

The crazy bombing of Libya by our President did not help matters, as this is another point of contention within NATO.  Also, when our President waved the white flag to the Russians over positioning an ABM system in Poland and the Czech Republic, the Europeans saw us as an unreliable partner.  So, US policy making is also part of the problem.  Obviously, there are some in the US that don’t see that a peaceful Europe is in our best national interest either.

US spending is a major topic of discussion here in the US, and where we spend our precious Dollars is still to be debated.  Some demand that we have “no” overseas presence, and bring “all” our soldiers home from “all” the 150 countries where they are stationed.  I don’t agree, but then, I have seen first hand the good that our soldiers do overseas.  We certainly live in an interesting world.  The question to be answered during the future debate on spending US Government budgets is “What is in our national interest?”  A businessman would state the same question as “What is the best business decision that I can make for our country?”

Think about the Stock Market…….

I would like all the readers to think about the US stock market for a second.  Here are some facts:

1. Between 50% and 70% of all trades on the US stock markets are made by computers today – not by individuals making trades on their individual computer pushing buttons, or by phoning your broker to place an order.
2. The conventional wisdom for individual investors is to put their money into “stock index ETFs” – as they can be found for the S&P index and most other ones.
3. This means that the stock markets are being set by computers, and the ETFs follow those results.
   

So, here are some questions for the readers:

1. Is it possible that regular investors (like you and me) could be wiped out by computers by driving down prices and having your ETF index diving with that result?
2. Is this the future that we face?
3. Is the stock market safe (meaning predictable like the good old days?)
   

The purpose of this piece is for you to think for yourselves.  Know the environment that your money is invested in.  I haven’t touched the area of commodity speculation – but most of you accept that as a fact.  Why not stock market manipulation?  In the past, this would have been a joke as there were too many people making individual investments and a “true value” was always being struck for any equity – someone willing to sell and another willing to buy at the same price.  But, now we don’t have people in the loop – only machines who trade on algorithms which are changed at someone’s whim.  What if this person is just greedy and willing to blow up the markets to make a buck?  Please realize we have had “computer trading induced” collapses in the US stock market in the recent past – so this isn’t just hypothetical.

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.

Bonds were the only market which ended significantly higher (lower interest rates) as people worried about the economy (see articles below.)  Remember that the bond market is much more sober and realistic as a market compared to the stock market, or commodities.

In the news today…..

The Treasury has decided it should give our TARP money to Insurance Companies too.  I guess the insurance companies must be in trouble.  Remember the psychology of TARP – it was forced on the banks, and they couldn’t say “no.”  I wonder if the insurance companies will be in for the same treatment?  The rationale is that if the “market” doesn’t know which insurance companies are “bad” and which ones are “good”, the market won’t be able to drive down the value of the bad companies and cause them to become “bankrupt” because their share value is so low – as happened with the banks.

But, that was the reason the Treasury has never told us which banks took the TARP, and how much they took.  But, someone (insider knowledge??) found out and drove the value of these crummy banks down.  I guess the Treasury isn’t as smart as it thinks it is.

Some insurance companies are also BANKS today.  The ones that are banks, and therefore automatically qualified to receive TARP money, are Prudential, Met Life, Hartford and Lincoln.  That’s all.  Maybe more insurance companies are planning to become banks – just like the financial companies ALL become banks at the end of last year.  By the way, I smell a conspiracy about that change in status as all those “new banks” got billions of our tax dollars after they swapped over.

FEDs March Meeting Minutes…..

The FED minutes from March’s FOMC meeting were released today, and the FED decision to “stimulate” the economy with $1.2TRILLION was based on the following:

1. deteriorating economic outlook – falling production, higher layoffs than previously anticipated
2. poor export orders – the US economy can’t count on exports helping keep production up
3. thwart the continued deflationary pressures
4. not worried about inflation, but was worried about depression.
5. put long term bond prices up (decrease long term interest rates) by purchasing long term treasuries

The FED reduced its GDP predictions for 2009 and 2010.  They previously stated the 3rd and 4th Q would have recovery growth.  They now say both these quarters will be ZERO growth.  That’s an amazing turnaround.  They previously stated that 2010 will have growth between 2.5% and 3.3%, but now predict 2010 will have very weak growth – and that means less than 1%.  The FED is finally getting its arms around the seriousness of the current economy.  The lesson here is that the FED (with its infinite wisdom) DIDN’T have its hands around the the economy as late as January.  Okay, they’re human too.

Here is my personal opinion:  The FED acted one week after the Chinese threatened to “pull the plug” on buying more US Treasuries.  The Chinese understand that higher interest rates means lower values of their bonds.  They also understand the future inflation produces higher interest rates, and they publicly stated that the Obama Administration’s spending plans would produce inflation.  The FED (coincidentally???) announced its US Treasury Bond purchase plans to keep interest rates low.  This mollified the Chinese to purchase more Treasuries in the near term as they are being “protected” by the FEDs use of taxpayer money.  (Please remember that when the FED buys Treasuries, they can lose money on those purchases just like any investor.)  The FED and the Treasury can’t fund the Obama spending without foreign nations purchasing dollar denominated US Treasuries, and if the Chinese stopped buying, everyone else would probably stop too.

Stock Market Psychology…..

Here is something for you to think about.  The subject being debated, hot and heavy, today is whether or not stocks are in a new bull market, or is this just a bear market rally?

Market psychology says that a major turn in the market upward occurs when EVERYONE thinks the market will continue to go down FOREVER.  Also, when the first person says it is at a bottom, that person is publicly stoned to death (verbally speaking) with cynicism and criticism.  

That never happened when we hit the bottom last month and the market rallied over 20%.  In fact, there were lots of pundits saying we were “at the bottom” as the market dropped like a stone.

Just using “market psychology” this says that the bottom was NOT reached last month, but a lower bottom will be hit sometime in the future.  You can’t predict timing (i.e. when the bottom will be reached) using market psychology, but you can (usually) predict the trend – up or down.

Stock market psychology says that the recent rise in stocks is a Sucker’s Rally.

Herein ends today’s lesson.

Here are the last numbers for today:
Dow Jones 30 Industrial – 7838 (up 48 points)
10 Year Treasury Bond – 2.85% (down 0.08%)
Euro – $1.3260
Gold – $886 (up $3)
Oil – $49.38 (up $0.23)
Gasoline – $1.44 (down $0.02)                   

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 were a safe haven again today, as value increased (interest rates fell).

The Dollar fell, and Oil and gasoline went sideways today.

Gold was the “sparking” performer today. It closed at $1002 – A NEW HIGH – and even hit $1005 during the day.  Okay, I’m done talking about being worried about gold going down to retest any technical levels.  I was wrong.  It has proven itself to be a stunning investment in 2009.

In the news today….

The Consumer Price index (CPI) rose 0.3% in January breaking the downward, deflationary for the last 4 months.  For the past 12 months, the CPI is zero increase/decrease.  The main cause of the rise in CPI was medical costs and educational costs.  Again, I don’t think this is a sign of oncoming inflation, but we must wait for at least 2 more months of CPI to see if that’s true or not.

So, why are stocks going down, down, down….

Simply put, it’s frustration in investors, main street, and Wall St.  In our immediate consumption society, people are impatient waiting for Washington to do something to fix this mess we’re in.

Did you see Rick Santelli’s rant on CNBC yesterday. He is CNBC’s top financial analyst.  He hit a raw nerve across the country when he talked about the housing rescue plan announced yesterday by the President.  His key points were that we are rewarding bad behavior, and that’s not the way America became what it is.  He has sparked a deeper conversation on this topic and the politics in DC altogether.  For example, when asked why he didn’t go to DC as a politician and fix this mess, he said that he “didn’t want to have to take a shower ever hour.”  He certainly struck a note believed by the majority of Americans that Washington is corrupt.  He said he wanted to have another “tea party” but this time do it in Chicago at Lake Michigan – I’m in.

Here are the last numbers:
Dow Jones 30 Industrial – 7366 (down 100 points) – VERY UGLY
10 Year Treasury Bond – 2.77% (down 0.09%)
Euro – $1.2826
Gold – $1002 (up $26)
Oil – $38.94 (down $0.54)
Gasoline – $1.07 (down $0.02)

Bonds lost ground (increased interest rates) as the bad news about inflation hit the news.  The Dollar lost ground too.

Oil and gasoline gained, as they tagged onto the inflation numbers.

Gold lost $2.  It’s range for the day was $983 to $974 – closing at $977.  This might have been the break through we were looking for, but I’m still not convinced.  I still believe that gold will drop back into the $925 – $950 range, and then rally to new highs.  When it breaks out above $1000, I believe it will go straight to $1100 before it takes a breath and people start taking their profits.  (By the way, my long term prediction for gold is a minimum of $2200/ounce, and depending on the inflationary news at the time, could go to $4000/ounce.  When we get close, I will give a “sell” signal as there should be a very large sell off when it gets to that new high.  All you gold owners should take their profits at that time, and get poised to buy back in at lower levels.)

In the news today…..

Jobless Claims hit 627,000 last week.  Still very bad news, and rising unemployment coming.

Unemployment Benefits are being given to 4,990,000 people last month.  Here are some more statistics:

1. there are also 1,500,000 people getting “extended” benefits in addition to that previous number
2. the total unemployment benefits last year was 2,770,000 people – quite a rise this year???

Wholesale Prices rose 0.8% in January.  This was the INFLATION scare that hit the market.  The number was much higher than anyone predicted:

1. Gasoline was 15% higher in January, and was the biggest contributor, BUT
2. wholesale prices rose 0.4%, and this was the big scare number.  It was anticipated to be “negative.”  OOPS!!!!

Is the new administration’s inflation troubles starting to hit the economy this soon?  I can’t tell.  Don’t make up your mind on one month’s data.  Wait for two or three months of data.

Leading Economic Indicators were up 0.4%.  This should be that things will get better in the future.  But, will they????

1. This was mainly to the increase in the money supply.
2. Don’t believe this indicator – EVER.  It will get you in more trouble than most indicators.  (Lesson for today.)

Here are the last numbers:
Dow Jones 30 Industrial – 7465 (down 90 points)
10 Year Treasury Bond – 2,86% (up 0.13%)
Euro – $1.2661
Gold – $977 (down $2)
Oil – $39.48 (up $4.86)
Gasoline – $1.19 (up $0.03)

My analysis of today’s stock movement…..

Today stocks retested the recent low (closing at 8175), and ended much higher at 8835.  I watched this activity today as it was obvious to me that today was the day for stocks to decide their future direction of movement – at least for the near term.  The retesting of their recent low means that stocks will recover for awhile.  Will they continue to go up?  Is this the bottom?  Those are the key questions, and here is my answer: “It depends.”  This could be the bottom, and it could be just a major correction in the bear market.  

In the news today….

Jobless claims came in today at 516,000 job losses.  This is the first time this number has been over 500,000.  And, in my opinion, it’s just going to get worse – especially during November and December.  As an aside, this should have spooked stocks (and maybe that’s exactly what happened in the morning) rather than having the market go up today.

Tonight’s Dinner Conversation….

What’s the difference between a recession and a depression?  Well, economyguy readers know that there is nothing different between then – officially or by definition.  However, current use of the terms implies that a depression is worse than a recession.  Worse in what measures?  I would guess those measures should be unemployment and GDP.

Here are Yesterday’s numbers:
Dow Jones 30 Industrial – 8835 (up 552 points)
10 Year Treasury Bond – 3.81% (up 0.15%)
Euro – $1.2769
Gold – $705 (down $13)
Oil – $58.24 (up $2.08)
Gasoline – $1.30 (up $0.05)

In the news today…..

AMEX is now a commercial bank – no longer just a credit card company.  AMEX did this so it could take deposits and government loans.  This is a very bad sign for AMEX.  Their credit card risk must be hitting home right now as the economy tanks and people can’t pay their AMEX bills.  This is also a bad sign for the implosion of the credit card bubble.  We really don’t have a measure on how bad this bubble really is, but it could take down the major credit card companies – providing the government doesn’t bail them out too.

The Housing Market – the Government to the Rescue????

The Government is coming out with a plan to save the housing market.  Since the government now owns Fannie and Freddie, and those institutions control over 50% of the mortgages in the US, the US is now setting up guidelines for re-negotiating some bad mortgages, and keeping the home owners in their house.  Here are some details:

Tonight’s Dinner Conversation……

Will the government’s plan to save the housing market work?  And why?

Here are Yesterday’s numbers:
Dow Jones 30 Industrial – 8694 (down 177 points)
10 Year Treasury Bond – 3.76% (down 0.01%)
Euro – $1.2529
Gold – $733 (down $13)
Oil – $59.33 (down $3.08)
Gasoline – $1.31 (down $0.06)  

In the news today…..

The FED reduced the Fed Funds Rate (and the Discount Rate) 0.50% today.  That means the Fed Funds Rate is now 1.00%, and doesn’t leave a lot of room for the FED to reduce that key interest rate much more (only 1%) if it wants to combat a severe recession.  The Bond market is already betting on an additional 0.5% by the December FED meeting.

The Rumor for Today….

Okay, I’ll be a rumor monger today.  I heard from a usually reliable source (someone who trades in millions of dollars worth of commodities each day) that “someone” is threatening to sell $1Trillion into the stock market just before the election – in order to persuade some “fence sitters” how to vote.  If this could be accomplished, it would probably drive stocks to their lowest levels in the current bear market.

Here are Today’s numbers:
Dow Jones 30 Industrial – 8991 (down 74 points)
10 Year Treasury Bond – 3.87% (up 0.05%)
Euro – $1.2952
Gold – $754 (up $14)
Oil – $67.50 (up $4.77)
Gasoline – $1.53 (up $0.08)