DJ30 – 12,377   up 57
US Treasury 10 Year Bond – 3.44%    down 0.04%
USDEUR  -  1.4225  - a weaker Dollar
Gold – $1428     down $10
Oil – $108.14    up $1.42 – a recent HIGH – very dangerous for our economy!!!!!!
Gasoline $3.15   up $0.04

Interest Rates….

Today I would like to talk about interest rates.  There are a lot of things happening in our economy which point to a change in the interest rate stance we are currency in with the FED.

First of all, Quantitative Easing 2 is supposed to be completed (all $600B worth of Treasury purchases) in June. The FED has not decided or announced “officially” what it will be doing after QE2 ends.  Many of the voting members of the FED have stated that they want QE2 to end, and not be extended.  Other members of the FED have stated they want the FED Funds Rate raised.

I consider this “leaking” from FED members as a strong message that at the next FED meeting in April, the decision will be made to not extend QE2.  They may also decide to start raising interest rates.  Also, FED Chairman Bernanke has stated he will be having quarterly open sessions with the press, and “coincidentally” the first one will be right after the April FED meeting.  This sounds too much like a set up for a significant statement not to be made by Bernanke.

But, what will happen if the FED “states” they will stop QE2 in June?  My best guess is that the stock market will start selling off, and will have a 10% to 20% correction.  So, Wall Street is justifiably worried what Bernanke will say in April.

The pressure for increased interest rates is coming from the increase in inflation being seen across America.  A zero FED Funds rate means that “real interest rates” are negative.  (Real interest rates are current interest rates minus the inflation rate).  A healthy economy requires positive interest rates to keep the engine of commerce working.  So, this means that current interest rates need to be raised – but by how much?

When the FED starts increasing the FED Funds Rate, history shows that they move slowly and cautiously.  For example, they may raise it 0.25% to 0.50% in a single move (right after a FOMC Meeting) and continue with 0.25% increases each meeting thereafter until the desired rate is achieved.

The desired rate is at least 2% – so this means the FED will be raising rates slowly for a long period of time, and not get to the desired rate until next year.  At the end of this year, I would expect the FED Funds Rate to be 0.75% to 1.0%.  A healthy economy would have the FED Funds Rate at 4% to 5% – so this is just more measure at how sick our economy really is.

The FED knows all this, and I also believe that Bernanke wants to have a QE3 starting sometime.  Previously I explained how the FED can surrepticiously buy Treasuries after QE2 is “officially” stopped.  However, as housing prices continue to tank, and inflation continues to heat up, and wages are restrained because unemployment is still high; the FED will want to “stimulate” the economy with more Quantitative Easing.

What does all this mean?

Increasing interest rates mean that bond values will plummet.  US Treasuries will be the hardest hit, as this is the in the spotlight.  However, all bonds will fall in value including corporate bonds, muni bonds, junk bonds, etc, etc, etc.

Increasing interest rates will mean higher mortgage interest rates, so a housing market that tanks faster as less people want to buy, or can’t afford the mortgage.

Increasing interest rates means a better interest rate for savings in your bank – so this will help people on fixed incomes who live off their savings and interest.  But, higher inflation rates will equally eat into those lifestyles – and your lifestyle too.

Opportunities will exist to make a lot of money in “shorting” bonds.

Stay tuned.

Unemployment Rate…..

The unemployment rate came in today at 8.8% as the economy gained more jobs.  This is naturally good news for America.

However, the bad news is that there a whole lot of discouraged workers who are no longer counted in the unemployment number, so sometime in the future if and when the economy is stronger, a lot of people will be coming forward to join the rank of the employed.  In other words, it will be a long hard road to get back to a “normal” economy.

In the news today…..

Private Employers – laid off 371,000 workers in July.  This was down from 463,000 in June.  If you listen carefully to the news media, you would think this was a great result.  We are coming out of the recession, and this is just one more indication.  I beg to differ!!!!  We are still laying off people.  As long as we are laying off people, the economy is getting worse – no matter what people are saying.  As long as total unemployment keeps rising – and it will according to the President – we are in a bad economy.

By the way, I bet you didn’t see it reported that future planned layoffs is an increasing figure.  This means that companies (even as we come out of the recession??) are planning on cutting jobs to make their profit numbers.

Definition of Recession – is two quarters of negative GDP growth.  What that means is when we get ONE quarter of positive GDP growth (even 0.1%), we are “officially” out of the recession.  Have you ever wondered why it takes two quarters to be in a recession, and only one quarter to be out of it??  Well, the answer isn’t surprising – it’s all politics.  The politicians prefer to look good, and not bad.

Because of this definition, I believe we will be “out” of the recession in the 3rd Q of 2009 – and at the same time we will have continuing increase in unemployment and falling house prices.

30 Year Mortgage Rate – is 5.17%.  It fell last week, and is now at a place where you should seriously consider a refi if you are in that position.  As the 10 Year Treasury continues its increase in interest rates – the mortgage interest rate will follow as sure as day follows night.

Here are the last numbers for today:
Dow Jones 30 Industrial – 9281 (down 39 points)
10 Year Treasury Bond – 3.76% (up 0.09%)
Euro – $1.4419
Gold – $966 (down $3)
Oil – $71.92 (up $0.55)
Gasoline $2.05 (down $0.01)

Bonds lost lots of value, increasing interest rates up 0.25% in two days.  Here come the higher interest rates again.  Think inflation worries.

The Dollar lost a lot of value today, after moving sideways for the past few days.

Gold gained a lot today in line with inflation worries.

Oil and gasoline gained by a big jump, again think inflation worries together with an economic recovery.

In the news today…..

CPI – the Consumer Price Index rose 0.7% in June.  This was mostly caused by the biggest gasoline price rise in 5 years.  It’s coming down slowly this month, so that should slow inflation as measured by CPI.  The core inflation gain (CPI less food and energy) was up 0.2% in June.  The year over year CPI gain is MINUS 1.4% – one of the largest falls in inflation ever.

Industrial Production – fell 0.4% in June.  This measure of economic activity is skewed by what’s going on in the auto industry, so it should be ignored a little at this time.  The key take away is that industrial production is still going down.

Credit Card Defaults – fell slightly in June.  An encouraging sign for the credit card companies.  One explanation is that people are using their tax refunds to pay off debt.

Free Cellphones – are being given out in Colorado (the 17th state to do this) to poor folks.  Did you know that one of those taxes at the bottom of your phone bill – the Universal Service Fund – pays for this service.  Wireless Welfare – a new thing coming your way.

Tonight’s Dinner Conversation….

The FED just came out and said that unemployment will exceed 10% this year, and the country will have a minus 1% to minus 1.5% GDP growth (that’s negative growth.)

I was concerned that my prediction of unemployment being 10% by year end was going up in smoke because a federal agency is usually conservative.   Maybe it will be much worse.  I hope not.

However, I don’t feel real bad, as the FED’s prediction is 10.1% unemployment by the end of the year.  That means my prediction is still in the hunt for being a perfect prediction.  We’ll see.

In the meantime, the country is going to hell in a hand basket.


Here are the last numbers for today:
Dow Jones 30 Industrial – 8616 (up 257 points)
10 Year Treasury Bond – 3.60% (up 0.15%)
Euro – $1.4105
Gold – $939 (up $17)
Oil – $61.54 (up $2.02)
Gasoline $1.71 (up $0.06)

Bonds got scared by the PPI, and increased interest rates – bad news for us all.  However, the scare of inflation remains even thought the argument of deflation versus inflation rages.

In the news today….

Retails Sales – rose in June by 0.6%.  Where did this increase come from?  From increased gasoline prices paid at the pump, and (surprisingly) increased sales at auto dealers for new cars (this is a one time bump, unless the government comes out with some incentives that just can’t be resisted.)  Without these two areas, retail sales rose 0.3% – an increase which is good, but a fairly poor increase.

Unemployment – the truth – from Mort Zuckerman of the WSJ.  Zuckerman went on to say that the first Stimulus package was a failure because it didn’t create jobs – as had been promised – it only produced pork for the politicians.

1. 185,000 workers in the June number were the product of statistical sampling, but could not be verified by the government.
2. Companies are asking employees to take unpaid leave.
3. 1.4 million unemployed workers weren’t counted because they’re not searching for work.
4. Part-time employment has doubled to 9 million.
5. The work week is 48 minutes shorter than when the recession began.
6. The number of long-term unemployed (4.4 million) is at an all-time high.
7. There were no wage gains in June.
8. The goods-producing sector lost over 223,000 jobs just in June.
9. When business picks up, businesses will just add hours to existing workers, rather than create new jobs.
10. Old business lines are being eliminated entirely, not shrunk down, decreasing the odds that the unemployed will be able to find work.

I couldn’t have stated it more eloquently.  The US economy is in a mess.

Unemployment rate – “will continue to climb for several months.”  This quoted from President Obama today.  Can we believe what the President says?  I think not.  He said that unemployment wouldn’t exceed 8% if the Stimulus Bill was passed (in a big hurry).  That was a lie – or was he just mis-reading the economy as VP Biden stated?  A major sector of economists predicted unemployment much higher than 8% when the President made that statement – so the current situation couldn’t be “unknown.”  I, even, predicted 10% unemployment rate by year end long before the President made his 8% statement.  

So, if the President is wrong this time around, it will be longer than “several months” before we top out on unemployment.  This is an interesting prediction model to use:  Predict the opposite of the President’s statements.

President not a citizen?? – this is the gift that just keeps giving.  An Army Major has filed a court case so he won’t go to Afghanistan on the orders of a President who is not legitimate.  I feel this is a gimmick, but fun for the press to follow.  Naturally, only the conservative press will follow this story.

PPI – The Producer Price Index (or wholesale price index) jumped 1.8% last month.  The “experts” are saying this is nothing to worry about, but the markets thought differently, as interest rates rose.

Here are the last numbers for today:
Dow Jones 30 Industrial – 8360 (up 28 points)
10 Year Treasury Bond – 3.45% (up 0.10%)
Euro – $1.3940
Gold – $923 (no change)
Oil – $59.52 (down $0.17)
Gasoline $1.65 (up $0.01)

The Dollar gained back its 1 cent move down yesterday.

Gold continued its seesaw movement going down $10 today.

Oil and gasoline were the other big movers – moving down.  This is good news for us energy hogs.  Let’s hope the lack of faith in our comeback economy keeps energy prices in check.

In the news today…..

Unemployment Rate – hit 9.5%, up 0.1% from last month.  And, I might add, this is only June.  There were 476,000 jobs lost in June.  The Democrats will blame Bush.  The Republicans will blame Obama – the stimulus just hasn’t worked to “create or save 3 million jobs.”  If you include those people who are stopped looking for a job, and settled for a part time job, the unemployment rate is 16.5%.

So, where is the good news in these figures?  It’s hard to find, but the 476,000 jobs lost is less than those months when it was 500,000 or over 600,000.  So, less people are being laid off.  It’s still very hard for those who lost their job.

Factory Orders – ROSE 2.1% in May, and represents two back to back months when factory orders rose.  This is the good news for today.  Hopefully, this will result in fewer layoff, and possibly even some hiring.

Executive Pay – is a cloud of smoke.  Do you really know what executives make??  The SEC wants to change things (naturally driven by Obama’s pay czar). For example, the CEO of Citigroup reportedly made $10.8M in 2008 – and that’s the year that Citigroup fell apart.  I don’t think this scumbag should have received anything, personally speaking.  In reality, he earned $38.2M if his stock options were included in his compensation – but the company didn’t have to report it that way – so the SEC wants more clarity and transparency in executive compensation – and I agree.

California – is paying its vendors in “IOUs” starting today.  The state has run our of money, and they HOPE to be able to pay those IOUs sometime in the future.  Good luck, all of you who provide services to California. I bet you can’t eat those IOUs.

Tonight’s Dinner Conversation…..

Why did the government bailout AIG with $180B of TARP money?  The government certainly knew that the first thing AIG would do was to send a bunch of billions to Goldman Sachs and Morgan Stanley – didn’t they???  

Why didn’t the government just give that money directly into those two companies and take an equity stake?  Those stocks have gone up 4 fold and 6 fold since then.  The taxpayer could have been part of that gain.  

But, instead, the taxpayer is holding a $180B bag with AIG who will probably end up going bankrupt, and we will get NOTHING back, but those friends of the Treasury, got the big bucks – our bucks.

Remember to thank you local Congressman and Senator by sending them home without a re-election.  They let YOU down big time.


Here are the last numbers for today:
Dow Jones 30 Industrial – 8281 (down 223 points)
10 Year Treasury Bond – 3.50% (down 0.05%)
Euro – $1.4001
Gold – $931 (down $10)
Oil – $66.73 (down $2.58)
Gasoline $1.79 (down $0.07)

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 got clobbered (interest rates way up) as the amount of bonds coming on the market next week spooked the traders.

The Dollar, oil and gasoline all went sideways.

Gold went down again today below $900/ounce.  This might be another buy opportunity, but wait for the fallout next week.

In the news today…..

The Unemployment Rate jumped to 8.5% in March from 8.1% in Feb.  During the month of March we lost 663,000 jobs.  Also, given the current weekly unemployment claims being made in April, this trend of a massive unemployment gain is expected to continue.

Fannie and Freddie are going to give their employees $210M in bonuses this year.  And, I might add, they are paying for it with your tax dollars.  So, where is the outrage in DC this time?  It doesn’t exist because everyone knew about it, as they did about AIG.  What a bunch of scumbags.

10% of the population of the US are getting Food Stamps.  That is 32.2 million people.  The average payment in January was $113 to each person.  A typical family of 4 will get an $80 boost to their Food Stamp money starting soon, and that added money is coming from the Stimulus Bill.

Food for Thought – Tonight’s Dinner Conversation…..

Remember Geithner’s plan to solve the “toxic asset” problem that our big banks have???  It’s called the Public-Private Investment Program, and also please remember that YOU will be paying big incentives to the “investors” who are putting in their own money!!!!!!!!

Well, here is the rub.  The exact same banks who are holding those assets are putting together plans to purchase the other banks’ “toxic assets.”  

Does this sound insane to you?  Or, am I just smoking something?????

So, the TAXPAYER is giving money to those greedy, incompetent banks, and they are going to use that money to buy more toxic assets.  Only this time, they will be on the receiving end of the “incentives” promised by Geithner and make a bundle of money out of the deal.

Are you hearing anything about this scam on the news yet???  I haven’t seen it yet, but this is so explosive that it must hit the news sometime.  Enjoy the blast when it happens.

Here are the last numbers for today:
Dow Jones 30 Industrial – 8018 (up 40 points)
10 Year Treasury Bond – 2.91% (up 0.16%)
Euro – $1.3487
Gold – $897 (down $12)
Oil – $52.51 (up $0.13)
Gasoline – $1.49 (down $0.02)