Consumers Rule
Stocks fell dramatically today on the feeling that our economic future stinks. We fell through that important 7800 Dow level, ending at 7552, so we are now in a new bear phase of the stock market. Did you really believe all those bulls talking on TV last week?Bonds gained in value as there was hope that people would actually buy those trillions of dollars worth of bonds that will be coming onto the market.
The Dollar gained dramatically today.
Oil and gasoline fell on the poor economic news.
GOLD….
Gold ended up today. During the day gold hit $974/ounce. If you remember, I told you that gold would test the $975 level. It did it today. It should pull back for a few days, and will then test the all time high for gold. There is little doubt in my mind that we will be seeing an all time high in gold prices in the near future.
What’s pushing gold prices up? Both people who are scared of the economic situation, and want a place to park their money, and gold investors. The amount of people buying gold is growing each month. January had a very high volume for gold purchases. If you go to Zurich, you will have to wait 3 weeks to get delivery of your gold purchase.
In the news today…..
Japan’s GDP fell 12.7% (year over year) in the 4th Q 2008. This is a staggering figure. It is more than triple the decline in the US GDP in the 4th Q. Japan is the world’s second largest economy – so this will have an impact. Exports fell 13.9% (from the previous quarter) in the 4th Q 2008 – WOW. You can see that international trade is slowing, slowing, slowing.
Worry that the failing Eastern European economy will severely damage some Western banks hit US stocks today. You can see we are truly in an international marketplace.
One more fraudster, R. Allen Stanford in Texas, has been busted. His fraudulent scheme was for only $8B. Not bad if you can get your hands on it.
Consumers Rule……
I’ve been reporting recently that consumers are starting to save. Today, the average consumer is saving about 3.5% of their income. Not bad, but it is anticipated to become 9% in a few years. 9% was the savings rate in the US when Reagan became President.
What does this mean?? Well, the savings by Americans just compounds the problems in the US economy. Not only is the consumer stopping its spending in malls, it is spending less in the grocery store. How? Well, consumers are buying store brands rather than name brands, and they are buying bulk rather than smaller packaging. The overall reduction in spending by consumers is the sum of their reduced spending which is now more than 6% PLUS their savings rate at 3.5%. So right now, consumers are spending 9.5% less than last year, and this percentage will only grow.
What does our government tell us to do? SPEND!!!!!!! However, consumers are not stupid. They are NOT spending – they are REDUCING their spending and also saving. The consumer’s got it right. The only way the US will come back as a powerhouse nation economically is to save money, invest it in new enterprises, and create our unparalleled productivity. This will take years, but it is the only way out. In the meantime, our government is spending, and is using OUR charge card so our grandchildren will have to pay off the interest on the credit card.
Lesson Today: Consumers are SMART. They are instinctively doing the right thing for the nation.
Foreclosures and US Housing Prices…..
The following graph clearly shows that the number of foreclosures is still increasing in the US. As long as this trend is up, our crisis will continue and will get worse. Even when it turns downward, it must get back down to normal levels (about 1%) before we are back to normal.
Here are the last numbers:
Dow Jones 30 Industrial – 7552 (down 298 points)
10 Year Treasury Bond – 2.66% (down 0.22%)
Euro – $1.2614
Gold – $968 (up $25)
Oil – $34.93 (down $2.58)
Gasoline – $1.11 (down $0.09)