The Economy Guy

Today’s drop was caused (again) by the same old worry.  Bad mortgage debts all over the place.  The market is now down over 10% from its October highs, and that is the definition of a “correction”.  Isn’t that a nice term – correction???  It kind of lulls you to sleep thinking that it will “correct” itself in the future back up to where you think it should be.  Those marketing guys on Wall St really know how to turn a phrase.  Most of the cause of today’s fear was caused by news I reported last week.  A new item is that the Federal Home Loan Bank could be exposed to a bunch of Countrywide’s bad debt.  Thanks taxpayers – you may be reaching deeper in your pockets.

More importantly, and much more meaningful, as far as I’m concerned is the Bond Market.  It fell a whopping (0.17%) TODAY.  And, it closed way down to 3.84%.  The bond market is screaming that a slowdown in the economy is coming.  The bond market is a safe haven for some investors.  They sell their speculative (meaning any) stocks and put their money in the bond market where it’s safe (if they only knew!!!)  Bonds broke through its lows, and is now trading at the same level it traded in 2 1/2 years ago.  That’s back in the Greenspan days when he was slowing increasing interest rates (they used to be even lower) so he could hand over to Bernanke.

I don’t know if you noticed, but gold did its “correction”, and is now coming back strong.  Currencies are climbing against the dollar again.  The Euro is moving up slowly, but other currencies like the Yen and Swiss Franc are moving faster.

With the stock market making new lows, it is very tough to predict where it will stop.  I am reading the current situation as follows.  The stock market was highly volatile for the past couple of months, and it has just broken out on the down side.  That is a change to what has been going on, and it could mean further losses in the stock market (with subsequent gains in the bond, gold, currency markets) in the near term.  The end of December is statistically the most bullish stock market days of the year, and I would bet (unless something else comes along) that this year will be no exception.  Hope all this helps.

PS – If you’re sharing these emails with your friend, tell them to register on the economyguy.com site to insure they don’t miss on the upcoming live teleconference that I’m expecting to do early next year.