The Economy Guy

Stocks continued their fall from last week ending down 125 points.  This is just the beginning of the bad news coming out of company earnings announcements.

Bonds started to make up lost ground and interest rates fell a little.

The Dollar strengthened a little over the Euro, and lost against the Yen.  This just means the Euro is weaker than the Yen.

Gold lost $34, and again gold is a buy.

Oil got slammed on the weaker US economy, but gasoline only fell slightly.  I have noticed that gasoline around my town has gone up about 20 cents over the past 2 weeks.  How is it in your backyard?  

In the news today…..

Obama wants the remainder of the TARP money ($350B) released by Congress.  Bush said the same thing this morning.  However, Congress is using the TARP issue itself.  Congress is going to subpoena Treasury to get a copy of the contract that Citi Group signed to get its TARP money.  It may do the same thing for the AIG contract.  Congress is saying it won’t release the second half of the TARP money, unless it get this information.  On this issue, I agree with Congress – we need transparency in the dealings of the TARP money – not just “good ole boy” back room deals.

The FDIC is telling banks to keep track of how they use their TARP money.  What a joke.  Can you think how hard it would be for you to tell someone you borrowed money from where their money was used once its mixed with your other money???  It’s impossible – not just difficult.  If banks come up with a story – it will be just that – a story.

Inflation – Zimbabwe issued a $50B note today that is worth US$1.25 – enough to buy 3 newspapers.  Inflation is alive and well in the world and working just like it should work.  Add enough money, and inflation happens.  Just go visit Zimbabwe to see how it looks in real life today.

Tonight’s Dinner Conversation…..

The US Government is counting on foreign countries and individuals to purchase its Treasury bonds being issued at a record rate.  Who would buy a 30 year note that pays 3%???  Would you??  I wouldn’t because I know that inflation is coming, and it will probably come more than once in a 30 year period.

So, what happens if foreign central banks stop purchasing US Treasuries?  Has the government considered this possibility??  The way markets work is this — if you can’t sell your products at a given price, and you really want to sell them, you just keep lowering the price until someone starts buying.  Dropping the price of Treasury Bonds is the same as increasing their effective interest rates.  This would immediately jump up the interest rates that everyone in the US pays for everything.

Is this the next shoe to drop???

Here are Today’s numbers:
Dow Jones 30 Industrial – 8474 (down 125 points)
10 Year Treasury Bond – 2.31% (down 0.10%)
Euro – $1.3374
Gold – $821 (down $34)
Oil – $37.59 (down $3.24)
Gasoline – $1.08 (down $0.03)