The Economy Guy

Today stocks moved sideways most of the day, moving up at the end on the FED statement of a strong economy.  Bonds, the Dollar  moved sideways too.

Oil and gasoline fell significantly as new recent lows are being reached.  Let’s hope this continues, and actually shows up at the pump.

Gold also fell, and will now test a significant point of resistance with the next test being the 1040 to 1060 level.  Great news as a buy is coming into view.

In the news today…..– today, and made two interesting statements to boot.  First, they dropped the statement made last month that the housing market was showing signs of improvement – this means they see no improvement right now.  Second, they confirmed they were going to drop their mortgage securities buying program at the end of March, BUT they would consider changing that decision if the economy needed it.

FED Leaves Rates Alone

New Home Sales – fell 7.6% in December.  I suspect this was due to the very cold December that swept across the US.  In any case, it isn’t very good news for the housing market.

November Factory Orders – were revised downward from 1.1% to 0.6% gain.  The change was due to a mistake in the original calculation.  I find this very interesting, and the point I would like to make to the readers is “Don’t trust what the government statistics that are published.”  As you can see, mistakes are made.

FDIC Going Bust – as you can see in the following chart, the FDIC is losing money too fast.  It plans on selling some of the assets that it’s acquired from the bust banks, and sell them at fire sale prices, but that will only bring in $2B to $3B.  Their next stop will be to Congress – asking for a top up.  PS – that’s YOUR money.

Tonight’s Dinner Conversation…..

Would you like to learn about a trick that the FED and Government are pulling right under our noses?  Well, here it is.

The FED has a $1.25TRILLION budget to purchase mortgage securities from Fannie/Freddie, and this is the program that Bernanke announced would be stopped in March.  The problem is that mortgage rates are expected to rise when the FED stops buying the mortgages.  Why is the FED buying those mortgages?

Well, the conventional wisdom is that Fannie/Freddie can then sell those mortgages (to the FED) and is able to purchase more new mortgages and keep mortgage rates down.  That all sounds good – doesn’t it?  But, isn’t there another agenda going on here?  Yes!!!!!!!

Guess what Fannie/Freddie does with the money it gets for the mortgage securities?  It buys US Treasuries.  

Let’s also look at those big banks who have taken TRILLIONS to bolster their reserves.  What do they do with that money?  Either deposit it with the FED at the overnight rate, or buy US Treasuries.

Now, here is the problem.  How many US Treasuries are issued in a year.  Well, last year was a boom for issuing Treasuries, and this year will be one too.  We’ll probably issue at least $1.9TRILLION in Treasuries, and maybe more in 2010.  The news would have you believe that the Chinese are buying all our Treasuries, so there isn’t any problem – right?  Well, ALL foreigners bought only $400B worth of Treasuries last year.  That leaves a bunch left over for US folks/agencies/banks to buy.

So, the big trick is —- the FED is bolstering banks and Fannie/Freddie, so that it can bolster US Treasuries, and thereby keep interest rates low.

Only one question???  What happens when this merry-go-round stops?  For example, in March when the FED stops buying mortgage securities?  

Here are the last numbers for today:
Dow Jones 30 Industrial – 10,236 (up 42)
10 Year Treasury Bond – 3.64% (up 0.01%)
Euro – $1.4021 – down a half cent.
Gold – $1084 (down $14)
Oil – $73.65 (down $1.06)
Gasoline – $1.94  (down $0.03)