Bonds, the Dollar, Oil and gasoline all moved sideways today.

Gold decided to surge today – moving up $43/ounce.  I was surprised this breakout took place today, but I’m not complaining.  Gold traded over $800/ounce today, but ended just slightly less than that at the close.  Gold continues to be a good buy.

So, let’s think about this coming week – it’s going to be Thanksgiving.  I had the amazing pleasure of being with Rob and Kelly last weekend, and got to see their newly born twins.  Together with their 11 month old, they have their hands full of love and pleasure.  These are the things to dwell on this coming week.  Be Thankful.

Bonds made a DRAMATIC move today increasing in value (decreasing in interest rate) with the 10 Year Treasury falling 0.26% - and I consider this irrational exuberance – even though bonds are mostly rational.  To show you the effect this is having – the 30 Year Fixed mortgage rate is now 6.04%, and the 2 Year Treasury Note fell BELOW 1% for the FIRST TIME EVER.  Here’s another FIRST TIME event to take note of – another real signal of the deflation taking place.

The Dollar strengthened slightly in line with the stock market fall.  

Gold strengthened because it’s time to strengthen – ending up $13 today.  Gold is bucking the trend today by strengthening when the trend is for it to weaken when stocks fall dramatically to new lows.  I read this as gold showing its strength in the face of adversity.

Oil (and gasoline) continued their death spiral downward with oil FALLING BELOW $50/barrel today.  Wholesale gasoline at the refinery is now just above $1/gallon – and it will break the $1 barrier bringing your pump prices down a whole lot more.  I purchased gasoline at $1.99/gallon today, and expect the price to fall another 40 or 50 cents.

GMAC has applied to become a bank – so they can get some of that bailout money the Treasury is handing out to each and everyone with his/her hand out.  GMAC, to its credit, is trying to rein in its bad lending practices by limiting car loans to people with great FICO scores; but, do the American people want GMAC bailed out?  Is this an end run around NOT bailing out the Big 3 Auto Industries (especially GM)???

The Swiss dropped their key lending rate by 1% today.   1% is a massive move that even our FED hasn’t done for many decades.  Maybe the Swiss see something worse coming onto the world’s economy than we see.  Should someone ask them???

Here is a good one that came in - “The Great Deflation”

Can you improve on that?

Bonds gained massively today (decreased interest rates) falling well below 3.5% to 3.4% for the 10 Year Treasury.  Mortgage rates have been rising lately with the 30 Year Fixed Rate being around 6.5%.  This sudden decrease of the 10 Year Treasury should stop that rising rate, and should also start lowering the rate.  The 2 Year Treasury today hit a level that hasn’t been seen for 30 years.

The Dollar strengthened (as people continue to flock to the Dollar) as the stock market collapsed.

Oil and gasoline continued their collapsing prices with oil now under $54/barrel.  Gasoline should be getting much cheaper at the pump throughout November.  

Gold was counter to the trend, and closed up slightly.  It was up massively earlier in the morning.  Gold is poised to break out into higher territory provided the stock market does not continue its straight line plunge in value.

More on DEFLATION – If you look at the S&P 500 stocks, you will see that they have lost $6.7 Trillion (that Trillion) from their high mark in October 2007 – that’s just 13 months.  This $6.7Trillion went to “money heaven”, and is a deflationary (a reduction in the money supply) drag on the economy.  The US Government has not put as much money into the economy as has gone to “money heaven” so the overall NET situation today is DEFLATIONARY, and the CPI report confirms this.  My recent count is that the US Government has put $5Trillion into the US Economy through its stimulus and bailout policies.

Housing Construction annual rate of 791,000 houses was reached in October.  This is the SAME RATE OF HOUSE BUILDING AS IN the 1950’s.  I view this as very good news – unless you’re in the housing industry.  The number of new houses must be very small to minimize the amount of supply coming onto the market – as the total housing supply is still so high that house prices continue to decline.

The FED signaled another Fed Funds Rate cut today.  Get ready for cheaper money.

My take is that we are in such an EXTRAORDINARY situation right now that we are living through something that the grandchildren of the youngest people living today will be talking about when they are retiring – that’s 80 years from now.

We won’t be comparing this event to The Great Depression – it will be it’s own point in history.

Here is the question for tonight.  What would you NAME this era – something that describes it for posterity!!!!  As economyguy readers, this will put you WAY AHEAD of the deadheads on the TV trying to tell you what’s going on.

Oil and gasoline continued their downward spiral – but just slightly today.  Gold fell, and the Dollar strengthened.

Paulson, in his testimony to Congress today said that the $350B (first release of the $700 TARP funding) wasn’t enough to purchase and neutralize all the toxic debt – and part of why he didn’t purchase the toxic waste – only purchased stock in the banks.  Let’s think about this a minute.  If $350B wasn’t enough, what was enough?  He didn’t say.  That toxic debt is still there, alive and well, and part of the each bank’s balance sheet.  This gives you a measure of the magnitude of the securitized mortgage market toxic debt right now – and – and – and it’s getting worse as housing prices continue to fall.

The more I think about the actions of our government, the more I think they are just “guessing” what to do, and are acting like a bunch of amateurs.  Where are the professionals??

The Dollar and Gold went sideways today.

Oil and gasoline continued their downward spiral – driven by Japan’s announcement of poor growth (negative).  Maybe they’ll start paying us to get gas at a gas station sometime in the future.

Coming to a city near you.  Citigroup will be laying off 53,000 people.  

Japan is officially in a recession with a decline in its 3Q GDP of –0.4%.  The Euro zone countries are also in an official recession.  Amazing how when the US sneezes (and what a sneeze), the rest of the world catch’s a cold.

The G20 meeting happened this last weekend.  What a bust.  Nothing came out of this meeting, other than a great meal, lots of back slapping, and posturing.  They did agree to do everything they could do to keep the world out of a recession.  Saying anything else would have been tantamount to declaring war.

This is the first time I’ve seen an official statement that the credit crunch (if allowed to happen) would have caused a depressions worse than the Great Depression.  Why can’t the government just be straight with us?

The Dollar, Oil, and gasoline more or less went sideways yesterday.

Gold had a nice run up yesterday – closing up $38/ounce.

I think you all know the arguments so I won’t give you any hints this time.

Oil and gasoline went sideways – more or less.  Gold fell again – ending at $705/ounce – still a fantastic buying point.

My gut feeling is that this is a major correction in the bear market, and my reasoning is that the economy is just starting to fall over the cliff – and all the bad news is not in yet – and we cannot see the end of this crisis yet – and there is no good news yet.  All those things say that the bear market will continue as the bad news rolls out.

However, markets do not go in straight lines.  They go in fits and starts (2 steps forward and 1 step back) - and it doesn’t matter whether the major trend is up or down.  Take a look at any historic Dow Jones Industrial chart, and you will see what I mean.

Another interesting phenomenon was the BOND MARKET.  It was foreshadowing the stock move way before it happened today.  And it confirmed the movement by having a massive movement up in interest rates during the stock movement.  This is classic for the market conditions we are in right now.

Unique to today’s markets, the US Dollar collapsed when stocks soared in the afternoon.  I’ve been watching this phenomenon for the last month, and had concluded (and explained) that money was flowing to the US Dollar for two reasons.  First, it was a safer place for money than other currencies, and second, that currency swaps were being unwound, and money was flowing to the US Dollar and Japanese Yen.

Based on these observations, and my guess that stocks will continue going up for the near term, I predict that the US Dollar will continue to lose ground (against the Euro and most other currencies) during this same period.

Foreclosures – 279,000 homes got notices in October, and 84,000 properties were repossessed.  The worst states were Nevada, Arizona and Florida.  It is anticipated that there will be over 1,000,000 bank owned properties “for sale” by the end of the year.  This is VERY BAD news for the market.  Please keep your eye on the housing market ball.  All the problems we are having with the financial sector are driven by the housing market meltdown.  As long as housing prices continue to fall – and they will continue to fall as long as there are more houses for sale than people want to buy – the toxic mortgage securities will be impossible to value (value in the future), and therefore will continue to provide RISK in our financial institutions.

Trade Balance– September was much better than previous months.  Why??  Because oil has come down in price, and we just don’t pay as much to overseas producers now.  The bad news is that the trade balance was a negative $56.5B, and 2008 could be a record trade deficit (or maybe equal to last year – the highest year ever).  The trade deficit with all those dollars coming home to America was the cause of the housing bubble money, and this issue must be addressed to prevent a future episode.

Our recent financial crisis was caused by toxic mortgage securities catching a bunch of banks around the world holding them, and NOT being able to value them.  That stopped almost all lending and caused a massive increase in LIBOR.  This scared the FED and Treasury into asking for a $700B “Bailout” of those financial institutions.

However, time has marched on.  What do you see happening now all around you?  People are scared, and they are definitely not spending the same amount of money in stores, restaurants, travel, etc.  That is causing a bunch of companies to start layoffs and even going into bankruptcy (like Circuit City or even GM possibly next year).  In my opinion, this “secondary” effect of the mortgage meltdown is pushing our economy from a recession into a depression.  And worse, it’s just starting.  Did you see the major announcement that the Mayor of Chicago said today?  He said that the big Chicago employers told him that there were going to be BIG layoffs starting this month in Chicago and that’s just the beginning.  Is Chicago unique?  Nope – it’s typical of almost all cities across America.

So the question for you to discuss tonight isn’t “What’s the difference between a recession and a depression?”  It is “Will there be a third phase of the depression getting worse in 2009, and what could push it in that direction?”

Bonds continued their rally with interest rates declining.

The Dollar gains a little, and gold lost $15 today, and still is a spectacular buy.

Oil and gasoline continued their decline – much to the surprise of the oil producing world.  Reducing supply has no impact on the price of oil. At $56/barrel, oil is starting to get cheap – but could get much, much cheaper.  The recession has NOT started to bite as much as it will bite, and continue to push oil prices down.

What’s wrong with the auto companies?  Their overheads are just too much.  They are unionized – and this is causing the companies to pay $40 to $45/hour to its workers – even trash collectors.  So why is this so bad?  They can’t compete, that’s what’s wrong.  The “other” auto companies – located in the South – like Datsun, BMW and Toyota are NOT unionized.  They are paying workers MUCH less – somewhere in the $20 to $30/hour pay level.  How can GM or Ford or Chrysler ever think they can compete with the “other” auto companies?  

One interesting point is that President Bush is against bailing out the Detroit auto companies.  Henry Paulson, when asked today whether the TARP ($700B) money could or should be used to bailout the Detroit auto companies, said that he didn’t think so.  Perhaps he is just reflecting his boss’ attitude, but he did also go on to say that giving money to those auto companies without any conditions is a big mistake because those companies would be coming back in a few months for a lot more money.  In other words, a massive restructuring plan needs to be part of any bailout.  That way the taxpayer will have at some hope of getting some of its money back.  Without it, the bailout is just a gift and will be squandered.

Oh, by the way, GM is just about to announce a new Hummer model.  Does that sound like the place where GM should be placing its design money?

The AMERO is a proposed currency to replace the US Dollar, the Canadian Dollar and the Mexican Peso – and would be an extension of NAFTA.  In other words, it would be like combining those 3 N. American countries and giving them a new currency.  

The US Dollar is the world’s “reserve currency” and is failing in its job as a reserve currency.  Nations are already holding Euros in addition to Dollars as reserve currencies – in contravention to the Bretton Woods Agreement.

The current financial and economic mess in the world today is caused (as its root cause) the US Dollar being the reserve currency.  Henry Paulson skirted around this subject during his talk today, but was very clear that if the “imbalance of payments between countries” were not corrected – we would have another economic mess just like the one we are in.  That’s pretty clear in my mind.

So, what should you – as an economyguy reader – and an intelligent investor – be looking for in the future regarding the AMERO, or any other currency?  (The IMF has suggested a “world currency”.)  Keep your ears and eyes open to any talks going on in the world that address “the reserve currency” issue.  One such meeting, the G20 meeting this week, will be taking one such step in its discussions.  That’s got my attention, and it should get your attention too.

The direction future decision take on the “reserve currency” issue will allow us to make intelligent investment decision – and we won’t know what they are until we get there.  The US Dollar – having failed as the world’s “reserve currency” - will NOT be the world’s future “reserve currency.”  That’s what I believe – however, I am continually surprised by decision made by the powers.

It’s impossible to predict where all the discussions will end up.  However, I assure you that wherever it ends up – it will have a DIRECT EFFECT on you.  The current bailout is child’s play compared to any changes in the “reserve currency” agreement.

The Dollar strengthened, and gold fell.

Oil and gasoline fell to new recent lows, and this means cheaper gasoline coming down the pike to us all.

The Post Office has plans to lay off 40,000 employees.  This will be the first layoff in the post office EVER.  I wonder if this is politically correct and whether or not they will be allowed to lay people off under the new administration.

Oil hit a new low today – lower than $60 per barrel.  This means lower gasoline prices for you – Hurrah!!!!!  More importantly, it means that Russia is now producing oil for a greater price (over $60/barrel) than it sells it for.  If this brings economic hardship to Russia, that’s just not good for world stability.  Watch for greater turmoil within Russia.

• The home owner must be 3 months behind in his/her payments
• The home owner’s mortgage must be greater than 90% of today’s home value.
• The interest rate can be reduced so the monthly payment is 38% of the household income.
• Or, the mortgage can be extended from 30 years to 40 years.
• Or, some principal amount can be “deferred.”  (I wonder what deferred means.)

4 million mortgages, or 9% of all borrowers, are are behind in their payments or in foreclosure.  2 million of these mortgages are controlled by Fannie/Freddie.

There is no bottom in sight for housing prices as of today.

Bonds and The Dollar went sideways today.

Gold gained a little today, and Oil and gasoline ended slightly up after being slightly up and down.  Lot of news on the oil industry front – but the only thing that counts is the oil price.

Franklin Bank in Houston and Security Pacific Bank is Los Angeles both were shut down by the FDIC over the weekend – they have gone out of business – but will open under new names today.  No one will lose any money – except you (of course.)  Franklin is the biggest of the banks with almost $10B in assets – but the bank taking over will not be taking its BAD assets, only the GOOD assets.  The FDIC (meaning you and me) will be taking those BAD assets (about $5B), and you can expect a fire sale soon.  The founder of Franklin Bank (Lewis Ranjeri) invented the mortgage backed security concept 20 years ago – and ironically it has come back to bite him.

DHL is shutting down all its service centers in the US, and laying off 9500 people.  This will decimate the town where their main service center exists in Ohio.  

Circuit City has declared for bankruptcy protection, and will lay off 700 more people than previously planned.

The AIG Bailout has been restructured, and we are now going to give AIG $150B to save them.  This is the third version of the AIG Bailout.  Can’t the Treasury get it right the first time, or even the second time?

However, there is an overriding consideration that moves this market further down.  We are in a BEAR market and the future is glum.  The recession is just starting to get its teeth into the economy, and the economic solutions being instituted by the Bush Administration and pushed by the Democratic Congress are just barely working.  Perhaps the “barely” translates into a “bear” market.

My opinion is that the government – and I mean either party leading the government – is NOT protecting YOU, and not giving YOU any special treat while they try not to look totally incompetent.  Unfortunately, they look totally incompetent.  So, that means that YOU must protect yourself by making intelligent decisions.  Each of you have your own different assets to protect and grow.  Go back to basics, and protect first, and grow second.  If you can do both simultaneously, that’s even better.