The Economy Guy

The big move in the market today was a big gain by a strong Dollar.  Stocks decided they had gone too high, too fast, and gave up 187 of their recent gains.  Have we just seen the top of the market???  Let’s wait to see.  Maybe, and maybe not.  If the market rallies tomorrow, today’s loss means nothing.  It does show the relationship between a strong market and a weak Dollar, and vice versa.

Bonds also rallied (lower interest rates) today in sympathy with a stronger Dollar.

The Dollar gained over 2 cents against the Euro – an absolutely massive move that just shows what speculators can do to move a market.

Oil fell slightly, and gasoline moved up one cent – Ugh.

Gold fell, as the Dollar gained – and we are going to see some pretty good places to buy Gold soon.  Gold also appears to have an inverse relationship to the strength of the Dollar (strong Dollar equals weak gold).

In the news today…..

China and Japan reduce US Dollar Holdings – Just take a look at these statistics:

1. Total US assets purchased in March was $55.4B
2. Total US assets purchased in April was $11.2B – you can see that the Chinese are purposely reducing their purchases of US Treasuries.
3. China REDUCED its holdings in US Treasuries by $3B in April over March – the first reduction in a long, long while.
4. Japan REDUCED its holdings in US Treasuries by $1B in April over March – etc. – you can also see that China is dumping its US Treasury holdings.
5. China holds 10% of US’s publicly held debt – and they are starting to get worried.

I reported previously that Treasury interest rates were going UP because foreign nations weren’t buying as many Treasuries.  I was WRONG.  Interest rates are going up because foreign nations are starting to SELL their Treasuries now, AND they are aren’t buying as many Treasuries too.

This is the first time I was able to get my hands on actual numbers, and the numbers tell the tale.  “Follow the money” is a well worn phrase, but it also is a very valuable phrase when you’re trying to figure out what’s really going on in our economy.

If these trends continue, the handwriting has already been written on the wall.  Treasury interest rates are going up, and then ALL US interest rates will be going up.  And, goodbye recovery.  Let’s follow the money a little longer before we wish our economy an RIP.

Credit Card Default Rates – rose in May

Bank of America’s default rate rose from 10.47% to 12.50% from April to May – a massive increase.
AMEX rose from 9.9% to 10.4% over the same period.

If credit card losses exceed 10% for the whole year, the industry will lose $70B – and now we’re talking about a bunch of money – but don’t worry, be happy!!!!  The government will bail them out – won’t they???

Here are the last numbers for today:
Dow Jones 30 Industrial – 8612 (down 187 points)
10 Year Treasury Bond – 3.72% (down 0.08%)
Euro – $1.3796
Gold – $928 (down $13)
Oil – $70.62 (down $1.42)
Gasoline $2.05 (up $0.01)