The Economy Guy

Stocks fell slightly today – not much to report.

Bonds gained today, i.e. fell in interest rates.

The Dollar gained a massive 2 cents against the Euro – we are starting to see profit taking on the recent run up on the Euro.

Gold fell 19 dollars, and this is profit taking too.

Oil and gasoline fell, and this was profit taking too.

In the news today…..

Hedge Fund Sales – A lot of people put in sell orders with their hedge funds during the first 5 months of this year.  In fact there has been $815B worth of redemptions since 3Q 08. Hundreds of billions of redemptions have been completed!!!  The Hedge Funds have recorded these orders as redemptions, but in many cases they have not sold the stock and bonds, and the money hasn’t gone back to the owners.  They are waiting to sell their assets, and want to get the best possible price for the owners.  This is their fiduciary obligation when the sale order comes in from the owners.  Well, the stock market has gone up 30% over the past 2 months, and they are holding the trigger to sell.  Maybe that’s what happened recently in the Treasury market???  It hasn’t happened yet in the stock market.  There is no way to know how much this hedge fund selling overhang really is, but if it’s large – watch out.  Just a piece of information to keep in mind.

FED Chair Bernanke – talking to Congress today says that the recession will continue for a long time.  He also said the administration should take steps to rein in the deficit spending that is happening.  He attributes the recent run up in Treasury interest rates in concerns about inflation, and optimism that the recession was bottoming.

Factory Orders – rose 0.7% in April.  But, shipments fell 0.2% at the same time.  Manufacturing activity increased over the prior month, but continues to contract to its lowest levels.  One bright sign is that orders by factories increased slightly for the first time in a long time.  All this means that the factory contribution to GDP isn’t going to be anything to write home about at the end of this quarter.

Service Sector – continues to decline, and is smaller than ever before.  This sector will only recover when consumer spending has bottomed and starts to increase.

Bank Payback of TARP – hit a snag today.  The FED raised the capital call requirements for banks who want to pay back their TARP money, and get out of the TARP trap.  In spite of the requirement to raise money coming out of the “stress tests” imposed by the Treasury, the new capital call means that the “stress test” was truly a joke, and now the real requirements are coming forward.  I wonder if this news article will hit the press at all today??

GM sold Hummer – to a Chinese company that doesn’t build cars.  Does this sound strange to you?  It does to me.  Why would a company buy the Hummer brand (and what comes with it???) to manufacture Hummer’s???  Here is my speculative idea – the Hummer began as a military vehicle. It looks similar, but in reality is very different, to the current Hummer H2 and H3 on the road, and taking 2 parking spaces.  I wonder if the sale included all the military specifications of the Hummer?  Will we be seeing the Chinese military riding around in Hummers with a red star on the side???

Mortgage Applications – fell 16.2% last week.  This was caused by increasing mortgage rates.  The average interest rate on a 30 year frixed rate mortgage rose to 5.25% from 4.81%.  WOW!!!!!!  Now, you can see the impact of the Treasury interest rate increase on the mortgage rate!!!!!!

Here are the last numbers for today:
Dow Jones 30 Industrial – 8675 (down 66 points)
10 Year Treasury Bond – 3.55% (down 0.09%)
Euro – $1.4161
Gold – $966 (down $19)
Oil – $66.12 (down $2.43)
Gasoline $1.77 (down $0.03)