The Economy Guy

Stocks fell today lead by the Financial sector.  Bond interest rates continued their fall, as the European disaster bolster US bonds.  

The Dollar went sideways today..

Gold and Oil/Gasoline continued their upward trend.  Gold is breaking out nicely on the upside.  Oil/gasoline is too, and gasoline moved toward $4.00/gallon during our summer driving period.

In the news today…..

April 30th – this is the last day for any of you selling a home to have your buyer claim their (up to) $8000 tax credit as a first time buyer.  The real question is “What will happen to the real estate market after this tax incentive goes away?”  There is lots of speculation out there – a lower market, a neutral market, and (believe it or not) a higher market.  I have always been a believer that when the government wants to affect a market by imposing tax consequenses (either positive or negative) they really have an affect.  In this case, the $8000 tax credit should have bolstered the market, and its demise should suppress the market comparatively.  Now let’s see what really happens.

Housing Price Trends – have been rising? – That’s what the headline has been saying.  I have been reluctant to post that headline in Economyguy, and here is why.  This is a graph of the Case Schiller home price trends.  They show that while prices could be higher – year over year – the trend is clearly still down.  And when you add the end of the Tax Credit (above), the future isn’t really bright.

Goldman faces criminal probe – Federal prosecutors have reportedly opened a criminal probe into whether Goldman Sachs or its employees committed securities fraud connected to mortgage trading. The investigation is still in preliminary stages, but raises the legal stakes for Goldman and is said to focus on different evidence than that being used in the SEC’s civil case. Meanwhile, sources said Goldman may soon settle its fraud case with the SEC. The SEC has an “unlimited supply of ammunition” in the form of e-mails and records it could release, and Goldman doesn’t want those documents aired in public. Isn’t it wonderful to see the heat on Goldman?  Remember, the key big picture question for Goldman is “Of all the Merchant Banks on Wall St, why was it that Goldman came out of the economic meltdown without a scratch, and in fact, continued to have record revenue and profits?”

Banks must defend against bid rigging charges – A judge ruled that Goldman Sachs, Citigroup and several other high-profile banks will have to defend themselves against allegations that they conspired to rig bids for municipal investment contracts and derivatives. Fifteen California cities and counties brought the suit against more than 40 corporate defendants. AIG’s financial arm and a GE unit were among several companies that won a dismissal of the civil lawsuits brought in 2008.  The backlash has only just begun….

FBI has 2000 cases – ready to go against mortgage companies who they allege performed fraud in their mortgage applications.  The bad news is that the FBI doesn’t have enough manpower to continue very fast.  It is very important to set an example that mortgage fraud is not tolerated – so we can get back to a stable housing market sometime in the future.

Oil Spill in Gulf of Mexico – this is turning out to be one BIG disaster in the making.  The biggest unknown is “What caused it?”  President Obama has sent SWAT teams to other rigs in the Gulf – why?  You and I know what SWAT teams are for.  Is there evidence of a terrorist act here?  No one is saying.  The disaster is the oil spreading throughout the Gulf of Mexico, being pushing in all directions by ever changing winds.  Politicians are going wild on all sides with jubilation by the anti-oil drilling environmentalists and countered by the “Why did Obama take so long to act?” crowd on the other side.  This could be a “Black Katrina” for Obama.  Economically, this will have an impact.  It’s hard to predict exactly where it will come from, but higher gasoline prices (being a political football) are in the offing.  The only thing to stop higher gasoline prices would be an all out second collapse in our (and the world’s) economies.

Tonight’s Dinner Conversation…..

The EU and the EURO.  I would like to brace you for a thought that most people have never even considered.  Could the EU break up?  Could the EURO break up?  Here is an article from Bloomberg that starts the process of considering this most unthinkable event(s).  Why am I giving you this to think about?  Because if it could happen to Europe, it could happen to the US.  And, it is even more unthinkable here.

April 29 (Bloomberg) — Investors are abandoning the euro at a rate not seen since the collapse of Lehman Brothers Holdings Inc. as Europe’s worsening fiscal crisis threatens to splinter the 16-nation currency union.

Pension funds and banks sold euros this month at the fastest pace since the second half of 2008, when the currency tumbled more than 25 percent against the dollar between mid-July and the end of October, according to Bank of New York Mellon Corp., the world’s biggest custodian of financial assets with $23 trillion. Demand for options giving the right to sell the euro against the dollar versus those allowing for purchases rose yesterday to the highest level since November 2008.

“The assumptions that went into the makeup of the euro- zone, and hence the euro, are now being brought into question and revalued,” said Eric Busay, a manager of currencies and international bonds in Sacramento at the California Public Employees’ Retirement System, the largest U.S. public pension, with $202 billion under management. “There are differences, and screaming differences, that have now been shown between the regions of the euro-zone.”

While the euro became a rival to the dollar after the common currency’s inception in 1999, the debt crisis that began in Greece shows how it is being shaken by one country comprising 2.6 percent of the region’s economy. The euro’s 11 percent decline in the past six months made it the worst performer among its 16 most-traded peers. Standard & Poor’s cut the credit ratings on Greece, Portugal and Spain in the last two days.

Here are the last numbers for today:
Dow Jones 30 Industrial – 11,009 (down 159)
10 Year Treasury Bond – 3.66% (down 0.05%)
Euro – $1.3315
Gold – $1179 (up $10)
Oil – $85.98 (up $0.51)
Gasoline – $2.40  (up $0.04)