The Economy Guy

Stocks fell again today, to insure that the market is just going sideways.  Actually, it was the poor 4th quarter GDP numbers that depressed the market.  Bonds went no where today.

The dollar got a little strength, and didn’t try to make a new high as I had predicted yesterday.  Oh well, predictions are tough.

Oil continues its move up.

In the news today….

The GDP for the 4th Quarter 2007 was 0.6%.  This is a VERY BAD number.  If you adjust for inflation, the real growth is negative.  No one is missing that point.  That could easily mean that the recession actually started in late 2007.

It has been predicted that wealthy net worth individuals (someone with a net worth over $1M) in the world will increase their net worth by 5% per year over the next 5 years.  How are you doing???

Something to think about…..

Schwab ultra-short bond fund, Yield-Plus, has been falling in value as investors have been pulling their money out of the fund.  The fund used to have $13.5B in it, but now has only $2.5B; and this happened in the past 8 months.  The fund is advertized to have a minimal interest risk, and a minimal credit risk.

However, the fund manager decided the fund needed to take on riskier investments to keep its return up and started taking on corporate, non-agency and sub-prime bonds in the portfolio.  These poorer credit investments fell in value over the past 8 months, and investors starting pulling their money out.  As money was required, pieces of the portfolio were sold at depressed, must sell values.

So here is what I want you to think about.  How safe do you think your money is???  Anyone in this fund should have had the confidence that their investment couldn’t go down, as it was super safe.  But it wasn’t super safe.  Here is the issue.  There are portions of the investment community that LIE.  So I ask you again.  How safe do you think your money is???

Dinner Conversation

I have identified in prior issues that one of the worst things that could happen to the US economy is for people to challenge the legality of securitized mortgages in the courts.  The second worst thing would be for the institutions which caused this mess to be sued in court.  That is now happening.  The surprise is that it is cities suing banks over the depression of housing values.  Cities are losing their tax base, and they don’t like it.  Cleveland is suing Wells Fargo Bank, and many other cities are thinking about jumping on this band wagon.

Think about this issue a little.  Who else is getting hurt by the falling house prices?  There are hoards of people who are getting hurt right now.  Some examples, other than cities, are individuals, homeowners, investors, banks, and the Federal Government. (The Federal Government is going to take a BIG HIT in its tax base in 2007 and 2008 as people declare their housing and investment losses.  No one is thinking about this issue, but economyguy readers heard it here first.)  If any of these start some big scale litigation, it could get real ugly, real quick.  As the litigation would undoubtedly spread over many years, the unknown outcome would spell disaster to the stock market.  What do you think about this?  Did you ever think that cities would sue banks??

Here are today’s Numbers:
Dow Jones 30 Industrial - 12,302 (Down 120 points)
10 Year Treasury Bond - 3.54% (Up 0.04%)
Euro - $1.5779
Gold - $954 (No change)
Oil - $107.58 (Up $1.68)
Gasoline - $2.72 (Down $0.03)