The Economy Guy

Stocks were the only market to really move today, and it moved downward as the technical indicators for stocks just didn’t look good enough for folks to buy much.

Bonds continued their slight decrease in interest rates, but not enough to make a big difference.

All other markets went sideways with Gold holding at its recent lows.

In the news today….

Producer Price Index (PPI) – rose 0.2% in May.  While this is less than many anticipated, it is positive, and shows future price increases coming.  When food and energy are removed, the remaining “core” PPI was MINUS 0.1% – and this shows that food and energy are the things pushing future price increases.  As a point of reference, wholesale prices fell 5% over the past 8 months of our crisis – a massive deflationary movement.  We are now seeing the end of those price decreases.

Housing Construction – rose 17.2% in May.  This is a sign that home builders think they can sell their new homes (or apartments) in the face of the 10 month inventory of homes currently on the market.  Housing Permits also rose in May showing a future confidence also.

Industrial Production – fell 1.1% in May as the consumer continues to disappoint the economy by now buying as much as he/she did in the past.  Automobiles was a significant factor in the fall in production – as GM and Chrysler production has fallen off.  Exports have also fallen off and adds to the fall in production.

First Class Air Travel – fell 22% in April.  This shows that people are still flying, but not in the front of the airplane any longer as they tighten their belts.  In Europe the same statistic showed a 33% drop in premium class travel.

Hedge Funds – are now back in vogue after losing a bundle for their clients.  Hedge Funds “hedge”  (meaning they bet both ways – UP and DOWN – on the market movements.) So, when the market went down, why did the Hedge Funds lose so much???  Well, Hedge Funds started by representing wealthy clients who could afford to lose everything.  However, they did so well, that “institutions” (pension funds, etc.) started pouring money in the funds, and the market just kept going UP.  Hedge Funds who were losing money on their “hedges” stopped betting on the downside a little over a year ago, and got caught with their pants down.  Interesting, isn’t it??  Human nature in action….

Tonight’s Dinner Conversation….

President Obama is coming out with his new Regulatory rules to plug the holes that are so evident from our current economic situation.  I support these new regulatory methods as crises generally create good ones.  For example, the stock market meltdown at the beginning of the Great Depression resulted in the creation of the SEC.

However, I would like to say that the lack of these regulations was NOT the problem that caused the crisis in the first place.

At the heart of the problem was Fannie and Freddie – two of the MOST regulated, government created entities that ever existed.  In addition, there are 5 current regulatory bodies, and without exception, they were NOT doing their jobs.  The Sarbanes-Oxley act of 2002 was written after the Enron meltdown, and forced CEOs and CFOs to sign the financial statements coming out of their institutions.  All the banks and AIG and GM/Chrysler fell under this legislation, and all those financial statements were signed by their corporate officers.  But, even then, things went very badly…….

The real problem is that human nature is one that causes markets to go up on greed and fall on fear.  Human nature isn’t about to change, so we will see bubbles in the future – no matter what the regulations turn out to be.  Do you agree???

Here are the last numbers for today:
Dow Jones 30 Industrial – 8505 (down 107 points)
10 Year Treasury Bond – 3.67% (down 0.04%)
Euro – $1.3836
Gold – $932 (up $5)
Oil – $70.47 (down $0.15)
Gasoline $2.07 (up $0.02)