If You Were King
While yesterday was boring, today was very exciting. Stocks got clobbered by the FED announcement today, and ended down 223 points. Bonds could not hold onto their gains from yesterday, and gave them all up today, as bonds worried about the FED inflation statements.
Oil and gasoline set new highs today, and that is BIG NEWS. There was a dramatic increase in oil prices, and the natural trend in futures markets is to settle back the next few days, so I wouldn’t be surprised to see oil come down a little tomorrow.
The Dollar got clobbered against the Euro today, and the Yen is testing its range trading to strength its position – watch for Yen action tomorrow.
Gold continued its upward trend, and now sits at $928/ounce. While gold is still worth purchasing, it is not worth purchasing with “both hands.”
In the news today….
The FED made their last meeting minutes public today, and here is what they said:
- The last rate cut was a “close call,” as many members didn’t want to make that cut.
- The first half of 2008 will be weak (no surprises there), and the second half will be a little stronger, but will have increased INFLATION too.
- The FED predicted the 2008 GDP will be between 0.3% to 1.2%. This is down 1% from their last prediction made in February. (Maybe the FED is reading the EconomyGuy??!!)
- Unemployment will rise to 5.5% - 5.7%, an increase of 0.2%. Unemployment was 4.7% in 2007.
- Inflation will be between 3.1% to 3.4% in 2008 – this is 1% higher than their last prediction.
All these FED numbers are very negative for the economy – WITHOUT EXCEPTION. Also, remember that these are just “guesses”, shrouded in the name of “prediction”. That means the FED can change these numbers anytime they want to change them in the future. In addition, the FED does feel and react to political pressure, and it isn’t great to be negative in an election year.
American Airlines said they are going to cut capacity by 11% by the end of 2008. Also, they will be charging $15 for the first check-in bag. (Here’s where its great to be one of their frequent flier members, as this charge will be waived for some of them.) The real story here is that oil prices are killing all airlines, and they must re-assess their businesses to survive. Five airlines have gone out of business this year alone.
How about the Housing Market. Here is an interesting statistic for you to chew on. In 2006, the peak of the housing valuations, US house prices were 20% to 30% overvalued compared to their “rental valuation.” Does that mean house prices will fall 20% to 30%? No, all markets “over-correct,” so you can expect a decrease more, maybe much more, than the 20% to 30%.
Things to worry about!!!! Fannie Mae and Freddie Mac have not declared $32B and $9B, respectively, in mortgage write-downs because of an accounting trick. These mortgages were declared “available for sale,” so they were not included in the Fannie/Freddie books as the accounting rules allow them to be called “temporary” instruments. (PS – there is no definition of how long “temporary” is.)
Tonight’s Dinner Conversation
Oil hit a new high today. The pundits said it was because there was a shortfall in the US oil reserves.
Let’s think about this for a minute. Why would a “United States” oil reserve shortfall hit “world” oil prices so hard? The answer is “It wouldn’t”. That means you can’t believe the news (again!!!!!!!). You might expect a blip in the oil price on this announcement, but in reality, there was a price blowout today.
In addition, the Saudi’s told President Bush last week that they wouldn’t increase oil production because the supply was in line with demand. What is this telling you?? It’s telling you that the demand/supply curve is in balance – there is no shortfall in production. Under these circumstances, you would expect no movement (up or down) in the oil price.
What we saw today was pure SPECULATION in the oil price. You are being gouged at the gas pump because speculators are driving the oil price straight up. When you hear Congress wanting to investigate
“oil price manipulation” of the oil companies, they are (amazingly) sniffing the right tree. In addition, asking the FED and/or the SEC investigate the derivatives market is called for under these circumstances.
So, the question for you tonight is: “What would you do about oil prices if you were king?”
Oh, btw, if you analyze the oil futures market, you find that it is predicting a price fall for oil sometime in the future. But, would you bet against oil in this market?
Here are today’s numbers:
Dow Jones 30 Industrial - 12,601 (down 227 points)
10 Year Treasury Bond - 3.82% (up 0.05%)
Euro - 1.5795 – a major run-up against the Dollar today.
Gold - $928 (up $8) - continuing showing strength upward
Oil - $133.17 (up $4.19) - A NEW HIGH or $133.45 set today
Gasoline - $3.40 (up $0.09) - a NEW HIGH today
