The Economy Guy

Stocks were sideways, a little up, a little down, all day.

Bonds fell a little in interest rates.

The Dollar was the big mover today. It lost a large amount against most currencies, especially the Euro.

Oil, gasoline and gold all went sideways. Gold had a slight upward bias.

In the news today….

Banks Raising Money – and the entire Financial Sector of the stock market fell out of fear that this increased demand for capital will dilute existing share values. This dragged the stock market down today. The banks are trying to raise money so they can get out of the TARP Trap. This is the “unintended consequence” of the Stress Test created by the US Treasury. I bet they didn’t think they would cause a stock market fall through introducing a simple, everyone will pass, test.

IMF Sale of Gold – will be approved by Congress this week. It is a fairly overlooked few words in the Supplemental Budget Appropriations Bill. It allows the IMF to sell 13 million ounces of gold (same as 403 metric tons). I hear you asking – will this cause the gold price to fall??? – and the short answer is ‘no’. Here is why:
1. The IMF is supposed to follow the gentlemen’s agreement to sell only 400 tons of gold per year – so no one central bank crowds out another central bank in the marketplace.
2. So, the IMF will be allowed to sell it all in one year – or even one day if they wanted to.
3. The current volume of gold sales on the London Gold Bullion Exchange is about 20 million ounces per day.
4. This means the IMF could sell all its gold in a single day, and it should not have a massive impact on that market.
5. Speculation – however the IMF could sell its gold directly to China, and this would not hit the gold market at all.
6. Speculation – isn’t it interesting that Secretary Geithner is in China the week before this bill passes??? I bet he’s talking about his possibility.

Pending Home Sales – jumped the largest amount in 8 years. This is really good news, and beating down the inventory of homes for sale is critical to creating a bottom in this market. This critical index jumped 6.7% last month. It will take one to two months for these Pending sales to become actual sales. The future of home sales is cloudy because of potential increases in the mortgage rates (caused by increasing Treasury interest rates), and the overhang of a large inventory of homes for sale, and the future foreclosure rate increase anticipated in 2010; all of which point toward lower home prices overall in the US.

Tonight’s Dinner Conversation….

It occurs to me, as the Dollar is slowing slipping down the drain of the world toilet, that the current US administration doesn’t have a plan for the Dollar.

US Treasury Secretary Geithner says he wants a “strong Dollar.” But, he is doing NOTHING to create a strong Dollar, other than flap his lips – and that rarely has a lasting effect.

What do you think the US administration’s plan is for the Dollar??? This could be a very stimulating and interesting discussion.

Here are the last numbers for today:
Dow Jones 30 Industrial – 8741 (up 19 points)
10 Year Treasury Bond – 3.65% (down 0.07%)
Euro – $1.4316
Gold – $984 (up $4)
Oil – $68.55 (down $0.03)
Gasoline $1.80 (up $0.01)