The Economy Guy

Stocks rallied a second day in a row with an over 100 point gain.  Bonds, oil and gasoline moved sideways.

The Dollar lost ground again against the Euro.

Gold gained so much that I cheered this morning.  Gold is at an ALL TIME HIGH.  For all of you who purchased gold over the past year, today was the payoff.  Breaking into uncharged territory is a wonderful thing to behold.  It happened today.  What about tomorrow?  Well, markets will be markets.  They go up, down and sideways.  I hate predicting because I am more wrong than I am right in the near term.  However, the one prediction that I made – gold, gold, gold – has come to pass.

In the news today…..

Unemployment over 10% – yes, that’s right.  How can that be?  The government very clearly said that it was 9.8%.  Well, in another story, it came out that the government’s software program that is used to determine the unemployment rate is flawed.  It should have said that another 824,000 people were unemployed over and above what it has already stated.  Oops – sorry!!!  I can hear them all the way from Washington.

Paulson Lied – when he said that the banks he “forced” to take TARP funds needed to take it “for the good of the country.”  In reality, he believed that these banks were so bad off that they absolutely needed the money, and they didn’t want to take it; so he forced them.  Interesting to hear the story change with time.

Australia increase interest rate – and this is BIG NEWS.  Their key interest rate was raised 0.25% to 3.25%, and Australia was the first nation to raise rates after our meltdown.  The increase in interest rates is inevitable, of course.  But, in the US a rise in interest rates would destroy the economy and potentially create the onslaught of inflation.  So, that’s why the first big nation to raise interest rates is BIG NEWS.  This was expected sometime in the future for Australia.

Apartment glut hits 23-year high – U.S. apartment vacancies rose to 7.8%, a 23-year high, according to new data from real estate research firm Reis. Rents, down a surprisingly mild 2.7% over the past year, fell by 0.3% in Q3. Reis expects Q4 – historically a weak season for rentals – may bring vacancies to new all-time highs. With unemployment at 9.8%, many would-be renters are doubling up or moving in with family and friends.

Tonight’s Dinner Conversation…..

The Arabs are talking to China, Russia and France to replace the pricing of oil in Dollars by the pricing of oil by a basket of currencies.

The UN is stating that the US Dollar must be replaced as the Reserve Currency of the world.  The IMF is stating the US Dollar must be replaced as the Reserve Currency of the world – and replaced with IMF SDR (Special Drawing Rights) – just a little self interest here.

The Chinese have cut bi-lateral deals with many nations to trade in the Chinese currency – bypassing the US Dollar.

The Russians are totally against the US Dollar and have stated as much many times over the past few years.

What does all this mean to you????

1. Well, all those other nations, plus the IMF and UN are just griping because they don’t like the power and prestige that comes with the US being the Reserve Currency nation.  They can be ignored.
2. The Chinese bi-lateral approach just picks away as some of the possible trade deals, but is no big threat.
3. The Arab oil deal IS A BIG DEAL.  This would be worldwide, and oil would be priced in something other than US Dollars – as it is today.
   

What does this mean to you?  It means that you won’t be able to know what the price of oil really is (in other words, you won’t be able to easily see how your energy bill is about to go up – it will be a surprise).  It means that the Dollar will be devalued much faster than it has been in the recent past.  It means that the US Treasury and FED are on a path to devalue the Dollar to encourage exports to be able to dig our way out of the trade deficit mess.  It means higher prices for imports.  It means INFLATION.  Get used to it; it’s coming.  Inflation is about the only way the Obama Administration can pay for all the deficit spending that it is doing, and it plans to do.  Inflation is a hidden, insidious tax on every American who has over one Dollar saved.  That Dollar won’t be able to buy as much in the future.  Watch for future signs of inflation in your neighborhood.  You won’t see it in the news, of course.  You will see it in your day to day shopping, and it will start as a gripe, and then as a topic of conversation, and finally as truly hurting your quality of life.  (That’s what happened in the 70’s.  I know; I lived through it.)

So, what is the US doing about this?  Either nothing, or encouraging it.  What really happened at the G-20 meeting last week?  They had closed sessions, and they were expected to talk about the Dollar.  Was it agreed to NOT change the Reserve Currency definition, but allow the Arabs to go forward with their deal?  Possibly so.  President Obama is possibly selling out the US position WITHOUT any reference to the US public, or Congress.  That’s my opinion.

Here are the last numbers for today:
Dow Jones 30 Industrial – 1731 (up 132 points)
10 Year Treasury Bond – 3.25% (up 0.02%)
Euro – $1.4714
Gold – $1041 (up $24)
Oil – $71.03 (up $0.61)
Gasoline – $1.77 (up $0.02)