The Economy Guy

Issue: 10/19/07 Friday

By Global Economy Guru, Tom Harvey…

I hope you didn’t blink today because the stock market was the story today. It went down 367 points. Why did it do that?? Well, it’s because the majority of players in the stock market finally learned the “R” word. They got scared because oil went above $90 a barrel while you were sleeping last night. Also, the economy doesn’t look as healthy as some newspapers want to make it out, and it’s a popular political statement that we’re heading into a recession. (Ignore those politicians – they never know what they’re talking about.)

The action in the stock market spilled over into the bond market, and amazingly the 10 year bond fell another LARGE 0.10% today, closing at 4.40%. What an amazing move by bonds. Who says bonds can’t be exciting?? Most stock market players believe bonds are boring. Well, if they had their money in bonds, they would be breathless at the change in value.

One of the reasons that bonds are rallying is the weak dollar!! Okay, here’s how. Foreign nations, like the UK, have more US Dollars because when we buy something we pay more dollars, and they are buying US Bonds with those dollars. The real question is “When will they stop buying US Bonds, and purchase Euro Notes?” With our declining interest rates, and the threat of another Fed reduction in rates on Halloween, the Euro Notes could start paying more than US Notes. Where would you put your money??? In a depreciating dollar, or in an appreciating Euro??? Guess what happens then….. The dollar goes down further, and our interest rates start going up. Ugh. Not a pretty picture.

Oil was the other story. While it went above $90 overnight, it closed down $0.87 at $88.60. Markets can only go up for so long, and then greed brings them back down as the players who road them up to the new highs want to take their profits.

For all of you who think the stock market is a very safe, and good long term play, just remember, that timing is everything. You only make a profit if you sell higher than you bought at. The Dow Jones is now at 13,522. It was 700 points higher a week ago. That’s a move that I don’t want to be on the wrong side of.

Maybe the readers of this blog are passing their new gained knowledge onto their friends. While that couldn’t account for the market moves, it could make a difference in how people feel about the market, and what they see coming down the pike. Have you told your friends to watch for a US economic gain of 1% or less; and then sell the dollar short? Those types of thoughts are almost un-American; other than we all like to make a buck.

Have you told your friends to watch out for the exchange rate with the Chinese currency? Then they will find out what inflation is all about as they must pay more for some things overnight. I lived through the mini-inflation in the 70’s. Here what it felt like. You would go to the store to buy a common item, like bread or milk, and the price would be higher this week than last week. And then it would go up next week to. It wouldn’t go up much, maybe only a few cents each time. You could miss it if you blinked, or were just asleep, but you could also become emotional over those increases as they happened too. I don’t wish those times on anyone, but I fear they will be coming some day.

Here are Friday’s closing details:

DJ30 – 13,522 (Down 367 points)

10 year US Treasury Bond – 4.40% (Down 0.10%) This is a big deal.

Euro 1.4295 – The Euro is trying to break out of its trading range, and break thru 1.43.

Gold closed at $768 per ounce.

Oil Closed at $88.60 (Down 0.87)

Gasoline is $2.17 (Down 0.02)