Inflation Vs. Deflation
Stocks fell 200 points at the market open, but ended down only 97 points at the close. Bonds continued their decrease in interest rates.
Gold and the Euro continued their march upward, but only a little.
Oil and gasoline fell off, big time, with stock market pundits hoping this would turn the market around, and pull the entire US economy out of its slump – what poor thinking that is!!!!
In the news today…..
Fannie/Freddie continues to shake the markets. Lack of confidence in the US financial institutions is bleeding over into stocks. Paulson testified before Congress today to support last Sunday’s ideas on saving Fannie/Freddie. He has to get Congressional agreement to his ideas of a greater, unlimited line of credit (currently $2.25B) and the ability to purchase their stocks. Paulson said there was no immediate need for these measure and if/when they are used, they would be used in a way to “protect” the taxpayers. (Those are the words that scare me.) Paulson did want to put the taxpayer in an “undue” risk. What type of risk is “undue.” My logic is that he wants to put the taxpayer in a “due” risk – meaning something wlll be due the taxpayer – probably a bill.
An interesting tidbit…..
Since last October $13 Trillion has been wiped off of the value of the world’s stock markets. I guess the world is a lot poorer right now. (On the surface, this looks a lot like “deflation”, not inflation.)
Let’s talk about inflation….
The Producer Price Index (wholesale inflation measure of the price of goods into the factory door) increased 1.8% in June – a 27 year high in the value of an increase. The year over year PPI increase is 9.2%. Industry has been able to avoid passing most of these cost increases onto the consumer by increased worker productivity.
US Consumer inflation (the CPI) will be reported tomorrow, and is currently reported at 4%.
Worldwide inflation is a problem. 50 countries currently have double digit inflation rates (over 10%). Two of the most notable nations are Russia (15% inflation) and India (11% inflation). China, on the other hand, appears to have inflation under control at 7.7% and decreasing.
So, US inflation at the “official” 4% number doesn’t look so bad, does it??? On the surface, it looks okay. It also says that the US Dollar SHOULD be increasing in value against these 50 countries IF these inflation numbers are true. Exchange rates move based on the relative difference between inflation rates of the two nations involved. In other words, if the US has low inflation, and Russia has high inflation, you would expect the Dollar to increase in value against the ruble. In fact, just the opposite is happening. What that tells me is that inflation rates are NOT an absolute science, as measured by their host country, and in fact, are “fudged” for political outcomes.
Here are today’s numbers:
Dow Jones 30 Industrial – 10963 (down 93 points)
10 Year Treasury Bond – 3.84% (down 0.04%)
Euro – $1.5914
Gold – $979 (up $5)
Oil – $138.74 (down $6.44)
Gasoline – $3.38 (down $0.17)
