Issue: 1/17/08
Well, the Fed Chairman spoke today, and the stock market reacted correctly. It fell 307 points. It’s really going down now.
Bonds reacted correctly too, setting a new high in price = a new low in rate. Everything else went sideways, but they all will have their day. It’s just today wasn’t the day – everyone’s attention was on stocks and bonds.
In the news today….
Chairman Bernanke spoke to Congress, and told everyone that the country was in pretty bad shape. He agreed with President Bush that the nation needed some “stimulus.” What does that mean??? Well, it means that the country is sliding down the slope of recession so badly, that the government senses it needs to give people some money to spend, and that will stimulate the economy. How much money?? Both Congress (Pelosi’s office) and the President think that tax payers should get a rebate on their taxes of between $300 and $600 each. This happened a long time ago during the last big recession – so our politicians being deep thinkers think it will work again.
The Philadephia Fed came out with their regional report stating that the economic growth had an index value of –20.9%, and this is just a horrible number. It frightened the market as much as what Bernanke said. Here is the historic graph.
New home construction was down 25%, and this is really great. Why is it great – since that means a whole bunch of people have been and will be sent home without a paycheck? It’s because the only way we get out of this housing mess is to reduce the supply of houses!! This lets the demand catch up with the inventory, and then we can have a healthy housing sector once again. It’s going to take at least 2 years to get there.
I’ve saved the best for last for you today. The Leading Indicators for the US Economy will be announced tomorrow, and if it is negative, it will indicate a RECESSION is heading down the tracks at us. Any negative reading tomorrow will mean that the Leading Indicator index is now MINUS 1.0%, and this is a recession precursor.
Here are today’s Numbers:
Dow Jones 30 Industrial – 12,159 (Down 307 points)
10 Year Treasury Bond – 3.64% (Down 0.07%)
Euro – $1.4641
Gold – $881 (down $2)
Oil – $90.13 (down $0.71)
Gasoline – $2.27 (down $0.01)