The Economy Guy

Stocks spent the whole day way up, but gave up over half of its gain at the end of the day, ending up 87 points.  This was the best month in stocks in a very long time.

Bonds moved sideways.

The Dollar lost some ground today.

Oil and gasoline gained a little.

Gold gained $7 today – a nice day, but I declare it a sideways move.

In the news today…..

President Obama is off to the G20 Meeting in London.  What’s going to happen?  Well the news so far has been about the disagreements among the various leaders.  This is probably mostly grandstanding for their individual constituents.  For example, Germany’s leader, Merkel, is saying that stimulus is stupid as it leads to inflation or hyperinflation, and the Germans know more about this than most countries.  France’s Sarkosy is telling Obama that he is WAY TOO Socialist – and this coming from France is almost laughable – but he’s serious about it.  Is there anything that will be agreed at this meeting?  Probably not in the area of economic stimulus.  Most countries are just mad at the USA because we started this mess.

But, way back in the shadows of the meeting is something that could get agreed.  It’s the international regulation of the financial institutions that caused this mess.  And here is where the dirty little secret may be hidden from the public.  The idea on the table is for the IMF to regulate international financial institutions, and our FED/Treasury would dance to the tune of the IMF.  This is not the same question of whether or not the US Dollar will remain the world’s reserve currency.  For now, that question is settled; it will remain the world’s reserve currency.

Are we willing to give up our financial sovereignty????  That’s the secret question being asked, but totally ignored by the press.  See if you can find this story in your press readings.  The real discussion will be between the idea of the IMF being in charge versus each nation being in charge and harmonizing “how” to regulate within their borders.  Conspiracy theorists are saying this could really be a big step toward a “one world government.”

Housing Prices fell 19% in January 2008 to January 2009.  And the price fall is ACCELERATING.  This is the real bad news.  This one measure of the US economy is probably the most important measure today as it drives everything else.  I am sorry to say that our economy is still tanking in spite of the fact that this measure is a “lagging” measure of the economy, and not a predictor of the future.  It just doesn’t look good.  If we were looking for a more positive picture it would include the stabilization of home prices in a few areas, rather than a drop in all areas as was reported.

2009 Predictions

I continue to believe that the economy will have a negative GDP growth each quarter of 2009 with the first quarter being the worst number.  2010 should turn this around, and we will have positive growth in 2010 overall, but probably less than 1% growth.  Another way of describing our condition is that we are having an L-shaped recovery, and not a u-shaped or v-shaped recovery as many have predicted.  An L-shaped recovery is one where there is little or no recovery when we hit the bottom, and that’s what 2010 will look like.

I continue to predict that unemployment will hit 10% in the 4th Q of 2009, and will stay at 10% throughout 2010.

The stock market has seen a recent “bear market rally” and as the poor economic news continues to disappoint everyone, the market should retest its lows.  It probably won’t crash through those lows, but it certainly should hit them again.   When it hits those lows, that’s the time to jump back into stocks.

Inflation remain the hardest thing to predict.  We have seen no inflation so far in 2009, but have seen the slight increases in prices that could be a precursor to inflation.  I’ll continue to watch inflation closely.  I am predicting that inflation will hit in the 4th Q 2009.

Bonds are a very complex story.  US Treasuries will be controlled by the FED in the foreseeable future, and remain at low interest rates.  Corporate bonds are a different story, and depends on the underlying business.  Some bond holders will lose some of the capital as they will be asked to take a “haircut”.  For example, this will happen to GM bondholders.  Why hasn’t this happened to Wall St firm bondholders?  I suspect that no one wants to face the fallout of that happening – probably a renewed credit crisis.  However, it is definitely “unfair” to ask GM bondholders to take a loss, and not have unsustainable bank bondholders to do the same.  How about Citigroup?  How about B of A?  It depends on the results of the “stress test” that the government is performing right now.

Tonight’s Dinner Conversation…..

I am very grateful my wife suggested having a “Dinner Conversation” part of this article.  Here is today’s thought.

Barney Frank, one of the scumbags in Congress who caused our housing mess, has come up with a bill that gives Secretary of Treasury, Geithner, the power to set the pay of ALL employees of companies that receive TARP money or Fannie/Freddie money.  Can you imagine what this means?

1. Total control (prosecutor, judge and jury) of everyone’s salary in that company.
2. The need to expand the Treasury to establish a department to evaluate everyone’s compensation and establish “reasonableness.”
3. The ability to SET an employee’s salary.
4. Oh, by the way, did I mention this power is RETROACTIVE?
5. This is socialism at its core.

So, the question for you tonight is “Is this the type of CHANGE that you voted for (if you voted for Obama), or is this the type of America you want to live in?”

Don’t get too excited yet.  The bill has to pass the Senate before it would go to the President for signature.  And, you can bet that Obama would sign it, and not veto it.  Would you want our President to sign or veto a bill like this?
 

Here are the last numbers for today:
Dow Jones 30 Industrial – 7608 (up 87 points)
10 Year Treasury Bond – 2.69% (down 0.03%)
Euro – $1.3287
Gold – $925 (up $7)
Oil – $49.90 (up $1.49)
Gasoline – $1.42 (up $0.03)