The Economy Guy

Stocks moved sideways today – not a ringing endorsement of the President’s Mortgage Rescue plan.  Bonds gave up value (increased in interest rates again.)

The Dollar strengthened again on Euro weakness.

Oil and gasoline both gave up ground again today.  Great for us as consumers.  Let’s hope it continues in a downward direction – but this would mean the recession will get worse, and that’s not great news – so it’s hard to cheer oil prices down.

Gold gained again today, and closed above the magic $975, but only at $978.  I still think there will be a pullback (probably tomorrow) and this will then go through this level once more for good.

In the news today….

The FED came out with your updated 2009 forecast today.  Here are the highlights:

1. Unemployment is expected to reach 8.5% to 8.8%, rather than the 7.1% to 7.6% previously forecast.
2. High unemployment is expected to continue until the end of 2011.
3. The total 2009 GDP is expected to fall 0.5% to 1.3%, rather than the 0.2% to 1.1% previously forecast.

And my comments are:

1. I still think unemployment will reach 10% this year, and I’m concerned it will be higher given the increase in the FED estimate which is always conservative on the low side.
2. High unemployment until 2011 is a RED FLAG!!!!!!!  This truly concerns me.  It says things are not expected to get better any time within the NEXT 3 YEARS.  I don’t hear any politicians saying this – do you?????  More lying by our representatives???
3. I will predict that GDP will fall by 2.5% this year – as the FED is conservative on the low side normally.

President Obama’s Mortgage Relief Plan…..

President Obama announced his Mortgage Relief Plan today, and here are the Pros and Cons
PROS:

1. The hope is that this will stabilize house prices – and everyone will benefit, as everyone else’s house value will stop declining.  (If house prices stabilize, it will help everyone; but, I don’t think they will stabilize, but will continue downward.)
2. The relief measure will help about 20% of mortgage holders in the US.  And that’s only if they actually want to use this help.  We must wait to see how many of the 9,000,000 people who “qualify” actually want it and are allowed to use it.

CONS:

1. The Relief cost is now $75B, rather than $50B.  (I bet this total goes UP, and we will be asked to provide more money in the future.  As you know, the President’s office started talking about a Second Stimulus Bill yesterday.)
2. There is no clawback of this cost to taxpayers – as other TARP money expenditures have in them.  The money will be going to select mortgage holders, and banks.  This is a direct tax on all Americans.
3. Mortgages were previously given to people who were “unqualified” to have a mortgage under normal conditions – and now these same people will be bailed out.  Who’s to say how long they will continue to pay their “new” mortgage??  When they don’t, the same consequences will occur – i.e. Foreclosure.  If this happens to enough of these folks, the “recession” will only be prolonged – just like in the Great Depression.  You’ve got to love it.  That means these folks (the ones who default in the future) will be given money, and this money will have no other benefit than to allow them to continue living in their house without paying as much, or anything.  I hope all of you agree with this philosophy because it’s the “change” that was promised.

Here are the last numbers:
Dow Jones 30 Industrial – 7556 (up 3 points)
10 Year Treasury Bond – 2.73% (up 0.07%)
Euro – $1.2536
Gold – $978 (up $11)
Oil – $34.62 (down $0.31)
Gasoline – $1.07 (down $0.05)