My Opinion On The Economy
The markets were where the action was today. Here the market story. ECB Chairman Trichet said today that he was really worried about inflation, and it might be necessary to raise interest rates this year. (When Euro rates go up, and US rates stay the same – the likely situation – then it’s better to have your money in Euros, not Dollars.)
So, Trichet’s announcement caused the Euro to go straight up, and that was the excuse for everyone (and I think it was everyone) to buy OIL as a hedge against a falling Dollar. Oil jumped over $5 today.
So my reflective thought is — speculators took great advantage of Trichet’s announcement pushing the Euro up. However, the Yen didn’t go up at all, and even fell a little. So this really means that the Dollar didn’t really lose much value, and the excuse to buy OIL was a false (speculative) one. If this is the case, these positions will unwind themselves in a couple of days. If I’m wrong, then you can expect much more expensive gasoline soon.
The stock market took off, straight up, on the Euro rate news plus added the positive economic news of today. It ended up 214 points.
10 Year Treasury Bonds lost their recent advances, and ended up over 4% again. Inflation worries continue to rule.
In the news today….
Jobless claims fell last week to 357,000 claims. This was one of the causes for the stock market jump. However, this is a fickle reason because this number is volatile in the first place, and the 4 week average was UP. This means more people are receiving unemployment benefits than before. In fact, some people said that the Commerce Department (the source of this data) has trouble calculating the number around holidays, and they suspect the announcement.
Retail sales are up. Hurray. This is good news for the economy. However, they are up at the discount stores (WalMart, Target, Costco, etc.) and not the high priced stores. My interpretation is that the general public is saving money by shopping at discount stores, and pulling back from buying those “bobbles.”
Now for the “not so good” news….
The 30 Year Fixed Rate Mortgage is 6.09% today and the 15 Year Fixed Rate Mortgage is 5.65%. You are seeing the affect of increasing Treasury rates on the Mortgage market.
Those bond insurance companies (AMBAC and MBIA) that I’ve talked a lot about in the past, just got downgraded by S&P from AAA to AA. This is not good news for municipalities as the interest rate they must pay in the future is going up.
1st Quarter 08 Foreclosures were 1% of all mortgages, up from 0.83% the 4th Q 07. This means that foreclosures are accelerating.
1st Quarter 08 Delinquency Rates were 6.35% of all mortgages, up from 5.82% the 4th Q 07. This means there are more foreclosure coming from some of these delinquencies. (Delinquencies are mortgage payments over 30 days late.)
These statistics are the worst since 1979. However, it is my strong opinion that we must break ALL records before this housing meltdown is over.
My opinion on the Economy
It is possible that we are seeing the US economy stagnating, rather than falling as it has over the past 6 months. Things like no wage inflation push, a decrease in jobless claims, and retail sales up slightly are positive indicators. Manufacturing appears to be stable or declining slightly. The bank illiquidity crisis appears to have been solved, even though some banks are still suffering.
If this is the case, the tax rebates filtering into the economy are slowing or stopping the economic fall caused by the housing meltdown and lower spending available in the general public.
So what does the future hold? Housing values will continue to decline, and more pressure will be put on the public’s ability to spend. After all tax rebates will be spent over the next 2 months, we should see a resumption in the deterioration of the economy.
Here are today’s numbers:
Dow Jones 30 Industrial – 12,604 (up 214 points)
10 Year Treasury Bond – 4.03% (up 0.09%) – nicely back above 4% again.
Euro – 1.5594 – the big mover today
Gold – $876 (down $8) – gold is a buy at this level. A few bucks lower and its a “buy with both hands.”
Oil – $127.79 (up $5.49) – WOW!!!!! We’ve never seen a move like this before.
Gasoline – $3.33 (up $0.14) – oh well, it was nice having cheaper gas for a couple of days.