The Economy Guy

Issue: 11/21/07 Wednesday

Someone up there was listening today.  I said that the Dow 12,800 level must be tested, and indeed it was, falling 211 points to 12,799 today.  This was caused by the same old fears.  If you remember a previous article, the Dow 30 and Dow Transportations now signal a “recession” in the US market.

Don’t get too excited.  There is a big but….  This is Thanksgiving week, and this week is known to have much lighter volumes than regular weeks.  During light trading weeks, the volatility can be exaggerated so, I’m not convinced about this breakdown in the Dow until it stays below 12,800 next week.

The 10 Year US Bond market continues to improve, and it has my attention.  It is trying to tell us something.  For sure, it’s saying the Fed will reduce its Fed Funds rate in December, but it’s going further than just confirming that action.  What does it mean?  It could be just a technical run up to see how far it can go.  If so, it will correct and give back 0.25%.  But, it could be telling us the a recession is much greater than 50%, and is betting on it.  This is too much like reading tea leaves.

Gold seems to be coming back into vogue.  Oil is hanging around just less than $100, and there is no doubt in my mind that it will break through $100 sometime in the near future.  This will be caused by speculators, and will come back down in price afterwards.  Why is it so high??  Because it can be!!!

Currencies continue to show the weakness in the dollar.  I saw a program today that said “What’s so bad with a weak dollar?”  Great question.  It helps exporters!  The Chinese continue to ship cheap goods!  Boeing is beating Airbus in the world markets!  Americans make and spend dollars – so who cares about another currency?  

Well, the downside is in how fast the dollar is going down.  It is scaring markets so much that OPEC had it on its agenda to discuss.  The dollar has moved from $1.00 to $1.48 to the Euro.  When an Arab Sheik buys a stallion in Europe with his dollars it costs him a LOT more money.  That’s why.  Gold purchasers are happy because it’s moving the Gold market.  American gold jewelry buyers aren’t happy because the price is going up!  In an extreme, (and how far off is that extreme??) the dollar could get so weak that foreigners stop buying their local made products, and only buy American goods, causing price inflation in the US – and causing a depression worldwide – and we wouldn’t be able to duck it.  So, it is in our own interest to be vigilant in how low and how fast the dollar falls.

Somebody famous once said “We live in interesting times.”  And how!!!!

Here are Wednesday’s closing details:

DJ30 – 12,799 (Down 211 points)

10 year US Treasury Bond – 4.02%  (Down 0.03%) - it fell again.  This is very low.
Euro $1.4859 – a new high for the Euro

Gold closed at $799 per ounce.   (Up $7)
Oil Closed at $97.29 (Down $0.79)
Gasoline is $2.44  (Down a miserly $0.01)