Recession Is Here
Stocks ended down again after yesterday blistering attack. This has been the worst stock market week of the year (that’s this year or last year), and I hope it doesn’t get worse in the future. I hope everyone can see that the Dow Jones Industrial Average is now rapidly approaching the 12,000 level. If you remember that I predicted a break through of the 12,800 level a few months ago, this is exactly what I meant.
Bonds moved sideways today, after yesterday’s rate decline. All currencies and commodities moved sideways too.
My last prediction of the next Fed action was a 0.25% Fed Funds rate cut. I am now changing my prediction to be a 0.50% Fed Funds rate cut at the next meeting later this month. Why am I changing my position?? Well, it’s because the landscape of a Recession which has been raising its ugly head over the past few weeks, is now much more pervasive. The “stimulus package” being touted is an admission that the
The other conclusion that I can reach from the “stimulus package” is that the RECESSION IS HERE NOW. Why else would everyone be so worried??
In the News today….
The short term Treasury futures market is now building in the possibility of a 0.75% Fed Funds rate cut. The current pricing includes a 70% possibility of such a rate cut. This lends more credibility to my 0.50% rate reduction.
The President is talking about a tax rebate as the main method of providing the “$145B stimulus package.” That package is currently being discussed as an $800 tax rebate for a single taxpayer, or a $1600 tax rebate for a joint tax return. When will you get the money??? Well, June is the best guess that I’ve heard as the IRS is already working on the 2007 Tax Return season and would have to “buckle up” to make any change quickly. Also, the details of the tax rebate must be decided, and that decision is “political” entirely. Congress must pass any tax rebate law, the President must sign any tax rebate law. Both Congress and the President must come to a common understanding of the details – like exactly who is going to get this rebate, and who is NOT going to get this rebate. This will provide lots of future news commentary to ignore until the details are agreed.
Let’s think about this $145B package. First of all, the amount. Isn’t it interesting that $145B is the same order of magnitude as the amount of earnings that the big financial institutions and banks are writing off???? That’s no coincidence. It is expected to be a bailout of the economy. The money will migrate to those institutions.
Next, what will the average Joe or Jane do with his/her rebate??? Well, people are not stupid. They know they are getting this as a “once off” gift from the
Some people will go out and buy something they can’t live without – like a new TV. This money will go to the stores who will deposit it in their bank = and the money goes to the financial institutions. Spending the rebate on a new TV (or anything) will stimulate the
Please note that I didn’t include placing the rebate in a savings account. As the
Here are today’s Numbers:
Dow Jones 30 Industrial – 12,099 (Down 60 points)
10 Year Treasury Bond – 3.65% (Up 0.01%)
Euro – $1.4604
Gold – $882 (up $1)
Oil – $90.57 (up $0.44)
Gasoline – $2.30 (up $0.04)
