Some Thoughts…
Some corrections/thoughts….
Many of you have been kind enough to point out some errors I’ve made in the last few articles. Thank you. I might say that I purposely made those errors to find out if anyone was awake out there, but that wouldn’t be the truth. In fact, my fingers were faster than my brain.
The most egregious error was that I wrote that the level of a new downward (bearish) stock market happens below 8800, rather than the more obvious level of below 7800. We are very near 7800 right now, so we’ll see how it goes.
In addition, I wasn’t at all clear in what happens in a hyperinflation, and in fact, I left you with the thought that house prices would go down. Ugh. In any type of inflation, house prices will go up – given enough time. Here was my thought, and why it was so confusing. When inflation, and then hyperinflation, hit our economy, interest rates will go up. (This is not just me talking, that’s a direct quote from FED Chairman Bernanke yesterday.) This includes mortgage interest rates. Higher, and then very high, mortgage rates will kill the housing market. If you think it’s bad now, think about NO ONE buying a house unless they are a cash buyers. No one would take on a 20% or 100% mortgage interest rate, would they? (The real answer to that question is no, but maybe if they were VERY sophisticated and lots of money, they might. I won’t spend time here explaining that obtuse comment. Maybe later when it’s more timely.) So, my conclusion is that the beginning of inflation will result in a WORSE housing market, followed by increasing house values, as just about every”thing” tangible increases in value – like bread, milk, gasoline, antiques, etc. The value of money would be going down inversely to the increase in value of “things” during an inflation.
One last thought to hold out hope for you. If this comes to pass, you will be able to pay off your existing mortgages with valueless dollars. The trick is to be able to multiply your existing dollars into lots and lots of “valueless dollars” so you can pay off those loans. There are multiple ways of doing this, and I’ll write a lot about this in the future as we come closer to inflationary times.
Some thoughts about our politicians. I have been very critical about what our politicians are doing right now. Most of my criticism has been directed toward Congress. This is the same Congress that had the 11% approval rating before the election. Do you think they’re rating got any better? I don’t. When I say Congress, I mean every member of congress regardless of their party. (My personal opinion is that we should throw all the bums out. I know that some babies will go out with the bathwater, but that’s an improvement over what we’ve got today.)
My personal opinion about President Obama is that he has taken on the very hard job of trying to fix our economy. While I don’t agree with all his policies, I respect his understanding of what’s going on inside the economy, and I respect his desire to start fixing it asap. He has made some bad choices – his own admission – with respect to appointments. I give President Obama one year to be able to point to the previous administrations’ creation of this mess over that past 50 years. After that, it’s all up to the President, and he should take all the credit, or all the blame for whatever happens then.
The Market Today…..
Stocks went sideways today, up slightly, as there wasn’t much news to move the market (other than the agreement of the Stimulus Package compromise).
Bonds were a place of safety as interest rates continued to fall – thank goodness.
The Dollar went sideways.
Oil fell again as its price is approaching a near term low. Gasoline on the other hand rose – hope you enjoy those new high gasoline prices.
Gold was the stellar performer. It rose $30/ounce, and closed at $945. Gold is now an official “buy” and the technical conditions show it having to test the next level – which is around $975 – and if/when that is successful – it will set a new ALL TIME HIGH. Isn’t it wonderful to see Gold rise over $50/ounce in two days???
In the news today….
The big news was the compromise of the House and Senate over the Stimulus Package. With this and Secretary Geithner’s performance yesterday, “the smartest guys in the room” don’t have a handle on the problem. That’s the general belief in the marketplace.
The 30 Year Mortgage Rate fell today to 5.19%, and the 15 Year Mortgage Rate is 5.00%. Let’s hope for a continued downward pressure on interest rates.
Here are the last numbers:
Dow Jones 30 Industrial – 7940 (up 51 points)
10 Year Treasury Bond – 2.76% (down 0.09%)
Euro – $1.2906
Gold – $945 (up $30)
Oil – $35.94 (down $1.61)
Gasoline – $1.27 (up $0.03) – strange behavior compared to oil
