The Economy Guy

The stock market was the news maker today.  It went down 323 points in the morning, and ended up 299 points in the afternoon.  This volatility thing is getting a little out of hand.  Somebody’s making a fortune on these swings.  Why did the market go up at the end?  It is hoping and assuming that the Fed will lower the Fed Funds rate again next week.  If the Fed doesn’t, then get out of the way because the bottom will drop out of the market.

The other major market mover is now oil, as it is dropping well below $90/barrel.  The reason for the drop is the assumption that the US economy is heading into recession, and will use less oil.  Simple supply and demand equation.  Probably oversimplified if you ask me.  What about the rest of the world’s demand for oil?  We’ll that’s where you get into the US economy just sneezed, and the rest of the world is going to use less oil too.

Here is today’s news….

The US Government Fiscal deficit is predicted to be $250B in 2008, and this is before any stimulus package.  As that package is predicted to be around $150B, that means the real deficit would be $400B.  Can you guess what that means in the long run?  Here is where the US Government is looking at the short term gain (re-election), and not the long term cost.  Somebody’s going to pay this $400B back with interest.  And that’s the young people in America today.  Who’s going to buy the bonds to pay for that deficit?  Less and less people as the Treasury interest rates drop like a stone.  This could get ugly later this year.

Sallie Mae, the student loan organization, is declaring a loss of $1.6B.  That means there ‘s a lot of students who are not paying their loans back – and that’s something to talk about over dinner.  Why??  Maybe they’ve lost their moral compass???  This will mean there will be less loans available in the future.  Students going to 4 year universities will be eligible, but people who could drop out at the 2 year (AA degree) level probably won’t qualify for loans.

Are you getting saddled up to REFI your home mortgage?  The 30 Year Fixed rate mortgage today is 5.31%.  Can you remember the last time it was that low?  I will get very itchy to refinance when the rate breaks below 4%.  I sure hope it gets there.

From the historic viewpoint, I’d like to show you the 30 Year Treasury Interest rates in the US over the past decades.  It is the LOWEST that it has EVER BEEN.  It is 4.31% today, but was 4.2% yesterday.  Hard to believe?  Take a look.  Do you think this is good news, or bad news, or nonsense news?  It’s hard to say.  It looks like good news if you are trying to borrow money for the long term.  But if you’re trying to earn interest to live on – it’s bad news.  From the overall US economic viewpoint, it’s terrible news.  It’s telling us that something is way “out of whack” in the economy.  The last country to suffer low interest rates was Japan, and it took them over a decade to pull themselves out of the quagmire.

Here are today’s Numbers:
Dow Jones 30 Industrial – 12,270 (Up 299 points) – but was down 323 points in the morning.
10 Year Treasury Bond – 3.43% (Down 0.06%)
Euro – $1.4633
Gold – $883 (down $7)
Oil – $86.99 (down $2.22)
Gasoline – $2.25 (down $0.03)