Stocks Soar On Consumer Confidence
Stocks soared today – not being intimidated by the N. Korean A-bomb test and missile launches – and hanging its trend on the Consumer Confidence numbers.
Bonds are now hovering at 3.5% for the 10 Year Treasury. This is a 1% increase in interest rates over the past 6 to 9 months. I consider this a very bad sign for the economy as other interest rates will remain high and choke off any recovery.
The Dollar, Oil and gasoline all moved sideways.
Gold fell about $11 at the start of the day, and ended down $5 for the day. Was this people taking profits? – Maybe. The N. Korean activities over the weekend generally causes a rush to Gold and Treasuries – but not this time. Why??? In the spirit of full disclosure, I took the opportunity this morning of purchasing more gold when it pulled back $10 from its Friday close.
In the news today…..
Consumer Confidence – soared again in May after April’s massive jump in this subjective index. This caused a stock rally today. The consumer confidence is about the same as it was last September. However, this index is still well below 100, the breakeven point between growth and contraction.
Home Prices – fell 19.1% in 1Q 2009, and has fallen 32.2% from its peak. Home prices continue to fall, but at a slower pace. This is the most important statistic to be watching because when home price hit bottom, we should be at the bottom of our problems.
Nationalized Medicine – UnitedHealthCare spent $1.5M in lobbying Congress during the first 3 months of this year. The fight between the health companies and the US Government has gone underground, as the health companies do not want to start a fight with Obama. However, they are lobbying for their life as they see their future income stream possibly disappearing.
San Francisco FED Economist – predicts the FED funds rate will be low for “several years.” He goes on to say that the FED rule for interest rates (if it could be followed) would say the FED funds rate should be MINUS 5% right now. But, the FED can’t go negative. He went on to say that it would be fairly easy for the FED to “unwind” its $2TRILLION money injection when it’s time to do that.
Here are the last numbers for today:
Dow Jones 30 Industrial – 8473 (up 196 points)
10 Year Treasury Bond – 3.49% (up 0.05%)
Euro – $1.3984
Gold – $953 (down $6)
Oil – $62.45 (up $0.78)
Gasoline $1.85 (up $0.01)
Tom,
Great comments, as always!
One comment that ‘caught my ear’ today was that the San Fran FED opined that it “would be fairly easy for the FED to “unwind” its $2TRILLION money injection.”
This got me to thinking… could one possible factor that most people are overlooking in terms of a recovery be that at least some of the spending going on by the government should be seen as investing rather than spending? (and isn’t this in some ways a good thing?)
For example, when TARP money gets injected into a bank, that money is spent, but in some ways, isn’t it actually invested if that bank remains solvent and returns to profitability? When that occurs and the government “unwinds” this investment by “cashing out,” isn’t it likely that we, the tax payers, will actually have earned some rate of return on that money that is greater than many people and certainly the government normally would have gotten if that investment wasn’t made or was made in something else?
I don’t know if that is what the FED economist was referring to, but it keeps striking me as important. I guess one of the related questions associated with this will be how can we make sure that when the government (we) cash out, that we actually do make a return on the investment…
This is especially important when you consider the mind-boggling sums of money being invested, since a few percentage points of return could make a huge difference in the deficit, etc…
I’d be curious what your thoughts are on this issue…
Thanks, as always for the great service you are providing!
Bill
Hi Bill,
You make an interesting point regarding “investing” rather than “spending.” Yes, in the case of TARP money ($700B in total), the money is being “lent” to the banks, insurance companies, auto industry, etc. and as part of that deal we, the Treasury, get preferred shares and options. The preferred shares pay a percentage return on the money lent, and that is paid to us periodically. We’ve received some of that money already.
So, in this particular case, when the banks pay back their TARP loans, we, the Treasury will be getting our loan principle back plus interest. And then there is the options. The options so far have been valued by negotiation between the Treasury and the bank at something other (less) than the market value. Why don’t we just sell these options on the open market? It looks a little bit of shinanigans to me, but who am i to point fingers????
But, let’s look at the other places that the TARP money is going – like GM and Chrysler and GMAC. Will we get our money back? Well, it looks like we’re going to own the majority of GM shares, but that and a Dollar won’t buy a cup of coffee.
How about AIG. I haven’t heard anyone, anywhere predict that AIG is going to pay back any of their loans.
My point is that this is HIGH RISK lending, and we must expect to lose a chunk of our principle. My personal belief is that the lost principle will overwhelm the gained interest.
Hope that helps.
Tom