Stocks Soar…Consumerism Sinks
I was amazed today with the stock market. I’m sure this is a record of some sort, but I haven’t read that so far. The Dow was up 889 points – over 10% in one day. People just thought the market was oversold and there were too many bargains out there. BUT – they waited all day before they started buying.
Bonds are no longer a “safe haven” play – so interest rates rose. You see, people now think that the government actions are beginning to take hold (and they are a little) so it’s safer to come back into the water. And what type of water will it be for bonds in the future? Inflationary waters – that’s why prices dropped and interest rates rose.
The Dollar decided it was too high too, so it got hit too.
Gold, Oil and Gasoline all fell slightly.
In the news today…..
Home prices fell 1.1% in August and when looking at the last 12 months, home prices fell 17.7% – this is the average across the USA. The worst spot in the US was Phoenix, falling 30.7% year over year – just slightly more than Las Vegas and Miami. Guess what city fell the most in August???? It’s San Francisco – 3.9% in a month. Hard to believe, but statistics never lie – do they? And to make things a little more rosy – Cleveland and Boston both rose in value – slightly.
Consumer Confidence fell to an index value of 38 – the lowest ever since the index was created in 1967. 100 is break even between optimistic and pessimistic. 38 is EXTREMELY pessimistic.
In the International News today…..
Iceland raised its key interest rate 6% today to 18%. How would you like the Fed Funds Rate to be 18%. Iceland has decided 18% is the right thing to do for Iceland. We’ll see.
Last month (September) Volvo Truck sales fell 99.7%. WOW. That means effectively that no one bought a Volvo Truck last month. This is a truly dramatic statistic.
Tonight’s Dinner Conversation….
The FED budget deficit for the next fiscal year (the next 12 months) was predicted to be $480B earlier this year. However, as we are sliding into a recession, the $480B deficit could easily become $700B as tax revenues fail to come in, and Congress spends like a drunken sailor. PLUS, the $480B (or $700B) deficit does NOT include the $700B bailout legislation that is just now starting to be spent PLUS all those other bailouts.
The budget deficit for the next fiscal year will be UNPRECEDENTED. We are swimming in unchartered waters.
What will this deficit spending do to the US economy? Trick question of course. Deficit spending pumps the economy – right? Deficits are covered by printing money = inflation – right? The FED is going to drop interest rates by at least 0.50% immediately – so the Fed Funds Rate will be 1% (or possibly less if the FED is really scared.) Dropping the Fed Funds rate is like pushing on a rope – you hope someone will grab the other end and start pulling.
So, an alternate question is “Are we heading for a deflation or an inflation in 2009?” And, if I was handing out this question in school, I would add “And WHY?”
Here are Today’s numbers:
Dow Jones 30 Industrial – 9065 (up 889 points)
10 Year Treasury Bond – 3.82% (up 0.09%)
Euro – $1.2716
Gold – $741 (down $2)
Oil – $62.73 (down $0.49)
Gasoline – $1.46 (down $0.02)
