The Economy Guy

Stocks moved sideways, but bonds jumped in value (lower interest rates) massively.

The Dollar lost 2 cents against the Euro and the Swiss Franc. – inflation

Gold gained $19 – inflation

Oil and gasoline jumped to nearly $70. – inflation

In the news today….

TARP Banks – are paying more in bonuses than they are earning in profits.  The bonuses paid out to executives at nine banks that received government bailouts exceeded the net income of some of the banks, according to New York Attorney General Andrew Cuomo, substantially so at Goldman Sachs (GS), Morgan Stanley (MS) and JPMorgan Chase (JPM). Cuomo said employee pay “has become unmoored from the banks’ financial performance,” and that there is “no clear rhyme or reason to the way banks compensate and reward their employees.” Even during what was arguably one of Wall Street’s worst years in memory, nearly 5,000 bankers and traders received a bonus above $1M.

GDP – has been adjusted.  Every 5 years, our government goes over the books and adjusts the GDP calculations, and they can go as far back as they want.   Well, they adjusted 2007 and 2008 downward significantly – and made the last quarter of 2008 TWICE as worse as it was reported previously.

2Q GDP – came in at –1%.  This made everyone cheer, as this was seen as the end of the recession.  Any negative number is a disaster.  This has been 4 quarters of negative GDP, and this has NEVER happened before – as long as they have been collecting the data – and it started in 1948.  So, what about the Great Depression – of course they had more than 4 quarters of negative growth.  This economy is looking more and more like the Great Depression – especially is you lost your job.

Tonight’s Dinner Conversation……

When will the recession be over?  To be more precise, when will GDP turn up, and be positive, rather than negative?  Here is what’s happening right now:

1. Housing prices continue to decline, and will probably continue into the future.
2. Unemployment will hit 10% by year end, and will continue higher into 2010 before it tops out.
3. GDP currently looks good at –1% (Did I say “good?”)
4. Factories have cut back drastically as the economy tumbled, reducing production and laying off workers to save money.
5. People are going out of their mind to buy a new car and use the “clunker money”.
6. The financial institutions have stabilized – even though there will be more banks going under, and AIG is still in trouble.

So here is a scenario to consider.

As people start buying stuff, industry must produce it, and will be increasing their production.  The FED business assessment to be published August 15th might show this uptick.  If it does, then the recession will be over (GDP will be positive) in August, or possibly in June or July.

What do YOU think???

Here are the last numbers for today:
Dow Jones 30 Industrial – 9170 (up 16 points)
10 Year Treasury Bond – 3.50% (down 0.14%)
Euro – $1.4253
Gold – $956 (up $19)
Oil – $69.45 (up $2.51)
Gasoline $2.01 (up $0.06)