The Economy Guy

Stocks were up all day, but closed at their lows – basically a sideways day again.

Bonds gained in value (decreased in interest rates) as profit taking and squaring of shorts moved bonds.  Higher interest rates appear to be with us for some time.

The Dollar lost over 1 cent against the Euro today, and is testing a recent high for the Euro.

Oil and gasoline hit recent highs.  Speculators are rife in this market as oil doesn’t move up $20/barrel in one month without speculators.

Gold was up a little today, and appears to have tested its bottom and has set a new resistance point just above $950/ounce.  Providing this resistance point holds, gold is poised to test a new high within the next month.

In the news today….

Bank of America CEO Lewis – was forced to complete the purchase of Merrill Lynch by the FED and the Treasury according to his testimony to Congress today.  Apparently an email trail shows that Lewis was threatened with his job if he didn’t cooperate.  He was also told to keep the details of the Merrill Lynch deal confidential.  Apparently Lewis tried to back out of the deal, and try his luck in the courts by breaking the deal, rather than complete the purchase.  That’s when the real pressure from government hit him.

Bernanke denies having told Lewis that he shouldn’t withhold information on the Merrill Lynch purchase, and Bernanke and Paulson will both testify to Congress on this subject sometime in the future.

I must apologize to Mr. Lewis as I previously accused him of being a scumbag when I thought he purchased Merrill Lynch and Countrywide and drove Bank of America into the sewer.  It appears the government had its hand in his being a scumbag.

Retail Sales – rose 0.5% in May.  Good news???  Perhaps a little good news, but the main driver in this number was the higher gasoline prices.  So, it’s difficult for me to see how paying more for gasoline is good for the US economy – which is what the headlines want you to believe.  If people are spending more on gasoline, a necessity, they have less money left in their pockets for other goods.

Jobless Claims – also fell last week, and were 601,000.  While this trend is actually good news, it is still above the magic 400,000 number, so the unemployment number is still climbing.  While it would be nice to call the bottom of the jobless claims graph before it happens, that is just impossible – so, it’s much better to let the jobless claims level out with NO increase in the unemployment number, and that’s when it’s time to break out the champagne.  No sooner.

Foreclosures – fell 6% in May over April.  However, the rate of foreclosures is way too high, and foreclosures lead to distressed sales by banks and this leads to lower property prices.  This problem is far from being resolved.

More on the Pay Czar…..

President Obama has appointed a “Pay Czar”.  Isn’t that nice?  He wants to regulate the pay of the top 100 people’s pay in companies that receive taxpayer bailout money, TARP money.  I agree.  When we bail out a scumbag company that helped cause the economic mess we’re in, they should be “controlled” by the government on our behalf.

However, the President’s desires go far beyond companies with bailout money.  He wants to regulate the pay of all companies.  He has backed down from his statement that a CEO can’t make more than $500,000 per year.  He did this under a barrage of criticism, but his real reason was that Congress was passing legislation that would restrict bonuses to 1/3 of total compensation.  In other words, a CEO could get $750,000 in compensation including bonuses, and this is acceptable to the President.

Today, the Treasury announce “guidelines” for ALL companies to follow regarding executive pay.  Isn’t it interesting that while the rhetoric says Obama doesn’t want to control executive pay, he puts out guidelines anyway!!!!  Actions speak louder than words.

Having Big Government setting salaries – no matter how egregious those salaries have been, and are right now – is a fundamental intrusion in our capitalist system.  

Calmer heads are prevailing, and people are actually talking about strengthening the rights of shareholders in companies to have a major say in the salary of the company officers.  The boardrooms of America need a major shakeup to accomplish this type of shareholder control.  We’ll see how far this actually goes.  My cynical side says that all this smoke and mirrors is meant to show that the government is doing something, when in reality, it is doing nothing.

Oh, and by the way, doesn’t the word ‘czar’ imply “dictator?”  If I remember right Obama has now appointed over 20 Czars.

Here are the last numbers for today:
Dow Jones 30 Industrial – 8771 (up 32 points)
10 Year Treasury Bond – 3.86% (down 0.07%)
Euro – $1.4102
Gold – $962 (up $7)
Oil – $72.68 (up $1.35) – another near term high
Gasoline $2.06 (up $0.05)