The Economy Guy

Stocks did their irrational thing today – started out lower, and ended up higher.  In the end, it moved sideways again.

Bond interest rates continued to climb on inflation worries.  Bonds look out further in time than stocks will ever be able to.

Oil and Gold hit new highs today.  Are you getting used to $101/barrel oil?

In the news today….

The “I” word (inflation) is raising its ugly head more visibly today.  The CPI rose 0.4% in January with gasoline, food and medical costs leading the way.  No surprises there for anyone reading this article.  I’ll do the math.  0.4% over 12 months is 4.8%, and that is means inflation is really picking up.  BTW, do you believe the CPI statistics truly represents your true increase in costs over time???  I’m trying to get you to think about this important topic.

As you know, the FED is working hard at reducing the Fed Funds rate to fight the recession we’re heading into. However, during the last FED meeting, the FED stated that a “rapid reversal of interest rate might be appropriate.”  In other words, the scare of inflation is so great that the FED might have to rapidly raise the Fed Funds rate to fight inflation.

The Bond market is listening.  The 10 year Treasury interest rate continues to move higher, and now sits at 3.9%.

The mortgage market is also listening.  The 30 year fixed mortgage rate is now 6.09%, and 15 year fixed is 5.55%.

The FED reduced its projection of what the 1Q GDP will be in the US.  They are reducing the projection by 0.5% to between 1.3% to 2.0%.  That is VERY low GDP.  Politically, the FED can’t publically project we are in a recession right now.  However, they can slowly creep their projections into a negative GDP growth position, and that’s exactly what they’re doing.  If it walks like a recession-duck, and talks like a recession-duck; …..

This will result in a projected increase in unemployment to 5.3% from 5.2%.

A Dinner Conversation piece

Follow the bouncing ball.  Oncoming recession will cause the FED to reduce the Fed Funds rate further in the future; and a lower Fed Funds rate will cause the Dollar to weaken further; and a weaker Dollar will cause Oil and Gold to increase in price – and this is exactly what is happening the last few days.  And, it will continue.

Here are today’s Numbers:
Dow Jones 30 Industrial – 12,427 (Up 90 points)
10 Year Treasury Bond – 3.92% (Up 0.04%)
Euro – $1.4709
Gold – $938 (Up $8) – Very close to a NEW HIGH
Oil – $100.74 (Up $0.73) – a NEW HIGH
Gasoline – $2.59 (Down $0.02) – gasoline at the pump continues to climb.