The Economy Guy

 The stock market has spoken.  Everyone was so happy last Monday when stocks surged – so fast, and so far – a record amount.  In the last two days, the stock market has lost over 800 points.  This is tragic news for people who are depending on increasing stock prices to maintain their retirement, or provide enough to retire.  However, my point here is that the market has spoken – the US economy ig going into the toilet – and stocks (as a future projection of value – sometimes) is saying that stock prices must go down to reflect that future value.

Bonds barely moved today – and that’s great news.  In fact, the 10 Year Treasury Note fell 0.01% in its interest rate – and that very slight reversal in course is nice to see – as a top in interest rates of the 10 year duration could be near.

The Dollar and Gold both moved sideways in a well worn track.

Gasoline and Oil fell again, and this time to near term lows.  The Oil price is saying that a recession is going to happen, and it will hit not only the US, but the entire world – therefore demand will drop significantly, and the price is anticipating that right now.  Naturally, this price action is fairly irrational, but it is nice to see at the same time.  As humans we like seeing prices decline when they help us, and hate seeing prices go up when they hurt us.  That’s our feeling about Oil and Gasoline right now.

In the news today….

The wholesale price index – the PPI, or Producer Price Index – dropped 0.4% in September.  Great news.  It’s caused by declining energy prices, and declining commodity prices.  The core PPI (the one without energy and food) actually increased 0.4%.  The Core year over year increase is 4%, and the total PPI year over year is 8.7% – the highest since 1991.  That is a sign of coming inflation – and the bond market is reacting accordingly.

JP Morgan wrote off $3.6B in bad loans – mortgage loans, credit card loans, and all other types of loans – across the board.  This tells me two things: (1) that the drip, drip, drip of bad news will continue – as JP Morgan is one of the strongest banks in the US (what about those other banks??), and (2) we are beginning to see reasons other than real estate mortgage losses creating losses in banks.

Retail sales were down 1.2%, and this is the third monthly fall in retail sales.  Three months in a row is enough for me to declare that the general public is voting with their pocket book.  This is a sure sign that a recession is here – as consumer spending is about 3/4 of the GDP calculation.

Oil fell below $75/barrel today, and that’s about half of its peak.  Isn’t that amazing?  Do you think this is “negative irrational exuberance?” Or, do you think this is just what it’s worth in today’s environment?  

Tonight’s Dinner Conversation….

The housing market is the primary cause of the illiquidity, banking sector meltdown and bailout actions.  So, what’s the housing market doing?  Where is the bottom of this market?  When will prices stop dropping?  One key measure in this complex equation is the number of people buying houses.  Here is a graph of the number of mortgages and refi’s that happened historically to date:

  Look at the RED line going down strongly for the last year.  It is currently still falling, and that’s not a good sign.  This means there are fewer and fewer people willing to purchase a home in the US.  REFI’s, on the other hand, are increasing slightly, and I believe this is because some people are getting some tremendous real estate buys (buying for little money, or for cash), and are putting mortgages on these properties after they buy them.

Here is your question for tonight.  How low will the number of purchase mortgages go before the market turns around?  I know, this is a tough question, but some of you are very close to this situation, and probably have an answer.

Here are Today’s numbers:
Dow Jones 30 Industrial – 8578 (down 733 points)
10 Year Treasury Bond – 4.01% (down 0.01%)
Euro – $1.3500
Gold – $839 (down $1)
Oil – $74.54 (down $4.09)
Gasoline – $1.78 (down $0.10) – another major drop in wholesale gasoline price.