The Economy Guy

Stocks went sideways today, but spent most of the day testing its recent lows.  Bonds continued to be a “safe haven” for money, with interest rates declining.  The Dollar went sideways.

Oil and gasoline both fell.  Oil a lot, and gasoline just one cent.  Oil is testing its lows, and gasoline is 35% higher than its lows.  This shows a lot of manipulation to me.

Gold continued to rally – going up $5.  Great news for gold.

In the news today….

Retail Sales were up 1% in January.  This headline makes everyone happy, but the market was smarter than usual today as it read on.  November and December’s retail sales were both modified DOWN 0.3%.  This means the 1% Jan increase wasn’t as great as stated as it’s starting from a lower point.  The increase in January retail sales was caused by the great post Christmas sales (which is now over) and an increase in gasoline sales (as prices have crept up).

Jobless Claims hit 623,000 last week. This indicates the continuation of lost jobs across the US.  Bad news indeed.

Foreclosures dragged down House Prices in 4th Q 2008 to a median value of $180,000, or down 12.4% year over year.  Here are the details:

1. House prices were down in 134 of 153 metropolitan areas
2. House prices were up in 18 metropolitan areas (hurrah – but not enough to break open the champagne yet.)
3. 45% of home sales were “distressed” sales – in other words, foreclosures.  This was 37% in the 3rd Q 08.  So more sales are now coming from the “very cheap” properties, and this is to be expected.  We must get the foreclosure inventory off the books, and that isn’t about to happen soon, as they continue to hit the books.
4. The total sales in the 4th Q when annualized is 4,700,000 homes.  Unfortunately, this is not a big enough number to knock down the inventory of “homes for sale” which is over 10 million.

Tonight’s Dinner Conversation….

The Trade Deficit was down 3.3% in 2008 over 2007, and was $677.1B.  

December’s Trade Deficit was $39.9B (or about $500B/year).  Imports were down 6%, and exports were down 5.5%.  This is a great indication that global trade is collapsing (Oops, I’m using those scare tactics that I learn from politicians).  When trade goes down 5 or 6% in a month, it is collapsing by anyone’s definition.

So, here is the topic for you to discuss tonight.  What does this Trade Deficit mean to you????  Here is what to take into consideration during your talk.

1. Is the decrease in the Trade Deficit good news for YOU?  Remember, we are selling LESS overseas as well as buying less.  The trade deficit is the difference between imports and exports.  They could both go down the same amount, and leave the deficit unchanged.
2. What happens to all that Trade Deficit money?  2008 this was $677.1B, and if trade doesn’t decrease more in 2009, it should be about an additional $500B in 2009.
3. FED Chairman Bernanke two days ago in his Congressional testimony answered the following question: “What was the cause of the current crisis?”  His answer was “The route cause of the current crisis is the capital influx to the US from our Trade Deficit.”  (I heard these words myself when he was giving the testimony.)
4. Have we seen the end of bubbles?

This is exactly what I’ve been telling you from the beginning of the economyguy.  Our Trade Deficit, as caused by the Bretton Woods Agreement, making the US Dollar the Reserve Currency of the world, produces liquidity bubbles in the US, and makes our imports very cheap.  But the “good life” can’t go on forever (obviously now!!!)

The important point from Bernanke is what he DIDN’T say.  He didn’t say the “housing bubble”, or “greedy Wall St. exec’s”, or “Congressional pressure to provide mortgages to people who can’t pay”, or the other dozen things that went wrong in our housing meltdown.  He considers all these things as secondary to having the liquidity (money) there to create the bubble in the first place.

Here are the last numbers:
Dow Jones 30 Industrial – 7933 (down 7 points)
10 Year Treasury Bond – 2.73% (down 0.04%)
Euro – $1.2866
Gold – $949 (up $5)
Oil – $33.98 (down $1.96)
Gasoline – $1.26 (down $0.01) – the last time oil was $34, gasoline was below $1.00 – what’s going on