The Economy Guy

What a great market.  Everything went up today.  Everyone’s a winner – or are they???

Stocks jumped 257 points, a massive jump.  This was caused by great earnings numbers being reported (read the story below to get the true story).

Bonds jumped to 3.70%, and this is truly reflecting the inflation in the system.  No one can ignore inflation anymore, and the bond market is no exception.  Cheap interest rates (except for that paid by banks on your deposits) are going the way of the dodo bird.

The Dollar fell to a new low against the Euro.  Interesting that the Dollar actually gained a little against some other currencies, but the Euro forged ahead as the European Central Bank is now fighting inflation, and won’t be dropping its interest rates soon.

Oil and gasoline set new highs today AGAIN.  $115 Oil is here – so get used to it.  Remember not long ago when oil reached $100??  Well, it’s 15% higher today.

Gold forged ahead $16, and those of you who were brave enough to buy with both hands are now reaping the reward.

In the news today…..

JP Morgan and Wells Fargo both announced great earnings today, and the stock market shot upwards on the news.  What was the good news – I hear you ask????   JP Morgan announced a 50% drop in earnings, and Wells Fargo announced a 11% drop in earnings.  So why could big drops in earnings cause a rally in the stock market???  Irrational exuberance, I can hear Greenspan say!!!!!!

Oh, by the way, those earnings were really far worse than you have been told.  Do you remember when VISA went public with an IPO, and lots of people bid up the new VISA stock price??  Well, the owners of VISA got their payday.  JP Morgan and Wells Fargo were both owners of VISA.  They both got a big earnings dividend to announce to offset their losses.  What does this really mean???  Well, JP Morgan would have had a 70% decline in earnings and Well’s Fargo would have had a 36% decline in earnings if the VISA money had not come in.   As the VISA money is a one time event, you can predict fairly confidently that these giant institutions will have further earnings declines in the future.  I hope you now know why I said “irrational exuberance.”

Inflation

Let’s talk a little bit about inflation.  You noticed the big jump in the 10 Year Treasury Bond.  Inflation is firmly in the pipeline to meltdown the US economy.  Here is an antidotal story from my son.  His boss just had his air conditioning fixed in his house, and when the bill came in, it had a $5 fuel charge on it.  This is a great example of inflation at work.

How is inflation going to exhibit itself in the future?  Well, the FED will reduce interest rates again when they next meet by 0.25% or 0.50%.  This will push the dollar lower, and oil and gold higher.  This will produce more inflation as energy prices spike again and people really stop driving and start taking alternative transportation.  I hope you can get a glimpse of how a recession works throughout the economy.  Can you see a downward spiral here???  I do.

Part of this inflationary price spiral is actually helping some people a little.  Cars, clothes and hotel rooms are cheaper right now as people are not buying or traveling as much.  (This won’t last forever, and you might want to take advantage of it.)

California Housing – Your Dinner Conversation

In March the number of California foreclosures are now just as big as the number of homes sold in the Western Region.  If that doesn’t scare you enough, here’s another one.

The number of foreclosures in California is now 350% of the number of all homes purchased in California.  Let that sink in – it is a truly startling fact.  This is the 300# Gorilla that no one wants to acknowledge is sitting at your dining room table with you tonight
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The question for tonight’s dinner is “Where will this all stop?  And, How will it stop?”

Here are the numbers:
Dow Jones 30 Industrial - 12,619 (Up 257 points)
10 Year Treasury Bond - 3.70% (Up 0.13%)
Euro - $1.5948 – a NEW HIGH!!!!!!!!!!!!!
Gold - $948 (Up $16)
Oil - $114.93 (Up $1.14) - a NEW HIGH was set today at $115.00!!!!!!!!!!!!!!!!
Gasoline - $2.94 (Up $0.06) - Gasoline keeps moving up, up, up, up….!!!!!!!!!!!!!!!