The Economy Guy

Stocks fell 155 points today as traders took profits from the dramatic recent upsurge.

Bonds gained (fell in interest rates).  If you remember that the FED is purchasing US Treasuries to keep interest rates lower – and my observation is that they are failing.  They started with $300B in cash to make those purchases.  They’ve spent $100B already, and are supposed to keep buying through September.  Well, interest rates are higher now than when they started, and the 30 Year Treasury auction was a flop last week.  So, the FED plan is failing, and I predict interest rates will go much higher, much faster than the FED anticipated.

In the news today…..

Stress Tests – this subject is always worth a good laugh.  Did you hear that the banks pushed back on the amount they had to raise as capital, and negotiated the amount downward?  For example, Citigroup’s original capital call was about $35B, and this was negotiated down to $5B.  Given the laxity of the stress test and the bank’s desire to look as good as possible, it is only normal to have a negotiation of the amount – as this whole exercise is subjective at best, and political at worst.

Conclusion – the banks which are undercapitalized, especially Citibank, will have to come back to the government for more money in the future.  Everything right now is smoke and mirrors.

Budget Deficit – is rising to $1.8TRILLION.  This is an increase of $89B over the last estimate from the White House.  So, here is the lesson – you can’t believe whatever comes out of the White House regarding economics.  They are totally blinded by optimism, and not tempered by realism.  Oh, and the bad news is – YOU owe more money in the future.   Just when things were looking brighter, you are now brought down to earth with the real political reality – deficits for as far as you can see in the future.

White House Prediction – the 4th Quarter will have a 3.5% positive growth….  Given my last comments about the White House, you MUST ignore this prediction.  My history says that you really CAN’T believe any economic prediction coming out of the White House, and this has been true for the past 40 years.  It isn’t the party in charge; it’s the desire to “look good”, and that’s just politics as usual.

What does the Future Hold?????

Credit Card Debt hasn’t hit the banks hard yet, but it’s coming.  People who are unemployed just can’t pay off their debts.  Maybe they can make the minimum payment, and maybe not.  This is a big bubble sitting out there and the pressure is building up on this kettle as more people are unemployed.

Commercial Real Estate is a bust right now, and a lot of those loans will hit the banks soon.

Both of these problems must be absorbed into our economy before we can see that “light at the end of the tunnel.”  Right now it’s a train heading your way.

Here are the last numbers for today:
Dow Jones 30 Industrial – 8419 (down 156 points)
10 Year Treasury Bond – 3.18% (down 0.11%)
Euro – $1.3576
Gold – $914 (down $1)
Oil – $58.50 (down $0.13)
Gasoline $1.68 (down $0.03)