The Economy Guy

The stock market started out higher today, and was up 125 points during the day, but ended down 65 points.  Today’s market didn’t appear to be news driven – just pessimistic about the economic future of the US.

Bonds moved sideways most of the day. For bonds to make a major decrease in interest rates, the stock market must drop precipitously in the near future.  The reason to watch for a drop in the stock market – is that with bond interest rates down – mortgage rates should follow down in a short period of time.

Oil is moving down slowly but surely each day as the market traders start to believe in a recession both in the US and globally.  Europe appears to be heading into a recession too.  Tomorrow’s ECB (European Central Bank) meeting should be very interesting to see what the bankers of Europe are thinking about future economic activity.  I believe they will not drop the Euro’s interest rate now (but will drop it later), but will talk about the slowing economy.  I heard the top oil commodity trader predict that oil prices will be the same in 2008 as they were in 2007 (averaging about $75/barrel.)  That means prices should continue downward, and our economic slowdown gives a great reason for this to happen.

The Euro has been moving sideways for many weeks now.  It is having a hard time strengthening against the dollar because of the weakening European economy.  Tomorrow’s ECB meeting could easily have an impact of the Euro.  The Yen on the other hand is moving strongly forward.

In the news today….

Worker Productivity slowed in the 4th Quarter 2007.  Productivity increased 1.8% as compared to 6.0% in the 3rd Quarter.  Increased productivity allows companies to pay workers more without raising their prices.  Without productivity increases, first employees will get squeezed, and later companies will raise prices – thereby feeding inflation.   Watch this spot.  Worker productivity was one of the key indices that Alan Greenspan watched when he was Fed Chief.  He explained away the slow inflation in the US as being a result of productivity improvements.  With the current productivity improvement (1.8%) being below the current inflation rate (2.7%), companies are started to get squeezed right now.

China’s biggest bank declared that it is exposed to $1.2B of securities backed by sub-prime mortgage loans.  This shows how smart the Chinese truly are.  As compared to the rest of the world, they did NOT buy a lot of these lousy securities.

Here are today’s Numbers:
Dow Jones 30 Industrial - 12,200 (Down 65 points)
10 Year Treasury Bond - 3.61% (Up 0.03%)
Euro - $1.4622
Gold - $905 (Up $15)
Oil - $87.14 (Down $1.27)
Gasoline - $2.24 (Down $0.02)