Wow, What A Day
WOW!!!!! What a great day in the markets. Stocks got killed with the Dow down 358 points. Stocks got the real message about this economy and the market in general. Stocks are in a BEAR market, and today was a great example.
Bonds reduced in interest rates and pulled back to almost 4% on the 10 Year Treasury.
The Dollar got killed by both the Yen and the Euro.
Gold took off based on the Dollar fall, and went up $33/ounce.
Oil hit a NEW HIGH of $140.39, and gasoline followed in oil’s wake. The OPEC president predicted a $150 oil and Libya announced they were cutting production.
In the news today….
The REAL NEWS today was the markets themselves. They MOVED in a big way – all of them. Stocks are feeling the recession as reflected in declining profits for companies (remember the S&P 500 company profits are off 10%), and is worried about future inflation further eroding those profits. The technical condition of the market is BEAR, and only BEAR. Today was a technical “break-out” on the down side, as DOW support was at 11,850 and that melted away.
Bonds reflect the “safe haven” for money. As people sold their stocks, they need somewhere to put their money, and they generally choose bonds as a relatively safe place to do that. So, as the stock market declined, the bond market increased in value (decreased in interest rates). Hurrah for bonds.
Oil jumped up today, and this had to be “speculators only” price movement. The Dollar is the same level it’s been all of 2008, and supply/demand appears to be still balanced. That leaves only speculation to move the oil market.
What’s interesting is that the Dollar fell as OIL moved up. The dependency between oil and the Dollar has reversed. It is oil that is wagging the Dollar tail – not the other way around. (You might have just heard that here first.)
Gold, on the other hand, got real excited that the Dollar was weakening, and it shot upwards. So, for at least today, you can see the relationship that the Dollar dog is wagging the Gold tail.
Other news…..
Existing home sales were UP 2% to 4.99 million homes last month. The supply of existing homes fell to 10.8 months worth, compared to 11.2 a month ago. Don’t get too excited. This is not a sign of the bottom of the housing market. It has a long way to go before there is any “buy” signal.
The 30 Year fixed interest rate Mortgage is 6.45%, and the 15 Year Fixed is 6.04%. Here is an story that might help some of you who have ARM mortgages that you want to get out from under, and are having trouble doing so. My wife, Christine, has an Option ARM on a rental unit and has just completed negotiating with the lender to modify the existing mortgage to a 6.5% 30 Year Fixed with all other terms remaining the same. I am very proud of her as the future for mortgage rates is UP. Inflation will insure that interest rates go up over time. Maybe this is something you could do too – just call your mortgage company and ask.
Here are today’s numbers:
Dow Jones 30 Industrial - 11,453 (down 358 points)
10 Year Treasury Bond - 4.03% (down 0.08%)
Euro - $1.5757
Gold - $915 (up $33)
Oil - $139.64 (up $5.09) - a NEW HIGH OF $140.39.
Gasoline - $3.51 (up $0.12)
Is the sentiment completely changed? Will the stock market continue down for multiple months? I’d like to hear your thoughts on the next 12 months or so.
My thought is that the market has a long ways to fall. Many company’s earnings will fall during the current recession.
One prediction I have is that GM stock is worth negative dollars. It is a health care/pension fund with a capital intensive manufacturing business attached. I think I read an estimate is that GM will lose something like 20 - 30 billion dollars over the next 12 months. It makes sense since few people will be buying high profit margin large vehicles (read low mpg).