The stock market was up today, supposedly because home sales were up 10% in October, but a third of the sales were first time buyers getting government subsidies. Since buyers and sellers were all expecting the program to end, it is likely just a temporary spike. The real reason the markets are up of course is the cheap Dollar policy. The Fed is basically giving money to the big banks at a loss and they have so much money that they are simply driving the market like a flock of sheep. (mutton anyone?)
Germany is warning the US about creating market bubbles, echoing China’s fears. Germany is despite paying union wages and benefits to everybody , Germany is the world’s largest exporter of manufactured goods with twice the volume of China. They don’t like the game of chicken that Obama is playing with China.
Since March, the Euro has jumped more than 18 per cent against the dollar. At the same time risky assets have sky rocketed, the S&P 500 is up more than 60 per cent and a barrel of oil up 125 per cent to around $76 and has been higher. Long term oil futures have been around a $100 per barrel. Gasoline has been trending down however, as the economy has been collapsing faster than refineries can shut down. The collapsing Dollar is driving gold to a new high everyday.
Things have gotten so spooky in the financial markets that interest rates for short-term US Treasury bills have turned negative - meaning that investors have been buying securities at a loss. This has been good news for the government with interest so low that they are currently spending only 200 billion per year on interest on the more than 12 trillion in debt. The bad news is they have only been able to do that by putting most of the debt on thirty day notes. A spike in interest rates could easily drive that to a trillion in interest and if nobody wants to buy the government’s debt, it or rather we could be on the hook for paying out trillions to redeem notes overnight. (baaa...)
Negative interest rates can foretell deflation or it can just be the banks stockpiling safe securities on their year-end balance sheets - a strategy meant to appeal to regulators and risk-averse investors. The problem is that everything so poorly balanced on top of an house built of worn out playing cards that was left behind by the Republicans that simple prudent behavior can trigger a panic.
The National Retail Federation forecasts a 1% drop in holiday sales, this has to be a first as this industry group is always irrationally exuberant. Expect the drop to be much worse as shoppers are much more prudent this year on top of all the people who have no job and no money. The prudent purchase of some canned goods would help boost retail sales. www.prairie2.com