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Pimco’s Gross Says Fed Will Slash Rates to 4.25%

The market fell today on release of the December jobs report that showed the labor market added more jobs than expected.  The minutes from the Fed’s December meeting, released earlier this week, reiterated its hard-nosed stance on inflation. So, any data that suggests that the economy is overheating creates fear of a rate hike.  The problem is that the data is all over the map depending on which survey you choose to believe. 

Mr. Bonds, Bill Gross, believes that the Fed’s bark is bigger than its bite and its next move is a reduction in interest rates.  If I was a betting man and I am – I would bet on Mr. Gross.  The housing recession is worst than most are willing to admit.  A hike in interest rates will lead to the housing market going down for the count.

 

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The World’s Reserve Currency

I just did a search on my site for the word “inversely”.  Over that past 4 months I have used that word 5 times.  Here comes number six.  Gold moves inversely to the Dollar.

Source: Ron Paul’s Texas Straight Talk
1/1/2007

The financial press reported last week that the euro, the new currency created only five years ago and used by most European nations, has supplanted the U.S. dollar as the most widely used form of cash internationally. There are now more Euros in circulation worldwide than dollars.

This alone is not necessarily troubling, as the dollar remains the world’s most important reserve currency. About 65% of foreign central bank exchange reserves are still held in dollars, versus only about 25% in euros. And the European Central Bank faces the same inflationary pressures that our own Federal Reserve Bank Governors face, including a growing entitlement burden that threatens economic ruin as both societies age. European politicians want to spend money just as badly as American politicians, and undoubtedly will clamor to inflate– and thus devalue– the euro to fund their creaky social welfare systems.

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Mr. Government Will You Keep Your Cotton-Picking Hands Out of the Market: I am Trying to Make a Buck

This is the second time in the past 2 months that governments’ interference with the market has cost me money.  There are many other covert operations, but that’s for a different article.  The two times that I am discussing were in plain view for all to see.

The first occurrence was on November 1.  The Canadian government announced that it was removing preferential tax treatment for income trusts.  An income trust is a business entity, which receives very favorable tax treatment and pays the majority of its cash flow out to shareholders. Dividend yields of 10-14% are quite common.  Many oil and gas companies, in Canada, are formed as income trust.  Thus, over the last few years investors have enjoyed large capital gains along with their dividends.

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Can the Economy Survive the Housing Bust?

Here is a scary chart to consider.  It plots the National Association of Home Builders’ Housing Market index – a monthly measure of builder confidence – against the Standard & Poor’s 500 stock market index, with a one-year lag. There has been a very close correlation between current builder confidence and future stock returns over the past ten years.

housing-lag-2.jpg

If the correlation holds true, there could be a rough road ahead for the stock market.  Just don’t expect the bubble heads on CNBC to give you a heads up.  As the DOW continues to make all-time highs, they continue to ignore any potential dangers spilling over from the real estate market.  Their position is that the economy is resilient enough to withstand the real estate downturn, the auto slowdown and any other negative news.  However, I find it hard to ignore all of the economic activity generated by home sales like new mortgages, realtor fees, outlays to painters and handymen, as well as the trips to Home Depot and Best Buy.

More …

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Job Market Remains Solid

The Labor Department reported that November payrolls increased  higher than the expected 110,000 jobs to 132,000 jobs in November.  The unemployment rate edged up to 4.5% from from the 5 1/2 year low of 4.4% reached in October. 

If jobs are increasing – surely the economy must be stabilizing and just maybe our Homebuilder CEO friends are right – we have hit the bottom.  Don’t rush out and buy that Toll Brother’s mansion – quite yet.  Nouriel Roubini explains how the labor market is a lagging indicator. Continue reading “Job Market Remains Solid”