If not, tomorrow is always Friday night! Get your requests in for the fun stuff. Reader Moneta has first dibs on a pick after a great comment last post.
All That's Wrong in One Story
I will do a run down of a few particulars in a bit. Right before starting my post I saw a story over at Yahoo Fiance that sums up the problem with the psychology of the US at all levels and why we seem to be unable to break free of the same stupid behavior over and over again.
The article is titled:
Fading of inflation helps buyers and borrowers
Fading of inflation keeps rates low and makes it cheaper to buy a car or refinance a mortgage
I know, it just jumps out at you. Some sections with my commentary:
WASHINGTON (AP) -- It's a good time to buy a car or refinance a mortgage, thanks to super-low inflation and interest rates.Yes, you read that right. Of course rates have been this low for 2-3 years but it's a fresh headline. Moving on:
Invest in a savings account? Forget it.
Consumer inflation has all but disappeared, the government reported Wednesday. The Federal Reserve may now be emboldened to keep interest rates at record lows well into next year -- and possibly into 2012.Possibly? Good one. Next:
So what do persistent low inflation and record-low rates mean for consumers?Low inflation, it is deflation. So what does this article suggest for fighting deflation? Here it comes:
-- The time is right to buy a car. New-car prices were flat in April. And they've fallen 1 percent over the past 12 months. Big banks are offering super-low rates in the 3 percent to 4 percent range, says Greg McBride, senior financial analyst at Bankrate.com. Normally, such rates are available only to companies, not individuals, McBride says.The country is in too much debt already and has spent everything they could lay their hands on, and now is the time to keep going? If indeed deflation is here to stay, depreciating assets like a car or a throw away of cash on a vacation is about as dumb a things as you can do.
-- For homeowners who qualify, it's a good time to refinance. The average rate on a 30-year fixed rate mortgage dipped this week to the lowest rate of the year -- 4.84 percent, down from 4.93 percent a week earlier. Homeowners who took out adjustable-rate loans at 4.5 percent in 2005 are now seeing their rates fall to 3 percent to 3.25 percent, McBride says. As a result, they have extra cash to spend.
-- People planning to drive to a vacation getaway won't pay as much. Gasoline prices fell sharply in April -- 2.4 percent. Analysts expect further declines this summer because crude oil prices have fallen nearly 20 percent since April.
-- Shoppers who want to update their summer wardrobes, and those hankering for cakes and cookies, are in luck. Prices for clothing and baked goods dropped in April and are down sharply over the past year. Soaring prices for cotton and other fibers make it likely that clothing prices will rise in the next year.
This article stands on its own as the poster child for the US consumer debt problems.
Market Meltdown May 20, 2010
Today was filled with plenty of action and even more voices screaming over the top of each other in confusion and frustration.
I wonder why all through about a year and an 80% run up in the markets all was as quiet as outer space (hint: no air to conduct sound) but a couple of down days commands 24/7 coverage and shrill voices. Well I do not really wonder, and by now I hope you are not either.
The indices were all down almost 4% after a rough day yesterday as well. Still this brings stocks all the way back to......February levels so why all the panic escapes me.
As of late (like in the last 10 minutes; see comments section here) I have been called a conspiracy theorist and a Zero Hedge disciple. I do love Zero Hedge! I do like conspiracy but quite a few have proven true enough (wait till Area 51 gets exposed!!!) so I guess I am guilty.
I am going to keep this short as I am now aggravated.
The bulk of the US market rally, and it was just a stock market phenomena, was based on low volume moves up rumored to involve some trading programs (this cannot be confirmed) and thus did not have a backfill of resistance to stop a move down. At the start the ignition of the rally was sparked by the US FED/Treasury stepping in and backstopping every financial vehicle out there. Money markets, overnight bank lending, MBS collection from banks, you name it. It was a green light to carry on as usual.
There was a Trillion dollar Euro backstop/bailout plan proposed, and it was rejected by the markets as too small and/or not all encompassing enough. That plan is voted on in Germany (the main boat rocker) tomorrow. Is it out of the realm of possibility that market weakness was related to such a fear of a "No" vote?
This evening the panic has taken form of calls for the Eurozone to pull a US move and guarantee anything and everything financial. Mr. market has called the Eurozone bluff and no nothing less than a full effort will suffice. Again, it sounds crazy.
Of course this is all a game. Germany will vote "Yes" to the program and this weekend will bring some other intervention (because we all know intervention is not a daily occurrence, not at all) that should meet expectations.
I forgot US financial reform bill vote, thanks Calculated Risk!
If you are a bull, you should still be up so sit tight.
If you are a bear, you are probably still down, but at least it was a nice two day run.
I would not be short (I never short by the way) going into the weekend, and even 10am tomorrow may be too long. Something WILL be announced and it should be large and in charge. Monday could erase half or all of the last two day losses.
The problem now is this serious hiccup may impact the whole "rate of change, second derivative" data massaging because panic tends to make most nervous. The unemployment number today was bad by any account and should initial claims climb back to 500k, no spin on job creation will work I don't care how many census workers they hire.
Things economic can be strange; movement at a glacial pace and then a quick snap. Perhaps a better analogy is Plate Tectonics.
Gold Fund Divergence
I have not made up my mind as yet on the (hat tip Tim Iacono) huge divergence between the gold fund PHYS and other gold ETF's. PHYS is backed (at least it should be) 100% by physical gold stored off site in Canada. This gold is off limits to the major bullion markets and I think (I will have to make sure) it cannot be leased out. This bears watching, though I still think there will be (is?) a electronic and paper gold market and a physical one. Again with the conspiracy!
Have a good night.