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Hi Readers,
So what is going on in the world of economics, politics and your money?
The market had a nice run in the first quarter of 2011 with the DJI rising from 11577 to 12810 on April 30. This represented a gain of 10.65%. Then the news started to turn sour.
So what is ahead? Don’t know but my cloudy crystal ball and Lipton tea leaves tell me that the transportation indexes are down which says that big money is pulling back from transportation stocks expecting that they will not have as much upside as they have enjoyed over the past year. Transportation is, to my mind, the key barometer of what the economy is doing. Whether goods are manufactured here of imported from anywhere, the transportation industry is involved. They are the first signs of spring. They are also the canary in the mine. When they fall, lookout below. Right now they are not falling but they are not blooming either.
First time jobless claims that had been slowly coming down (whether due to real job growth or folks just dropping out of the labor market by retiring). In the last six weeks we have seen the number of first time unemployment claims rising, back up to levels about 25% above where they were before the recession. That is not a good sign. A speed bump? Maybe, but it needs to end real soon. If it continues for two, three or more weeks then it is likely structural and we are in for a double dip.
Housing prices continue to be a thorn in everyone’s side. As prices fall, business people who have relied on home equity loans to finance their businesses, are finding it harder to do so. This could force more businesses to collapse and more homeowners to default, driving home values still lower. On that fear, pending home sales dropped big time last month while actual sales closing trailed 2010 by 14.4%
Auto sales dropped to their lowest levels since September 2010 after improving steadily for 6 months. Part of that could be the Japanese Tsunami effects. Whether that will persist or is just a ‘speed bump’ only time will tell.
On the plus side, job postings on the Monster job site are up 6.7% year over year. Whether that represents new jobs or employers seeking to upgrade employees buy attracting a better quality employee only to fire the current staff once the new staff members are on board is yet to be seen. The juxtaposition of the expanding job postings and rising first time unemployment claims suggests it might be the latter.
Personal Income and Personal expenditures average a flat relationship. We are not saving anything that we earn greater than the previous month. Part of that is likely rising fuel costs. Consumer credit jumped up in April. Credit card balances expanded, perhaps again due to fuel prices.
For those who believe lower taxes will help and those who believe that higher government spending is needed I have bad news. We are at the beginning of an election cycle and I suspect that neither party will want to do much of anything except spin the data. So it will be another year of doldrums. After the election, regardless of who wins, we will see action because we have no choice. We will see tax changes, spending changes both of which will affect Medicare and Social Security. It may affect Obama care as well in one form or fashion. The government will not be able to afford added costs without offsetting taxes. My opinion, it isn’t going to be pretty. By 2013, the hole will be much deeper, the job more difficult and the legacy much longer than it is now. And, like the Greeks, we aren’t going to like it.
