The stock market closed up 99.50 points on the day as General Motors and the United Auto Workers reached a tentative deal to end a two-day strike.
The market also rallied on news that Bear Stearns may sell a minority stake to investors including Warren Buffett. In addition, Chevron announced a $15 billion share buyback.
Reality came the day before as Lowe’s (LOW) guided 2007 earnings lower and Target Corp. (TGT) cut its Sept. sales forecast. In addition, durable goods orders came in lower than expected.
Here's the real scoop.
While GM and the United Auto Workers ended their strike, over 3 million manufacturing jobs have been lost in the US since 2000. This slow economic death continues to unfold before our very eyes, while most soccer moms and 12 hour working fathers remain oblivious to the facts.
Massaged economic reports continue to proclaim that the unemployment rate remains steady, but they fail to mention that Americans who are unable to find jobs are labeled disgruntled workers, and are dropped from the labor numbers.
One of my clients who lives in Virginia told me the state is paying her not to lease her land to tobacco farmers for a period of 10 years. She said the state is outsourcing tobacco farming to China.
Since politicians and corporate executives are determined to outsource many of our American jobs to the Chinese (and others), making them the economic power of the world, why don't they just go ahead and replace our flag with theirs, and just get it over with.
On Lou Dobbs Tonight, a guest said that only one US Company now makes apple juice from US apples. Even the apple juice business is being outsourced to countries like Turkey, Greece, Germany, Communist China, and other countries.
As long as consumers continue to buy products from foreign countries, US jobs will be lost, our standard of living will decline, and your chance for the American dream will disappear.
As we speak, the Fed recent move caused the US dollar to plunge, putting it even with the Canadian dollar for the first time in 30 years. Oddly, as the .50 basis point cut was enacted, the 10-year Treasury bond claimed from 4.5% to 4.69% a few days latter.
Why? INFLATION!
I am old enough to remember the 1970's. As Yogi Berra would say, "this is deja-vu all over again".
To predict what is going to happen in the future, you have to remember what has happened in the past. If I hear another person say, "But it’s different this time" I am going to throw up. It’s never different this time.
For those of you who have followed my predictions in the past, you know that its takes 12-24 months for some of my calls to bear fruit.
I.E-
2004- Enery prices and short term interest rates were definately going up.
SBC Communications (now AT&T) was like a 5% bond with 40% upside- 2004 stock picks, page 20-21.
2005- The Housing Bubble
2007- "New"-The Upcoming Recession
When I was a young college coach I told one of my colleagues, "Boy, I can't wait until next year when we get some of the new players in, and get rid of the one's with a bad attitude". He said, "Nothing changes but the names and the faces". I think the same goes for historic market cycles, and economic mistakes.
The pendulum continues to swing. Regardless of what we want to believe, back and forth the pendulum goes.
The housing market woes are nothing new. We saw the same problems in the 1980's as we do today. Loose lending standards, greed, and eventual bankruptcy are nothing new.
Consumers who bought homes with no money down thought that real estate was the safest investment in the world, and 20% annual returns were the norm. Consumers in the 1980's thought the same thing.
As was the case in the 1970's and 1980's, the price of gold, energy and commodities are flying high, while the US Dollar is heading toward wooden nickel status.
How will this all end???
Well, interest rates have got to go up. Don't focus on the CPI; it is no longer a valid indicator of inflation. Instead, watch gold, energy and commodities.
In the 1970's, prices of goods and services shot up because the federal government made the supply of money grow out of control to maintain full employment. The same thing happened in 2000-2003.
After hedge funds, private equity, and numerous lenders are bailed out, watch for a period of higher interest rates to fight inflation. This higher interest rate environment will bring about a recession. The seriousness of the upcoming recession will depend on how high rates go, and how much gold, energy and commodities come down.
Given the number of lower paying jobs that remain, and the number of people who are unemployed because of outsourcing, the great recession of -2008??, 2009?? -will be one for the history books.
