Aug 6 economy today

Freddie Mac, the U.S. mortgage-finance company hobbled by record foreclosures, slashed its dividend at least 80 percent after posting a quarterly loss that was three times wider than analysts' estimates. Freddie dropped as much as 17 percent in New York trading and the larger Fannie Mae declined 14 percent on mounting concern that the government-chartered companies will sacrifice shareholders to bolster capital and avoid a bailout by the Treasury. Freddie doubled its reserves for future home-loan losses to $2.8 billion. Freddie has 22,000 properties in foreclosure, the most since the company was created in 1970 during the Vietnam War, and now anticipates losing 26 percent on each loan, up from 22 percent. McLean, Virginia-based Freddie has plunged 76 percent this year on concern the company may not have enough capital to overcome delinquencies on the $2.2 trillion of mortgages it owns and guarantees.

Crude oil futures have tumbled more than 20 percent since touching a record $147.27 a barrel in New York on July 11, a threshold often seen as the start of a bear market. Oil fell as low as $117.50 a barrel, amid signs of a global economic slowdown likely to curtail already weakening demand. The dollar today touched its highest in more than seven weeks against the euro, lessening the appeal of commodities as an inflation hedge. The decline follows a one-year doubling of prices as the dollar weakened, demand in Asia grew and Iran's nuclear program spurred concern that the country, the Middle-East's second- biggest oil producer, might face a military attack from Israel.

Oil, FOMC and Fannie

The Commerce Department reported this morning that Personal Income and Personal Spending both increased more than anticipated in June, providing evidence that inflation may have prevented those stimulus checks from the having the impact that was hoped.

Bonds and mortgage were off significantly in early trading on the news, but have recovered nicely. Currently, the Fannie Mae 6.00% coupon is off by 16 basis points, but it was down by 35bp earlier. The yield on the 10 Year Treasury Note is 3.94%. Stocks are trading lower by 85 points.

The Fed's FOMC (Federal Open Market Committee) is meeting today and tomorrow to discuss interest rate policy. No rate changes are expected at this meeting, but based on recent comments from a few FOMC Members, there appears to be disagreement amongst the committee. As with the past two meetings, the language in their Policy Statement will be reviewed carefully by analysts to interpret the likelihood of rate increases before the end of the year.

Oil prices have come down more than $20 per barrel in the past few weeks to $125. While that's been helpful to gasoline prices, some perspective might be in order. According to the Department of Energy, as recently as February 2002 the price of oil was just $20 per barrel.

July 9 S&P 500 daily

A little change in direction. As long as oil retraces we will see our market go up.

Oil pullback and then off we go.

The question, what does it look like for the price of oil?
Lets see, war with Iran, hurricane season on way, Refinery utilization down, global demand sky rocketing, cantrell oil field production down causing mexicos overall exports to drop 12.5% this month, I am bullish oil.

But I am bullish after we see a bit of a pull back. We didn't push through the 150 price by the fourth of July so it looks like we will see a bit of a pullback and then take off. World is still in consumer price shock to these surging prices and demand will fall off a bit as discretionary traveling will go down. Remember this is summer and the biggest time for families to take vacations. Give them a few weeks bottled up in their homes with the kids and the toys will be broken out and we will see families hitting the road for shorter trips in the RVs with boats and ATVs.