This is The Wall Street Digest Hotline Update for Friday, September 7, 2007, at 6:00 p.m. EST.
A weak job creation report pounded stock prices today. At the close, the Dow plunged 249 points, closing at 13,113, while the Nasdaq lost almost 49 points, closing at 2,565. Oil closed up $0.40 to $76.70 per barrel, and gold closed up $5.10 at $709.70 an ounce.
The economy lost 4,000 jobs in August, and that pushed the dollar index below 80 for the first time in 15 years. The previous month's job creation figures were adjusted downward from 126,000 jobs to only 69,000 jobs created. Weak job creation is the first warning flag of a possible recession.
Interest rates fell this morning after the weak Jobs Report. Speculation grows that the Fed might cut the 5.25 percent Fed Funds Rate by 50 basis points at the next FOMC meeting on September 18. However, the Fed knows that cutting interest rates will not accelerate economic growth nor boost home sales. The economy runs on the availability of money, not on the cost of money. The Fed has already started to accelerate the growth of the money supply to support the housing market with mortgage money. The M2 money supply has increased by $113 billion during the past two weeks. The Fed knows that a more liquid U.S. banking system is the ultimate solution. I expect to see further acceleration in the growth of the money supply--in addition to a 4 percent Fed Funds rate--by year-end.
This latest knee-jerk reaction is setting up another great buying opportunity before stock prices soar to new highs beginning this fall.
The dollar has already lost 35 percent of its 2002 purchasing power. More rate cuts are coming and they will further weaken the dollar. Global/international investments will enhance your investment returns as the dollar declines against other currencies.
Real estate is an illiquid, high-risk investment! Do not look for real estate bargains. Renting a home or condo is cheaper than owning. When that scenario reverses, it will then be safe to buy a home or condo. Real estate analysts do not expect the housing downturn to bottom until 2009 in Florida and California.
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The next Hotline Update will be on Tuesday, September 11, 2007, at 6:00 p.m. EST