It's gone deep. It's gotten worse.

"It's gone deep. It's gotten worse." President Obama said of the recession in Fort Myers, Fla. couple of days ago.
After Senate passes $838B economic stimulus bill, with the actions that could throw as much as $3 trillion more government and private funds into the fight against frozen credit markets and rising joblessness, the major indices were pushed lower on Tuesday on increased concerns about this nation's financial industry that the government's proposed stimulus package will not lend adequate relief to the health of the banking industry. In addition, the report from the Commerce Department showed that this nation's wholesale inventories were reduced by the largest amount in almost 17 years during December.
With the economy affecting on every aspect of this country's businesses, companies already cut their reserves by 2%, twice the amount that economists had expected. Furthermore, sales at the wholesale level plunged 3.6% during the month as well, more than any analysts had projected.
The Dow Jones was down more than 4.7% at 7,888.88,the S&P 500 was down almost 4.8% at 827.15 and NASDAQ down 4.2% at 1,524.73.

Gold has started its up trend again

Last week, Gold was up around $30 to close at $928.40 (continuous contract) for a big weekly gain (+3.42%). And interestingly, dollar was up too which has changed long time inverse relationship between these two—they usually move in the opposite direction. Although this interesting Phenomenon has been continued starting from this year, it won't last long as gold probably will restart its rally while dollar will lose its position sooner or later, especially after the tremendous bailout bill and stimulus package hit the market hard.

For the past two days, gold has retreated a little bit. I think because it has been close to its July 2008 high, so it needs time to overcome the resistance, once the resistance turns to be support, Gold will be very likely to go to $1200 than go down to $700 level again by the end of this year.

Another Bad Month for SP500

During the past month of January, the SP500 has droped over 8% and became the worst January in the history of the index. Based on the very poor economic reports and huge numbers of job losses, nothing is unexpected. GDP numbers looked better than expected, but when you look at the details, you must find that we will see worse situation than we can see the better. Housing data is bad and indicates that we will have a long way to go before we see any good sign. With three more banks going belly-up on Friday, the banking sector in stock market will see floods of sells… With the payroll losses of around 500,000 and an increase of unemployment rate to 7.5%, no one can forecast that the mood of consumers will turn around, especially with estimates of the possible unemployment rate over 9% later this year. This disappointed January already tells us that the financial crisis is far from the end, we may have to prepare the very bad situation ahead, hope not another DEPRESSION.

Inflation is very likely

President Obama’s 816B stimulus bill was passed by House on this Thursday, although no republicans supported this and there is possibility that this plan would be failed in Senate next week. With the strategy of bail out everyone, US has printed 10 trillion paper money within a year. Facing the deepening recession, President has asked Americans to prepare "trillion dollar deficits for years to come.” What does this mean? That means the inflation, hope not hyper inflation, is unavoidable.

Let’s look at the meaning of Inflation:

According to Webster's New Universal Unabridged Dictionary published in 1983 the second definition of "inflation" after "the act of inflating or the condition of being inflated" is:
"An increase in the amount of currency in circulation, resulting in a relatively sharp and sudden fall in its value and rise in prices: it may be caused by an increase in the volume of paper money issued or of gold mined, or a relative increase in expenditures as when the supply of goods fails to meet the demand.

This definition includes some of the basic economics of inflation and would seem to indicate that inflation is not defined as the increase in prices but as the increase in the supply of money that causes the increase in prices i.e. inflation is a cause rather than an effect.

It is time for everyone to spend less and save more. Government should do it first. Unfortunately, no politicians dare to ask Americans to face the reality, what they encourage is spending, like the President has mentioned during his inaugurate address including lower taxes, expanded corporate bailouts, and direct stimulus checks to consumers.