The Labor Department issued a new jobless report that showed newly laid-off people seeking unemployment at 406,000 this represents a jump of 34,000 from its seasonally adjusted level and caused a major sell off across the board.  Tech stocks were hit the hardest, likely because the drop in employment is hurting customer’s wallets and sale of their products.

This comes just as a new housing report showed that existing home sales were down in June and the median home price has dropped 6% from last June.  Sales of previously owned homes fell 2.6%, something that worries the real estate market and homeowners across the country.

Huge quarterly losses coming out of Ford Motors likely helped the selling activity.  Ford posted a huge 2Q loss of  $8.67 Billion.  This totals out to $3.88 per share loss, even after the company was able to produce a surprise profit in the first quarter of $100 Million.  Ford is still in the same boat as every other automaker with slowing demand and a double whammy of excess “gas-guzzling” inventory.  The company is looking to restructure and focus on smaller, less energy consuming cars and trucks though the transition may cost billions of dollars, something it doesn’t have considering even the large amounts of credit it is able to obtain.

The largest losses from Ford came from their lease portfolio.  Large trucks and SUVs are likely to come back to the company as leases expire and borrowers switch to smaller, more compact cars to save money.  Ford will probably see a huge influx of SUVs and trucks which will command a lower price than even just a year ago.  Consumers are wary to buy anything with low MPG ratings and its certainly reflecting in the US market with Ford and GM both struggling to break even.

Its safe to say the oil bubble has burst.  Oil has managed to erase $19 since topping out at $147 per barrel.  Without the impact of geopolitical events, its now our position that oil has topped and will be descending back to the $110 level where support exists.

Though very few investors are willing to call a burst, many are drawing back on their always bullish viewpoints.  After shorters took control of the market in June, representing more barrels of oil than long positions, the oil market has turned from “how high can we go” to “where is the bottom.”

In everyone’s interest should be Iran and the upcoming Olympic games.  Though past years have been peaceful, there is still much to worry about demonstrations in China and the prospect for trouble in an event that has been plagued with politics.  Not to mention the borders heating up in the Middle East and Bush’s go-ahead to Israel to fire back on Iran in case of a strike.  Now that the Middle East is entangled in what the future may see as the second Cold War, there are plenty of tensions that could send oil back to $147 a barrel or even more.

The drop in oil prices also means that the overall market will be less likely to be slave to a barrel of oil.  The market has been controlled by oil but as oil drops its probable that the price will stop making headlines.  Oil at $120 a barrel sounds a lot better than $147 a barrel, even an upward movement here would have little effect on the market.

The factor in future oil prices will probably be the subprime disaster.  Fannie and Freddie’s solvency issues will be closely tied to oil prices going out for the next couple months.  If the pair come back as insolvent, oil prices will likely drop on fears of the economy.  If a bailout is in order, inflationary concerns will send oil higher on an even lower US dollar.

So for now I believe it safe to say that the oil market has bubbled and popped.  Future movement upward will be the result of geopolitical and economic news events.  Hold on tight, the next week could bring prices to the sub-$120 level.

Moral hazard is something that comes into spotlight every few decades when the importance of a central banks becomes a topic of discussion.  Moral hazard is by definition what happens when people act differently because they’re insulated from risk.  Now as the credit crunch wanes on and hundreds of banks are on the brink of collapse, moral hazard is being brought up once again.

In a normal market, people would make decisions based on what they would consider a risk to reward ratio.  When the government subsidizes or insures banks and other institutions from loss through bailouts and FDIC insurance, moral hazard is created.  The banks can take an unlimited amount of risk without any chance of loss.  If problems occur then the taxpayer pays for the bailout.

Moral hazard also creates circumstances where the profits from businesses are privatized but the losses are socialized.  The possibilities are that corporations prosper before the odds catch up to them and then the losses are spread out amongst thousands of taxpayers.  The trouble is, plenty of moral hazard is in play today but still well outside the banking industry.

The US government heavily subsidizes ethanol at a rate of $1.45 per gallon.  Without this government subsidy, it is unlikely that as much ethanol would be produced.   The moral hazard of ethanol production works just the same as moral hazard in the banking industry.  Government intervention required to force moral hazard affects any market: this time around we’re afraid that Fed bailouts create moral hazard in the banking industry.

The importance of bailouts is something that has been sold to the American public as something that is a part of the natural business cycle.  The most natural though would be to let these corporations heavily insolvent to fail on their own.  The banks have to be forced to hold down their own risks and accept responsibility for the losses.

Foreclosures grew by 50% from last June.  Simply, for every two foreclosures then, add another one now.  That’s a worrisome statistic in this economic environment.  One in every 501 (.2%) of households received a foreclosure notice last month.

Just by taking a very quick glimpse at foreclosure and real estate data its impossible to understand how analysts are predicting a “second half rebound” or 2009 to be the savior of real estate.  These numbers represent homes either in foreclosure or those that will soon be in foreclosure.  After foreclosure comes a sale, usually at a very discounted price which will flood the supply of homes and drop property values universally.

As the supply of homes rise you also have the problem with dropping home prices, less HELOC availability and the worry that a huge supply of homes will ruin the overall real estate market.  Since the real estate boom started to the time it ended, home ownership was only up by 2% of the population.  So many of these homes are not first homes but second homes or third homes, all investments.  The shift was not into property but in and out of property.

A projected 2.5 Million homes will be in foreclosure this year alone.  That figure, though it seems high, represents one home per every 125 people.  What is staggering though is the year over year increase of 40% or 1 million homes.  At that rate its inevitable that trouble will eventually show its face.  Stay tuned, there will be more here.

The financial markets are caught between a rock and a hard place.  The sell off continues while there is no new reason for a buying spree.  The market needs a catalyst and quick, without much news the market will continue to stagnate with higher commodities prices and growing unemployed numbers.

The news that normally drives the market, for whatever reason, cannot be found.  Corporate earnings numbers are still weak, inflation is growing and the real estate market still contracting.  This market needs something to give it some boost.

In this case, if the Federal Reserve were to raise interest rates we might actually see a market rally.  Generally when the Fed raises rates the market tumbles but I think many traders would find it beneficial if the Fed were to raise rates to fight inflation.  This is what economists are calling for but the real estate issue is something that will never be cured with higher rates.  The Fed has to cut off the real estate market from handouts if we’re to ever see an overall market recover.
Invest in your own debt
It appears that the best investment right now is in your own debt.  You’re not going to pull but a couple percentage points from a money market or bank account so the best use for saved money is in your own debt.  Obviously credit card debt should be first on the list and is generally something that should never be accepted.  At rates as high as 29% per year on the subprime cards, its simply bad mathematics to be holding any amounts of credit card debt.

Next should be the auto loans.  This debt is important not just because of the higher interest rates than home loans, but because of the growing used car market.  If you own an SUV today, you’re looking at trade in values significantly less than what you would expect.  No one wants to buy a gas guzzler with $4 gas, the best bet is to eliminate your debt on the vehicle especially if you’re looking at an upside down loan.  The equity in your car should always exceed that of the rest of your loan.  If worst comes to worst, at least you’ll be able to dump the car and have some money to show for it after paying off any outstanding debt.

Rather than risk your money in a market that isn’t moving, the best option is personal finance.  Save some cash in an emergency fund or contribute to college plans.  Saving money at 2% interest just doesn’t make sense, let it work for you or work to eliminate debt.