Oil and Natural Gas up at Year's End

Oil and Natural Gas up at Year's End

Both oil and natural gas have posted big gains this year despite the recession. After closing down 54% in 2008, oil made a comeback, ending 2009 with a gain of more than 75%. Natural gas prices fell 25% in 2008 and rose 4% by the end of 2009 as reported by Marketwatch.com this week.

Despite dramatic turnarounds in both the oil and natural gas markets, analysts say the future is uncertain. Both markets could fall back as countries begin cutting off stimulus funds and interest rates rise to combat inflationary pressures. Also, when the dollar fell earlier this year, commodities and oil rose substantially. Economists say the reverse could occur as the dollar increases in value relative to other currencies.

Even with the recession, prices on crude oil remained between $70 and $80 per barrel for the later part of 2009. Economists say to look for oil above $100 a barrel again in the New Year with increases in population and demand worldwide.

The long-term prospects for crude oil and natural gas are promising as consumers continue to need fuel and energy. The Federal Reserve has indicated that it plans to keep rates low in the foreseeable future, but it will respond as needed to rising prices as the economy recovers.

Oil ended the week at $79.61; Natural gas ended the week at $5.58.

GMAC to Get a New Year's Bailout

GMAC Financial Services is about to receive roughly $3.5 billion in financial aid from the U.S. government, according to a report in the Wall Street Journal this week. The financial service company has already received $12.5 billion in bailout money over the past year.

Analysts say that GMAC's request for more taxpayer aid comes as no surprise. The company has faced staggering losses and is struggling to be profitable. Unlike other financial service companies, GMAC does not have shareholders from whom it can generate cash through stock sales.

GMAC is the financing arm for General Motors and Chrysler, who have already received billions of dollars in bailout money. Economists say that the federal government will lend a hand to GMAC because the beleaguered U.S. auto industry is so dependent on GMAC that it would be at a competitive disadvantage without financing.

The Wall Street Journal said that the announcement extending government funding to GMAC will be made in a matter of days. In return for the funds, GMAC is expected to take steps to absorb bad mortgage debt. The goal is to return GMAC to profitability by the first quarter of 2010. GMAC declined to comment on potential government assistance.

GMAC ended the week at $19.09.

Gold Falls on Rising Dollar

Gold futures fell this week as the dollar rose to a two-month high against the Japanese Yen. Market analysts say that the security of gold is less appealing as the dollar strengthens relative to other global currencies.

Reports this week that Japan Airlines Corporation is near bankruptcy and concerns about Japanese credit pressuring the Yen brought the dollar higher. Economists say that the supply of gold is not changing. The dollar is just getting stronger.

Gold was also impacted by the Chicago business activity index which rose from 56.1% in October to 60.0% in November. According to market analysts, any reading over 50% suggests that more businesses believe that the economy is getting better rather than worse.

Gold also fell following a positive consumer confidence report this week. Consumer confidence rose from 50.6 in November to 52.9 in December on the Conference Board's Consumer Confidence Index. Economists say that with indicators showing the economy is in recovery, investment in gold and other precious metals is less appealing.

The Dow started the week at 10,520 and ended at 10,428. The S&P 500 started the week at 1,126 and ended at 1,115. The NASDAQ started the week at 2,286 and finished at 2,269.

Treasuries to End Worst Year in Three Decades

Treasuries to End Worst Year in Three Decades

Treasuries were set to end the worst year in three decades this week. Treasuries have fallen 3.6% this year according to a Bank of America Merrill Lynch Survey, marking the worst performance for Treasuries since 1978.

The U.S. government has increased Treasury sales to boost the economy as it eases its way out of recession. It auctioned off $118 billion in notes this week, including a record $32 billion in seven-year notes.

Analysts say the U.S. government is also borrowing more money to pay for the mounting federal debt. The U.S. debt increased to $7.17 trillion in November. The federal debt was $5.80 trillion at the end of 2008.

With improvements in employment, consumer confidence and business expansion, economists believe the U.S. economy is in recovery. As the stock market rises, investors are turning away from the security of Treasuries to stocks and other higher yielding investments.

The 10-year Treasury note yield began at 3.80% and ended at 3.83%. The 30-year Treasury note yield began at 4.67% and finished at 4.63%.

Slightly Higher Rates Remain Affordable

Slightly Higher Rates Remain Affordable

Freddie Mac reported mortgage rates slightly higher this week. However, rates are still low enough that they remain affordable for homebuyers and those desiring to refinance existing mortgages. The 30-year fixed-rate mortgage (FRM) averaged 5.14%, up from last week when it averaged 5.05%. Last year at this time, the 30-year FRM averaged 5.10%.

The 15-year FRM this week averaged 4.54%, up from last week when it averaged 4.45%. One year ago at this time, the 15-year FRM averaged 4.83%. The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.44% this week, up from last week when it averaged 4.40%.

"Although long-term mortgage rates rose for the fourth week in a row, they still remain affordable by historical standards," said Frank Nothaft, Freddie Mac Vice President and Chief Economist. "Based on today's median loan amount of $138,000, monthly principal and interest payments for a 30-year fixed-rate mortgage are close to one-third less than a decade ago when rates peaked at 8.6 percent in May 2000. This translates into almost 50% less in interest payments over the full 30-year term."

The housing market appears to be improving, albeit slowly in most places. According to the S&P/Case-Shiller 20-city composite index, house prices rose for the fifth consecutive month in October to the highest level since the beginning of 2009. Eleven of the cities surveyed reported positive growth.

The money market fund finished this week at 0.92%. The 1-year CD finished at 1.43.

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