Tuesday, August 7, 2007

Fool's Gold

Like the iron pyrite miners mistook for the real thing in gold rush days, this week's market has all the metallic luster and brassy hue of Fool's Gold, and similarly, nothing of real value.

As was noted profusely and extravagantly in yesterday's post, this market has all the tell-tale signals of intense manipulation by people with an interest in keeping the status quo intact. What that means for Mr. and Mrs. Average Investor is a great deal of knock ups (and downs) without any endurance.

Tuesday's squeamish advance was a case in point.

Stocks hovered around the flat line, as they often do on Fedspeak days such as this, until 2:15, when Ben Bernanke and the FOMC board announced that they would again do nothing, neither raising nor lowering key rates, keeping the Federal Funds rate at its year-long level of 5.25%.

The reaction by Wall Street was tantalizingly dubious, as stocks first fell to their lows of the session, only to bounce back an astonishing 250 points between 2:30 and 3:30, before finally exhausting themselves for nothing more than a modest bounce to the plus side.

Dow 13,504.30 +35.52; NASDAQ 2,561.60 +14.27; S&P 500 1,476.71 +9.04; NYSE Composite 9,606.07 +52.30

Once again, we have to recognize the not-so-invisible hand of the Plunge Protection Team (PPT) involved in boosting prices in the later stages of the trading day. 250-point moves don't just appear out of thin air, especially after a disappointing proposition from the Fed.

It can be safely assumed that the Fed is in such a bind right now that standing pat may save face, but it's hardly prudent. Many people (mostly people ignorant of the real depth of the financial mess Wall Street is in) were rooting for a rate decrease, when it is just that kind of thinking and policy - looser credit - that got the financial world into the current dreariness in the first place.

Those more astute in these matter would rather see the Fed ratchet up both the rhetoric and the rate, inflict a bit of short term pain, but set off for a long term solution. Doing nothing only extends and exacerbates the condition. We're in for a cold end of the summer.

As they've been for most of the past to weeks, market internals were just short of miserable. Advancing issues actually outplayed decliners by a 4-3 margin, though new lows swamped new highs, 792-168. It's kind of like the Yankees playing their single-A farm club. It's a nice show, but eventually it's still a beating.

One also gets the feeling that the only people who understand what's really happening are bond and commodity traders. While I won't attempt to match wits with the fixed-return community, traders of oil futures showed signs that the jig may be up. Prices advanced slightly, up 36 cents, to $72.42 and moved in a mostly negative band as low as $71.20. We're on the verge of seeing oil dip below $70 as the summer turns to fall and drivers take less trips.

Gold and silver are now screaming buys as they've retraced only slightly from recent highs. While stocks are set for more poignant plunges, the metals offer safe haven. Tomorrow's almost certain to be witness to a sell-off, with bigger blows possible later this week. The last two days were nothing more than relief via fondling.

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