Tuesday, August 21, 2007

Who turned out the lights?

If you thought yesterday was a slow trading day, you may have wanted to hang around for today's snoozy session.

Except for a flurry of trading in the final minutes, it was one of the dullest sessions of the year, so make that two days in a row that investors have pretty much sat on the sidelines.

Dow 13,090.86 -30.49; NASDAQ 2,521.30 +12.71; S&P 500 1,447.12 +1.57; NYSE Composite 9,332.54 +6.33

There was no need for Fed injections of liquidity or PPT behind-the-scenes maneuvers. There was little urgency to even show up on the trading floor. Nothing much at all was happening. It was really, really, really quiet. Almost spooky.

The Dow was down, but all the other indices closed lower. This is what happens when governments interfere in free markets. Inertia. Nobody trusts anything any more. It's neither a buyer's nor a seller's market. This is a dead market and that's not a very appealing state of affairs.

Without trading activity, people will soon begin another round of selling. While the market hates uncertainty (and there's still plenty of that going around), it absolutely despises complacency. If nobody's interested in buying, then stocks, like just about any other traded commodity, get marked down, just like a sale on shoes that have gone out of style.

Advancing issues superseded decliners by a 4-3 margin. New lows outdid new highs for the umpteenth consecutive session, 190-66.

There was just a little more interest in the oil market, where September futures expired with a whimper rather than a bang, down $1.65 to $69.45. Oil under $70 a barrel? I thought supplies were tight? What's next? $2.00 gas?

Even commodities markets were cool. Gold was down 30 cents to $666.30. Silver is rapidly approaching the bargain basement. On the day it lost 23 cents to $11.67 an ounce.

The truth of the matter in all of this is that there really is a liquidity crisis. We're not out of it. In fact, we're just getting started. A lot of hedge funds are out of the market, forced to liquidate to cover their market calls. Big money is sitting still, preferring bonds for the moment. Wall Street is now seen as having huge cracks in the pavement, big enough for large things to fall through, like people, businesses, banks and buildings.

Big Ben Bernanke made an appearance at the Capitol, reassuring Senator (hello, I'm running for president too) Dodd, Chairman of the Senate Finance Committee, that he would make use of "all tools necessary" to calm the volatile financial markets. Judging by the action the past two days, he already has.

Bernanke is nothing but a hack, and a rookie at that. Whatever he does will be viewed skeptically. Remember, this is an avowed adherent of "targeted inflation." His core ideas, roundly expressed in a 2002 speech titled, Deflation: Making Sure "It" Doesn't Happen Here are somewhat along the lines of dropping money from helicopters.

Essentially, Bernanke's solution to every kind of crisis, as was that his predecessor, Alan Greenspan, is to throw money at it. That's exactly what he did by lowering the lending rate and requirements in the discount rate, so a cut in the federal funds rate shouldn't be far behind. With the markets now drubbed into an unconscious trance, he'll probably make an "emergency" cut before the Fed's next scheduled meeting on September 18.

God save us all. We're being led down the garden path by a gang of fools and thieves.

No comments: