Wednesday, September 19, 2007

Party Crashers

There is usually a lot of hot air circulating around the caverns of Wall Street, but between yesterday and today, the gum flapping and effusion of carbon dioxide was absolutely stifling. Stocks and mutual funds were talked up as though the magic of Ben Bernanke's federal funds rate cut actually made them worth more. The word genius was bandied about.

In other circles, words such as idiot, traitor and appeaser were heard spoken near the Chairman's name. Not everyone was equally enamored with the re-ignition of easy credit.

Holders of dollars - which would be just about every American citizen - were sullen as the dollar sank to new depths against other, more stable, currencies. Only the debt-ridden corporate culturalists were really in a celebratory mood, and by the end of the trading session, the market had cooled considerably.

Dow 13,815.56 +76.17; NASDAQ 2,666.48 +14.82; S&P 500 1,529.03 +9.25; NYSE Composite 9,970.90 +61.87

By the end of the day, the NASDAQ and S&P had pared earlier gains by more than half, the Dow lost 2/5ths of the morning advance. Cooler minds had crashed the party and were prevailing late in the day. Wall Street's cheap credit rally was fizzling.

Nonetheless, Advancing issues outpaced decliners by a healthy 2-1 margin and new highs at last put some distance over new lows, 411-107.

While Wall Street was partying, signs that the underlying economy was in tatters were everywhere.

Oil gained 42 cents to close at $81.93, another record. Banking bellwether Morgan Stanley (MS) missed their quarterly estimate by 16 cents and took a beating. Housing starts fell to their lowest levels in 12 years. The dollar was being sold off against the Euro, hitting a new low of .7162 or an exchange rate of $1.3963 dollars per Euro. Less than a decade ago, one Euro cost 87 cents. The value of the greenback has fallen by more than 40% in just 8 years.

Gold rose $5.80 to $729.50. Silver added 18 cents to $13.11. All aboard the commodities train. It's about to leave the station.

Bernanke gave away the house to save the pretty front porch. His rate cuts will certainly be tonic for Wall Street, and toxic for the US economy. The liquidity crisis continues apace. There will be major bank failures within the next 18 months as the credit cycle spirals ahead without anyone, including the Chairman of the Federal Reserve, the Treasury Secretary, Congress and the President, acting responsibly.

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