Wednesday, December 31, 2008

Markets Finish Dismal Year on Positive Note

Hope springs eternal.

It was that kind of sentiment that typified trading in the final session of 2008. Stocks put a day of solid gains for the second straight day, though they finish the year with massive losses and an investment community dazed by insecurity and a failed economy. Stocks approached key resistance late in the day and retreated, with most participants happy to say goodbye to a truly horrible year.

The pain was equally shared amongst the indices.

The Dow ended 2008 with a loss of 4488.43, closing at 8776.39 from the Dec. 31, 2007 close of 13264.82, a 33.83% drop in overall value.
The NASDAQ fell 1075.25, from 2652.28 to 1577.03, a 41% loss.
The S&P 500 lost 565.11, from 1468.36 903.25, off 38%.
The NYSE Composite skidded 3983.27, from 9740.32 to 5757.05, a 39% decline.

On the day:
Dow 8,776.39, +108.00 (1.25%)
NASDAQ 1,577.03, +26.33 (1.70%)
S&P 500 903.25. +12.61 (1.42%)
NYSE Composite 5,757.05, +87.05 (1.54%)

Advancers 5476, Decliners 1345. New lows out finished new highs once more, 155-46. a trend that has now exceeded 14 months with only intermittent breaks. Volume was subdued.

NYSE Volume 1,308,103,000
NASDAQ Volume 1,557,348,000

Commodities soared at year end. Oil priced $5.57 higher, closing at $44.60. Gold gained $14.30, to $884.30. Silver added 32 cents at $11.30 per ounce.

Overall, the buying of the past two sessions shouldn't be considered any kind of a trend, as much of the purchases were tax or allocation induced. The real action begins with great levels of doubt, fear and faith on Friday.

Happy New Year!

Check this page tomorrow for annual predictions.

Tuesday, December 30, 2008

Consumer Confidence, Housing Collapse

While investors were busy buying up stocks (the only plausible reason would be a combination of short-covering and year-end window dressing by funds), a couple of economic reports sent shudders through the remainder of humanity.

First, the Conference Board's measure of consumer confidence sunk to an all-time low reading of 38 in December, from 44.7 in November. Somehow, the "experts" were expecting the reading to rise to 45. Apparently, the wizards of Wall Street weren't out shopping this Christmas season, or else they would have seen people shrugging off discounts of 50-60% or more and hanging on tightly to their purses and wallets.

The other report came in the housing arena, which hasn't had a dose of good news in well over a year now. The Case/Schiller 20-city index fell 18% in October, the worst decline since the index was launched in 2000. Prices are now said to be back to 2004 levels. While that may sound encouraging to some, anyone in the real estate business with half a brain realizes that prices began skyrocketing long before that, so there is likely to be a further decline ahead.

What most people fail to understand - beyond the government bailout money doing essentially nothing to alleviate the housing crisis - is that $2.2 trillion in ALT-A and ARM mortgages are due to re-set in 2009 and 2010. The number of foreclosures from this wave of defaults will extend the real estate and liquidity crisis to gigantic proportions. Subprime, in other words, was only the beginning.

But, stocks set sail higher from the outset and finished with strong gains.

Dow 8,668.39, +184.46 (2.17%)
NASDAQ 1,550.70, +40.38 (2.67%)
S&P 500 890.64, +21.22 (2.44%)
NYSE Composite 5,670.00, +135.36 (2.45%)

For the session (correction: tomorrow will be a full session, not a half session as I previously reported), advancers led decliners, 5134-1682, a very broad-based advance. New lows continued to dominate new highs, however, 240-25. Volume was light, and considerably better than Monday's pathetic no-show.

NYSE Volume 953,198,000
NASDAQ Volume 1,413,810,000

Crude oil futures for february took a 99-cent dip, closing at $39.03. Gold was also down slightly, losing $5.30, to $870.00. Silver (maybe the best investment of 2009) bucked the trend, gaining 17 cents, to $10.98.

Why silver for 2009? A couple of reasons are that all asset classes are going to get hit again in the coming year, but silver has already lost close to 50% from its high. There's also somewhat of a floor around $6, so prices, if they decline, should not go down much, whereas with gold, already inflated, could see $650. Also, silver is highly accessible to everybody. It's $10 or $11 per ounce, not $800. You can buy silver in multiple forms form multiple sources as well, so it may be the choice for small-time scroungers and fledgling investors, plus, it is readily liquidated. Those are some positive reasons beyond silver being well below the traditional gold-silver ratio.

If you can't buy gold, silver makes a nice substitute.

Monday, December 29, 2008

Markets Creak, Don't Break

Monday's holiday hangover resulted in another poor performance for stocks, posting their 6th losing session of the last eight.

With little economic data due this final week of 2008, investors seem to be nitpicking over the remains of already-battered equities, sending the bulk lower and continuing the daily series of 150+ 52-week lows. Much of the focus was on Israel's full-on assault on the Gaza Strip, though that horrid little piece of Earth really has little to do with economics overall, it at least takes people's minds off the grotesque reality that is the global economy.

Dow 8,483.93, -31.62 (0.37%)
NASDAQ 1,510.32, -19.92 (1.30%)
S&P 500 869.42, -3.38 (0.39%)
NYSE Composite 5,534.64, -3.55 (0.06%)

Losers beat gainers, 4421-2303, and new lows expanded over new highs, 222-16. That ratio has been extremely stable over the past month, an indication that investors are playing a hybrid game of Chicken and Texas Hold 'em, with nobody seemingly capable of making the "all in" gambit. Slowly but surely, stocks keep descending in search of a bottom retracing, which apparently is going to occur next year rather than at the end of this one. Anyone who hasn't already done year-end tax selling is more than likely hoping for a rally in January, pinned on hopes that the Obama team can rescue the economy, or at least momentarily lift the spirits of market participants.

Volume was much less than ordinary, at roughly half that of a healthy day's figure.

NYSE Volume 877,202,000
NASDAQ Volume 1,182,510,000

Commodities finished higher, with oil posting a substantial $2.31 gain, closing at $40.02. Gold picked up $4.10, to finish at $875.30. Silver added 28 cents, to $10.81 the ounce.

As usual during the holidays, trading velocity was sluggish, at best. There is only one more full trading day (Tuesday; Wednesday the markets close at 1:00 pm) before investors gladly put 2008 behind them.

Friday, December 26, 2008

Stocks Gain Without Volume

To say that today's trading is insignificant would probably be a gross overstatement.

When two-thirds of the investment community is at Nordstrom's or J.C. Penny's returning unwanted Christmas gifts or trying to get cash back for credit purchases (a nifty trick, if only it could be done) we can fully appreciate the dysfunctional qualities of the decrepit financial system which has almost fully devolved over the past three months.

Actually, the deterioration took much longer, but it's only being understood for what it really is, now. The system, based on Wall Street's over-leveraged credit machine, is not only broken, it is defunct. There will need to be structural changes in finance unlike any we've ever before witnessed. Either the US Government will have to step to the plate to become the lender of last resort (which is happening now) along with the Fed, or the country is going to become more localized and fragmented - a lot less like Wal-Mart and a lot more like your local bagel shop.

As America wends through its second greatest depression (Americans love to organize things in grandiose terms), big companies are going to find it more difficult to borrow, raise capital via stock offerings and attract the best talent. In reality, Wall Street may think better of attracting the cream of the B-school breed as those same silver-spoon cretins are the ones who are primarily responsible for all the structured debt, risk management and business rationales that have produced the current big bust in all asset values.

Those companies which do find a way to borrow for capital projects will meet with less success on the other end of the ledger sheet. Their borrowing will be more costly, more scrutinized and their projects less successful. America is turning its back on the corporate culture, along with massive CEO salaries, income disparity and the relative virtue of greed in favor of a more basic, functional, and above-all local business climate. In coming years, you'll be more likely to find recent business school graduates managing community-based organizations than mingling with the corporate elite. In fact, being a member of the corporate elite is about to become so serially uncool that billionaires in bullet-proof limousines will become targets of ridicule and scorn. Some may have to fear for their very lives. Some, undeniably, will lose theirs, as already has been the case with Thierry de la Villehuchet, the French investor who apparently committed suicide last week. Some inner forces are telling me to not believe the "official" story as so often apparent suicide is merely a cover for a more grisly and gruesome crime.

Be that as it may, the investment world is turning a blind eye toward Wall Street as this worst year since the 30s comes crashing to conclusion. Wall Street's about to become a very lonely place, very soon.

Dow 8,515.55, +47.07 (0.56%)
NASDAQ 1,530.24, +5.34 (0.35%)
S&P 500 872.80, +7.38 (0.85%)
NYSE Composite 5,538.19, +50.86 (0.93%)

Advancing issues outweighed losers, 4442-2080, while new lows beat out new highs yet again, 167-17. Volume was the lightest of any full trading day this year.

NYSE Volume 516,782,000
NASDAQ Volume 595,498,000

Crude oil for February delivery gained $2.36, to $37.71. Gold caught a huge updraft, gaining $23.30, to $871.20. $900 seems like a watershed for gold, one which it cannot seem to overcome. Silver was likewise on the rise, up 18 cents, to $10.53, which oddly seems like a fair, albeit slightly undervalued, price.

With 2 1/2 days left in the 2008 market year, investors are hoarding cash and looking elsewhere for investment, or, alternatively, safe parking for the next 18-24 months. While treasuries may not offer the greatest of return (around 2.15% for 10-year notes), at least they seem safe.

Happy Holidays, again.

Wednesday, December 24, 2008

Short Session, Small Gains

US equity markets closed early (1:00 pm), ahead of Christmas Eve, but investors took the opportunity to make some small purchases despite more gloomy economic news.

Dow 8,468.48, +48.99 (0.58%)
NASDAQ 1,524.90, +3.36 (0.22%)
S&P 500 865.42, +2.26 (0.26%)
NYSE Composite 5,487.33, +19.05 (0.35%)

New unemployment claims ratcheted higher in the most recent week, adding 586,000 to the roles of the unemployed. In a related note, much later in the day, Hilary Kramer predicted on PBS's Nightly Business Report that while government data would show unemployment at 10% in 2009, though the "real" unemployment - including discouraged workers the government does not count - may go as high as 20%.

Folks, those are near-depression numbers. during the Great Depression of the 1930s, unemployment was as high as 25% at some of the worst depths of the downturn. One of of five workers idled in today's economy is going to have a huge ripple effect, some of which we're seeing even now. With the official rate at 6.7% (a trifling) today, the "real" rate is likely closer to 13 or 14% already with no end in sight.

January should prove interesting in the least, when retailers add up their paltry results from the worst Christmas shopping season since 1968. There could be wholesale shuttering of stores across vast swaths of the retail landscape, leaving malls with gaping holes and no new tenants.

Other economic figures weren't spreading much holiday cheer. Personal spending slowed by 0.6% in November, and durable goods orders slipped 1.0%, though that number is seasonally-adjusted, and just plain missed the mark. The drop in durables was probably closer to 2.5-3%.

On the day, advancers beat back decliners, 3591-2773. New lows retained their advantage over new highs, 181-19. Volume was slim due to the 1:00 pm closure.

NYSE Volume 403,769,000
NASDAQ Volume 517,176,281

Oil slipped another $3.63, to $35.35. The metals improved, however. Gold was higher by $9.90, to $848.00. Silver added 9 cents, to $10.35.

That's a wrap. The Santa Claus rally seems to have fallen victim to deflation. Merry Christmas.

Tuesday, December 23, 2008

The End is Here... and Now

American Express (AXP) has received preliminary approval for $3.39 billion in TARP funds along with CIT Group (CIT), which was also approved for $2.33 billion on Monday. Both companies have recently changed their status to bank holding companies, in order to qualify for the TARP money and other goodies from the Federal Reserve Bank and Treasury Department.

One wonders how the application-and-approval process actually works. Imagine a sleek CEO or CFO going to Paulson and Bernanke for money. Q: Are you and your firm both financially and morally bankrupt? A: Absolutely!

Ding, ding, ding! We have a winner!

Sadly, the entire US - and most of the world's - banking system is now defunct. Citigroup (C), Morgan Stanley (MS), Goldman Sachs (GS) and JP Morgan Chase (JPM) are all illiquid and have been for some time. Their status won't change. They all have to be broken up and sold off to healthier regional or local banks. Many of their "assets" will be liquidated, as the buyers will not want toxic structured financial instruments on their books. Buh, bye, bonuses!

On Friday, Treasury Secretary Paulson urged Congress to release the remaining $350 billion of TARP funds approved earlier this year. Today, the only independent voice in the Senate, Vermont's Bernie Sanders, urged congress to reject his request, saying, "It is inconceivable that we would provide another $350 billion to the banks – supposedly to ease credit – when they are refusing to tell us how they’re spending the money they’ve already received."

The latter portion of his comment was in reference to a Monday AP story describing how 21 recipients of TARP funds - all major banking or financial institutions - were unwilling or unable to answer questions on how the money already handed out was being used.

Essentially, the TARP, turned out to be a TRAP, like so many other government-sponsored programs under the Bush regime, essentially handing out taxpayer money (on loan) to the failed banking institutions. It has been more than two months since the bill passed congress, yet the economy has continued to worsen. What's becoming plain to all is that government is not going to save the average American from this maelstrom. We're all about to get sucked into the vortex of fraud, lies and deceit which ends in foreclosures, bankruptcies and discontent on a scale rivaling the Great Depression.

Getting to the title of this post, the end is here, and it is now. Americans will be facing some seriously ugly choices in the months ahead, and there's no guarantee that Mr. Obama's "infrastructure stimulus" package is going to produce anything more than make-work jobs in the construction trades. How that is supposed to revive an economy of which 70% of GDP comes from consumer spending remains a mystery.

It's apparent that there needs to be structural changes in almost every aspect of the American experience. The banking system is kaput, the government is corrupt, the taxes too high, yet they fail to meet budget demands year after year. Federal, state and local budgets need to be slashed now, not later, as does the budget of just about every household in the country.

A new way of finance and work ethic needs to be promoted, either from the bottom up or the top down. All the financial chicanery of the past 30 years has resulted in a near-death experience.

In response to the unfolding melodrama that is world socio-economic politics, investors took flight again on Tuesday, with markets sinking for the fifth straight day, and the eighth in the past eleven sessions. Some of the more oblivious in the financial media have been wishing for a "Santa Claus Rally" when the probability of such an event occurring is about the same as the Detroit Lions winning the Super Bowl. Personally, I'll be glad - along with about 10 million retail workers and countless investors - when this Christmas is over. It should rank as one of the most miserable ever.

Dow 8,419.49, -100.28 (1.18%)
NASDAQ 1,521.54, -10.81 (0.71%)
S&P 500 863.15, -8.48 (0.97%)
NYSE Composite 5,468.32, -52.50 (0.95%)

As expected, decliners led advancing issues, 4153-2549, while new lows continued to dominate new highs, 237-20, numbers that are becoming numbingly commonplace. Volume was again far below the norm, but the losses are so significant that volume isn't really part of the equation any more. So many hedge funds and individuals have already shut down for the holidays or longer that the remaining participants are being pushed by blind, naked fear, as that is the only emotion that hasn't already been fully drained, except possibly, desperation.

NYSE Volume 984,406,000
NASDAQ Volume 1,323,355,000

Oil slipped another $0.93, to $38.98. Gold fell $9.10, to $838.10. Silver slithered another sixty cents lower, closing at $10.26.

Underscoring the collapse of all asset values, the National Association of Realtors announced today that November existing home sales fell at a record pace of 8.6% and the median price of a home fell 13%, to $181,300 from $208,000 last year. The declines were the worst ever seen since the NAR began keeping records four decades ago.

At the peak of the housing market, in mid-2006, the median home price was $230,000. Since then, prices are off a shade more than 21%. In the short term, that's a large amount, though taking the longer view, there is surely more pain to come. Housing prices should fall another 25-40% over the next 3-5 years, and if that isn't the most pessimistic forecast you've ever heard, and are thinking I'm out of my mind, consider the following calculations.

Evan at the inflated value of 4 times annual pre-tax income, a person earning $40,000 a year could own a home worth $160,000. Now, let's do the new math: The average American will be (or already is) earning $35,000 or less in 2009, 2010, 2011 and beyond. At a more reasonable valuation of 3.5X annual income (and this is even pre-tax, assuming almost no income tax), that puts the "affordable" home at $122,500. That is 32.6% below today's median price. Of course, it could get worse, and probably will, since there aren't going to be that many banks willing to lend much of anything to anyone anytime soon.

Happy Holidays!

Monday, December 22, 2008

Low Volume, Lower Prices

With Christmas just three days off and investors already disgusted with stock performance over the past three months, Monday got off to a bad start and got worse as the day wore on. Only a sharp, short-covering rally in the final minutes kept markets from having a really dismal day.

Since this week will likely be among the slowest of the year, these posts are equally likely to be short, though no less instructive to astute traders.

Dow 8,519.69, -59.42 (0.69%)
Nasdaq 1,532.35, -31.97 (2.04%)
S&P 500 871.63, -16.25 (1.83%)
NYSE Composite 5,520.82, -95.30 (1.70%)

For the session, gainers were beaten badly by losers, 4584-2157, belying the generally tame losses. New lows expanded their edge over new highs, to 234-18, another significant development. Since volume this week will be inconsequential, those numbers are giving off strong sell signals. The markets are on the verge of another rush to the bottom, which could happen at any time over the next three weeks, and, if the November lows are not tested this week or next, January will be a slaughterhouse.

NYSE Volume 1,219,524,000
Nasdaq Volume 1,661,136,000

Commodities continued to display the deflationary bent. Oil futures, which are now in the February contract, fell $2.45, to $39.91. Gold managed to gain $9.80, to $847.20. Silver picked up a penny on the bid, closing at $10.86. None of the prices quoted today seem sustainable in the undeniably deflationary environment.

As the Christmas shopping season winds down to the last two days, numbers from retailers are horrifying. Even with sales of merchandise at 60-70% off, gross receipts are expected to come in as much as 20-30% below last year's results. January will witness the shuttering of huge swaths of retail stores. Many will be forced into bankruptcy, some to reorganize, but many others will simply liquidate. After that, the fallout from a commercial real estate glut will sour the economy even further.

A few weeks ago, President-elect Obama said the economy would get worse before it got better. He is so very right about that.

Friday, December 19, 2008


If the US financial media, the government and Wall Street less corrupt, the top news story of the day would be how Standard & Poor's downgraded 11 financial institutions and cut the ratings on the banking systems of both the United States and the United Kingdom.
S&P cut ratings on Bank of America, Barclays Bank, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase Bank, Morgan Stanley, Royal Bank of Scotland, UBS and Wells Fargo Bank.

Of course, were the titanic institutions of our nations less corrupt, none of this would have happened in the first place. The stock market would not have gone wild, with the Dow advancing to 14,250 in the longest bull market in history. Banks would not have been able to loan $500,000 to people with no jobs to buy houses, the Fed would not have inflated the money supply, yada, yada, yada.

But, the government regulators proved to be as malleable and corrupt as their counterparts on Wall Street, likely because most of them came from the very same firms which were packaging mortgages into SIVs, MBSs and backing their positions with credit default swaps (CDS) behind which was nothing, absolutely nothing.

So, seeing is believing. From the above-linked article:
The ratings agency also cut the bank industry country risk assessment of the U.S. and the United Kingdom to "Group 2" from "Group 1."

The United States is now a country with a second rate banking system. Of course, that assessment is from one of the very same firms which rated subprime MBS at AAA. The more money the Treasury insists on stuffing down the black hole of failed banking institutions via TARP, the sooner our Treasury debt will also be downgraded, to AA, A, B, and eventually to junk, which it is fast becoming.

And speaking of the TARP, Secretary Paulson of Treasury, bagman extraordinaire of Goldman Sachs, is now asking congress to release the rest of the money in the program, another $350 billion. Ostensibly, Paulson wants the money before the year ends or a new congress is seated, or before President-elect Obama is inaugurated. There is already discontent in congress over how the first half of the fund has been employed, and it's likely that congress - especially the Senate - will jawbone the issue to until after January 20.

I mention that the government and the media are corrupt because of the events of this morning, the final Friday before Christmas, but also a quadruple witching day. Prior to the US markets open, at about 7:30 am, all futures were trading lower. Foreign markets were down, reacting to the negative rumors of the S&P downgrades and the news that Japan's central bank was cutting its key lending rate to 0.1%.

At 9:00 am, President Bush announced a $17 billion loan provision for two the Big 3 Detroit automakers: Chrysler and GM. This was an action the lame duck dimwit president could have announced at any time over the past week. Why did he wait until today? To give cover to the options traders poised to rake in billions on this quad witching day. Once news broke that the administration would use the remaining TARP money to bail out the flagging auto companies (Ford has already stated publicly that it doesn't need a loan), the futures shot higher. The markets opened on a positive note, and quickly the Dow was up 180 points. Ka-ching! The Wall street crooks scored again, no doubt.

It didn't last, of course. By midday, stocks were once again bouncing off the flat line. The Dow spent most of the final hour in the red, dropping by as much as 50 points, though the NASDAQ maintained a positive bent all day.

By the close, it was a draw. The Dow and Comp. lower, NASDAQ and S&P higher. All were marginal moves.

Dow 8,579.11, -25.88 (0.30%)
NASDAQ 1,564.32, +11.95 (0.77%)
S&P 500 887.87, +2.59 (0.29%)
NYSE Composite 5,616.05, -1.71 (0.03%

Advancers led decliners slightly, 3730-3028. New lows continued to maintain an edge over new highs, 205-33. Of any pattern I have ever followed, the trend of consistently more new lows than new highs on a daily basis, now having run into its 14th month, has to be the most telling. That condition maintained every market day except five or six during that span. It is a truly persistent and dominant pattern, which cannot bode well. When that condition begins to modulate between the two extremes, then we will have likely found a bottom. Whether any long term recovery can proceed from there is questionable.

Volume was the heaviest in weeks, likely due to options expirations.

NYSE Volume 2,420,350,000
NASDAQ Volume 2,597,346,000

While stocks were dithering, commodity prices were being beaten to death. Oil was off another $2.35, closing out the January contract at $33.87. Gold lost $23.20, to $837.40. Silver slid another 27 cents, to $10.85. I continue to be fascinated at the gold and silver prices. They have maintained value best (they are down the least) in recent months, which is to be expected, though in a deflationary environment, their upside is limited. When inflation once again takes hold, which may not occur for 3-4 years, the metals will be able to surge higher. Not until then.

A few articles that are worth reading regarding the general malaise and the government's mishandling of the Wall Street mess are the latest from the Golden Jackass, which links to iTulip, where the question, Major US banks worse than Japan's zombies? is pondered and discussed at length. Finally, the Institutional Risk Analytics offers a glimpse of what may be coming to America in their most recent story on the US Bank Stress Index and CDS in Europe.

And, last but not least, the video is of Gary Schilling explaining why he sees the S&P 500 heading to 600 in 2009.

Thursday, December 18, 2008

Bush and Madoff: Signs of Things to Come?

Angry mobs tend to occur most in times of high stress and their anger, more often than not is directed at two groups: the government and the rich.

Over the past few days we have witnessed an angry Iraqi journalist throw shoes at our outgoing president, Mr. Bush, and a photographer emerge from a mob to shove billionaire criminal Bernard Madoff, the man who stole billions of dollars from some of the most sophisticated investors in the world.

In less civilized times, more people would have joined in the effort. Imagine if other journalists had joined Muntadar al-Zeidi in his "shoe protest" or that ordinary citizens and scorned investors had been part of the media throng outside Madoff's tony Manhattan apartment. Bush may have been injured, or worse. Madoff might have been beaten to death on the street.

It may come to that.

The world economy is teetering on the brink of disaster and up to this point all of the remedies have been directed by the government toward the rich. These are the two groups most responsible for the economic calamities which have befallen us. Nary a nickel has been offered to homeowners, average working class Joes and Janes who are struggling to make ends meet in difficult times. If matters continue to spin out of control, would anyone be surprised to hear that a wall Street banker is gunned down in broad daylight or that workers' protests turn violent? does anyone not believe that rank-and-file union members at GM would not want to punch CEO Rick Waggoner squarely on the kisser, or poke a finger in the eye of his counterpart at Chrysler, Bob Nardelli?

That's why these people fly on private jets, ride in bullet-proof limousines and dine at the most exclusive restaurants. Not because they're rich and they can - that's surely part of it - but they must fear for their personal safety. A high-up executive dining at a worker-type diner would be taking his own physical well-being very much for granted at times like this, and chances are very good that conditions will worsen in coming days, weeks and months. Those execs, and especially the walled-in Wall Street types had better hope they don't become victims of their greed.

Angry people have a tendency to find company and turn into angry mobs, capable of all kinds of violence and disruptive behavior. Here in America, and surely, in places around the globe, we have seen it all before. Deteriorating economic conditions for large swathes of people can ignite mob passions into burning infernos. While that is the outcome we would least desire, the actions of the Iraqi journalist and the NY photographer may be the proverbial tip of the iceberg.

There's plenty of video of both events available, though the one Madoff video most circulated (aired o CNBC) doesn't really capture the scene well. I found these clips from ABC news to be of the highest quality, but since they are owned by ABC, I cannot embed them here. Here are links to the Bush incident and Bernie Madoff outside his apartment building. (Both links should open in new windows)

As for the state of the economy, investors are still not convinced of anything, especially since Chrysler announced plans to shut down all 30 of their US plants for a month, beginning Friday.

If there's anything that can cause the stock market to swoon, it's uncertainty, and in the final 33 days before George Bush leaves the White House and Barack Obama moves in, uncertainty is a commodity that will be in ample supply. There are only a handful of trading days left in the year, and of course, following that, this January may be one of the worst we've seen in a while, though last year's was certainly no picnic.

For today, investors got scared off early in the day. The major indices were marginally higher in early trading, but by 10 o'clock they were all flat lining. By noon they all began to sink and by the close of the session, the losses had extended, resulting in another bad day on the Street.

Dow 8,604.99, -219.35 (2.49%)
NASDAQ 1,552.37, -26.94 (1.71%)
S&P 500 885.28, -19.14 (2.12%)
NYSE Composite 5,617.76, -152.04 (2.64%

This should come as no surprise. stocks are essentially overbought, short term, and lows will once again be retested, since a new low was put in just a month ago, on November 20. We are due for another round of profit-taking, selling and options-related mischief. Friday, by the way, is a quadruple witching day, and the last of the year. It could turn into a whopper of a session.

For Thursday, the internals were as bloody as the headlines, with declining issues outpacing advancers, 4045-2670. New lows surpassed new highs by a margin of 163-34. Volume was moderate to low, especially on the NYSE.

NYSE Volume 1,382,620,000
NASDAQ Volume 2,064,510,000

In commodities trading, oil futures continued to drop precipitously, falling another 10%, or $3.84, to $36.22, the lowest price for a barrel of light crude in 4 1/2 years. Gold fell into line, dropping, $7.90, to $860.60, with silver following the trend, losing 30 cents to close at $11.12.

It was another day for deflation, and surely not the last. At least the executives of Exxon Mobil and Chevron will feel a little more secure in their mansions. Their counterparts in banking and finance may have reason to cower and hide in darkness.

Wednesday, December 17, 2008

Abundant Disappointment

US equity markets failed to follow-through on Tuesday's massive Fed-induced rally. There is still ample concern that the global economy is undergoing a fundamental de-leveraging and deflationary shift.

Judging by the tenor of the trading, there was profit-taking right at the open, followed by sucker buying through middle of the day, briefly pushing the major indices into positive territory, and a pronounced selling bias at the close, with the Dow Industrials losing more than 80 points in the final 10 minutes.

Dow 8,824.34, -99.80 (1.12%)
NASDAQ 1,579.31, -10.58 (0.67%)
S&P 500 904.42, -8.76 (0.96%)
NYSE Composite 5,769.80, -35.17 (0.61%)

Also figuring into the equation was the price of crude oil. On the heels of the largest production cut ever announced by OPEC - 2.2 million barrels daily - prices sank below $40 per barrel in trading on the NY Mercantile Exchange, and closed at a four-year low of $40.06.

The rationale for the spirited selling of oil futures is the perception that - repeat after me - the global economy is in or heading into a prolonged period of deflation. Demand for fossil fuels is expected to actually fall by as much as 4% globally next year. That people and organizations would curtail their consumption in light of the ridiculous prices for petroleum and its derivatives should come as no surprise. The hidden factors are the promulgation of alternative, renewable sources of energy and conservation measures which went full-bore as the price for oil spiked to unsustainable levels. The drain from the pricing structure of the past four to five years on economies worldwide has never been accurately calculated, though it is certainly sizable. Overshadowed by the systemic collapse of the banking system (it has already collapsed and been resurrected by central banks, though nobody wants to admit that) oil's impact on wealth and disposable income has not been adequately understood nor explained by either the financial or mainstream media.

Nonetheless, investors continue to view stocks as very risky, and with good reason. A recent survey found that 74% of all questioned said that they planned to spend less this year on Christmas presents than last. Percentages varied, but if three quarters of the population is going to be engaged in Scrooge-like penny pinching, then the retailers, at the top of the food chain, are toast. In the middle, the manufacturers will see profits slide and at the bottom, raw materials providers and service industries will be negatively affected to various degrees.

It's going to be a nice Christmas for most consumers. Business owners and executives may have a different set of results.

Interestingly enough, market internals told a different story which bears notice. Advancing issues finished comfortably ahead of decliners, 3762-2943. Could this have been a stealth rally? Perhaps. Selective selling would be a more appropriate term. New lows were muted, registering only 166 - a multi-week low - to 48 new highs. This is the kind of trend bulls have sought. Increases in new highs are the function of a variety of factors, main among them, speculation and momentum. This could very well signal an extension of the rally, though 9000 on the Dow should prove to be tough to crack. With as much excess capacity as exists today, and given the new-found disposition for saving, betting on a long term rally is about as safe as shooting craps in Las Vegas. The internals are probably reflecting nothing more than some recovery of stocks which were sunk during the downturn in late 2007.

Volume was average.

NYSE Volume 1,340,071,000
NASDAQ Volume 2,150,876,000

Commodities carried on as they have over the past couple of weeks, with oil closing lower, down $3.54, to $40.06. Precious metals continued their relentless march higher. Again, this is unsurprising due to the Fed's Zero interest rate policy, which, at its core, is inflationary (and, I should add, rather pointless and ill-advised). Gold gained $25.80, closing at $868.50. Silver was up 72 cents, to $11.42. Both of these were massive upticks and may indicate a near-term blow-off top. Then again, the gold bugs of the world say their metal should be worth $2000 and $35, respectively. The reality is that they are only another asset class and have no viable place in modern economies. Unless the global economy collapses, of course. Then, people will be cutting off each other's hands for their jewelry. That is an unlikely scenario in most civilized nations, though I'm certain that anecdotal evidence will emerge to demonstrate the civility of all, and soon.

One might surmise from reading some of my daily rants, that I should carry around a sign stating that "The End is Near." That's actually close, as I believe the end is already here.

It's the holiday season. Peace. Joy.

Tuesday, December 16, 2008

The Fed Makes Money Free

Lowering interest rates to 1% - as Alan Greenspan did earlier in the decade - seems to be not enough for current Fed Chairman "Helicopter" Ben Bernanke. Today's cut in the Federal Funds rate, from 1% to "0 to 1/4 percent" is an all-time low for the Fed, and sadly, for the United States. The absurdity of making more credit and money available when that is the reason for the problem defies all logic, yet that is the approach Chairman Bernanke and the Governors of the FOMC have chosen all along.

Additionally, the Fed cut the discount rate to 1/2%, making it easier for banks to borrow from the Fed.

Now, with all this extra dough floating around, shouldn't we all be living on Easy Street? One would assume as much, but there's a little problem which goes something like, "you get what you pay for." The banks, since they are not paying much for the opportunity to bolster their balance sheets, see absolutely no reason to lend out the money at anything approaching reasonable rates. Instead, banks are hoarding cash and have raised lending standards to abnormally high levels, so that unless you have near-perfect credit history, you can't borrow a single dime.

There are many mainstream views on the Fed's move which purport that the lowering of the rate is merely "window dressing" or that it is only "symbolic." As far as anyone can tell, the symbolism is that America is for sale to the lowest bidder, Americans need not apply. Accordingly, the dollar fell precipitously against the Euro and Yen while US equity markets soared on the news. Naturally, financial firms led the massive rally, which pushed the S&P 500 to a 5-week high.

Dow 8,924.14, +359.61 (4.20%)
NASDAQ 1,589.89, +81.55 (5.41%)
S&P 500 913.18, +44.61 (5.14%)
NYSE Compos 5,804.97, +307.07 (5.59%)

Internals confirmed that the rally was broad and deep, with advancers overwhelming decliners, 5552-1264. New lows, however, expanded to 223, to just 31 new highs. The rally was fueled in part by the inflating Fed, short covering and outright speculation with money borrowed at almost nothing. It goes to reason that the free-spenders on Wall Street would have a field day with all the free money they've been dealt over the past three months, regardless the actual state of the US and global economies. All this does is run the Fed out of one set of bullets (rate cuts) and set up a massive market meltdown by late Winter or Spring of 2009. Volume was, as one would expect, on the high side.

NYSE Volume 1,539,748,000
NASDAQ Volume 2,217,972,000

Despite the massive Fed cut and fall in the dollar, oil continued to slide, losing 91 cents to close at $43.60. The metals continued their rally, with gold gaining $6.20, to $842.70 and silver ahead 9 cents to $10.71.

Perhaps the most significant anecdotal evidence that the entire world economy is now running on fairy-tale, make-believe money was the activity in shares of Goldman Sachs (GS). The company posted its first loss since going public in 1999, a massive $4.97 per share, but gained 14% on the day (76.00, +9.54). But why not. Goldman recently was converted from an investment bank to a bank-holding company and received $10 billion from the US Treasury in November as part of the TARP welfare for banks program. We should all be doing so well, or, so poorly.

It's the last bullet for the Fed's rate policy unless they begin to believe that paying people to take money off their hands is a good idea. It may come to that, as the Fed expands its balance sheet by leaps and bounds, at the same time sinking the dollar and the world economy. It's a new world order, all right. The banks will eventually own everything, which, in turn will be owned by the central banks. Capitalism is over, democracy you can pretty much kiss goodbye. That will be gone in coming years when the federal government begins to dictate every aspect of our lives, and we're almost there now.

Monday, December 15, 2008

The Dance - and the Fraud - Continues

Wall Street continues to dance to whatever tune is set before them. On certain days, they change partners, some doing tangos replete with dizzying dips and turns, while others waltz casually or two-step through the day. Yes, there are day-traders and buy-and-holders, investors and charlatans, but today they all took a turn at the tango, precisely at 3:30 pm, with just one half hour left to dance.

At that point, with the major indices all at or near their lows of the day, it was time to tango, and, as the band played a warped version of Bolerostocks rose dramatically, with the Dow rising almost 150 points in about 7 1/2 minutes. A lovely dance it was, and such an abjectly fraudulent one. Whatever the purpose, to salve the wounds of the already harmed, or keep the masses outside the markets from rioting, the players, and dancers were the same. The Fed, Goldman Sachs, the PPT, banks playing with TARP money, day-traders and outright louts and thieves were all in there making - or losing - a buck or two or a billion or more.

Any gains under the current market conditions are likely to be fake, as phony as the money backing them, or backing away from them. We have no economy any more, no market system, no trading regime. What we have is the remains of a corrupted, defunct, defeated grand Ponzi scheme, one at which Bernie Madoff would stand in awe. we are witnessing the end of the Wall Street capitalist money machine, but the dancers don't want to stop dancing just yet. No, it's all happening too fast for them, too suddenly. Why, the little people are demanding that CEOs not receive bonuses and that their pay be cut. The nerve!

It's what we've got, folks, like it or not. As individual investors already know all too well, the little guy has no chance against the megalithic monstrosities created by the wizards of Wall Street. Their bets are hedged, while the little guy goes naked, believing in the "system." But the system is broken and the evidence of it grows daily. Today's little dance was just a warm-up to the Zulu death spiral this spring. They'll be dancing and spinning right into the fire pits then.

Dow 8,564.53, -65.15 (0.75%)
NASDAQ 1,508.34, -32.38 (2.10%)
S&P 500 868.57, -11.16 (1.27%)
NYSE Composite 5,497.90, -46.06 (0.83%)

On the day, the internals were far worse than the headline numbers might suggest. Decliners absolutely overwhelmed advancing issues, by a score of 4857-1821. New lows bested new highs, 222-15. Volume could best be characterized as pathetic, more like a mid-summer session than a Christmas and tax-selling one.

NYSE Volume 1,214,382,000
NASDAQ Volume 1,671,975,000

Meanwhile, some of our favorite commodities diverged. Oil fell $1.77, to $44.51, though gold gained $16.00, to $836.50, and silver pushed ahead 32 cents, to $10.62. This is not surprising, though not everyone is still sold on the argument for precious metals, though it is a compelling one. In a deflationary environment, such as we are in, oil could fall as low as $20 per barrel. The metals have weathered the storm better than almost all other investments, and will retain value no matter what. Gold seems especially overpriced today, though purists will tell you it's cheap, even at these levels.

Nobody really knows, though. But, if all other measures of wealth go by the wayside, gold will return to prominence and that seems like a bet worth taking, or hedging.

Note that industrial production fell 0.6% in November, as did Capacity Utilization, which dropped to 75.4% from 76.0% in October. Slowly we turn...

Friday, December 12, 2008

Senate Sends Detroit Pink Slips

It has been amazing to watch the unwinding of the economy the past few months, but some of the most riveting action occurred this week on Capitol Hill, where congress debated a bailout plan for Detroit's Big 3 automakers: Ford, Chrysler and General Motors.

Forget the fact that there are at least 15 other automobile manufacturers that are producing vehicles in the US, the executives of these oh-so-American icons of the well-traveled road have been bending the collective ears of congress for the better part of a month now, having argued against the "catastrophic" consequences of their imminent failure by seeking first, a bailout, second, a bridge loan, and finally, "anything" for two of the three (Chrysler and GM), ad Ford fessed up to being in better shape than they had previously let on.

At the end of Thursday night, they still had nothing to show for their weeks of jaw-boning. Senate Republicans (God bless each and every one of their conservative hearts) balked at the idea that the UAW unions would not accept wage concessions to seal a deal, though behind the scenes, it was suggested that the senators wanted the removal of key management figures - especially GM's Rick Waggoner - before signing off on any deal, and that was not part of the package.

In any case, the Senate vote was so far short of a majority last night that the deal fell apart. Now the Bush White House is pondering helping the automakers out on their own, using $15 billion from the TARP plan, originally designed to help ailing banks, but recently having empowered Treasury Secretary to spend the money as he sees fit. Oddly enough, there is just $15 billion left in the first $250 billion tranche approved by congress, exactly the amount GM and Chrysler need.

If the money is made available to Chrysler, it will be a first, in that Chrysler was purchased wholly by Cerberus Equity Partners, a private firm, a few years ago. If the government gets into the business of bailing out privately-held firms, then the doors to hell have been flung wide open. Every small business in need of a lift should head to the Capitol to get his or her share of the booty.

It's a fascinating chapter in the nation's financial history, albeit a very weird one and one which could lead to unforeseen, unintended consequences down the road.

In response, global markets tanked on word that congress was not going to help the automakers, and Wall Street began the morning with a steep loss, until rumor of the administration acting without congressional approval or action began to percolate through the brokerages. stocks gathered momentum throughout the day, with all indices ending with marginal gains.

Dow 8,629.68, +64.59 (0.75%)
NASDAQ 1,540.72, +32.84 (2.18%)
S&P 500 879.73, +6.14 (0.70%)
NYSE Composite 5,543.96, +39.23 (0.71%)

The indicators inside the broader market were mixed. While advancing issues defeated decliners for the day, 4219-2420, However, the steep morning sell-off produced a discouraging result as new lows expanded to 267, while only 11 issues registered new highs. This is indeed a departure from the trend, signaling further losses ahead. Volume was the lightest of the week.

NYSE Volume 5,981,236,500
NASDAQ Volume 1,866,510,500

Adding to the morning's scare was the PPI release for November, which showed the producer price index falling by 2.2% on the heels of October's 2.8% drop. It was just more news the markets didn't need, further proof that the economy remains in a recession/deflation downward spiral.

This piece of video also caught my attention. If you think the worst is behind us, wait until February when malls will turn into ghost towns. It's not getting any better. In fact, economic conditions are almost certain to worsen over the next few months.

Commodities reversed course from the previous few sessions. Oil lost $1.70, to $46.28. Gold dipped $6.10, to $820.50, and silver fell 20 cents to $10.23. Food and fuel prices continue to decline in both wholesale and retail markets. Good for consumers, but not so bright for producers and farmers.

We continue to seek a bottom but don't see one any time soon. Have a nice weekend.

Thursday, December 11, 2008

Stocks Down, Commodities Up, Innovation To Be Found

The roller coaster ride continues with volatility now being hailed as "permanent" by some pundits in the "new" investing environment. Whenever I hear the word "new" and any kind of financial advantage tied to it, my initial instinct is to to liquidate all positions, break out the survivalist gear and head for the hills, because it's almost certain that the market is about to blow down again.

Remember the "new economy" tech bubble of the late 1990s? all of those whiz-bang internet start-ups ended dreadfully circa 2000. Most of them went completely belly up, some survived as mere shadows of their former market capitalizations when it was determined that having a .com at the end of your company name did not automatically imply a valid business plan.

So, please refrain with any "new" ideas. The newness of subprime, interest-only loans, ARMs, packaged SIVs and derivatives have bequeathed today's investors with toxicity throughout all markets, lack of direction and general malaise in almost all earth-bound economies. There's nothing new about this current stock market condition except that the only reliable model is that of the era from 1929-1934, otherwise known as the depths of the Great Depression.

Not that I am one to throw cold water on humping dogs just to ruin their pleasure, but the frequent comparisons are becoming more and more commonplace, and the stock charts stunningly similar. In case you think I'm joking, take a look at two charts of the Dow Jones Industrial Average (each of these links will open in a new window). The first is from August 1, 1929 - December 10, 1929. Then, look at this one from August 1, 2008 - December 10, 2008.

Eerie, huh?

What may be more frightening is the future. If one extends that 1929 chart out to January 1934, when the market finally began to recover, one would see that the bottom was somewhere around 50 (actually 41), from the September top of 380. If you wish to make the comparison, using the August near-top

I continue to make my case that we are now in the early days of the 2nd Great Depression. I know many readers are turned off by this, having been fed the pablum of the masses via mass media on TV and over the airwaves, but I am only reporting what I see happening and comparing it to a previous economic epoch upon which few are well-educated.

Over the coming months, I'll give you not only the bread line stories, but methodology by which you can survive and, hopefully, prosper during what will be very trying times for many. One place to begin looking for success is within the medium which you are now viewing. The internet is one of the greatest business tools ever devised. Many small, medium and large businesses are not only holding their own during this pressing period, but improving, innovating and growing. It was the same during the original Great Depression. While many established businesses were failing, some others were innovating and becoming prosperous. It took a good deal of guile, intuition, blind faith and luck, but there are success stories already emerging. Another area is the "green" environmental movement, which is taking cast-offs and turning them into useful products, recycling waste into energy and producing innovations in everything from building materials to energy.

Dow 8,565.09, -196.33 (2.24%)
NASDAQ 1,507.88, -57.60 (3.68%)
S&P 500 873.59, -25.65 (2.85%)
NYSE Composite 5,504.73, -126.34 (2.24%)

As for today's market of overpriced stocks with convoluted accounting regimes, most of them were losers. Decliners beat back advancing issues, 4947-1730. New lows surpassed new highs by 206-16. Volume remained static.

NYSE Volume 1,469,365,000
NASDAQ Volume 2,078,145,375

While stocks were taking another one on the chin, commodities were offering proof that speculation is not yet dead. Oil advanced by $4.46, closing at $47.98. Gold finished at $826.60, up another $17.80, building off multi-session gains. Silver also gained, adding 23 cents, to $10.43.

Wednesday, December 10, 2008

Getting a Grip on Deflation

It's been widely reported that while Fed chairmen, such as Ben Bernanke and his predecessor, Alan Greenspan, dread inflation, what really keeps them up at night is the opposite, deflation. There's probably more than just a kernel of truth to that nugget, and while it can be safely assumed that Greenspan, pushing 90, generally gets plenty of rest, Bernanke is probably having more sleepless nights than he would have ever imagined.

The irony for "Helicopter Ben," who got the nickname when he once opined - when a lowly Fed governor and not head of the whole shooting match - that the US has the ultimate hedge against deflation, a printing press, and that the Fed could "drop money from helicopters" if that was needed to stem a serious slowdown in the economy. Ironic, indeed, because Bernanke has used all the tools at his disposal, and then some, to halt what began as a "contained" subprime mortgage brush fire in 2007, and morphed into a worldwide credit conflagration in 2008 - and none of it has worked.

Today's rise on the US stock markets was nothing more than noise in the middle of a vicious bear market environment. Nothing goes straight up or down, but the Dow seems stuck permanently below the 9000 mark and the other indices haven't gotten much traction either.

Dow 8,761.42, +70.09 (0.81%)
NASDAQ 1,565.48, +18.14 (1.17%)
S&P 500 899.24, +10.57 (1.19%)
NYSE Composite 5,631.07, +108.61 (1.97%)

Ben Bernanke has presided as the Fed Chairman over the worst decline in stocks and the most gargantuan evaporation of wealth EVER. Note, that's not "since the Great Depression," but of all time. An estimated $13 trillion dollars has vanished from the brokerage accounts of citizens, bank balance sheets and real estate values in just the last 16 months, much of it disappearing in just the last three.

The Fed has slashed interest rates, opened its lending facility to more than just member banks, helped Treasury give away a couple hundred billion more to banks on the brink and continues to watch over a global economy that every day sinks lower and lower down the deflation ladder. Home prices, stocks, bond yields, commodities and everything else is being repriced lower on nearly a daily basis. That today and other days are more encouraging that the days of steep losses is insignificant noise in the grander scheme. All asset classes are being treated the same: as worth less than yesterday.

Deflation's specter need not alarm everyone. In fact, as stated in previous posts, for many, deflation is a kind of blessing, giving consumers massive discounts on everything from fish to bread to DVDs. Those who worry about the effect of deflation are anyone with large sums of money, especially if those sums are invested in stocks, art, bonds, real estate or businesses. Of course, some items, like rent, for instance, or taxes, are not falling as quickly as others, if at all, but that day will come. It has to, as a part of the economic cycle, along with decreases in wages (or, more the more commonly-used substitute today: layoffs) and other basic costs, expenses and wealth measurements.

So, the real point is that as long as you have income of some kind, sufficient to meet your needs, you should be fine. If your income is shut off, you will more than likely be unable to replace it in whole (in other words, if you lose your job, your next one is likely to pay less). Those are the real sufferers. Not the banks, bankers, brokers, dealers, etc. The pain is being shared by the unemployed or underemployed and businesses who have lost access to that spending power.

In a truly democratic society, which the USA, is, of course, not, economic cycles would be eliminated by shared pleasure and pain. All wages would go up or down by the same percentage, as would taxes and prices. Naturally, in a capitalist world, that is impossible. while there is pain for some, there still is gain for others, though the two are unequal and unbalanced.

On the day, more stocks gained than lost, 4537-2149. The number of new highs to new lows remained almost static with 191 new lows to just 13 new highs. Volume trended lower than what it has been recently. Whatever rallying mood there was in the AM, dissipated badly in the afternoon, with the Dow briefly sinking into negative territory after 2:00 pm.

NYSE Volume 1,305,271,000
NASDAQ Volume 1,987,494,000

Oil gained $1.45 to close at $43.52. Gold was up $34.60, to $808.80. Silver was higher by 35 cents, to $10.20 per ounce. All of these commodity traders, especially those in precious metals markets are still insisting that theirs is the only "true" currency, that gold should soar to $2000 any day now. They are sorely mistaken. Gold is a great hedge against inflation. Against deflation, it is just another asset waiting to be devalued.

One item of note was today's Monthly Wholesale Trade Report. [PDF], which showed wholesale inventories and sales diverging at an alarming pace, year over year. while sales were lower on a month-to-month basis (-1.1%), they were actually higher than a year ago (+2.7%). Inventories were down 1.1% from September to October, but up 8% from a year ago. The ratio of inventory to sales is rising rapidly, and considering that the data is already more than a month old, is likely to be rising even today. Growing inventory during a sales slump is not a problem most businesses wish to encounter, but it is the prevailing environment today. Obviously, product is moving at a slower pace off wholesalers' shelves, another sign of the times. Consumer spending is grinding to a halt. After the holidays, it will get worse.

OK, that's today's lesson on How to Survive the Second Great Depression. Have a steak for dinner tonight. Beef is cheap.

Tuesday, December 9, 2008

Blue Chips Seeing Red

Stocks spent all day Tuesday trading underwater and ended near the lows of the day. It seems the sense of the rally from the past few days has been lost on most people with eyes, ears and brains still functioning. Any number of major firms announced more layoffs and/or 2009 forecasts that were well below previous expectations, ranging from poor to dismal, including such notables as Sony Corp., Texas Instrument, Dow Chemical, Nucor, Altera, Broadcom, Disney and FedEx.

The realities of unemployment at 8 or 9% by February, with real unemployment (including the underemployed - part time workers - and those who have simply given up looking and are not counted in government churned and massaged figures) at 14-16%, have begun to sink in, even on Wall Street.

The idea that stocks could go anywhere but down or sideways over the coming six to nine months is beginning to look like a pure pipe dream. Stocks, already battered and beaten down, are sure to fall even further, perhaps as much as 30% or more from current levels. I do not enjoy making these kinds of predictions, but somebody must speak the truth.

Bankruptcy protection is being sought by entities as diverse as the Tribune Co. and the Baltimore Symphony. The list of companies already having announced layoffs is so massive that it took CNBC three full pages to cover them all. But that's hardly the end of it. CNBC also reports that even more job losses than predicted are possible. They're looking at 400-500,000 again in December.

Once again, one has to question where this is all heading. It's pretty simple if you are unafraid to face reality. We are entering a global depression, the likes of which the world has not known since the dreadful 1930s. The culprits are the same - overleveraged bankers without supervision from government led to massive failures (see Citigroup, AIG, Lehman Bros. Bear Stearns, Countrywide, Merrill Lynch, et. al.), government assistance arrived too late and in too arcane a form, credit markets either collapsed or were so severely reigned in by the creditors that almost nobody could borrow for anything, leaving ordinary citizens without work, without credit, and mostly without money to pay for even basic necessities. It's time for the churches to re-open the soup kitchens en masse.

If 16% of the employment force is realistically not working, not earning and thus, not spending, consider the effect that has on all businesses, at every level. There is going to be a shortfall in either gross sales or profits, but more than likely, both. That will only lead to more layoffs, less sales, slimmer profits and a reinforcement of the deflation cycle. Prices will become cheaper for everything, though few will have the money to afford anything.

All of this will take some time, but in the meanwhile, class warfare will break out between haves and have-nots. The haves will be mostly those in the employ of various government entities - towns, cities, states and the feds. The have-nots will generally be everyone else. Somewhere in between these will be a new class of entrepreneurs, hardened like steel to the new environment, who will eventually take the lead in retooling the old establishment and redefining business for the 21st century. Many of these people will be unseen, toiling on the internet or otherwise in relative obscurity, but they shall be the long-term winners. Business models of the past, along with any needless government intervention and regulation, will be tossed aside, ignored or worked around. Give them a broken economy, a computer, keyboard, a mouse, and about four to six years and these new business leaders will reshape everything from journalism to banking to energy. Many of them have already begun.

That there will be a silver lining in the form of new structure of economics, business and leadership won't matter much to the millions who will lose jobs, homes, self-respect and sadly, for some, lives. America and the world is about to embark on a terrible journey to hell and back. Some will not survive the trip.

It was only yesterday that I was informed - much to my surprise - that some very well-heeled-looking people had actually considered filing for bankruptcy over the weekend, and they still may. This is the plight of the typical American suburban family with kids, no savings and loads of debt who are being squeezed by banks that are cutting lines of credit, mostly the home equity variety. The bankers are more than happy to loan cash or credit for goods at 15-25%, but those 6% lines are quickly becoming a thing of the past.

More than any one group, it is the banking institutions - those we've been attempting to "bail out" and "keep from collapsing" - that have caused and continue to exacerbate the conditions extant in the US and broader economies. There's nothing new about this. Brain-dead bankers have always been at the forefront of the worst of any condition: wars, famine, pestilence, foreclosure, bankruptcy, you name it, the bankers will be there with unbending rules and outstretched hands. They are the scourge of every society, from the Pharaohs of Egypt to modern times.

So, is the general investment community and Wall Street finally "getting it?" Not quite yet. There are still advertisements and commercials touting investing in stocks. There will be fewer of them in coming months as the value of stocks sinks further. I've seen ads so convoluted as to suggest that the best time to make money with stocks is during bear markets. Since stocks go down during bear markets, nothing could actually be further from the truth. Others are calling bottoms, touting "sectors" and pimping the stock du jour to the increasingly-desperate and clueless crowd that hasn't already thrown in the equities towel.

But, as each day passes, there is more evidence that hope is fading faster, that even the mighty will fall, and fall harder than most. When 11 of the 30 Dow stocks are trading at $25 per share or less, none of them higher than $85 and all of them down for the year, the seriousness of our current economic condition can hardly be overstated.

Dow 8,691.33, -242.85 (2.72%)
NASDAQ 1,547.34, -24.40 (1.55%)
S&P 500 888.67, -21.03 (2.31%)
NYSE Composite 5,522.66, -117.02 (2.07%)

For the day, only 3 of 30 Dow Industrials finished with gains - Citigroup, DuPont and Intel. In the broader market, the selling intensified as the day wore on, with declining issues outdistancing advancers by a margin of 4452-2264. The number of new lows increased again, to 182, versus a paltry 20 new highs. Volume was a little stronger than normal. All indications are pointing to a retest of the October 27 and November 20 lows. Chances of falling below the year's bottom (Dow 7527) are high, and general concerns are mounting again.

NYSE Volume 1,434,055,000
NASDAQ Volume 2,277,691,000

Oil fell another $1.55, to $42.16. Gold gained $6.40, to $775.70, while silver dropped 16 cents to $9.82. Commodities continue to tell today's story and that of the future. As commodities slump, so will prices of all goods. In addition to drops in the main trio followed here daily, prices for everything from natural gas to pork bellies have taken hits over the past few months.

The remainder of the week offers little in the way of economic data until Friday, when the PPI figures are released along with November retail sales, which have already been demonstrably weak according to data supplied by the retailers themselves and various tracking firms. If no news is good news, it would likely be preferable to ignore what is sure to be a dismal day of data to finish the week.

Only 16 days until Christmas!

Monday, December 8, 2008

More Bank for the Buck Monday

Investors followed up Friday's dazzling rally - on the heels of one of the worst monthly jobs reports ever - with another day of inexplicable gains for beaten-down stocks. all of the major indices recorded gains of at least 3% on the day, boosting the averages back above levels prior to last Monday's near-fatal crash.

Dow 8,934.18, +298.76 (3.46%)
NASDAQ 1,571.74, +62.43 (4.14%)
S&P 500 909.70, +33.63 (3.84%)
NYSE Composite 5,639.68, +238.43 (4.41%

That puts the onus clearly on the most speculative players on the street, as stocks have, as of today, reached levels oddly reminiscent of mid-October, when the economy and the stock market (a leading indicator) were in the throes of one of the worst down-trends of all time.

Clearly, there is something missing in the equation. Investors were dumping stocks for months, culminating in a pair of deep dives to unprecedented levels on October 27 (Dow 8175) and then November 20 (Dow 7552). Since then, nothing has really changed. As a matter of conjecture, conditions have likely worsened, bringing into play the possibility of massive short-covering on both Friday of last week and today.

The non-farm labor report released on December 5, which portrayed the US economy as teetering on the brink with a net loss of over 1/2 million jobs serves as a backdrop to whatever trading has followed. While slashing jobs are generally viewed as good for the balance sheet, the sheer size of November's losses (to say nothing of the revised figures from September and October) must give one pause to consider the general health of the overall economy.

Even the argument that US companies are insulated against US job losses because of their now-global stature fails to hold water. The rest of the world's labor force is being similarly downsized, crimping demand for all manner of products. Retail sales, auto sales and commodity prices are all lower. stocks continue to recover, however. The depth of the denial in the minds of investors and Wall St analysts is stunning.

On the day, advancing issues held sway over decliners, 5153-1637. Today's gap-up did manage to quell the swelling in the number of new lows, which shrank to just 164. There were, however, only 29 new highs. Volume was at normal levels. All this indicates is that investors are still day-trading. No real trend exists except the persistent signs of a solidly bearish market.

NYSE Volume 7,334,573,000
Nasdaq Volume 2,340,814,750

Commodities were mostly priced higher. Oil rebounded $3.11, to $43.92. Gold climbed $22.00, closing at $774.20 in New York, while silver jumped 59 cents, to $10.02.

There was little in the way of genuine news. Congress is still mulling plans to either loan or give money to the Big Three automakers - Ford, GM and Chrysler - though there has been some grumbling about Chrysler, since they have been in private hands for over two years now, owned by Cerberus Capital Partners, a private equity buyout firm. UAW has made comments seeking a board seat and other management concessions in exchange for wage cuts. The price of the Big 3 Bailout is somewhere between $15 billion and $34 billion, though the estimates continue to point toward the lower end of that range.

Media conglomerate, Tribune Co., sought Chapter 11 bankruptcy protection, though, in a pique of irony, kept the Chicago Cubs and Wrigley Field out of the protective umbrella. The Cubs have not won a World Series since 1908. Tribune owns some highly-regarded media properties, including the Chicago Tribune, the LA Times, the Baltimore Sun and Chicago superstation WGN.

They are the first major newspaper chain to seek bankruptcy protection, but surely won't be the last. It just goes to show the value system in America today: bankers get bailouts; writers get rocks.

Friday, December 5, 2008

1/2 M Jobs Lost in Month. Stocks Rally? Really?

US employers slashed 533,000 jobs in November, according to the most recent Nonfarm Payrolls report, released this morning by the Dept. Of Labor.

While that figure alone may be mind-boggling, being that it was the largest one-month job loss since 1974 (when we went off the gold standard), the number crunchers at Labor provided more proof of just how sloppy and contrived government figures have been.

Employers cut 403,000 jobs in September, versus 284,000 previously estimated. Another 320,000 were chopped in October, compared with an initial estimate of 240,000.

It's becoming increasingly clear that Bush administration operatives were hell-bent on keeping a lid on the depth of economic destruction leading up to the election. Not only have we learned - on Monday - that the US has been in a recession since December of 2007 (despite "official" GDP figures for the 1st and 2nd quarters of 2008 showing growth), but now we have revisions of 199,000 more jobs lost in the two months just prior to the election.

It's a good thing these people are on the way out. Maybe we can restore some faith in government with a new administration that gives us the straight story, and that's a big maybe.

Dow 8,635.42, +259.18 (3.09%)
NASDAQ 1,509.31, +63.75 (4.41%)
S&P 500 876.07, +30.85 (3.65%)
NYSE Composite 5,401.25, +168.99 (3.23%)

As expected, stocks started out the day on the downside and spent most of the session in the red, until about 2:30 pm. At that point, following a 250-point rally that brought the Dow Jones Industrials to break-even, stocks went straight up. It seems the good, old, tried-and-true pumping tactics of the PPT have not gone the way of the buggy whip and the typewriter.

With stocks taking the worst jobs news in decades so much in stride that they would rally, one has to believe that today's action is about as temporary as a prostitute's decency. Stocks, by almost any measure, have much further to fall. The rosy pictures painted by economists fail to understand the dynamics of the global economic tsunami which has swept in via the corrupt banking and capital-creation system.

Figure the Dow at 5,000, the S&P at 500 and the NASDAQ around 1000 before this is all over.

If those figures sound too harsh, take a gander at any long-range linear charts of the indices in question to discover just how overvalued stocks had become since 1982. Then try to understand the concept of "mean reversion" in which the indices will revert to old habits and ranges. We've been involved in the largest economic fiction ever devised, which began in the 70s when we went off the gold standard, and increased in complexity through Reaganomics, was exploited through the Clinton years and finally exposed and degraded during the Bush II administration.

Of course, nobody believed me when I predicted - last year - that the Dow would plummet below 10,000. Heck, i hardly believed it when it actually happened. Now, I understand just how correct I was and have gotten over the shock and scare of a global depression and can clearly predict where the economy is headed.

We're in for a world of hurt. If the last few months seemed harsh to you, prepare to grab your ankles for another rough ride. This is going to get MUCH, MUCH WORSE than anyone believes or is prepared to state publicly.

If today's trading is any indication, the stock market, along with the government, has gone completely off the rails. More likely, each of them have been far from solvent or honest for at least 18 months. Now would be a good time to start declaring 10 dependents on your W-2, hoarding cash, canned goods and firewood (along with firearms). The rioting will begin sometime next year, if not sooner. Hungry people without jobs or homes can do two things well: riot and die. My thinking is that there will be plenty of both in coming months.

In case you haven't noticed throughout this turbulent fall, all bailout legislation has focused on big business, mostly banking, and not a penny for the average American. Worse yet, the taxpayer has not only not received a plugged nickel, he and she are responsible for the debt. That's part of the social contract we made when we elected the people who are now giving away our money. Naturally, most Americans have been opposed to bailing out businesses from the start, and still are today. The aforementioned social fabric has been pretty badly torn of late, so a new word should enter into everyone's lexicon: repudiate.

It's a wonderful word which releases you from all responsibility to the word or words immediately following it. Repeat after me: I repudiate all debt incurred by the federal government since the illegal election of George W. Bush in November 2000.

Wham! There goes about a $30,000 obligation. Now, if we could get another 200 million or so Americans to do the same thing, we could reduce our debt to pre-2000 level, when the government was actually turning a profit and our national debt was something on the order of $3.8 trillion, not the $12 trillion it's about to become. You want to see stocks soar? Try that little trick!

On the day, advancing issues pummeled decliners, 4496-2151, but the truth lie in the number of new lows (489) to new highs (29). New highs have been flat for some time, though new lows showed gains all week. Trajectory is still negative. Volume was normal.

NYSE Volume 1,552,209,000
NASDAQ Volume 2,224,416,000

That stocks went up so much on Friday is odd, since everything else seemed to be falling in price. Oil fell another $1.92, to an unbelievably reasonable $41.75. Get out and buy an SUV for Christmas! Gold was down $6.50, at $759.00. Silver gained a penny to $9.53

Despite Friday's gains, all indices ended lower for the week, which is as it should be, though we are not nearly down as much as would normally be expected. That 7500 level was no bottom.

It wasn't a really bad week for some, though for people without jobs, it isn't getting any easier. New businesses need to be formed to replace the ones failing now. The biggest and best - companies like Coca Cola (KO), Proctor & Gamble, Exxon-Mobile, Wal-Mart and McDonald's will survive and even prosper. There are actually some good value plays with dividends emerging from that group. But for the rest of the smaller, leveraged businesses and individuals, life is going to sour.

What say we abolish or severely cut the payroll (income) tax? Nothing would put people back to work and boost real estate values any more effectively. Let the federal government run a deficit on that basis.

But Friday's rally seemed to be right out of one of Kafka's most visceral dreams.

Thursday, December 4, 2008

More Churning, More Carnage

Unless you are an idiot or simply a "contrarian," you probably don't have much money invested in stocks at this juncture. Of course, you could be fabulously wealthy and still own stocks, but you are now a little less fabulous and a lot less wealthy. So, why do I write a piece of market recap and rehash every day? Eventually, there will be bargains and there will also be a time to begin investing again and until that time, it pays to stay informed, because...

The destruction of the US economic system continues apace. On Thursday, the Labor Department reported that there were more people on unemployment insurance than at any time since 1992.

Manufacturing slowed once more in October. Factory orders fell for the third month in a row, down by 5.1%, according to the latest government statistics.

There is one sliver of truth in government figures. One can safely assume that after the head-bobbers and number-crunchers get their mitts on raw data, it's been so heavily massaged that it wants nothing more than a hot shower and a nap. The numbers released by various government agencies have a common thread: They are always wrong. If it's good news, they usually make it sound better than it is, and the same goes for bad news. In other words, if the government were to report that, say, 300 people died in turkey fires over the Thanksgiving holiday, the real number would likely be 20-30% higher.

Thus, today's report that factory orders declined by 5.1% should more accurately be noted as 6.2%. It truly is becoming worse than "they" say it is.

People are losing jobs at a rapid clip. Those in the public sector, by the middle of next year, will be the last ones standing. Expect unemployment to reach at least 10%, according to the feds, because the real figures are already approaching that and may shoot as high as 15-17% before this economic disaster is fully played out. Not only are jobs being surrendered, people are not finding new work.

Retailers announced massive year-over-year declines, mostly in the teens, but that's hardly a surprise to anyone paying attention.

By the time Mr. Obama takes office in January, there may not be much of an economy left to rescue. He'll surely step into a world of problems, none of which were his creation, but which he will be blamed for and charged with the responsibility to fix. The poor man didn't realize what a mess would be handed to him. He'll need the help of every American to bring our country back from the brink of economic doomsday and it will take much longer than anyone currently anticipates.

Stocks did on Thursday what they do best, they went down some more. The selling was in response to some of the economic news, but, being that the bulk of the losses occurred in the last hour much of the trading was geared toward Friday's pre-opening non-farms payroll report for November, which is likely to record another 200,000+ job losses and send stocks spiraling down even more.

Dow 8,376.24, -215.45 (2.51%)
NASDAQ 1,445.56, -46.82 (3.14%)
S&P 500 845.22, -25.52 (2.93%)
NYSE Composite 5,232.26, -173.29 (3.21%

As expected, losers outpaced gainers, 4792-1914. New lows surpassed new highs, 340-31. Ho-hum. Nothing new there. Volume was moderate.

NYSE Volume 1,469,269,000
NASDAQ Volume 2,063,347,000

Oil declined to its lowest price level in four years, losing $3.12, to $43.67 a barrel. Gold lost $5.00, to $765.50. Silver slipped another 7 cents to close at $9.52 per ounce. The commodities continue to follow the deflationary course.

So, what is one to do if the US economy really is worse than it appears (and that's pretty bad, as it is)?

If you have any stocks, sell them now. The cash will come in handy and there won't be a rebound to levels seen earlier this year for many equities for a number of years, like five, or ten, or longer. Some of the companies in which you may already be invested will not even be listed at this time a year or two from now. There will be massive layoffs, followed by bankruptcies in all sectors. Nothing will be spared.

Also, if the banks haven't already severed your lines of credit and you are a little short on cash, take the cash from your credit line, or buy things you can quickly convert to cash. Banks are pulling lines of credit all over the map. If you've got a 5% home equity line of credit, take a large lump sum in cash. The bank will likely balk, and afterwards close down your credit line, but you will have the cash and it will be better than credit.

Save. Put money aside. Put off that trip to the mall; buy less expensive gifts; cut back on unnecessary expenses.

And, most of all, don't panic. There will be plenty of that going on without you joining the chorus of screams and rants. Besides, if you're prudent and wise, you will be able to snatch up valuable assets at a fraction of their true value. And in the long run, you will emerge far ahead of the pack.

Wednesday, December 3, 2008

Afternoon Surge Results in Winning Wednesday

US stock indices recorded another positive day - the second in a row - as investors shook off dismal job projections and focused on what seem to be bargains all over the markets. stocks have been so severely hit in recent days that speculators have little choice but to jump in, though more cautious types continue to resist the temptation to dive into equities as the year enters its final month.

Trading wasn't as broad-based as yesterday's action, and the results were a bit less inspiring, but the major indices have regained 70-80% of what was lost on Monday as fear of a continued recession shook markets to their core, sending the Dow Jones Industrials to its 4th-worst point loss in history.

The past two days have seen the now-normal volatility, with indices and individual stocks making wild swings over the course of the session. Today's ride on the Dow was a 390-point swing from the lows to the highs. The Dow ended near the highs of the day, which were achieved in the final ten minutes of trading.

While congress dithers over what to do about the Big Three automakers, Wall Street is busy doing its own handiwork, though the trading recently has devolved into what looks more like insider churning or day-trading, with no real establishment of positions and quick exits from both profitable and losing positions. Traders are certainly on their toes as we wend our way to the conclusion of 2008, one of the worst ever for the stock markets.

Dow 8,591.69, +172.60 (2.05%)
NASDAQ 1,492.38, +42.58 (2.94%)
S&P 500 870.74, +21.93 (2.58%)
NYSE Composite 5,405.55, +96.60 (1.82%)

Things got off to a dreadful start when ADP - a private firm which tracks employment - said their November report showed that the economy shed 250,000 jobs, the worst one-month number since 1991.

Stocks quickly recovered from that somewhat expected news and spent most of the remaining session after 10:00 am in positive territory.

Advancing issues outperformed decliners for a second straight day, though the margin was not overwhelming, at less than 2-1: 4280-2414. New lows were greater in number than new highs, 273-36. While this has been a persistent indicator for 13 months now, we are beginning to see a small increase in the daily number of new highs. Though the numbers are tiny, they are heading in the right direction, but it must be cautioned that some of the companies making new highs are those recovering from the first wave of declines near the end of December, 2007. An increasing number of stocks making new highs should not be seen, in and of itself, as an indication of anything other than the mere fact that some beaten-down stocks are beginning to recover.

The markets remain highly bearish and will remain so for what appears now to be a very long time. There is little hope that the US economy can begin to pull itself out of recession before the middle of 2009, at the very earliest. Severe damage has been done to the very structure of the system, and thus far, efforts to repair it have been inconsequential or ineffective. The condition of the economy since September of this year and August of 2007 has continued to deteriorate. There is no indication that this erosion is coming to an end.

Volume was on the high side, but it should be with the year coming to an end. There are a plethora of reasons to sell at this time, and not many good ones to induce buying, but there is still some speculation, despite dire warnings all around.

NYSE Volume 1,551,506,000
NASDAQ Volume 2,279,699,000

One area which continues to trend lower is in commodities of all kinds. Lower prices for all manner of raw materials eventually is going to wend its way through the supply chain and into finished products. There is going to be a prolonged period of price uncertainty and outright deflation, which could last through 2009, 2010 and beyond. Ability to adjust pricing on-the-fly, so to speak, will be critical to success at almost any level. This kind of pricing flexibility favors smaller companies with established expertise in technology, which is why internet retailers are not suffering as much as their brick and mortar counterparts during the holiday season.

Oil closed at or near multi-year lows, down 8 cents, to $46.88. Gold tumbled another $8.50, to $774.80, while silver gained 2 cents to $9.63.

The equity markets remain somewhat in suspended animation, awaiting the inauguration of President-Elect Barack Obama on January 20th. A new congress will be sworn in days earlier, but the hope that somehow government, the creature responsible for much of the current catastrophe, will come around with a quick fix is looking more and more like a pipe dream.

The economy has suffered more than a couple of body blows over the past two years. The damages was the result of many more years previously in which the Fed and government allowed loose credit, fiscal and monetary policy to cause structural damage to the underpinnings of the system. The kind of damage inflicted is not going to be repaired in short order. There is going to be a long period of transfusion, rest and recovery, because the "patient" nearly died on the operating table.

If you were not prepared for the long haul, you would do well to relocate outside the US for the next few years, but choose carefully. This economic disaster has spread around the globe.

Tuesday, December 2, 2008

We Are In a Recession, Maybe?

Stocks spent the entire Tuesday session making up for Monday's mess, finishing at their highs of the day. The gains were equivalent to roughly 40% of yesterday's losses, when the government - to the surprise of a limited few - admitted that the economy has been in a recession since the 4th quarter of 2007.

That revelation begs the obvious question: if a recession is defined as two consecutive quarters of negative growth in the GDP, can we assume that the government figures from the first two quarters of this year were slightly fudged?

The first and second quarters of '08 were "officially" gainers, so we were not in a recession then, were we? Or were we?

That's the problem when the government is made up of all variety of scoundrels and thieves, more intent on lining the pockets of themselves and their friends than actually working in the best interest of the citizenry: Numbers get abused, the populace becomes confused and everyone loses.

Last week's rally and the action today is somewhat of a suggestion that people believe the final days of the worst administration in US history will be quiet and uneventful. We can only hope and pray that there's still an economy worth saving by the time President Obama takes over the Oval Office.

Those sentiments are merely window dressing to the real churning that currently plagues Wall Street and the millions of Americans who dread opening their pension or retirement fund statements. There's some thinking that every decline is an opportunity to buy low, but, at the same time, an equally large number of traders is still looking for a bottom.

For the record, the lows of October 27 were tested, retested, and broken down in late November. The current low-water mark is now 7552.29 on the Dow, the closing price November 20. That number came about after the October 27 low of 8175.77 failed to hold. So, we can safely assume -- since we are in a recession, after all -- that stocks will sag through most of December, unless one believes that the bottom is already in (Please, don't make me laugh so hard.). until that low point has been thoroughly tested, bounced off and fleshed out.

Dow 8,419.09, +270.00 (3.31%)
NASDAQ 1,449.80, +51.73 (3.70%)
S&P 500 848.81, +32.60 (3.99%)
NYSE Composite 5,308.95, +216.29 (4.25%)

Today was a classic relief rally, with advancing issues outdoing decliners, 4882-1820, though new lows surpassed new highs by a score of 270-26. Volume was on the heavy side, and all this as automakers planned to return to Washington - this time with actual plans in hand - to cajole the head-nodders in congress for more money.

Those industrial giants will get their money, no doubt, and spend it like drunken sailors. All of this bailout money is going the way all things earned without effort go, quickly down a black hole. The US economy has a lot more worsening to do before it begins to get better, and throwing more money at it isn't a novel idea, nor is it likely to induce a lasting solution.

NYSE Volume 1,611,136,000
NASDAQ Volume 2,104,266,000

In the commodities markets, oil took another turn to the downside, off $1.66, to $47.62, while the metals advanced marginally. Gold gained $6.00, to $782.80, while silver added 18 cents, to end at $9.56 the ounce.

Gold bugs are insistent that the yellow metal should be trading in the range of $1500-2000 per ounce, though the current pricing seems to suggest that they too are overly optimistic. What the current crop of gold-lovers - like their counterparts in the equity markets - fail to understand is the devastating effect of deflation on all asset classes.

The global economy is likely to remain in a deflationary spiral for at least the next two years, probably longer. This is simply a sober assessment of what the subprime-credit-banking mess has wrought. Not only have trillions of dollars of wealth already been vaporized, there is still a limited amount of confidence in the markets. Nobody really has a taste for any of this bitter deflation pill, but it is one we all must swallow, like it or not. The consequences are neither simple nor pleasant, though, in a nutshell, it can be safely assumed that people at the top of the income and wealth ladders will be most severely affected, while those at the bottom will have alternately hard times or grand times, depending on how one plays the game.

Those who are frugal and opportunistic will prosper. Those tied to the economics of the last dozen years or so, will feel more pain than they'd like.