Tuesday, January 22, 2008

Bernanke Blinks; Big One Forestalled

With markets tanking worldwide on Monday, the calls came in from central banks and economists around the world to Ben Bernanke to rush his rate cuts to the market to avoid a catastrophe.

By Monday night, the Federal Reserve Chairman had made up his mind and folded like a cheap suit, but the markets wouldn't know until around 8:30 am ET. Prior to that, here's what was flashing on trading screens:

06:47 am : S&P futures vs fair value: -57.3. NASDAQ futures vs fair value: -70.8.

06:47 am : FTSE...5586.70...+8.50...+0.2%. DAX...6729.26...-60.73...-0.9%.

06:47 am : Nikkei...12573.05...-752.89...-5.7%. Hang Seng...21757.63...-2061.23...-8.7%.

With the announcement of an emergency cut to the federal funds rate of 75 basis points (0.75%), the markets refused to go along. At the opening bell, the NASDAQ was down 114 points, the Dow fell 450 minutes after the open and at 9:33, the S&P was down 31 points.

From there, stocks took a u-turn, thanks to underhanded funding from the Plunge Protection Team (PPT) which immediately knocked 200 points off the Dow's losses. As the day progressed, the "invisible hand" of the PPT continued to pump money into stocks, nearly erasing the losses entirely.

Trading was highly suspect throughout the session. Volume was explosive in the first hour, then dawdled and dwindled, even though the totals were on the high end. In general terms, the Fed and Treasury pulled off one of the more dramatic and obvious frauds in stock market history.

Dow 11,971.19 -128.11; NASDAQ 2,292.27 -47.75; S&P 500 1,310.50 -14.69; NYSE Composite 8,661.18 -133.68

Even the press was involved in the fraud. In this story from Reuters, headlined on Yahoo Finance at 10:56 am as Wall St. cuts losses in half on bargain hunting, though the Reuters headline actually read, Market falls on recession worries.

From the article:
But by midmorning, major indexes had halved their losses, as investors snapped up beaten-down retailers, home builders and financial services companies after the Federal Reserve cut interest rates by 75 basis points in a surprise intermeeting decision.

That statement is almost certainly untrue and Reuters would be unable to provide proof if required. The story was later pulled from the list of available headlines. Nobody was buying stocks except agents of the Federal Reserve and the Treasury through their proxies at Goldman Sachs, Bear Stearns, Lehman Brothers and Merrill Lynch. This was typical Plunge Protection Team work, stopping the markets from a total washout, which was almost certain to occur, despite the Fed's desperate emergency rate cut of 75 basis points prior to the opening bell.

Stock manipulation was evident throughout the session, with the Dow closing to within 7 points of break-even just after 3:30 before selling off with gusto, losing over 120 points in the final 30 minutes.

While the Fed pumped $10 billion into the markets through their typical open market repurchasing (repo) activity, there was probably another $30-50 billion in secret, "underground" funds through the PPT, which is kept off-the-books and will likely never be revealed except to the inside players who manipulate the market with magic liquidity, flooding the world with fake capital and doing irreversible damage to the US dollar.

The point is that the markets are being falsely pumped to the upside and have been for years. There's likely an overhang of more than a trillion dollars worth of bogus liquidity that's been priced into stocks over the past 8-10 years. The number might actually be larger, and I am using a trillion as a conservative estimate.

Real damage is done to markets when manipulated by secretive bodies such as the PPT. Since equity prices are primarily perceived value, investors are subjected to stock prices that are an illusion. US stocks on average are probably worth 20-30% less than present values due to these distortions.

While the newspapers and internet reports will praise the Fed's "quick thinking" the truth is that stocks will continue to decline. Truly wise investors know that this market - and most other world markets - is teetering on the brink of collapse, and only clandestine operations saved it from total destruction.

The internals were telling. Declining issues pummeled advancers by 4064-2385, but the reading of new lows was literally the highest number I have ever seen. There were 2070 new lows to only 69 new highs. Nearly one in three stocks hit 52-week lows on Tuesday. Clearly, the market averted meltdown... for now.

Oil traded 72 cents lower, closing at $89.85. Gold was up $7.90 to close at $889.80. Silver gained just 2 cents to $16.04.

The view from this outpost is that investors should expect more severe losses over the next 3-6 months. The Fed's magic won't work indefinitely on a global financial system that's essentially broken.

NYSE Volume 6,256,598,000
Nasdaq Volume 3,109,516,000

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