Friday, October 31, 2008

Markets Finish Stellar Week With Solid Gains

Wasn't it just a week or two ago that the world was about to end? Our global financial system was supposed to fall into some Keynesian Black Hole unless governments printed massive amounts of money and handed it over - pronto.

Well, that's what happened, kind of, and it worked, if you believe the whole story, from the blowup of Bear Stearns to the credit squeeze of September, to the "emergency" measures taken by the Fed, Treasury and the congress, whose members had that "deer in the headlights" blank stare throughout the whole process.

And glory be! Here we are with stocks around the world sporting gains like we cured the common cold, landed men on Mars and won the Triple Crown all in the same week.

The gains of the last week of October were nearly as robust as the losses earlier in the month, For the week just ended, the Dow Jones Industrials picked up 947 points; the NASDAQ ratcheted up 169 points; the S&P 500 got a 92-point boost and the NYSE Composite gained 674 points. Not bad, considering we were supposed to be facing down imminent economic collapse. Obviously, some people aren't buying the narrative.

Dow 9,325.01 +144.32; NASDAQ 1,720.95 +22.43; S&P 500 968.75 +14.66; NYSE Composite 6,061.09 +86.06

There are two dominant schools of thought at present. Both assume that the core of the crisis was a toxic combination of subprime mortgage loans, repackaged and sold as CDOs (collateralized debt obligations), plus bets against them in the form of credit default swaps and insurance on the bets (which is what AIG was holding when it blew up in their hands).

One school thinks the entire affair was above board and that the various government actions, including rate cuts, cash injections of billions of dollars, francs, yen and pounds into banks in developed countries, and a smattering of other "credit easing" measures were necessary and useful.

The more conspiratorial school believes the whole thing was cooked up by the banks and to varying extents, the governments involved, and that all the measures taken were just part of a high stakes con game in which Wall Street bankers stole billions.

How involved the two major political parties in America were involved is a matter of conjecture. Truth is that both were probably more deeply involved than we will ever know, but the end result is another free pass for the Bush thugs as they walk away with billions, and the ushering in of the Democratic party with full control and a somewhat busted budget.

If the crisis did anything, it assured the election of Barack Obama, which should have occurred any way, but also will help put a hard Democratic party majority in congress, to pass whatever legislation they see as suitable.

Whoever said, "fundamentals don't matter," hit it right on the nose for September and October of 2008. There was nothing fundamentally trackable throughout this entire episode. It was all political. Don't kid yourself.

On the day, the real fundamentals that mattered were very positive. Gainers outraced losers by a healthy margin, 4735-1640. New lows were once again far ahead of new lows, 205-18, though the number of both and the gap between them has stabilized into a range for now. Volume was moderate.

NYSE Volume 1,563,234,000
NASDAQ Volume 2,479,693,000

Commodities traded all over the board, but in the end, oil was up $1.85, to $67.81, gold lost another $20.30, to $718.20. Silver fell 6 cents to $9.73.

So, where are we now, and what's ahead? I thought you'd never ask. We have the federal funds rate at 1%, the Dow at 9300 and change and a recession that's probably already a year old. Oil is down, gold is moderating and $12 trillion dollars of wealth has just been whisked away, most of it into the ether. It's 2003 all over again! Time to start a war and buy some houses! And stocks are cheap, too! Break out the band, and have them play "Happy Days Are Here Again" until the horn section runs out of breath.

But wait, there are two big events next week. On Tuesday, we elect a new president, a whole new House of Representatives and a slew of Senators. On Friday, we get the Labor Department report on Nonfarm Payrolls from October. There will be a rally on Wednesday, for sure, and some give back on Friday, in all probability. But, not to worry, we're fine, just fine.

Have a pleasant weekend. Vote early and often.

Thursday, October 30, 2008

Contraction Confirmed; Stocks Jump

Wall Street is a strange and mystifying place. What often occurs on a given day often is the opposite of expectations. Thursday was one of those days.

The Commerce Department concluded, in their initial 3rd quarter estimate, that GDP contracted at an annual rate of 0.3%

Both the GDP report and the weekly initial unemployment claims figure of 475,000 were released an hour before markets opened, but investors seemingly have already discounted the news and were cheered that the GDP figure was less of a contraction than predicted.

With opinions on whether or not we're in a recession ranged from the taciturn and pedantic - recession is defined as two consecutive quarters of contraction - to the ridiculous and sublime. Nouriel Robini, the economist from NYU who has been predicting a harsh recession for some time, testified at a congressional hearing, "if it walks and quacks like a recession duck, it is a recession duck and we are in a recession."

Dow 9,180.69 +189.73; NASDAQ 1,698.52 +41.31; S&P 500 954.09 +24.00; NYSE Composite 5,975.03 +200.14

Roubini, who made the same kind of quirky quack on his blog in July pointed out then that the recession may have begun in the 4th quarter of 2007.

Roubini is obviously on the right track. Considering how desperate Republicans were to steer clear of a recession with the all-important election coming up in 2008, it doesn't take such a leap of faith to believe that 2008 1st and 2nd quarter GDP figures were largely fudged to obfuscate the obvious and that we've been in the throes of a contracting economy for more than a year.

Why else would stocks take their cue and rise smartly on the news of a smallish contraction? Smart money on Wall Street is betting that the recession will be largely over by the 2nd quarter of 2009 at the latest, making it a rather long and deep one, but one which is now in its latter stages.

Also weighing into the equation no doubt it the upcoming election, in which almost all indications favor the election of Barack Obama as the nation's first black president and a powerful majority in congress for the Democrats. Investors seem to not mind at all that Obama is a Democrat or that both the executive and legislative branches of government will both be in Democratic Party control.

That big money interests would think along those lines also does not take much of an imagination. Apparently, not many in the financial and business realm are too worried that Obama is going to do anything that will significantly upset the economy. All through the long primary and election seasons, Obama has displayed a cool and calm demeanor - and business loves predictability and a sure hand.

Just watch over the next few months how the argument shifts away from the economy. The banking crisis is now becoming ancient history. The Fed and Treasury panicked and congress went along to give banks much more assurance than they ever needed. As the money is now rolling out of the government coffers and into the hands of the slimy, scheming bankers, they'll be sure to cooperate lest Mr. Obama and a forthright congress take away their fat bonuses. That cake - and the deal - has probably already been taken and eaten. With Nancy (off the table) Pelosi in the mix, there's probably no chance of prosecution of these conniving masters of shadow finance, either.

The trading on Wall Street also was much calmer than it has been lately, a sign that volatility is on the wane. The extremes seen over the past month are difficult to maintain for long. Eventually, everything returns to some semblance of sanity and normalcy, even Wall Street.

On the day, advancing issues galloped past decliners, 4866-1401. The gap between new lows and new highs also continued to compress. There were 244 new lows, and just 13 new highs, but the difference is much smaller than it was just a few days ago.

This could be setting up for an enduring bounce rally extending through election day, when there will finally be some assurance of a positive change of leadership in Washington.

Crude oil took another small step backwards, losing $1.54, to close at $65.96 on the December contract. Gold got back to losing value, dropping $15.50, to $738.50. Silver lost 2 cents to finish at $9.79.

Exchange volume was moderate.

NYSE Volume 1,375,164,000
NASDAQ Volume 2,591,070,000

Wednesday, October 29, 2008

Wall Street Whiners Can't Get Enough Free Money

The FOMC of the Federal Reserve lowered interest rates by 50 basis points - 0.5% - but it wasn't enough for the pampered, worthless lot of business morons on Wall Street.

Instead of greeting the rate cut (unnecessary and mostly inconsequential) with open arms, stocks took another loss. It was just another example of how overfed Wall Street has become. They can't even make good money with the federal funds rate at 1%, which, incidentally, was the rate at which the whole subprime mess began.

Thankfully, hopefully, there will be a change of administration in Washington which will begin to detach itself from the single-minded preoccupation with banks and the workings of Wall Street and begin to address the issues which will really matter to Americans: jobs, infrastructure, extricating ourselves from never-ending wars and solving global warming by instituting policy initiatives which promote conservation, alternative energy, reuse and recycling.

There are days which try one's will and one's nerves and this was surely one of them. With just three more working days before the election, the ongoing "crisis" mentality that pervades every aspect of the news, along with the long election coverage, is wearing extremely thin.

That investors can't see value in stocks at these levels and express themselves by torpedoing the markets is childish and churlish at the same time. One hopes and prays that the election will proceed without too many glitches and we, as a nation, can move on from the overwhelmingly loathsome conditions brought to bear by a madman president and a bunch of policy-makers who had their own way and still managed to make things worse for most of it.

Dow 8,990.96 -74.16; NASDAQ 1,657.21 +7.74 (0.47%) S&P 500 930.09 -10.42; NYSE Composite 5,774.8901 +41.43

Well, maybe it wasn't all that bad. At least the NASDAQ and the Comp. were higher.

Market internals also improved. Advancing issued outnumbered decliners, 3893-2381. New lows beat new highs, 319-8. Volume again was moderate.

NYSE Volume 1,619,567,000
NASDAQ Volume 2,771,578,000

One noticeable effect of the Fed's rate cut was in the price of crude oil, which gained $4.77, to $67.50. Gold was up $13.50, to $754.00, while silver added a massive $1.02, to $9.81.

Six days and counting until the election. These are times which try men's souls.

Tuesday, October 28, 2008

Wall Street's Huge Rally Not Unexpected

Economic news on Tuesday was not cheery. Not even close.

Standard & Poor's/Case-Shiller 20-city housing index dropped a record 16.6 % from a year ago, the largest year-over-year decline in the survey's 8-year history.

The Conference Board issued its monthly statement of consumer confidence at a previously-unseen level of 38. Analysts were expecting a drop to 51, from a reading of 59.8 in September.

Still, by 2:00 pm, all major indices were sporting healthy gains... and then they really took off, resulting in massive gains in all manner of equity investments. The Dow alone rose over 600 points in the final two hours of trading.

Dow 9,065.12 +889.35; NASDAQ 1,649.47 +143.57; S&P 500 940.51 +91.59; NYSE Composite 5,733.4399 +536.91

The most obvious cause for the outsized gains is anticipation of a 50-to-100 basis point (0.5-1.0%) reduction in the federal funds rate when the FOMC meets and issues a policy statement tomorrow.

While another rate cut may not seem like such a big deal in these turbulent times, investors seemed to be betting on improving conditions and made moves on stocks - and a general market - that has been exhibiting technical oversold signs. On Monday, the major indices registered new bear market lows, so a move upwards did not catch anyone by surprise, though the size of the gain may have stunned a few short-sellers, feeding into the rally.

So, instead of breaking below 8,000, the Dow ended the day surpassing the 9,000 mark. All but the NASDAQ saw gains of more than 10% for the day. The NASDAQ was up 9.5%.

Market internals confirmed much of the massive gain. Advancing issues outpaced decliners, 4699-1624. New lows remained persistent, however, beating down new highs, 1256-3. Volume was a little higher than Monday's, but not overwhelming, an indication that this rally will be short-lived and without legs as bargain hunters staked out positions and short sellers covered positions.

NYSE Volume 1,723,708,000
NASDAQ Volume 2,811,333,000

Commodity prices remained marginally in the red. Crude oil was down another 49 cents, closing at $62.73. Gold ended lower by $2.40, to $740.50, stopping a two-day winning streak. Silver crashed through the $9.00 level, losing 41 cents per ounce, to end the day at $8.79.

The Fed meeting tomorrow should help boost spirits, but another in a series of expected rate cuts has already been largely priced into the market. There is the distinct possibility that even though the Fed comes through on the rate cut, investors will "sell the news," being that it has been telegraphed to this skittish market.

More wild swings are a near-certainty, leading up to and beyond the November 4 Election day, given the volatility that has been the one constant through the wrenching downturn and sparkling rallies.

The market continues to attempt setting a bottom, though the pattern remains the same, with each successive low being superseded by a following test.

Monday, October 27, 2008

New Lows All Around

Stocks swung in a 400-point range on the Dow, but ended with sizable losses once more, sending all the major indices to fresh lows.

The markets opened to the downside, after news that Japan's NIKKEI index had suffered another 6% decline, hitting a 26-year low. US stocks shook that off and headed higher in the first hour, but vacillated throughout the session, finally giving way for good late in the day.

Investors still seem concerned that the fallout from the banking and credit issues still hasn't been fully reflected in stocks and across the general economy. Fear continues to grip investors with few grabbing for bargains despite stocks being down significantly over the past month and year.

Among companies posting losses or missing 3rd quarter estimates were hardware and home repair chain Lowes (L, 25.65 -5.66), which took a loss for the period of 31 cents a share, compared to a 77¢ profit a year ago, and health care provider Humana (HUM, 30.80 -5.47), which saw profits shaved by 40% from the same period a year ago due to higher operating costs.

Verizon (VZ, 27.61 +2.53) reported earnings in line with estimates, bucking the trend on a slow earnings news day.

Dow 8,175.77 -203.18; NASDAQ 1,505.90 -46.13; S&P 500 848.92 -27.85; NYSE Composite 5,196.53 -231.01

Market internals matched the headline numbers, with losers beating gainers by a score of 4948-1351. New lows once more finished far ahead of new highs, 1329-9. Clearly, there is no appetite for speculation at this juncture. With the critical US elections now just one week away, investors are clutching their cash close, making no forays into a severely troubled market. Volume was moderate, reflecting the overall lack of buying interest.

NYSE Volume 1,338,367,000
NASDAQ Volume 2,273,988,000

Commodity prices remained subdued. Oil lost another 93 cents, closing at $63.22. Gold gained for the second straight session, up $12.60, to $742.90, still more than 25% off recent highs. Silver lost another 10 cents, to $9.20.

Considering the timing dynamics involved, especially those concerning the potential massive shift of power in Washington, the declining trend should remain in place until at least Tuesday, November 4, election day in the USA. After that, there should be some kind of sober reassessment of Wall Street risk and reward, though the generally poor economic conditions - which should prevail for at least another two or three quarters - will likely keep a secure lid on equity prices.

The other factor at play is that of falling commodity prices, which should begin to manifest itself across a broad spectrum of commercial activity. While the most obvious price relief is at the gas pumps and in home heating bills, price pressure should become more evident in mainstream goods and services at the very worst of time: the Christmas season. The fallout will likely be the shuttering of marginal stores in malls across America, more retail job losses and possibly a number of bankruptcies. The Fed doesn't bail out retailers, only banks and cheating financial institutions.

On that note, more bank failures are almost sure to occur before Christmas causing even further deterioration to the banking/finance sector.

Friday, October 24, 2008

Severe Losses Again in Global Markets

Major indices across Europe and Asia fell anywhere from 5 to 9 percent on Friday, as the fear of global recession continued to plague markets.

US indices were not spared as all reached new lows, surpassing the bottoms reached on October 10. Clearly, we are nowhere near a bottom.

Dow 8,378.95 -312.30; NASDAQ 1,552.03 -51.88; S&P 500 876.77 -31.34; NYSE Composite 5,427.54 -276.59

Recent closing highs for US indices:
Dow Jones Industrials: 14,164.53, October 9, 2007
NASDAQ: 2859.12, October 31, 2007
S&P 500: 1565.15, October 9, 2007
NYSE Composite: 10,301.49, October 12, 2007

Today's (October 24, 2008) closing prices (all fresh lows):
Dow Jones Industrials: 8,378.95
NASDAQ: 1,552.03
S&P 500: 876.77
NYSE Composite: 5,427.54

Once more, market internals told the story of distress as declining issues far outpaced advancers, 5071-1286 (a 4-1 margin). New lows continued to expand dramatically over new highs, 2005-21. Volume was moderate to slightly higher than normal.

NYSE Volume 1,585,743,000
NASDAQ Volume 2,674,463,000

In the good news department, new home sales improved year-over-year by more than 5% and gas prices are significantly lower from mid-summer highs. The price of an average gallon of gas in America is well below $3.00 now.

The price of crude oil continues to collapse along with all other commodities.

Oil fell $3.69, to $64.15, (a 16-month low)despite a call by OPEC for production cuts of 1.5 million barrels per day. Gold reversed its recent downward trend with a gain of $15.60, to close at $730.30. Silver fell 21 cents, to $9.30.

More good news will continue to issue as conditions change. Bear in mind, that as the global "crisis" deepens and expands around the globe, the United States, being the first country to enter into recession, will likely be the first to emerge from the depths of despair. Something to ponder for the weekend other than the fact that US stocks are now completely in the pits.

Thursday, October 23, 2008

Markets Still Jittery

A 400-point, last hour rally sent the Dow Jones Industrials to a healthy gain today, though the NASDAQ finished at new multi-year lows and the S&P 500 was modestly higher. Once again, a high level of volatility was evident, as trade was more jumpy than choppy.

Large positions are changing in this explosive environment. The markets are in the process of retesting previous lows. By today's standard, we survived, barely, for a day.

That's how life is now measured on Wall Street: by the day, or hour, or even minutes. As far as a bottom is concerned, I'm fairly convinced we haven't seen it yet. A true bottoming out in value could still be 3-4 months out, or as soon as mid-November. From all indications, however, the holiday season is almost certainly going to disappoint. How much the market has already discounted the 4th quarter is an open question. A good guess would be, "probably not much."

One gets the definite impression that there are more than a few high rollers with cash in hand, waiting to pounce on some asset, but that they're waiting until after US election day, November 4. On that day, we may be witness to a transformational change in the way our country is run and in the administration of policy. Or we may elect a candidate who wishes to go very much further along the path recently traveled, and that doesn't seem to be working well at all.

In any case, there's surely enough action to keep one's attention, though the overall effect of trading the last two weeks has been nearly a stalemate against the lows of October 9 and 10.

Dow 8,691.25 +172.04; NASDAQ 1,603.91 -11.84; S&P 500 908.11 +11.33; NYSE Composite 5,671.93 +41.46

Oil gained a bit, up $1.09, to $67.84. It still seems to have further to fall. Likewise, gold extended its losses another $20.50, to $714.70. Silver bucked the trend, gaining four cents to $9.50. Gold seems determined to test support in the $600-650 range, and fairly soon. Warning: the precious metals may be in a falling asset zone, a message that's been reiterated right on this blog for months now.

The internals told an entirely different story for the day's trading. Declining issues led advancers, 4185-2115. There were 1390 new lows to just 14 new highs. The level of new lows has now become alarming once again, signaling another fresh round of selling and devaluation. It would not be surprising in the least.

Volume was higher than normal, especially on the NASDAQ, the only major index to show a loss on the day, where it was heavy.

NYSE Volume 1,543,673,000
NASDAQ Volume 3,158,630,000

Wednesday, October 22, 2008

Markets Worried; Second Shoe Dropping is Earnings

Third quarter earnings, especially among selected, poorly-managed internet companies like Yahoo and eBay, have been weaker than expected so far, though that's not surprising considering how top level executives of those companies have mangled their businesses.

Coupled with continuing (somewhat unfounded) fears of a global recession, investors got cold feet once more and sent stocks tumbling in a mid-week rout. Markets across Asia and Europe recorded large losses, confirmed by another round of selling in the US.

While it's apparent that there's little appetite for stocks at this juncture, much of the fear and softness in the market is due to the slow response from government, but also to widespread reports of coming job losses and tight employment conditions.

There is some anecdotal evidence that companies will be tightening their belts to a large degree in coming months, but the targets for layoffs are those usually hurt: retailers, recreation and consumer services. To a greater extent, multi-national companies in core industries outside of banking, discount retailers and business services companies will weather the storm without much disruption.

With third quarter earnings looking increasingly sad and a reallocation of priorities on the horizon, some analysts and the usually-wrong financial media are already forecasting a 4th quarter full of missed expectations, such as this Business Week article, The Coming Pink Slip Epidemic.

The headline is noisy, but there's little meat in the actual story other than citing already-known statistics and positing that economic conditions will worsen considerably over the next 90 days. In the meantime, however, companies will be making assessments and adjustments to ameliorate problems. Layoffs happen all the time, but how related they are to current credit conditions has yet to be established.

At the bottom of it all is how well the banking bailout is handled, and, of course, who wins the elections less than two weeks away.

The problem with throwing more money at banks which have already mowed through hundreds of billions of dollars via bad investments, is that they'll make more investments of equally-dubious quality. Bankers, by breed, are numbskulls who have never been very good at evaluating risk, but very good at overcharging and otherwise abusing customers. If any proof is needed, just listen to Henry Paulson speak, like he did on Charlie Rose last night, putting everyone to sleep a little early by saying, as he usually does, nothing of merit.

Giving bankers any taxpayer money at all is essentially a bad idea, but that horse has already left the barn and Americans are signed on - via our elected morons - to what is likely to be recorded in history books as one of the worst financial schemes of all time.

When one views the conditions of the world's economies, one need look no further than government and big business to find the culprits for the ongoing malaise. The longer banks and government continue handing out IOUs instead of creating real wealth through the creation of products, jobs and sensible tax policies, the longer Americans run the risk of seeing the American dream burst like all the bubbles before them. In some respects, death of the dream may already be written in stone, as much of the damage will take years and many laws to reverse.

But, we are in the midst of a slowdown, not a complete collapse. People still need to eat, work and carry on. 80% of the population will experience few negative effects through next year.

Dow 8,519.21 -514.45; NASDAQ 1,615.75 -80.93; S&P 500 896.78 -58.27; NYSE Composite 5,630.47 -420.87

For the session, volume was elevated but not at panic levels. Advancing issues were outdone by decliners in a big way, with just 958 winners to 5389 losers. The number of new lows expanded again, to 864, against just 11 new highs.

NYSE Volume 1,553,994,000
NASDAQ Volume 2,620,218,000

Commodities continued to reflect expected declining demand. Despite the near-certainty of production cuts by OPEC nations, oil fell by $5.43, to $66.75. The good news for drivers and bad news for wealthy oil barons is that the drop in the price of oil is showing no signs of finding a bottom. Gold also was hard hit, losing $32.80, to $735.20. Silver dropped another 62 cents, to $9.46. The metals, along with oil, are officially in bear markets. Deflation, people, deflation.

On the bright side, Amazon reported earning that beat expectations and were 46% better than the same period a year ago, though their outlook for the 4th quarter was dim.

Tuesday, October 21, 2008

Despite Late-Day Decline, Volatility Subsiding

Stocks ended lower on US exchanges, though the entire range of trade was much more compressed than recent, more volatile sessions, an indication that the credit crisis, which caused a severe decline in general stock value, may be subsiding.

Today's complete range on the Dow Jones industrial Index was 280 points - still somewhat jumpy, but nothing compared to the 500 to 1000-point swings which occurred during the height of the crisis.

Following yesterday's 400+ point gain, there was some sensibility to Tuesday's decline. After all, most market participants are still a bit shell-shocked by recent events, so short-term traders were taking profits and the end-of-day resettling seemed, by most comparisons, rather normal.

With little in the way of economic news to rattle or sooth traders' nerves, the focus was clearly on earnings. Most of the companies (roughly 65%) reported earnings either in line with estimates or beat expectations. That left a bulk of companies with earnings misses, and by the end of the day, investors had taken note along with taking money off the table.

Dow 9,033.66 -231.77; NASDAQ 1,696.68 -73.35; S&P 500 955.05 -30.35; NYSE Composite 6,051.34 -236.26

Along with the reduced volatility, trading volume trended lower for a second straight day. As the headline numbers suggest, decliners beat advancers, 4489-1845, and new lows posted higher numbers than new highs, 255-14.

NYSE Volume 1,161,591,000
NASDAQ Volume 2,144,611,000

The reduced volume and volatility are the result of extreme measures taken by governments around the world to un-freeze credit markets. Key interest rates, including the LIBOR, the rate at which banks lend to each other, have been falling, and today reached levels not seen since the collapse of Lehman Bros. in September.

Better liquidity in credit markets is key to the general health of the economy, and the recent movement is encouraging.

Corporate earnings, however, were another matter. While 3M (MMM), American Express (AXP), DuPont (DD) and Pfizer (PFE) reported profits in excess of estimates, a couple of larger firms, Caterpillar (CAT) and Texas Instruments (TXN) missed and were punished by investors. A spate of companies also issued 4th quarter and 2009 guidance that was not very rosy.

All of these elements contributed to the overall decline in stocks.

Commodity prices showed sympathy for the most part. Oil for December delivery traded at $72.30, down $2.09 from Monday's close. Gold continued its free-fall, losing another $22.00, to $768.00. Silver bucked the trend, trading 39 cents higher, to $10.08.

Monday, October 20, 2008

Dow Up 400, So Why All the Fuss?

Investors got back to doing what they do best on Monday: buying stocks.

Most US indices were up right after the opening bell and remained positive throughout the session. Meanwhile, comments by President Bush, Speaker of the House Nancy Pelosi, and Fed Chairman Ben Bernanke gave more reason for applause and exhilaration, as the government seems intent on another round of handouts to people who really don't need them, this time, American consumers.

The entire credit crunch, recession, global slowdown argument is becoming somewhat laughable or ludicrous. Surely, the US and global economies have hit a serious speed bump, but the extravagant measures taken to stave off what amounts to a little bit of pocketbook pain has been political overkill.

My understanding of the issues gives rise to a great deal of skepticism. As an empiricist, I study what is seen and I haven't seen rampant unemployment, business failures, bankruptcies, food lines or any related real-world evidence that we are in a anything worse than a somewhat mild recessionary pullback, which is a direct result of decades of easy credit.

Once again, the solution to a problem caused by too many dollars in circulation should not be solved by giving away more money. It's like stopping a cut from bleeding by cutting the victim somewhere else. The whole idea is simply beyond ridiculous.

In any case, the government is bound and determined to hand out more money they don't have, a concept with which Wall Street is apparently in favor.

Dow 9,265.43 +413.21; NASDAQ 1,770.03 +58.74; S&P 500 985.40 +44.85; NYSE Composite 6,287.60 +338.80

On the day, advancing issues once again finished well ahead of decliners, 5073-1325. New lows beat new highs, 210-13. Volume was moderate, though strong on the NASDAQ, the index which gained the least on a percentage basis.

NYSE Volume 1,226,914,000
NASDAQ Volume 2,062,091,000

For a change, commodity prices were all higher, with oil gaining $2.26, to $74.65, on widely-circulated reports that OPEC would impose an output cut at their next meeting. Gold rose $2.30, to $790.00 and silver was higher by 36 cents, to $9.69. Both of the precious metals took a serious drubbing last week.

In the short term, volatility is still quite high and will probably remain that way until after the elections on November 4. In the long run, we'll all survive - hooray! - and probably see a recovery in the latter part of 2009. Overall, however, most of us haven't changed a great deal about our daily routines, except for maybe being a little bit more frugal and cost-conscious... a pretty good idea, no matter what the economic conditions.

Friday, October 17, 2008

Welcome to the New Reality

After a month of wild gyrations and hefty losses, US markets (and, to some extent, world markets) seem to have finally found some level ground, or, as the case may be, some ground that seems to not be shifting radically from moment to moment.

Dow 8,852.22 -127.04; NASDAQ 1,711.29 -6.42; S&P 500 940.55 -5.88; NYSE Composite 5,948.80 -22.10

Even though the major indices ended Friday with across-the-board losses, thanks to the outsize gains on Monday, the Dow, S&P NASDAQ and NYSE Composite all had their first positive week in the last five, with gains between 2 and 4%.

These new ranges may be closer to reality for most of the stocks making up the various indices, especially in terms of dividend yield and price-to-earnings ratios. Of course, there are still high-fliers nestled in overvalue-land and a large number of companies whose earnings outstrip their share prices (bargains), but for the most part, the indices seem to have settled into a range, albeit a lower one, that is reflective of fair value.

Looking forward, the prognostications of a severe recession may actually not come to bear. Corporate earnings have thus far held up fairly well, the banking virus has not spread far beyond the financial sector, and there have been some pleasing side effects, notably lower prices for food and fuels, and that deflationary trend should continue well into next year.

While lower prices are an outstanding benefit for consumers, lower prices for finished goods are generally not seen as a harbinger of great things to come for corporations.

However, this time it may be different. Since the one bubble barely mentioned is the one which existed in base, or raw, materials, commonly known as commodities, those entities like sides of beef, bushels of corn, barrels of oil and tons of coal, it makes perfect sense that finished goods will be less costly to produce, meaning companies will be able to make significant savings at the bottom of the manufacturing regimen.

How these lower costs are passed through the rest of the economy remains to be seen, but, given sound management at the manufacturing level, an actual boost to corporate profits. In dynamic markets, such as the global one in which most listed companies now reside, cost and price adjustments need to be applied rapidly in order to maintain competitive edge.

In the market conditions of the recent past, companies had the luxury of maintaining high profit margins, as long as cash and credit were flowing, but now must be aware of lessened demand, and the need for price adjustment. In general, with lower (though not by much) margins, market share will take precedence over getting every last dime from cost-conscious consumers.

The widespread pain of the credit crisis, blared across TV screens, radio waves and computer screens, has not had any noticeable effect on consumers. With overall more money in their pockets due to reduced petrol prices, some may even consider saving some. Who knows? The next administration and congress might even see fit to lower taxes, modify banking and credit card interest regulations and keep their own books balanced. The end result would be more money in circulation and a much less stressed-out consumer.

I know that may appear a rosy scenario as compared to what been passing for news lately, but I urge you to take a look not only at your portfolio of investments, but the lives of others, many of whom either had no nest-egg in stocks, or a small one, or are young enough not to be distressed by something so common (they happen just about every ten years) as a stock market crash.

One only has to look at a long term chart of the Dow Jones Industrials to see that even at this level, stocks may be marginally overpriced and due for further adjustment. While I can't really make a case for further losses, one simply cannot rule out the possibility, as emotions often have more to do with markets and equity valuation than fundamentals. Besides, I called the bottom at 9450 on the Dow. Well, I was only off by about 1000 points, but who's counting? At least I saw the fallout coming at least a year ahead of most.

On the day, winners and losers finished in a virtual dead-heat, with 3180 advancers and 3161 decliners. New lows again led new highs, 344-49. That persistent metric, which has had new lows ahead of new highs every day except for a handful of days (5 or 6) since October 31 of last year, should slowly begin to show signs of moderation as stock pickers become more selective and a slow recovery develops.

Volume was just a bit on the high side, as expected, today being options expiration, which also explains some of the volatility.

NYSE Volume 1,740,610,000
NASDAQ Volume 2,761,572,000

Commodities continued their death spiral, though oil bucked the trend, gaining 1.87, to $72.13, a number with which most people can be happy. Gold fell another $16.80, to $787.70. Silver dropped another 30 cents, to $9.34 an ounce.

There are reports of an individual bombing a law office and the Goldman family attempting to obtain O.J. Simpson's Hall of Fame ring as part of a civil suit settlement. You see? The is some good news after all.

Thursday, October 16, 2008

Down and Up Wall Street

The roller coaster ride continues.

US stock indices evened things out on Thursday, heading higher after a huge Monday rally and two dizzying days of losses, but not before scaring the bejezus out of investors.

The Dow was up over 100 points early on, but then sunk to a loss of nearly 400 points, touching the lows of the day just after 11:00 am at 8197.67. At that point, some reasonably good news on the CPI (unchanged for September), corporate earnings and a continuing decline in the price of oil contributed to spirited buying enthusiasm, picking up stocks of all varieties - especially airlines and banks.

The Dow finished with a nice gain of over 400 points. Other major US indices sported similar upswings. Foreign markets in Europe and Asia were mostly lower on the day, reflecting the protracted volatility around the globe.

Dow 8,979.26 +401.35; NASDAQ 1,717.71 +89.38; S&P 500 946.43 +38.59; NYSE Composite 5,970.90 Up 210.94

Market internals were all over the map, just like the indices themselves. Advancing issues beat out losers, 4160-2244. New lows ranked up to 965 against only 51 new highs. Volume was impressive, at the highest levels of the week.

NYSE Volume 1,997,849,000
NASDAQ Volume 3,372,358,000

Commodities were once again showing the stresses of deflation. Oil fell $4.62, to $70.26, a price less than half of what it was just three months ago when crude hit an all-time high. Gold slipped $34.50, to $804.50 and silver fell 55 cents to $9.64, the first time silver has ended below $10.00 since August, 2007.

With general agreement that the entire planet is headed for recession, commodities are the first to show signs of strain. This is a continuing trend that should eventually spill over into finished products of all kinds, just in time for Christmas, though post-holiday sales should offer even better bargains.

Tuesday, October 14, 2008

After Record Day, Some Give-Back

Following a day in which stocks rose by record amounts, Tuesday witnessed some profit-taking and a small sense of calm.

Stocks fell generally, but not by large amounts. The return to declines was, in a way, expected, and acceptable, as the Treasury announced it will purchase up to $250 billion in equity stakes of banks, including shares of Bank of America, Citigroup, JP Morgan Chase, Wells Fargo, Goldman Sachs and others.

Other government central banks around the world have already made similar investments in banks, to the tune of over $500 billion thus far.

While nobody is saying that the credit crisis is over, most analysts are in agreement that the worst may be behind us. What is still unclear, however, is how the credit freeze and subsequent government activity will affect the general economy. Consensus is clear that a worldwide recession is on the horizon - or already begun.

Dow 9,310.99 -76.62; NASDAQ 1,779.01 -65.24; S&P 500 998.01 -5.34; NYSE Composite 6,380.5298 -20.43

Market internals were mixed, but tended more toward normal than they have in the past three weeks. Declining issues edged out advancers, 3462-3049. New lows outstripped new highs, 291-74, though the number of new highs was the best showing since the last week of September.

Volume was heavy, a good sign that more investors feel confident trading in US equity markets.

NYSE Volume 1,877,556,000
NASDAQ Volume 2,936,985,000

Commodities continued to trade in mixed fashion though the tinge of deflation remains on the periphery. Oil futures lost another $2.73, with crude closing below $80 for the second time in three days, at $78.95. Gold lost $3.00, to $839.50, though silver gained 27 cents to $11.06. Silver has been buffeted about wildly of late and may be somewhat oversold.

A number of companies reported earnings during the day. Tech bellwether Intel (INTC) beat forecasts but issued some gloomy guidance. Beverage-maker PepsiCo (PEP) missed analyst estimates by 2 cents and announced planned layoffs of 3300 employees.
Dow component Johnson & Johnson (JNJ) reported a 30% rise in 3rd quarter profits over the same period of 2007. The company reported earnings of 1.17 per share, against analyst expectations of 1.11.

Monday, October 13, 2008

Stocks Roar Back in Huge Upside Session

If you sold during the past week, you're probably kicking yourself right about now, but there are still bargains aplenty in the market if today's massive gains are any indication.

Finally, after weeks of wrenching losses, all of the various moves and methods of governments around the globe seemed to have some effect. Indices worldwide racked up huge gains, with the US markets in line with other national indices. Stocks were up anywhere from 7 to 10% across Asia and Europe. Brazil's Bovespa Index scored a 14% gain.

The Dow, S&P 500 and NASDAQ all recorded record gains in excess of 11%, with the NYSE Composite the laggard, posting a 10.2% gain.

Dow 9,387.61 +936.42; NASDAQ 1,844.25 +194.74; S&P 500 1,003.35 +104.13; NYSE Composite 6,400.96 +590.98

European nations pledged $2.3 trillion for their ailing banks and the Bush administration plans to move ahead with the purchase of equity stakes in US financial institutions as part of the $700 billion plan approved by congress a little more than a week ago. With so much money being thrown the bankers' way, it's little wonder that everyone - from Main Street to Wall Street -breathed sighs of relief on Monday.

Market internals showed dramatic numbers with advancers beating decliners, 5890-634, though there were still 258 new lows as compared to only 4 new 52-week highs. Volume was solid, but by no means overextended, which is a positive sign.

NYSE Volume 2,164,607,000
NASDAQ Volume 2,636,781,000

While the day's gains were outsize and welcome, a sobering view of the markets still observes general malaise, with most major indices well off their highs and still down significantly for the year. With the holiday season coming, it will be interesting to note consumer spending and retail sales. Additionally, the US 3rd quarter earnings season gets into full swing this week and next.

Commodity markets were ambiguous from all the excitement in equities. Oil futures rose $3.69, to $81.68. Gold lost $16.50, closing at $842.50, while silver added 19 cents, to $10.79.

For now, it seems like the crippling credit crisis has been averted, or at least postponed. Americans are eager to get on with the November elections and replace many aspects of the federal government. What the coming months and years will bring is still unknown.

Friday, October 10, 2008

US Markets Seen Stabilizing As Wild Week Ends

Global financial markets have taken steep discounts over the past week, in addition to falling values over the past year due to the unwinding of credit markets.

After weeks of hand-wringing and record declines on stock exchanges around the world, the US markets had the final say of the week and indications are encouraging that most of the selling may be over.

US markets were down sharply in the opening minutes of trading on Friday, with the Dow briefly falling below 8,000. But they quickly recovered and there was some stabilization, though the major US indices spent the majority of the day in negative territory. In fact, the Dow again touched the 8000 mark just before 2:00 pm.

In start contrast to recent days, however, the late-day trading was mostly buying rather than selling and the US averages finished with relatively minor losses. The NASDAQ, was, in fact, higher for the session.

Dow 8,451.19 -128.00; NASDAQ 1,649.51 +4.39; S&P 500 899.22 -10.70; NYSE Composite 5,704.00 -105.98

Asian and European markets finished with steeper losses, in the range of 5-9%. Traders are now routinely calling the selling "overdone" and "panicked" and some are actually advising clients to buy selected shares, though cautiously.

The Dow's final hour move was dramatic, gaining nearly 900 points by 3.40 pm before settling nearly 450 points below the day's high. Investors now seemed resigned to massive intra-day swings until there is some resolution to the crisis that has credit markets frozen, though there's somewhat of a consensus that the worst of the selling is behind.

On the day, internals were all over the map. Declining issues carried the day again, though by a much smaller margin over advancers, 3921-2659. The number of new lows was a shocker: 4341, roughly 2/3rds of all listed securities. Only 21 stocks attained new 52-week highs. Volume was extraordinarily strong, at the highest level of the past three weeks. We may have witnessed the final flushing out of weak hands and the initiation of some serious buying. There are bargains galore if one has the stomach for the extreme volatility.

NYSE Volume 2,929,366,000
NASDAQ Volume 4,203,839,000

Oil for December delivery took a massive hit, losing nearly 10%, down $8.63, to $77.99. That can only be seen as a huge positive for beleaguered motorists and homeowners who use oil for heat. Gold lost $27.50, settling at $859.00, while silver lost more than 10% in value, dropping $1.28, to $10.60. The losses in commodities are at one time reassuring, but also signaling deflation, which they have been doing since August.

With a meeting of G7 finance ministers over the weekend in Washington, any positive talk from that group could usher in a big Monday rally. Then again, market participants are still somewhat shaken and may not be ready to jump right back in straight away.

Thursday, October 9, 2008

PANIC: Dow Falls 678.91 to 8579.19

The Dow Jones Industrial Average, the most revered index on the planet, has been bruised and battered to a shell of its former self over the past month.

On September 8, the index closed at 11,510.74. A month later - just 23 trading days - it is nearly 3000 points lower, a decline of 25.5%, much of it occurring in just the past seven sessions.

From its high a year ago at 14,250, the Dow is now down a full 40%, with the other major indices in similar straits.

While the Dow is a narrow measure of only 30 "blue chip" stocks, the broadest measure, the NYSE Composite Index, is off 44% from its closing high of 10,301.49. These are 5-year lows, comparable to levels in 2003, when the economy was still recovering from the triple blows of the dotcom bust, 9/11 and a serious, though short, recession.

It is as though the last four years never existed. Many on Wall Street are today wishing that we could go back to 1999, when the biggest concern was whether computers and clocks would still be functioning when the clock struck 12:01 on January 1, 2000.

While the Y2K scare turned out to be more hype than holocaust, there's no denying the rapid descent of stocks and the seriousness of the amount of capital destroyed over the past 12 months. It's in the trillions of dollars just in the US, and worldwide, probably close to the order of $30-$50 trillion.

Dow 8,579.19 -678.91; NASDAQ 1,645.12 -95.21; S&P 500 909.92 -75.02; NYSE Composite 5,809.96 Down 496.39

Still, most of us have not seen any clear indication in our day-to-day lives of the collapse of financial stability. People are still driving around, going to work, getting paid and continuing pretty much as normal. The damage has been to investments, pension funds and 401 k plans. Also, people saddled with debt, especially those who bought homes at inflated values over the past 4-6 years and now have a mortgage worth more than the home they live in, are feeling pinched and afraid.

It is likely, if this crisis continues and "trickles down" to mainstream businesses and the general population, that a robust round of layoffs could be weeks or months away.

The real fear now is that pension funds of all kinds - corporate, municipal and state-run - could be caught in the downdraft and unable to meet their full obligations to retirees. if that unpleasant scenario occurs in many areas, we then will be facing the next great depression.

Thursday's selling was prompted by little more than an exaggerated level of fear. While indexes in the Far East and Europe were mostly lower, the US markets were battered far beyond the levels in other parts of the world.

Market internals were once again dreadful, with declining issues outpacing advancers, 5731-771, an 8-1 margin. There were 2857 new lows and just 13 new highs. According to that measure, this is not yet over, though one has to wonder just how the downturn can be any more severe.

Volume was once again quite elevated as the panic selling feeds upon itself. One particular item which may have caused part of today's decline was the lifting of the ban on short-selling financial stocks.

NYSE Volume 2,013,890,000
NASDAQ Volume 2,989,760,000

Commodities markets fared better, but still suffered losses overall. Oil slipped another $1.81 to $86.62. Gold fell $20.00, to $886.50. Silver gained 10 cents to $11.88.

While I had expected the bottom to form around 9500, I suppose, in hindsight, that after being entirely bearish for the last 14 months, I became bullish too quickly. I am continuing to reassess my position and today must admit that further losses in the stock market will undeniably lead to the most dire consequences.

We are likely months away from any resolution to the current condition. Despite the world's governments and central banks best efforts, more bank failures are on the horizon. The next shoe to fall after that will be announcements of massive layoffs by some of the world's leading companies. Today's extended declines puts the entire state of affairs in a more tragic perception.

Wednesday, October 8, 2008

Stocks Continue Global Sell-Off

Spirits were lifted slightly this morning on news of an emergency rate cut by the US Federal Reserve which was coordinated with similar rate reductions in other major countries.

The Fed funds rates was cut from 2% to 1.5%. The Bank of England cut its rate from 5% to 4.5% and the European Central Bank ordered a 0.5% cut in its key rate to 3.75%.

Central banks around the globe responded by cutting the rates in concert with the US. China, Canada, Sweden, and Switzerland lowered their key interest rates, while the Bank of Japan issued a statement in support of the actions, though it did not immediately cut.

US indices zig-zagged across the break-even line finally capitulating in the final hour to finish with another in a series of heavy losses. Volume was high, especially in the tech-laden NASDAQ.

Dow 9,258.10 -189.01; NASDAQ 1,740.33 -14.55; S&P 500 984.94 -11.29; NYSE Composite 6,306.35 -82.03

The Dow Jones Industrials took the brunt of the decline, losing another 2% in value. The NASDAQ and S&P took minor losses, about half that of the Dow on a percentage basis.

By comparison, the US losses were minor. Euro-zone indices in France, Germany, Spain and Great Britain were pounded down anywhere from 5-8%. In the Asian nations, the carnage was even worse in some cases. Japan's major index, the Nikkei 225, took its worst one-day loss ever, careening downward 952 points, more than a 9% loss.

Still panicked, investors drove issues to new lows around the world though many commentators and analysts thought the onslaught was getting a bit overdone. Credit markets are still largely frozen, but damage has been fairly confined to the financial sectors. Governments are scrambling for a solution, only to find that this is an ordinary and proper course of events for the unwinding of an unprecedented global credit expansion. Now that it is contracting - the normal response - everybody seems to believe the sky is falling.

It's not. In the US, there have been no major failures outside of banks and hybrid financial companies. Smaller, regional and local banks report business as usual, as most of them were smart enough to shy away from exotic investments, 100% mortgage commitments, Alt-A loans, bundled derivatives and credit default swaps.

The real concern is over the enormous multi-trillion dollar derivatives market, which is nearly completely free of regulation, with parties and counter-parties spread around the globe. Nobody is really sure who holds contracts to whom, thus the reluctance for banks to lend to each other or extend credit to all but the cleanest, most secure borrowers,

It's classic banking gone wild, with the old adage that banks will only lend money to those who don't need it being amplified a hundred times in a thousand different places. With credit markets in such a state of fright and panic, the fear is that somebody will toss a match onto the pile by calling in some heavy, arcane debt, taking down a particular firm or financier and toppling the whole house of cards. With governments around the world throwing taxpayer money at the problem left and right, the potential for fraud and abuse also becomes prevalent.

It's a crisis all right, one caused by banks, to banks. As I have opined in the past, they are now ravaging themselves. The upshot of all this high-financial drama is that the high and mighty of Wall Street will be taken down a number of notches. Smaller, better capitalized firms with saner managements will eventually pick up the pieces and the slack and all will be back to some semblance of normalcy in the not-so-distant future.

Some small business owners have had lines of credit reduced or pulled completely, but generally, the wheels of industry are still turning, albeit a bit slower. Nowhere are we seeing banks calling in loans en masse and bankrupting companies. That may occur down the road a bit, but, again, the victims will be few and far between.

Some stocks are at ridiculous levels and have been unmercifully taken down as part of the scramble to exit the equity markets. For instance, Citigroup closed at 14.40 today, a level unseen since 1998, adjusting for splits. GE slid to 20.65, Intel is at 16.25, Bank of America closed today at 22.10.

On the day, a bit more distress from the internals. Declining issues outnumbered advancers, 4839-1687, a bit of an improvement over the past two days. New lows rocketed to 3221, against just 18 new highs.

NYSE Volume 2,106,070,000
NASDAQ Volume 3,576,052,000

If today wasn't the panic selling so often associated with market bottoms, then you might as well kiss your savings and retirement goodbye. As is often the case, the washout from the past two weeks has produced a massively oversold condition. Some stocks have fundamental value far beyond where they are being priced today. It's full-blown hysteria, and cool hands will surely reap the benefits of waiting, watching and finally pouncing. We should witness a number of rapid huge market gains, though they will be short-lived until some semblance of reality and value is brought to bear.

Commodities seem to be taking it all in stride, acting in a more orderly fashion. The December light, sweet crude oil contract closed today down just 28 cents, at $88.43. Gold gained $24.50, to $906.50. Silver edged higher by 39 cents, to $11.77 the ounce.

If the reaction on Wall Street is any indication, the markets should begin to settle down and begin focusing on 3rd quarter earnings - which may not help to averages much - though any positives will be greeted with enthusiasm by those who haven't already thrown in the towel or been thrown to the wolves.

Tuesday, October 7, 2008

Fear in Their Hearts, Blood in the Street

Those investors who did some bargain hunting in the closing hour of trade Monday may not look so wise after today's horrific results. On the other hand, they just may have been a few days, weeks or months early.

The stock market was pretty easy to figure on Tuesday. All one had to do was draw a diagonal line at a 20 degree angle from the open and the closing price was right there. Panic would probably be an understatement of the recent emotional trading trends, and that's a strong signal that the bottom may be in sight. It is at these moments and days that the fearful and weak take flight... and losses.

Over the past four session alone, the Dow has flopped nearly 1400 points, a decline of 12% in less than a week and a 34% decline from the absolute top of October 2007. Ditto for the NASDAQ and S&P, and worse. Remember, the NASDAQ was once above 5000. Today it is below 1800. That's a 67% loss overall, but a 39% decline from the high of 2861.51 in October of last year.

The NASDAQ closed today at its lowest point since August 16, 2004.

The S&P is 37% below its high of last fall and today dropped below the 1000 mark for the first time since September 30, 2003, making today's close a 5-year low.

So, the obvious question becomes, "Where is the bottom?"

Dow 9,447.11 -508.39; NASDAQ 1,754.88 -108.08; S&P 500 996.23 -60.66; NYSE Composite 6,388.38 -366.53

Nobody can tell for sure, but, despite the daily ugliness on the exchanges, there may be signs of stabilization in the banking sector, which is, after all, the root of all problems. It will only be known at a later date, but the problems plaguing banks and financial institutions may not spread very far into the general business section of the economy.

Many businesses have already been hurt and an equal amount have seen their share prices pounded down without cause. For the most part, however, financing is only one part of running a business. There are many established companies which will suffer only minor losses and continue to be profitable now, tomorrow and well into the future.

It is in times such as these that bears become bulls. First, by small, faltering steps, then with a better footing, more confidence, until finally breaking into full stride. The entire length of time may be measured in months and maybe years, but there are surely signs of capitulation while many companies and investors aren't blinking.

Confirming that the bottom is in sight are the market internals which were not as one-sided as yesterday's, though close. Declining issues led advancers by a wide margin once more, 5475-1012, a 5-1 ratio as compared to Monday's nearly 8-1 spread. 1854 stocks registered new lows, to just 12 new highs. Compare those numbers to 2804 and 10, yesterday, a marked improvement.

Volume was also not as dramatic as Monday, though close.

NYSE Volume 1,724,910,000
NASDAQ Volume 2,872,177,000

Commodities found some solace in the decline of equities, though these gains are probably fleeting. One should not look to either gold, silver or oil for lock-in profits. There will be slack demand for some time to come and that will put a lid on all commodities and prices overall. Expect the PPI and CPI to show real losses over the coming 6-9 months. On the day, oil gained $2.25, to $90.06; gold added $15.80, to $882.00, while silver was up 10 cents, finishing at $11.38.

If you're scared to look at your portfolio, you haven't been paying much attention. This slow motion market crash began in August of 2007. Anybody with more than half a brain has been either out of the market or taking defensive positions six to ten months ago. If you're in a fund, 401k or other untouchable investment vehicle, the advice I offered many months ago, in late 2007, to take the 10-20% penalty and move it all to cash went unheeded by you.

I hate to say it, but I told you so, and I told you consistently and persistently for the last 12 months, to run away from stocks. Some of you listened. Others did not and are now paying the price.

Tomorrow may be the ultimate blow-off, or the market could stabilize. Those of us with no positions can only sit back and watch the carnage. To the rest of you, who feel that you must be heavily invested at all times, live and learn. And to those who say you can't time the market, you need to look in the mirror at the idiot facing you. This entire collapse was telegraphed better than a roundhouse right from a punch-drunk fighter.

Only the brain dead and intellectually-impaired didn't see this coming.

I will be buying stocks again soon, but nobody should be in any kind of rush. Stocks will remain somewhat depressed for some time to come. Since we've likely been in a recession that began in the 4th quarter of 2007, we should be nearing the tail end of it.

Six months from now, we should all be laughing about the stupid things some people did when they lost all hope. For every loss there's a gain, though there is probably some time spent wondering in between.

A little advice: Shut up, grow up, and man up. Nobody likes a whiner.

Monday, October 6, 2008

Late Rally Saves Stocks

The continuing credit crisis took its toll on frazzled investors again on Monday, with the Dow down as much as 800 points shortly before 3:00 pm. From that point forward, however, stocks rallied across all indices shaving the losses by more than half in the final hour.

Dow 9,955.50 -369.88; NASDAQ 1,862.96 -84.43; S&P 500 1,056.89 -42.34; NYSE Composite 6,754.91 -334.03

What moved stocks late in the session was a rumor of an emergency G8 meeting, ostensibly to explore global options for dealing with the ongoing banking crisis. More likely is the assumption that there are now real bargains being scooped up by daring speculators. One can hardly blame them, though catching the falling knife is seldom a smart move.

There should be little doubt right now that it was banks and bank practices which caused the overly long bull market from November 2002 through August 2007 and it is those same banks and bank practices - now in reverse - that have been and are causing the decline in stocks and the run to fixed instruments.

Most of the carnage has been caused by the large money center banks which have become increasingly wary of each other, owing to the massive structure of derivatives, including the now-unpopular credit default swaps which have just recently become the focus of the financial media.

Of course, the arcane instruments which banks have employed for years to spread and/or minimize risk are now at risk themselves. The result is the possibility of a fast-falling house of cards in the enormous (estimates vary), roughly $56 trillion derivatives market.

If you think you're worried, imagine the naked fear in the board rooms and CEO suites of major financial firms. It's a knife-to-the-throat environment in which everybody and everything is almost equally at risk.

One might conclude that the world is going to end, or that some major economic catastrophe was about to occur, but the truth is that the event is ongoing, unwinding and probably will continue for some months, until banks and governments conclude that the worst is already behind us.

Chart watchers and Fibonacci adherents should note that a bottom may be near. Implications of this are spelled out more fully in this month's Fearless Stocks and Options Advisory.

In any case, the markets are now entering a new and precarious phase. The two forces at work over the next 4 weeks will be corporate earnings reports for the third quarter and the US presidential election. The former will affect individual stocks, whereas the latter should have more impact upon markets and indices in a more generalized way.

On the day, market internals were about as negative as we've seen, even including recent volatile sessions. Decliners swamped advancing issues by a massive margin, 5613-722, a ratio of nearly 8-1. New lows registered at a phenomenal 2804 stocks, with only 10 new highs. More than 2 of every 5 stocks reached new 52-week lows on Monday. All of these signals point to imminent capitulation by market participants.

Volume was particularly heavy, but the closing rally (over 400 points on the Dow) should be somewhat of a salve for the buy-and-hold mindset.

NYSE Volume 1,974,275,000
NASDAQ Volume 3,493,974,000

Commodities were mixed once more, with oil taking a severe hit at an important level, crashing through the $90/barrel mark. Light, sweet crude for November delivery fell $6.07, settling at $87.81. Gold was up $33.00, at $866.20, but silver lost 4 cents, closing at $11.29.

As has become somewhat of a mantra for me, there are signs of deflation everywhere. By the time this is all over, cash and credit-free positions will be highly valued and everything from cars to candy bars should cost less. The effects of tighter credit and slower demand take some time to work through economies, and this environment is no different.

Friday, October 3, 2008

House Passes Bailout Bill, Bush Signs, Markets Reel

All major US stock indices were higher at the outset of trading on Friday as passage of the massive financial industry bailout bill (let's call a spade a spade) by the House of Representatives seemed likely.

The Dow was up more than 300 points by mid-day, but once news that the bill had passed the House and was en route to a sure signing by President Bush, a general sell-off ensued, taking down all indices.

What was once a 300-point gain on the Dow had turned into a 157-point loss. Worse yet was the fact that the major indices had all fallen below where they had closed on Monday, September 29, the day the House initially rejected the bill.

It was as though the Wall Street Fat Cats had been playing the American public and the congress and said, "Thanks, but screw you." The sudden selling spree left many with a knot in their stomach as though they had just given away the farm. No doubt, there will be much discussion in coming days, weeks and months over the entire episode.

Unfortunately, it is now too late to retrieve the money and whatever else is left of the US financial system. For two weeks, all we heard from the President, his Treasury Secretary and the supine, lap-dog media was that there was a crisis and congress must act. The pressure to pass legislation to buy up the mostly-worthless assets from the very same banks and financial firms which took imprudent risks was severe.

The vote to give in to the pressure and give away more than $700 billion of taxpayer money (all of which will need to be borrowed, mostly from foreign entities) will likely go down in history as one of the greatest swindles by government ever achieved.

It is my hope that the recipients of the nation's largess suffer the worst fates imaginable, and that goes twofold for the gutless legislators who folded under pressure to pass this ridiculous piece of legislation. My sentiments toward the sitting president and the grossly incompetent bunch of liars and thieves he so glibly calls the administration is already well known.

I am not one to pass judgment upon entire classes of people, but in this case, there is little doubt that those who pushed along this legislation and passed this monstrosity were not working in the public interest but in their own self-interests, by padding the wallets of every lobbyist and high-dollar campaign contributor via a deceptive and offensive abuse of the public trust.

Sadly, signatories to this bill include both presidential candidates along with Joe Biden, the Democratic party's vice-presidential candidate. Whichever eventually wins the election will be saddled with not only the huge outlay and management of this unwieldy program, but, more importantly, must work overtime to regain the trust of the American public, which has been severely compromised.

Dow 10,325.38 -157.47; NASDAQ 1,947.39 -29.33; S&P 500 1,099.23 -15.05; NYSE Composite 7,088.94 -66.47

Declining issues topped advancers, 4323-2019. New lows were once more ahead of new highs, 1103-23. Volume was on the high side, especially on the NASDAQ, and considering the resoluteness of the late-day trades, all indications are that the bottom is still a way off.

NYSE Volume 1,419,507,000
NASDAQ Volume 2,531,149,000

The other news, which went largely unnoticed, was the loss of another 159,000 jobs in September, according to the Commerce Department's Nonfarm payroll figures released prior to the market's opening. This horrendous figure underscores the depth of the problems facing the US economy. We have been going in reverse for some 14 months now, and, with the elections a month ahead and three more months before any new administration can get around to any kind of serious problem-solving, the government's answer to the people is quite clear and somewhat astonishing: "Vote for us in November, but until February of next year, you're on your own."

Commodity markets were rather calm. Oil lost a mere 9 cents, at $93.88. Gold finished $11.10 lower, at $833.20, and silver gained 21 cents, closing at $11.33.

It was an historic, tumultuous week on Wall Street, whose principals have been made whole by the US taxpayers, but whose principles are still at the height of ruthlessness, greed and avarice. Those of us on Main Street have given them a free pass via our ineffectual government, but for many American citizens, this episode will not be soon forgotten.

Thursday, October 2, 2008

Stocks Bomb After Senate Vote

On Wednesday night, the United States Senate overwhelmingly passed (74-25) the massive $700+ billion bailout plan, similar to the one that was rejected by the House of Representatives on Monday.

The final bill before the Senate looked quite different from the House version. In addition to being 475 pages in length, the bill added a number of provisions for tax relief, various tax credits and outright pork barrel designed to induce specific House members to sign on to the measure.

Apparently, Wall Street was not impressed or was more concerned over an increase in initial unemployment claims (497K) and an enormous decrease in factory orders (-4.0%) for August. By contrast, July factory orders showed an increase of 0.7%.

Major US indices began the session lower and continued to decline throughout the day.

Dow 10,482.85 -348.22; NASDAQ 1,976.72 -92.68; S&P 500 1,114.28 -46.78; NYSE Composite 7,155.71 -364.24

With all the sweeteners in the bill, passage in the tumultuous House seems more certain, though rumblings remain among free market Republicans and now, so-called "Blue Dog" Democrats who may not readily sign on to legislation which increases spending without aligned taxes for which to pay the additional freight.

Meanwhile, European markets also were reeling from their own uncertainties in the banking sector The London interbank offered rate, or Libor, rose again, and the US commercial paper market plunged to a 3-year low.

Also on the minds of investors were yesterday's horrific auto sales reports for September which showed major auto makers suffering one the their worst months on record, an overall decline of 27% from a year ago. In addition to most new American cars and trucks being gas hogs and overpriced, a pullback in lending has left many would-be car buyers seeking alternatives.

On the day, declining issues once again outstripped advancers by a wide margin: 5313-1097. New lows continued to crush against new highs, 1031-17.

Volume was moderate, continuing to indicate what everybody already knows: there are hordes of cash sitting on the sidelines, waiting until either the congress passes (or doesn't pass) a bailout bill and/or the volatility is wrung out of the market and at least an interim bottom is put in place. At this point, nobody is holding his or her breath as the "crisis" drags onward.

NYSE Volume 1,463,072,000
NASDAQ Volume 2,212,399,000

Commodities continued a fascinating trade regimen. Oil dropped $4.56, to $96.97. Gold also fell by a whopping $43.00, to $844.30. Silver shed another $1.65 - a nearly 13% drop - to $11.12. The fall in the price of silver is historic, the largest one-day percentage decline ever.

While debate continues behind the scenes in the House, debate on Main Street and on the radio waves maintained a negative bent with most Americans deploring the current condition, expressing widespread distaste for the prospect of a $700+ billion bill which is still being seen as a bailout for rich Wall Street bankers and associated fat cats.

One really cannot argue with the US public on that note.

Wednesday, October 1, 2008

Stocks Lower as Senate Prepares Vote; Soros Floats Alternative

The Dow recovered from a 200-point loss early on and finished moderately lower as prospects for a bailout or "rescue" (as John McCain prefers) bill improved overnight with key Senators vowing a vote on the measure Wednesday night.

A number of new elements have been tossed around the periphery of the plan that failed in the House on Monday, the best-received being a move to increase FDIC insurance to $250,000 on bank deposits, though that - and other suggestions - are merely cosmetic.

The bill still contains the fatal flaw of that gaudy $700 billion price tag, and senators in close races are sweating bullets over the largely unpopular measure. The compliant mainstream media has been instructed to push the "something must be done" mantra to the public, though many on Main Street are still resistant.

At the crux of the matter is all forms of credit being squeezed to the point at which the global financial system is nearly completely dried up. Libor rates (the percentage on money that banks lend to each other) have been extremely high, yesterday marking a record of 6.88% for overnight loans between banks. One-month loans are also high as banks have lost faith in other banks and are nearly refusing to lend. Around the globe, five banks have been rescued by governments and central banks this week alone.

While the Senate ponders its task ahead, conditions in Europe have reached crisis proportions as well. The EU has been promoting talks between mega-banking interests and, separately, leaders of the "Big Four" powers - Great Britain, France, Germany and Spain - in an ongoing effort to stave off more bank failures and a complete financial meltdown.

Adding to the mix is a proposal by billionaire investor George Soros, who made his case in a pair of editorials in the Financial Times, first on September 24, and most recently - and with clearer outlines for an alternative plan, on October 1.

The Senate vote is scheduled to begin around 9:00 pm. As of this writing, debate is underway.

Both presidential candidates returned to Washington for the vote. Here is the complete text of Barack Obama's speech on the Senate floor in support of passage. Senator McCain has also voiced support for the bailout package.

While the crisis drama intensified in Washington, Wall Street spent the day in a less volatile trading session.

Dow 10,831.07 -19.59; NASDAQ 2,069.40 -22.48; S&P 500 1,161.06 -5.30; NYSE Composite 7,519.95 -12.85

Declining issues held a slight edge over advancers, 3561-2769. New lows continued their domination over new highs, 406-24. Volume was moderate.

NYSE Volume 1,469,006,540
NASDAQ Volume 1,948,804,625

Commodities remained mixed. Oil was down again, losing $2.11, to $98.53. Gold rose $6.50, to $887.50. Silver rebounded as well, gaining 50 cents to $12.77.

Whatever occurs in Washington tonight and in the House of Representatives - who will revisit the issue on Friday - passage or rejection of the measure will have a dramatic impact on Wall Street. Whether this action, and that of our European counterparts, will manage to restore confidence to the ruined banking system is less clear.

A complete seizure of world economics would precipitate war, famine and generalized disaster to much of the world. America, being the world's most prosperous nation, will suffer the least by comparison. It is the poor and developing nations which will bear the brunt of the fallout from what can only be described as naked greed in financial circles.

It is because of that concept that many hold Wall Street financiers in contempt, wishing that they, among the richest men and women in the world, would share the same fate as those at the bottom of the economic system.

To that, one can only sympathize and hope for some shred of equality.