Tuesday, January 13, 2009

Balance of Trade Improves; Bernanke on Idiot Tour

Tuesday's split decision (NASDAQ and S&P up; Dow and Comp. down) continued to prove that volatility - along with traders - has departed the scene. Along with the wild swings that typified trading during the height of the crisis (Sept.-Nov.), also gone from the market are (in no particular order): a bunch of banks and financial firms which were losing billions of dollars, trillions of dollars in general, numerous hedge funds, speculators, analysts, traders and a monstrous number of small investors which have fled from pension and retirement funds, 401k's and mutual funds in general.

It's kinda quiet on Wall Street these days, despite the headlines about stimulus, recession, Mad Money, Madoff Money, etc.

The NASDAQ traded in a 30-point range on Tuesday. The Dow's full range, top to bottom, was less than 150 points. Fear has succumbed to complacency, stagnation and apathy. Big money isn't chasing stocks any more. In fact, big money has become smaller and small investors have been removed from the equation. The stock markets have gone from free lunch to eating each other's lunch to no lunch and maybe no dinner either. It's the equivalent of Rosie O'Donnell morphing into Lindsay Lohan (pardon the unappealing mental imagery there).

Dow 8,448.56, -25.41 (0.30%)
NASDAQ 1,546.46, +7.67 (0.50%)
S&P 500 871.79, +1.53 (0.18%)
NYSE Composite 5,538.84, -12.19 (0.22%)

There was a little bit of stunningly good news today that barely received notice. It was that the US Balance of Trade - which has been out of balance for so long that people just expect it to stay that way - actually contracted in November, 2008, to -$40.4 billion.

Owing to the general slowdown in international trade, exports decreased, but so did imports, especially oil (mostly due to price reductions) and goods from China. Overall, the decline in the balance of trade was $16.3 billion from October to November. At that pace, which is likely to be unsustainable, but nice to think about anyway, the US could actually have a positive trade balance by the middle of February. Golly! Maybe this recession isn't such a bad thing after all.

Of course, leave it to Ben Bernanke to throw cold water on rutting hogs. In a speech at the London School of Economics (a place whose students and staff might know a little about economics, so why invite "Helicopter Ben" to speak? - Bernanke offered such nuggets of wisdom as the government and/or the Fed continuing to bail out financial firms with taxpayer money, to the disparagement of the rest of the economy, and having the Fed underwriting everything from student loans and auto loans to credit cards and loans guaranteed by the Small Business Administration.

This is indeed splendid news. The Fed is armed with cash and ready to cover all debts, inflating at will. Ben assured the questioners that the unwinding of the debt incurred by the Fed - obviously some length down the road - will be handled smoothly. Here's hoping that Bernanke's efforts to constrain inflation later on will be better than his panicked attitude on the way down.

For now, however, Ben is hell-bent on reflating the economy, despite the fact that most of the assets which have declined in value - from McMansions to stocks to college degrees - were over-inflated to begin with. Fear not. With people like Ben Bernanke at the helm, our economic ship is sure to continue sinking.

On the markets, advancing issues finished ahead of decliners by a slim margin, 3485-3071. However, new lows continued to expand their edge over new highs, to 118-12, suggesting that the mini-dip we've been in since the beginning of last week is not about to end soon. But, stocks should get a little bit of a boost from the Obama inauguration a week from today, and, being that there are only three trading days before that event (Martin Luther King, Jr. Day is Monday, Jan. 19 and the markets are closed), stocks may avoid falling off the cliff and into the abyss before then.

Volume was once more less than expected, though, as I mentioned yesterday, expectations should be lowered in our new environment.

NYSE Volume 5,623,885,500
NASDAQ Volume 1,965,575,750

Like stocks, commodities were little changed. Oil gained a mere 19 cents, closing at $37.78. Gold dropped 30 cents, to $820.70. Silver dipped 7 cents to $10.68 (buy some!), but the real news was in natural gas futures, which saw the March futures contract on the NYMEX fall to $5.13 per mmbtu., the lowest level in nearly a year. Though it may not be immediately reflected in prices paid by consumers in winter heating bills, the trend is no doubt a friend to anyone who uses natural gas for heat. Energy, including everything from heating oil to gas for cars and trucks, has been the sleeper winner of the recession.

People may lose their jobs and their homes, but at least they aren't likely to freeze to death - at least not in America. we should be happy that our natural gas supply is not under the thumb of the Russians, who have cut delivery through the Ukraine to a host of eastern European nations since last week.

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