Thursday, March 4, 2010

Stocks Surge on Slim News

Despite indications that Friday's non-farm payroll data is going to disappoint - or maybe because of that - stocks continued to trundle forward and have now put together the makings of a fairly nice week of gains.

All of the major indices are poised to post their third weekly gain in the last four and, as of today's close, all but the NYSE Composite are positive for the year.

Data which has been released this week has been mixed, though slightly positive overall. Initial unemployment claims dropped off by 29,000 in the most recent week, but are still stubbornly high at 469,000. A number closer to 300,000 would be indicative that layoffs have stopped and that re-hiring was about to resume, though market participants aren't holding their collective breaths in anticipation of that number. Factory orders showed an impressive 1.7% gain in January, following a solid 1.5% advance in December.

The canary in the coal mine, however, continued to be housing. Pending home sales fell 7.6% in January according to the National Association of Realtors (NAR), which, to almost nobody's surprise, was blamed on the weather, even though the worst storms of the season came in February, not January. Thus, any attempts to paint lipstick on the pig that is residential housing are likely to induce ridicule and groaning.

With the nation almost completely mortgaged to the government due to guarantees by Fannie Mae, Freddie Mac and the other alphabet soup names of agencies sopping up the upside-down mortgage market, there is little hope that the heartland of America's middle class is going to rebound any time soon. Jobs and housing continue to haunt the best efforts of government and financiers, like Freddie Kruger, who just seems to never go away for good.

While Wall Street can whoop it up over earnings and percentages, most of America is suffering, especially state governments. Roughly 4 out of 5 are going to need further assistance from the feds in closing gaping budget shortfalls this year, after being bailed out in 2009. Turning the sublime into the ridiculous, the federal government is about as bankrupt as most of Bernie Madoff's investors, so that, in effect, the states are borrowing borrowed money.

We have come to the point in our history that the obvious cannot be overlooked, though the media and government officials try their best to obfuscate the truth in hopes of retaining or gaining office. Adding together all of the debt - most of it piled on in recent years - and including the unfunded and underfunded mandates such as Medicare and Social Security, every American living today is in hock to the tune of about $430,000.

Any economist who tells you that the money will be paid back is simply a jack-ass lacking common sense. The incredible tax burden needed to hoist such a huge burden off the backs of American citizens would relegate today's and future wage-earners to a level usually reserved for indentured servants. Some make the case that due to the high tax burden already imposed, most Americans are nothing more than wage slaves already, a point that cannot be made too finely nor too bluntly.

While the mechanics of the economy whirr ever onward, the plight of the individual continues to deteriorate. Pay raises, once a commonplace theme in most business environments, have been all but obliterated since the late 1990s, except, of course, in government positions, where financial discipline has been abrogated and handed over to the debt-runners in congress and the presidency. The lower classes get welfare checks and other comforts from the largess of the Treasury; the upper class needs no such relief, having written all they need into the tax codes, leaving the vast middle class in a squeezed situation such as today's, where wages hardly cover the costs associated with common living.

Saving, that relic from the past that our parents and grandparents tried to imbue into us, has been replaced by debt, and that debt has exploded to unreasonable levels in just the past twenty years, threatening to destroy the entire fabric the social compact upon which our country was founded and currently operates.

Retirement, the biggest sham ever invented, is going to be thrust from the American lexicon within the next decade as baby-boom generation workers begin to add to the debt burden in increasing numbers. Taking away benefits from earners is still taboo in Washington, DC, though the decision to either cut benefits or raise taxes will soon be an unavoidable choice, probably within five to six years, if the union lasts that long.

The final insult to the idealist "peace and love" crowd from the 60s will be termination of Social Security for all intents and purposes. Benefits will still be doled out in some form or another, though the level of payments will be ludicrously low in comparison to what previous generations took out. Like all other social entitlement programs, Social Security and Medicare in particular are nothing more than vast Ponzi schemes, using current revenue to pay current beneficiaries. Within years, even possibly months, the balance will tip toward the recipients outnumbering the payers, sending the entire system further into default (It's already over the brink, though nobody will admit it).

What happens when the economy of a nation, brought down by debt burdens too weighty to maintain, implodes, is not a secret. The obvious first victims will be the lame and indigent, as government stipends are reduced or completely shut off. Next would be the chronically poor and illiterate, who do not possess enough brain power or initiative to fend for themselves.

The upper class will feel only slight pain, most of the anguish being sustained by the 60-70% of the population in the middle. Good jobs will be hard to come by, families will be forced to live together as in the Great Depression of the 1930s, and, though prices for everything from food to fuel will be forced lower (though that's arguable in the case of utilities and health care, which will raise prices on fewer customers to meet costs), few will be able to afford much more than basic necessities.

All of this is why it's important to know what your money is doing and where you are putting it to work. As explained recently, the only viable investments for the average middle class American today are cash, capital goods, and capital-producing goods such as food, fuel, seeds and tools of trade. All else is speculative and more than likely doomed. There are those who preach that gold will be the savior of assets and wealth, and that may be true, though most middle class people would more than likely have to sell any gold assets in order to meet day-to-day expenses in a post-crash economy.

In any case, there are trillions of dollars being fed into and out of the Wall Street stock machinery and today was a good day for them. Few of those who toil in the financial services industry have any idea of the train wreck that is just ahead, so, let their folly be your entertainment.

Dow 10,444.14, +47.38 (0.46%)
NASDAQ 2,292.31, +11.63 (0.51%)
S&P 500 1,122.97, +4.18 (0.37%)
NYSE Composite 7,173.07, +8.41 (0.12%)

Gainers outnumbered losers on the day, 3651-2790. There were 427 new highs to a paltry 27 new lows, as we approach the anniversary of the market bottom - March 9, 2009 - now just three trading days away.

NYSE Volume 4,448,901,500
NASDAQ Volume 2,062,605,875

Commodities took a bit of a breather. Oil was actually down 25 cents, to $80.62. Gold slipped $9.60, to $1,133.70, while silver fell 10 cents, to $17.23.

Tomorrow's release of non-farm payroll data for February probably won't cause much of a ruffle since expectations have been sufficiently dampened all week. It's a near certainty that the numbers will be worse than last month, and consequently blamed on the weather.

Markets and what passes for economic understanding have reached a new low, now that we can blame Mother Nature for our economic shortcomings.

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