Thursday, April 15, 2010

The Music Never Stops

Consider Wall Street's dizzying performance of late as a prelude to a classic collapse which could happen at any time, though, if you listen to experts, will be delayed until at least September or October. Wall Street's attitude, since the March '09 bottom, is reminiscent of the Broadway show "Cabaret," wherein the overriding theme is one of a libertine hedonism against a backdrop of impending cataclysm. People are making money in stocks, hand over fist. The problem is that the same people who brought us "Death Wish 2008" are reaping most of the profits, awaiting a timely exit.

Individual investors have barely participated, still licking the wounds of the last collapse, fearful that a reprise is just around the corner. While they may be right, they have missed out on some very favorable trades. Their solace, like mine, will be in missing the next collapse by being completely in cash, which, by the way, remains King of the Hill.

On a day in which initial unemployment claims came in not just a touch higher than the estimates, but in fact were devastatingly negative and RealtyTrac announced that residential bank repossessions in America reached yet another record high in the first quarter of 2010, investors kept their eyes on the prize, that being the abundance of nearly-risk-free gains in stocks.

According to ReltyTrac, "Foreclosure filings - default notices, scheduled auctions and bank repossessions - were reported on 932,234 properties in the first quarter - a 7% increase from the previous quarter and a 16% increase from the first quarter of 2009." Apparently, government efforts to stave off the increasing flood of defaults on home mortgages has not been effective. Home owners are under severe duress in one of the most devastating real estate meltdowns ever witnessed.

Truth be told, most of the banks now repossessing properties are the source of the blame, due to overly aggressive appraisals and non-existent underwriting standards. Most of the foreclosures that have been occurring could have been successfully defended by homeowners, though most have neither the knowledge nor the money to fight the bank attorneys and their prolific money-grinding machine.

As for the unemployment condition, initial claims came in at 484,000, fully 44,000 than "expert" predictions and 24,000 more than the previous week, which were also higher than predicted.

Pundits in the financial and mainstream news realm attributed the higher unemployment claims to seasonal conditions, citing Easter as the culprit. Oddly, Easter was also credited with inducing higher retail sales. Something simply doesn't add up.

The RealtyTrac new release was widely disregarded, as the new was so bleak apparently nobody could fathom a method in which to spin it positively.

Other economic data that was largely ignored by the markets were capacity utilization, which barely budged in March, at a dismal 73.2%. Industrial production was up 0.1%, essentially a rounding error. The Philadelphia Fed's Index of economic conditions weighed in at a laughable 20.2, and was hailed as a "good sign."

Taking all of this in stride, stocks continued upon their ridiculous path to ever-higher ground.

Dow 11,144.57, +21.46 (0.19%)
NASDAQ 2,515.69, +10.83 (0.43%)
S&P 500 1,211.67, +1.02 (0.08%)
NYSE Composite 7,719.66, -9.30 (0.12%)

On the day, advancing issues beat decliners, though by a slim margin, 3443-3025. There were 1109 new highs to just 82 new lows. Volume, for a change, was substantially higher than normal, though most of that could be attributed to options expiration on Friday.

NYSE Volume 6,485,359,500
NASDAQ Volume 2,756,471,750

Commodity markets displayed a modicum of caution, with oil futures, losing 33 cents, to $85.51. Gold gained a slight 70 cents, to $1,159.70. Silver was up 2 cents, to $18.42. All of the commodity prices seem to have hit a wall of resistance. Coupled with the overbought condition in the equity markets, an early warning sign of a near-term tumble can easily be extrapolated from the data.

Stocks, like all other asset classes, will eventually succumb to the gravity of deflation, which can be seen almost everywhere, as prices for many goods remain out of reach for large segments of the economy. Currently, supply is matching demand quite well, though there are issues of class distinctions which have not yet become apparent. Further out, the lack of new job creation is a recovery killer, just as is the decline in home values.

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