Tuesday, August 31, 2010

The Train Wreck Keeps a-Rollin'

Keeping one eye on the US economy and the other on US equity markets is something like watching two train wrecks in slow motion, wondering which will fall completely off the rails first. On any given day, stocks seem like the sure-fire winner, destined to send a signal to the broader economy. And when that occurs, ka-boom! Everything goes at once.

Today's stock action was actually quite silly and pointless. Down at the open, with a quick-strike rally up to the release of the Chicago PMI (down sharply from 62.3 in July 56.7 in August) and the Consumer Confidence Index from the Conference Board (up to 53.5 in August after a reading of 51.0 in July). Both bits of data were buoyed by the pre-market announcement of the Case-Shiller 20-city Index, which showed a quite remarkable improvement of 4.23% in June.

Release of the August FOMC minutes at 2:00 pm apparently rattled the market, sending all indices lower after maintaining gains through most of the session. Odd, because most of what was contained in the minutes has already been hashed out and priced into stocks. Nothing in the report shed any new light on Fed policy or the health of the economy (which everyone, even the Fed, knows is bad).

What's really interesting about the movement of the stock market is that it spent the first half hour and the final 1 1/2 hours of trading in negative territory. Ongoing is a rather stout defense of three positions: 10,000 on the Dow, 2100 on the NASDAQ, and the furtive 1040 on the S&P 500, but today's action, and, the overall market dynamics of the past three weeks, having a dearth of upside momentum indicate that those levels will likely not hold, are mere temporary hope points for the ignorant, almost sure to be taken out by Wednesday morning's ADP private employment report for August and further downside when August non-farm payroll data is released on Friday.

Some unsightly buying in the final few minutes of trading brought the Dow and S&P back from the dead, but was not enough to move the NASDAQ above the unchanged mark. Imagine your entire net worth and future pension all riding on the market-closing whims of Wall Street robber barons who are interested only in perception of the market rather than reality. That's precisely the position most American workers find themselves in today, never questioning the soundness of their investments or the trustworthiness of the marketplace.

It shouldn't surprise anyone, as American workers subjected themselves to slavery long ago, by acceptance of the income and payroll tax system. A man or woman is paid wages for his or her work. Taxing that output is nothing more than state-sponsored slavery, unconstitutional and immoral, but accepted nationwide. The tax burden on Americans is the single most detrimental factor to prosperity. Add up "contributions" in the forms of Social Security, Medicare, payroll tax, state income tax, sales tax, hidden excise tax (gas, cigarettes, etc.) and real property tax and the burden is over 50% of earned income for many Americans.

The US stock market, like the government, is neither fair nor impartial. Those who toil for taxable wages and invest in unfathomable securities are bound to meet their rightful destiny at some point. For some, the stock market collapse of 2008 was enough, and they have exited the system. For every one of those, however, are 100 to 500 more who toil in utter ignorance and fear. Despite countless examples to the contrary, they still believe that state and federal governments and Wall Street can be trusted for their well-being and general welfare. And on welfare is where many of them will eventually retire.

The month of August turned out to be a bummer for holders of paper wealth in equities. The S&P led the way with a 6.80% decline, followed by the NASDAQ, with a 6.24% drop, and finally, the Dow, which shed a mere 4.32%. Ah, that $100,000 earmarked for retirement shrank to around $95,000, depending on your investment preferences. Lovely.

Dow 10,014.72, +4.99 (0.05%)
NASDAQ 2,114.03, -5.94 (0.28%)
S&P 500 1,049.33, +0.41 (0.04%)
NYSE Composite 6,704.15, +8.87 (0.13%)

Advancing issues held sway over decliners by a narrow margin, 3337-3027. New highs edged new lows, 256-254. Volume was a little better than the normal moribund average of the past four weeks.

NASDAQ Volume 1,839,803,500
NYSE Volume 5,044,525,000

Commodities told a much different story than the "no change" stance taken by stocks. Crude oil for October delivery fell by nearly 4%, losing $2.78, to close at $71.92. Precious metals, on the other hand, were priced substantially higher, as faith in fiat-based money continued to erode. Gold gained $11.20, to $1,248.30, and silver, which has been a star of late, gained 36 cents, to $19.40.

The world is not coming to an abrupt end, though American society is undergoing a radical transformation, from a spendthrift, credit-driven society to one concerned more with bare essentials. We have more today than ever before, but most of it is either mortgaged, financed or overvalued and those who fail to amend their profligate ways shall be burdened with unpayable debts and a life of squalor.

Our national condition may take years to unwind, but there's no doubt that more pain awaits us all. If avoidance of unpleasantness is the key to happiness, Americans have been forewarned. Partisan rhetoric notwithstanding, we face more uncertainty and calamity right now than at any time in the past 60 years.

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