Friday, November 26, 2010

Main Street's Black Friday Turns Blood Red on Wall Street

Mmmm, that's going to leave a mark...

In the continuing control fraud series of gap up/down opens, stocks took the predictable nosedive version today - predictable in that Wednesday's close was greatly to the upside.

With the Dow opening at around 11,100, about 85 points below the previous close, we have the now-well-known condition of trapped longs, who bought and held during Wednesday's uptick rally. In general terms, if you bought on Wednesday and sold on Friday, unhedged, you lost and are now puking up the remnants of your Thanksgiving dinner.

A wiser course of action might have been avoiding the stock markets altogether and making some illegal wagers on football games via the internet. At least you might have won, with the added bonus of the winnings being tax-free. Even had you lost your bets, you could mentally write off the sour investment as entertainment value.

Stocks skidded pretty badly, and, devoid of volume, had no inclination of reversing course, especially since it was a half-day and trading was even more scarce than normal. The run rate was even worse than some of the slowest days - and there have been many since the 2008 collapse - making Black Friday look like a blood-drip from the arteries of the Wall Street Scam money machinery.

Dow 11,092.00, -95.28 (0.85%)
NASDAQ 2,534.56, -8.56 (0.34%)
S&P 500 1,189.40, -8.95 (0.75%)
NYSE Composite 7,500.54, -78.72 (1.04%)

Declining issues dominated winners, 4054-2064. New highs:185; New lows: 51. Volume: fagetaboutit.

NASDAQ Volume 623,831,125
NYSE Volume 1,778,664,375

Oil finished unchanged, at $83.86 per barrel, keeping the price just high enough to extend the prices at the gas pumps for the remainder of the holiday weekend. Gold last printed at $1364.20, down $10.90 on the day, while silver kicked 89 cents lower, to $26.70. Those awaiting a reversion in silver may be seeing the beginning of a 50% pullback of the recent rally, which would put the lustrous metal at $23 and change. A 67% retracement would send it to about $21, at which point one would be highly inclined to begin accumulation for the next leg up, to $35 in the first half of 2011. Of course, a global deflation may take all technical data off the table, rendering all asset classes subject to major price reversals.

Speculation in land may be a viable alternative in the first half of 2011, though another round of descending prices should occur with a massive number of defaults and possible widespread bank failures.

Bank of America continues to be the stock to watch as far as real estate is concerned, as they have - through their 2007 purchase of Countrywide - the largest exposure in residential real estate of any of the major players. The stock hit all cherries today, closing at 11.11, remaining in the bottom of its recent range, and lower than the October 25 close, at the tail end of the "foreclosure crisis." Bank of American (BAC) is signaling what's ahead for homeowners, with already more than 25% of homes with mortgages "underwater," more pain to come, resulting in slower sales at lower prices for the truly most distressed of a growing mountain of distressed sellers.

2011 may turn out to be the year everything finally goes over the edge. Congress and the president haven't yet address the mortgage/banking fraud in any meaningful way, except to hand the banks more money with which to shore up their aching balance sheets and kick the fraud further down the road. Without a workable solution that includes 30-40% principal forgiveness - anathema to any blue-blooded banker - expect real estate prices to decline another 20-25% overall and the US economy to continue floundering like a beached whale.

While many believe we've avoided the dreaded "double-dip" recession scenario for this year, the next one may prove to be even more severe than the first, though even a minor recession leaves the Fed, White House and congress without any useful policy tools. The likely outcome would be to print more money, unless Tea Partiers in congress force the Fed's hand by denying any raise of the debt ceiling in early 2011. An unlikely outcome, but still potentially the best - though painful to the extreme - medicine.

2010 continues to grind towards its conclusion, with optimism bolstered by millions of shoppers on the busiest day of the year. If Christmas saves the retailers and wider stock market, there may be a significant overhang heading into the new year which could collapse stocks as earnings peak out with nowhere to go but down.

Lovely, isn't it?

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