Friday, January 7, 2011

Banks Lose in Mass. Case; Jobs Short; Predictions 2011, Part 3

Outside of the first fifteen minutes of trading on Monday, the markets for 2011 have been essentially flat, and with good reason, as they were customarily topped out by the end of December, Monday's (January 3rd) exuberant explosion to the upside a mere phantom rally based on nothing other than bloated expectations.

what everyone anxiously held their collective breaths for - December non-farm payroll data - was released just as usual, though the results were anything but. The number printed at 109,000 new jobs over the month, well below expectations, but the "official" unemployment rate fell to 9.4%, the lowest in something like a year and a half, but pure farce, based upon some 500,000 former workers ceasing to collect unemployment insurance.

Since the Bureau of Labor Statistics is quickly becoming known as an Orwellian Bureau of Disinformation for their gently-massaged, highly-suspect numbers from month to month, the rosy outlook from the 0.4% drop in the unemployment rate merely masks the reality of half a million Americans being switched from once-productive members of society to then-unemployed to now permanent membership of the underclass of welfare and food stamp recipients.

Stocks took a bit of a nose-dive on the news, and traded in the red the entire session, though recovered some of the ground late in the day. There was nothing to lift stocks except the unhappy comedy of whirring computers and drugged-up Americans believing anything being said on the great gizmo of propaganda tube.

We now have two or three different economies co-existing in the nation. There's the super-rich, who could give a damn about anything other than profits and skimming, who are seldom seen in public but variously fund and plunder from the other classes. There's an upper-middle class of suburban Americans who, though stretched thin by taxes, utilities and inflation, still have enough in the tank to keep believing in the American dream.

Those two groups probably account for maybe 35% of the nation's population, many of them part of the corporate culture, others either working for some form of government entity or drawing retirement benefits from one. Down below is the other 65% of the population, the massive, but shrinking, middle class, which has seen upward mobility destroyed by decades of debt and wage stagnation, their incomes reduced by the dual forces of inflation and a weakening dollar. They are becoming an endangered species, being dragged closer and closer to a wall of insolvency wherein lives the impoverished underclass, though many, thanks to food stamps, rent subsidies and outright handouts from the government live as well as the middle class, without the stress of having to work, pay taxes or any other kind of bill.

This end group is what America is quickly becoming: a dumbed-down horde of mindless babblers, poorly educated and without hope for anything but a dismal future. Those in their twenties or thirties wonder when the next shoe will drop, when their job will be cut, not when they will be promoted or receive the largesse of a raise. Those are the disillusioned, while their elders have already given up. In a world dominated by crooked politicians and ruthless bankers, democracy has been overwhelmed by neo-feudalism, cleverly disguised as a functioning society. Those below the arc of the curve, the 65%ers, have had their rights stripped away, their futures blunted, their wealth taken by the power of the state. For them, and for most of us on the fringe, the future never looked so stark, bleak and devoid of hope.

Wall Street, however, where prosperity is measured by the minute in point-gains and losses, might as well be off in another universe, it is so far removed, perceptually and philosophically, from the rest of the culture. They own, we rent. They take, we give. They win, we lose. The times are indeed precarious.

Dow 11,674.76, -22.55 (0.19%)
NASDAQ 2,703.17, -6.72 (0.25%)
S&P 500 1,271.50, -2.35 (0.18%)
NYSE Composite 7,980.32, -20.58 (0.26%)

Aligned with the headline number, losers beat gainers, 3884-2595. On the NASDAQ, there were 148 new highs and just 8 new lows. On the NYSE, the numbers were similar, with 141 new highs and 9 new lows. Volume was lower than any other day this week as the rats jump off the ship.

NASDAQ Volume 1,991,273,500
NYSE Volume 5,659,220,000

Crude oil futures finished down again, losing 35 cents, to $88.03. Gold continued to stall, down $2.80, to $1,368.90. Silver was in even worse shape, losing 45 cents, to $28.67.

In Massachusetts, the state's Supreme Court, in what promises to be a landmark decision, threw out foreclosures brought by US Bancorp and Wells Fargo, saying that the jumbled maze of mortgage assignments and security pooling agreements does not constitute proof of ownership of a note and mortgage, thus making the plaintiffs in the action, the banks, without legal standing to foreclose. In other words, the court told the banks, "no note, no mortgage and no foreclosure. See ya," and dismissed the actions.

The ruling was a notable win for advocates of homeowners and middle class Americans and a potentially-fatal wound to the banks.

Predictions 2011: Stocks, Bonds, Politics and Social Trends

Stocks will languish in 2011, and share prices on January 1st, this past Monday, could well mark the highs of the year, since they were at the height of a four-month-long rally. Rather than another banner year like 2009 and 2010, truth will come out at last, that the economy isn't really recovering all that well, stimulus will have to come to an end at some point and valuations will be ratcheted downward. Corporate earnings will be hard-pressed to match year-ago figures, putting top-end pressure on securities.

Depending on data and also what Republicans in congress do about the debt ceiling, the situation could become even more dire than it already is, though the impression is that it's in everybody's best interest to just keep moving along until 2012, when the presidential and congressional elections will bring out the worst in everyone.

The following are the trading ranges I envisage for the major indices:
Dow: 9250-12000
NASDAQ: 2100-2750
S&P 500: 875-1300
NYSE Comp: 5650-8100

Bonds can't go much higher in yield for fer of exploding deficits and they surely won't decline radically in what appears to be an inflationary environment. The curve will flatten as longer-dated maturities remain calm while the short end inflates on the yield curve. Short term rates have been held down too low for too long, but they're there for a reason, and a big move is not expected.

Food and fuel prices will rise, Lady Gaga will dominate the cultural landscape as will "leaving it behind," a trend based on people fully giving up on the entire system of low wages, high taxes and costs out of control. Oil will not break above $100/barrel as it would be catastrophic and truly cause a depression. Again, that may wait until 2012.

In politics, the Republicans and Democrats will both try to appear adult, measured and in control, when in reality they have no idea what they're doing. 2011 will be another year of massive policy and monetary mistakes which won't be fully appreciated for years. The mortgage/foreclosure mess will cycle out of control and there may actually be prosecutions for some big Wall Street types, though not the top honchos. Any litigation will be for show.

There may be riots (some may already be occurring) over housing, food, jobs, welfare and anything the underclass needs to get by on, and an occasional murder, for vengeance, could take out a rich banker or two.

Mostly, it will be a year of hand-ringing over nothing. Industrious types will find new ways to make a living, while more and more people will fall into poverty, real poverty, not the kind displayed on TV. Tent cities could begin to become more than an eyesore, but a health issue as well, and we'll still be in Iraq and Afghanistan fighting wars for no good reason. China will continue to ascend as America's decline accelerates.

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