Tuesday, April 5, 2011

Markets Struggle Through Late-Session Sell-Off; Metals Soar

Disappointed that government leaders met and failed to reach agreement on a compromise plan that would keep the government from shutting down later this week, investors mostly headed for the hills late in the day.

With the North Africa, Middle East and Japan worries already weighing on the markets, the idea that the federal government would shut down at the end of the week seemed to be the last straw. President Obama met with House Republican leader John Boehner and Senate majority leader Harry Reid, but failed to reach any meaningful understanding on the proposed spending bill making its way through congress.

The politicians are squabbling over whether to cut anywhere from $35 to $61 billion dollars from the remaining 2011 budget, with the fiscal year ending in September. It's all become just bad theater, with both parties' leaders posturing and waving their arms about like crazed lunatics. In the end, the cuts will matter little, since the money will be re-appropriated in the next or an upcoming session and all of it is borrowed anyway.

Besides the amounts differing by so little, the amount of "cuts" is laughable, at well less than 1% of total federal outlays, which totaled more than $4 trillion in the 2010-11 budget.

Still, investors worry that the money spigot from Washington may be cut off in some unfathomable way that could affect them, though prospects for anything changing very much - even in the case of a shutdown - are slim.

Another worry is that the government exceeds the debt ceiling, which some contend has already been breached, so that the government would not have funds available to service their debt, sending interest rates soaring and confidence - what little of that is left - in the United States plummeting.

As such, stocks retreated in unison in the afternoon after racking up decent morning gains, the major indices finishing in split fashion.

Dow 12,393.90, -6.13 (0.05%)
NASDAQ 2,791.19, +2.00 (0.07%)
S&P 500 1,332.63, -0.24 (0.02%)
NYSE Composite 8,488.39, +5.98 (0.07%)

Gainers beat losers by a narrow margin, 3456-3000. On the NASDAQ, there were 203 new highs and 34 new lows, while the NYSE saw 284 stocks reach new highs and only 14 make new lows. Volume was materially better than Monday's dreadfully slow session.

NASDAQ Volume 1,967,010,125
NYSE Volume 4,186,267,250

The real story of the day came from the commodity pits. While WTI Crude futures slipped slightly, down 13 cents, to $108.34, gold powered ahead $19.50, to a new, all-time closing high of $1,452.50. Silver was also on the buying list, adding 69 cents, to $39.18, the highest price since 1980.

What the gold and silver physical markets (if you're in an EFT, you'll likely never actually see or touch the silver or gold your shares represent) are telling us is that the level of fear and distrust has risen to feverish levels. Beyond $4/gallon gas and a nuclear holocaust in Japan, the threat of a major credit and/or liquidity crisis has once again reared its ugly head, this time in the threatened shutdown of the US federal government.

Whether the politicians are merely toying with the emotions of the American people or serious about failing to resolve their budgetary differences, the world is watching and most don't like what they see.

Expect more turbulence in days to come unless the government situation is resolved prudently and in all due haste. MAybe then somebody can take a look at those Japanese reactors which threaten to kill everybody with radioactive isotopes unless a solution is found, like entombment.

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