Friday, May 20, 2011

Random Notes as Stocks Slump Near Lows of Month

In the absence of earnings or economic data, let us suffice to say that stocks did today what they should have done yesterday, given the housing and Philly Fed data. That said, it seems we now are actually getting somewhere in the coming great unwind, which must happen if QE2 ends.

With the close of the Dow today, we can see that the decline is going to be gradual - about 100 points per week on average - which should get the Dow down to around 11,000 by Labor Day.

Along those lines, allow me to close the week with some random thoughts on the current working environment and the accelerating deflation:

Current economic conditions are fostering an environment where work has changed and what you call the "existential needs" might more reasonably be filled by the technology-marginalized workers, such as home gardening, DYI home repair and generally more resourcefulness and less dependence on the "system", the grid.

I am one of these technology-marginal types, in my own home business, with very limited overhead, having to actually do work about five to six hours a day, and that only four days a week. The rest of my time is spent raising my own vegetables, making my home more energy efficient and sourcing other income streams. It's actually a pretty sweet spot.

The promise of technology was always presented - back in the 60s and 70s - as more leisure time, but the banksters and politicians stole that luxury lifestyle from the common man. However, through their own rampant greed, this is backfiring, because more people are now on welfare (read: government-supplied leisure), not paying mortgages (bankster inspired leisure), and working less (congress, thanks for doing nothing).

With all this free time on their hands, common folks - the smart ones - are devising ways to capitalize and take back their leisure, which has some new definitions, such as, leisure as not spending, leisure as self-education, leisure as efficiency.

Deflation is going to hurt the most at the top of the food chain. Those already at or near the bottom will be scarcely affected, while the smartest of that group will actually prosper, just as during the Great Depression. Fortunes will be lost, but many others will be made.

It's all coming at very slow speed, thanks to the Fed's unending fight against deflation, but it's coming, no matter what. There is no other good alternative.

Always remember - and I don't know where I got this, maybe Malcolm Gladwell - but economies are always created at the margins. It't not LinkedIn with a $10 billion capitalization that will make change - that is simply a misallocation of capital on a grand scale - but the guy building solar heaters in his garage, or the people in Cleveland harvesting fish and vegetables in the same facility.

There may be the Googles and eBays of the world which created great shareholder value, but, both of those companies profited on the margin of hundreds of thousands, maybe millions, of small entrepreneurs, buying and selling ads, goods, services.

I tend to think the raw data on the level of entrepreneurship in this country is vastly understated because so many people are not reporting what they are doing nor what they are making because of the absurdly high level of government invasion and regulation. There's more wealth hidden in the underground economy than ever.

Sound familiar? Same thing happened during prohibition. Read the book, "Last Call" for a clue.

Dow 12,512.04, -93.28 (0.74%)
NASDAQ 2,803.32, -19.99 (0.71%)
S&P 500 1,333.27, -10.33 (0.77%)
NYSE Composite 8,357.53, -70.42 (0.84%)

Declining issues finished well ahead of advancers on the day, 4314-2224. On the NASDAQ, 58 new highs and 53 new lows. The NYSE was ever the outlier, with 97 new highs and 22 new lows. However, all week we've witnessed the gap between the new highs and new lows narrow and considering the dipsy-do taken in July and August of last year, may not revisit equilibrium until the end of summer. The stimulus is still being worked through the system, but cracks have become visible in the facade of recovery.

Volume was once again light, though considering that it was an options expiration day, it was actually horribly so. Fewer players means lower velocity, leading eventually to atrophy.

NASDAQ Volume 1,786,991,750
NYSE Volume 4,011,100,500

WTI crude oil was lower by as much as $2.00 during the morning, but finished the day with a gain of $1.05, closing at $99.49. Gold rocketed $20.50, to $1514.30, though silver barely budged, up 11 cents, to $35.05 per ounce.

This choppiness in commodities and stocks should persist until traders are more certain of the future, which could be a long, long time, considering the state of negotiations on the debt limit and the 2012 budget in Washington. They are at standstills on both issues. Our president and congress should be absolutely ashamed of themselves as they dawdle over pressing issues.

This is the worst government, on the federal level, maybe of all time.

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