Tuesday, August 23, 2011

Huge Gains on Oversold Conditions for Stocks; BofA Near-Death Experience?

Like overeager rookies who ignore the third base coach's stop sign and instead bowl headlong towrd home plate only to be thrown out, traders today simply looked past negative economic data and piled into stocks on the grounds that the market was oversold.

Sure, stocks have hit the skids of late, but for good reasons, like the debt contagion in Europe, the weak and stinking banking system in the US, continuing unemployment woes and the threat of a double-dip recession, but the old "oversold" mindset was front and center on this day, despite new home sales checking in for July at 298,000 units on a consensus of 310,000 and last month's figures revised lower, from 312K to 300K.

According to the logic of traders, housing doesn't really matter, and neither did that rare Northeast earthquake just after 2:00 pm, or the Richmond Fed's Factory Index, which fell from a reading of -1 in July to -10 in August.

Nope. Market's oversold, despite all recent data and expert opinion pointing at a weak second half at best and a full-blown deflationary depression at worst. Maybe somebody tipped then all off that the chairman, Ben Bernanke, will simply announce, in his Jackson Hole speech on Friday, that he will print more greenbacks if the economy continues to slide towards insolvency and desperation.

Then again, the primary players in this little financial drama are mostly momentum-chasers and day-traders, so maybe it all makes perfect sense. After all, the Wall Street of 2011 is not for investing, it is for immediate profit and self-gratification. Kum-bye-yah! It's a new age phenomenon.

While stocks were quickly eviscerating last week's losses, not all of them were going skyward, especially Bank of America, which touched down at a new 2 1/2 year low of 6.01 before mid-day. The mighty BofA is beset on all sides by questions over the veracity of its own numbers, the grinding legal costs associated with faulty mortgage dealings and a surprising shortage of capital - after being bailed out and getting preferential, secret treatment from the Fed during the financial crisis of 2008-09 - which may force the lender to sell off whatever good assets it has remaining and/or still need to make a secondary offering in the market in order to satisfy new, more stringent capital requirements a few months down the road. Bank of America (BAC) closed down 12 cents at 6.30, a new, 2 1/2-year, closing low.

Let's face it. Bank of America looks more like a shabby slumlord than a quality mortgage lender and it's only a matter of time before they go belly up or are taken over by the government and broken up in pieces to rivals like JP Morgan, Wells Fargo and Goldman Sachs.

Not that those banks are any more secure or trustworthy. In fact, Goldman Sachs (GS) has troubles of its own, despite following the market and posting a measly 0.35 gain today, closing at 106.86. The stock peaked in January at 175. Simple math says that's a nasty loss since then.

Whatever. The market is oversold, people. Buy more.

Dow 11,176.76, +322.11 (2.97%)
NASDAQ 2,446.06, +100.68 (4.29%)
S&P 500 1,162.35, +38.53 (3.43%)
NYSE Composite 7,209.59, +228.97 (3.28%)

Advancers smacked down declining issues, 5440-1239. The NASDAQ finished the day with seven (7) new highs and 146 new lows, while the NYSE posted 13 new highs and 169 new bottoms. The combined, 317-20 edge for new highs over new lows reiterates the strong sell signal the market has been blaring for three weeks. Yes, it may be oversold, but a today's gains were more the knee-jerk, dead cat bounce variety rather than a solid gain on fundamentals, which would be sustainable, should such fundamentals ever appear.

The trouble with investors and this market in particular is that nobody wants to face the undeniable fact that although most companies are lean, mean and posting solid profits, new quarter and next year's numbers will be up against some strong results, those provided by artificial stimulus and excessive monetary easing. Additionally, the bear market rally that began in March of 2009 is getting a bit long in the tooth. At 30 months, it may be time for a long term change of direction and sentiment.

Volume, on such a big run as today's, would have been much more robust if there was deep, underlying commitment by traders and investors. Maybe the traders have commitment or should be committed. Real investors are in cash, gold, silver and hard assets these days. What substitutes for a real equity market is all hype and subterfuge, devoid of substance.

NASDAQ Volume 2,129,302,500
NYSE Volume 5,913,402,500

Today was also a banner day for "gold is in a bubble, but we're running out of oil" preachers. WTI crude was up $1.02, to $85.44, and if you don't think gas has come down with the price of oil, you're right, though CBS news offered some blatant propaganda (likely prepared right from a press release by the American Petroleum Institute) as to why that is the case. It was pure bunk, delivered with the straight-faced lie that gas could drop another 40 cents by Christmas. Geez, Louise, thanks, we'll keep that in mind as we all go broke well before December.

As for gold, no "silver-slap-down" margin hikes were required (correction: the Shanghai Gold Exchange lifted gold margins for forward contracts the second time this month to 12% beginning on Friday - tip of hat to Tyler Durden at Zerohedge.com) to send the yellow stuff down $68.70, to $1829.40, after it had breached the $1900 level (hitting a peak of $1917.90) in Asian trading. Silver was also trampled by the fiat-leverage folks, losing $1.83, to $41.89. So much for the safety of hard assets, eh?

Don't be dissuaded by one-off moves prompted by the evil fornicators of the global banking cartel. Hard assets will outshine, out-gain and outperform all paper assets in the long run, and already have for the past 11 years running. Paper money, backed by nothing but ungodly, unpayable levels of indebtedness are going to die an awful death and the grim reaper is already sharpening his scythe. Either that, or all the paper money in the world buys less than it did yesterday, for eternity.

Finally, for those with a morbid fascination or those who know the meaning of the apocryphal acronym TEOTWAWKI (look it up), here's our old pal Henry Blodget expounding on why Bank of America's real capital needs may be more in the $100-200 billion range than the controlled-media's claims of $20-30 billion and Bank of America's response that he is making "exaggerated and unwarranted claims."

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