Friday, August 5, 2011

Wild Swings, Ugly Market

There's probably no good reason for the wild ride taken by stocks on Friday other than people are confused about what's really happening in Europe and in the United States.

The best guess is that the Euro is still a dead currency walking and the US has issues ranging from housing to jobs to ineptitude in government. Ditto that last bit for Europe as well.

The font of endless fiat money is beginning to run dry and useless because every nation is seemingly engaging in a race to devalue their currency in order to remain "competitive."

What may substitute for the truth is that sovereign nations are failing and the global banking system is decrepit and defunct. Time for a grand reset is upon us, though it could be years off before the reign of money backed by "good faith and credit" - two commodities in very short supply - is ended for good and some form of gold/silver standard is established.

In the meantime, citizens of most of the world's developed nations will suffer through recessions, inflation, deflation and depression as the financial engines of the world run off the rails, run by a vacuous leadership.

Friday's non-farm payroll report in the US set the stage for a strong opening rally, with the Dow up more than 170 points within the first five minutes of trading, making the high of the day. Within 20 minutes all of the major indices were negative and by noon the dow sported a loss of more than 240 points. By 2:00 pm EDT, the Dow was back up, close to the highs, eventually settling for a minor gain, with all three other majors closing in the red.

Dow 11,444.61, +60.93 (0.54%)
NASDAQ 2,532.41, -23.98 (0.94%)
S&P 500 1,199.38, -0.69 (0.06%)
NYSE Composite 7,419.07, -9.33 (0.13%)

Declining issues led advancers by a wide margin, 4812-1952, as investors scrambled into Treasuries and blue chips. NASDAQ new highs were 7, with 436 new lows. On the NYSE, there were all of 6 new highs and 828 new lows, blowing out the gap in the combined total to 13 new highs and 1264 new lows. This side margin indicates that a long, deep, sustained bear market is underway, and the next 6-12 months could be pure equity hell.

Volume was again substantial; the gains on the Dow Industrials nearly meaningless, as they will be wiped away in the next round of selling, which is more than likely to begin in earnest on Monday.

NASDAQ Volume 3,775,836,000
NYSE Volume 9,798,826,000

Oil gained a mere 25 cents on the day, to $86.88. Gold lost $7.20, to $1,651.80, and silver was down $1.22, to $38.21. These are true deflationary signs and nothing - yet - to stop them. Of course, the Fed will likely announce some new form of QE, since the Jackson Hole conference is just weeks away.

It was a remarkable week for stocks and bonds, with the major indices taking their worst beatings since early 2009.

There is simply more downside risk ahead, and no bailouts coming this time around... we hope.

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