Monday, November 28, 2011

Following Friday's Flop, a Monday Pop; The Crisis Hasn't Ended

After Black Friday's classic pop and flop (the Dow was up 123 points, only to close down 26, and that was all in a half-session which lasted just 3 1/2 hours), stocks stormed back on rumors of a European fix-up engineered by the IMF and maybe the influence of the German economy, or maybe the Fed, or maybe... well, you get the point, it's all rumors and shadows, now that the extent of Europe's problems have been put to the light of day.

Estimates range to as high as $30 trillion dollars to fix what ails Europe, which is, after all, the same problems facing the United States, though in a longer timeline: un-payable debt brought on by years of overspending by governments, underfunded pension plans (think Social Security), flatlining government revenue and economies that cannot grow without artificial stimulus.

On Wall Street, the focus was on all the crazed morons shopping on Black Friday, which has been touted as one of the most successful single retail days ever. While that may be so, underlying the massive volumes of shoppers and sales the day after Thanksgiving are slim margins and now a three-week lull until the final week before Christmas, in which, traditionally, 40% of all holiday shopping takes place.

But Wall Street - and indeed, markets worldwide - celebrated Black Friday's success as if Gerald Ford had single-handedly beat inflation with his WIN (Whip Inflation Now) buttons. The truth - something seldom seen in the mainstream media these days - about Black Friday and how it translates into higher profits for the more than 5000 companies listed on the US stock markets is simply that it doesn't matter.

Warm weather across most of the country may have sent shoppers out in droves, but bottom lines are what's supposed to matter on Wall Street, and the results of the Christmas shopping season won't fully be known for another month-and-a-half.

As the markets have demonstrated quite convincingly over the past four months running, today's gains are tomorrow's profits taken or, for the long term holders (overnight, as opposed to outright day-trading), losses sustained. So, hold off on making any bold projections about Santa Claus rallies or long-term growth prospects until the remainder of the week and the month play out.

Not to pooh-pooh a solid ramp job on abysmally-low volume, but the charts are telling us that the circus of a crisis in Europe is simply the back end of what happened in America from 2007-2009. A good portion of the toxic debt bundled into MBS was sold into Europe, exacerbating an already bad situation. Unless the IMF, the Fed and the leaders of Europe really can fart flying unicorns on demand, the fix to the global economy is not going to happen this year, and probably not next.

The "recovery" which was supposed to have begun in 2009 is now more than 2 1/2 years old and unemployment is still "officially" over nine percent, though real economists put actual joblessness somewhere between 16 and 23%. The income gaps between rich and poor, elderly and young and across the spectrum of races and colors continue to expand. Congress continues to diddle over politics while only eight percent of the country believes they are doing a good job, proving that yes, you can fool some of the people some of the time.

National governments are imploding at an accelerating rate as financial instability threatens to topple the ruling elite. The crisis, begun in 2007 with the pop of the sub-prime bubble, is still in mid-flight (or descent, as the case may be). Europe's problems, while they may not be ours in America, sure have a familiar look to them and it may take some time, but they'll land here in America in due time, hopefully right about the time we're convinced Newt Gingrich (sounds a lot like Grinch, and that's not without irony) has the chops to save the nation.

Just for perspective, the Dow Jones Industrials peaked at 14,154 in November of 2007. Today they stand at 11,523, and, if a 20% decline defines a bear market, the current 18.6% drop from the peak had us right there in bear country over the past four months with a market - manipulated as it may be - that struggles with every gain, only to give it right back in a day or a week or so.

Confidence may be a fleeting emotion, but one necessary to keep a dynamic economy growing and strengthening. We don't have any, and there's little reason to believe there will be much coming around soon.

Dow 11,523.01, +291.23 (2.59%)
NASDAQ 2,527.34, +85.83 (3.52%)
S&P 500 1,192.55, +33.88 (2.92%)
NYSE Composite 7,120.55 +222.37 (3.22%)
NASDAQ Volume 1,623,548,125
NYSE Volume 3,839,968,500
Combined NYSE & NASDAQ Advance - Decline: 4783-968
Combined NYSE & NASDAQ New highs - New lows: 97-156
WTI crude oil: 98.21, +1.44
Gold: 1,710.80, +25.10
Silver: 32.16, 1.15

No comments: