Thursday, June 7, 2012

Tumultuous Thursday: Bernanke Comments Spark Selloff

(Editor's note: running quite late again today, which seems to be happening with more frequency here at Downtown Magazine HQ. It could be a sign that at least this little corner of the economy is experiencing a pickup in activity. Today's comments will be somewhat abbreviated, but a full recap of the week's economic events will follow on Friday at markets' close.)

Things were sailing along rather smoothly in the morning session, with all of the major indices up sharply and European bourses closing modestly higher at 11:30 am EDT.

Federal Reserve Chairman Ben Bernanke's non-committal stance on additional stimulus measures, which he delivered to a joint congressional committee, and a downgrade of Spain's credit rating by Fitch collided with China cutting key lending rates by 1/4 percent, sending US markets into a tailspin.

It was hoped by many on Wall Street that the Fed Chairman would offer a glimpse of fresh stimuli, though his testimony merely served to cloud the picture and was not what equity traders had hoped to hear. The Dow Jones Industrials, which peaked just prior to 10:00 am with a 140-point gain, dithered most of the rest of the session, and, along with the other indices, was traded off in the final hour, losing roughly two-thirds of the advance.

The NASDAQ, which had posted a gain of nearly 30 points in the early going, gave all of that back and then some, ending in the red for the day, along with the S&P, which wasted a 14-point gain and ended fractionally lower.

In reality, China's lowering of interest rates, while stimulative on the surface, actually should have - and could have - been interpreted as a negative, since the country is the world's leading exporter and a slowdown there, prompting interest rate easing, is nothing but a manifestation of the problems in Europe, which include slowing demand for what China produces.

Bernanke's wait-and-see attitude was not well-received, obviously, though the potential for the US sinking back into a recession without additional stimulus was murmured and whispered around trading desks during the day. For perhaps the first time in years, the Fed may be sending a signal that the free lunch for financial firms hasn't produced many positive results and it's time to try something other than plain vanilla monetization of Treasury debt and back-door policy easing. It would be a watershed event, should the Fed not engage the markets with more easy money, which has been the case since early 2009.

In other economic news, initial unemployment claims eased back by 12,000, to 377K in the current week, from an upwardly-revised 389K last week. Also, according to CNBC, Art Cashin reported that sources told him yesterday's huge upside advance was largely aided by the largest amount of short-covering in 2 1/2 years. Viola! Rally! Though, really, it was all just fun and games for Wall Street heavy hitters and insiders.

The rich get richer. The rest of us are supposed to just grin and bear it. Doesn't sound like much of a plan.

Gold and silver were smashed lower, for no apparent good reason, other than coordinated action by central banks who are worried that people may actually see precious metals as a safe and sound alternative to floating, devaluing, fiat paper.

Dow 12,460.96, +46.17 (0.37%)
NASDAQ 2,831.02, -13.70 (0.48%)
S&P 500 1,314.99, -0.14 (0.01%)
NYSE Composite 7,519.82, +2.36 (0.03%)
NASDAQ Volume 1,652,958,125
NYSE Volume 3,939,869,000
Combined NYSE & NASDAQ Advance - Decline: 2427-3168
Combined NYSE & NASDAQ New highs - New lows: 122-52
WTI crude oil: 84.82, -0.20
Gold: 1,588.00, -46.20
Silver: 28.53, -0.96

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