Tuesday, December 3, 2013

Desptie Fed PMO of $3.7 Billion, Stocks Swoon

Something is definitely amiss in US equity markets.

While that may be the most understated understatement of the year - or the past five - even an injection of $3.7 billion from the Fed's Permanent Open Market Operations (POMO) couldn't get stocks to attain escape velocity.

And that's the problem. Velocity. There simply isn't any, in the stock markets (for now, though that will likely change) and especially in the outside economy where every extra dollar is being spent consolidating debt, paying down debt or going into a rainy day fund, because people, humans, have this uncanny knack for knowing when trouble is on the horizon.

Call it a Spidey-sense tingling, or intuition, or maybe people can simply see what's going on: politicians lie and don't deliver; economics are skewed toward corporations, not individuals; the government protects banks and ignores the plight of the people; Wall Street continues to enrich itself at the expense of the American people; Obamacare; eroding rights; call it what you will, but it's a fact that more than two thirds of the people in the United States believe the country is going in the wrong direction.

There are less people now who have a positive view of congress than there were supporting the king of England on the advent of the American revolution. People are afraid, so they don't spend, and, since consumer spending is the fuel of the economy, i.e., velocity, the velocity of money has been slowing and is nearing stall speed. The money the Federal Reserve pumps via their POMOs and bond-buying-binge ($85 billion a month) is not going into the general economy. It goes largely into excess reserves which the banks borrow from for speculation, mostly into stocks, but even this is not providing the lift.

The major indices spilled into the red for the second straight day during December. A large part of that spillage may be profit-taking, but there's also a valuation angle that must be addressed. Some stocks are at nosebleed levels. Others are backed by businesses which may or may not be very well-managed. Future-looking analysts paint a rosy picture for 2014, but the reality is that many corporations are seeing margins being squeezed, stock buybacks at all-time highs and labor cutbacks that are straining their collective workforces.

Then, there's Obamacare, which has had the unique ability to cut workers' hours to under 30 per week, limiting productivity and job security, while adding costs - and uncertainty - to the bottom line of many businesses, large and small.

It's a shipwreck, a train wreck, a slow motion un-natural disaster and it's being played out in real time on Wall Street. It's been said here and elsewhere ad nauseum that the greed, lying, cheating and stealing by Wall Street and Washington will eventually have to be paid back in an inglorious reversal of fortune. Could that reversal be taking place, right now?

Maybe, but probably not. These things, like the destruction of the entire economic system of a nation with the reserve currency, take time. It's not going to happen overnight, though the past five years have evidenced dislocations and distoritions to markets and price discovery mechanisms unlike any other time in recorded history.

The abomination has arrived... in 2008. We're only just now beginning to deal with the nasty side-effects of trying to deal with it without causing pain.

Now comes the pain. Detroit is first up for the beatings.

DOW 15,914.62, -94.15 (-0.59%)
NASDAQ 4,037.20, -8.06 (-0.20%)
S&P 1,795.15, -5.75 (-0.32%)
10-Yr Note 99.88, +0.70 (+0.71%)
NASDAQ Volume 1.72 Bil
NYSE Volume 3.36 Bil
Combined NYSE & NASDAQ Advance - Decline: 2168-3505
Combined NYSE & NASDAQ New highs - New lows: 142-113
WTI crude oil: 96.04, +2.22
Gold: 1,220.80, -1.10
Silver: 19.06, -0.224
Corn: 431.25, +6.75

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