Something's Up... and it's Not the Stock Market

Intuition is vastly underrated by the scientific or technological community.

Understanding that the twinge of doubt or "gut feeling" is more than just an emotional reaction but in reality a hot process of accumulated experiences - some deeply-rooted and ancestral, others from immediate life experience - raises the process of intuitive thinking to a better standing, one that can assimilate data in microseconds and respond with appropriate action.

It's something along the lines of survival instinct in animals, who will move quickly at the rustling of leaves or changes in the flow of a stream. Humans, plugged into cell phones, iPods and a dizzying array of self-created distractions often don't have access to their own intuitiveness in the way other creatures do, but, sometimes, the clues are just too obvious to miss.

Such was the case with today's market action.

First, the ADP employment report for March, released prior to the opening bell, offered the second of three straight data point this week that was of a negative nature. The creation of 158,000 new jobs in the month was well short of the anticipated 197,000, and a precursor to Friday's "all-important" Non-farm payroll data from the BLS.

The other two data points on the negative side were the drop in the ISM index on Monday and the ISM Services index drop at 10:00 am EDT, that showed a slowdown to 54.4 from 56.0 in February.

Those were the catalysts to some pretty serious selling in equities, but also in gold, silver, oil, copper, corn, financial stocks, and a boost in bonds that sent yields lower, a trend that seems to be quite well-entrenched of late.

By midday, it was fairly obvious that everything was falling at the same time, which is not normal. On top of the usual market issues, the North Korean nut case keeps ramping up the rhetoric - the US responding with ongoing escalation - and the vision of depositor funds being vanished from bank accounts in Cyprus still fresh, the notion that things were fast unraveling was hard to miss.

Analysts of various stripes have been warning about a downturn in the markets for weeks, if not months, and the 100+ point decline on the Dow may serve notice that the top is in and everything from here to October (if we're lucky) is going to be downhill. The more obvious evidence comes in the form of the crumbling US economy, boosted with easy money, welfare checks, food stamps, disability payments and other government transfer payments that still cannot produce a GDP growing at faster than a two percent clip.

All the evidence is out there, in front of everyone's eyes, but it seemed that only today, the buzz-heads and stock jocks in equity la-la-land finally took the bait and took a big chunk out of the normalcy bias that pervades trading desks and the floors of the exchanges.

There was actual fear in the air, rather than the usual blather that the "Fed has our back," that has been conventional wisdom for the past four-plus years.

In effect, it's the Fed that has caused, in large part, the continuum of crisis that continues unabated, their easy money policies creating distortions of immense proportions, so that almost everything is mis-priced, mis-allocated and misinterpreted, the result being one massive, global mistake of monetary mismanagement that threatens the entire financial and social fabric of the planet.

It didn't take a genius to figure all of this out, just a feeling, that when everything began falling, the tumbling would not stop, the last time this happened (our minds reeling and whirring like the great analytical tools they are) was September of 2008, when Lehman Brothers was about to go under and the world changed - not for the better.

Mark this date, because it may be one for the history books, noted as the beginning of the end, when the tsunami of financial events, forestalled since the extraordinary measures of the Fed and other central banks in 2008-09, finally came rushing onshore, all at the same time, with a force and a fury that's been building since those well-embraced days of Hank Paulson putting a $700 billion gun to the head of the government and threatening to pull the trigger.

We may have weathered the storm of the past four years, but the backlash may be even worse, and it's coming faster than most people can anticipate or prepare for.

It's a funny thing about predicting disasters. You're humored or ignored or laughed at all the way up to the actual event. And then, people ask you what to do, when you've been telling them just that, all along.

Stocks may be up again tomorrow, or for the next week or month, even, but there's trouble coming, you can just feel it.

Dow 14,550.35, 111.66 (0.76%)
NASDAQ 3,218.60, -36.26 (1.11%)
S&P 500 1,553.69, -16.56 (1.05%)
NYSE Composite 8,983.40, -109.50 (1.20%)
NASDAQ Volume 1,813,335,250
NYSE Volume 4,418,003,000
Combined NYSE & NASDAQ Advance - Decline: 1499-4977 (huge)
Combined NYSE & NASDAQ New highs - New lows: 182-92 (tighter)
WTI crude oil: 94.45, -2.74
Gold: 1,553.50, -22.40
Silver: 26.80, -0.451

Interested Parties: You, Me and AIG Want Goldman Sachs Money

Recent fraud charges brought by the SEC against Goldman Sachs have brought into focus much of what went wrong in the financial meltdown of 2008.

A shorthand view of the cataclysmic months of September and October, 2008, involve the collapse of Lehman Bros., and extenuating circumstances stemming from unpaid bets against CDOs sold by many of the major US banking interests - Goldman, Bank of America (Countrywide), Citigroup, Wells Fargo (Wachovia). Those bets (call it betting against the line or insurance) were in the form of Credit Default Swaps mostly in the hands of AIG, which went bust to the tune of about $180 billion.

The government stepped in and paid off many of the counterparties, including Goldman Sachs, BofA, and many others, most of them getting 100 cents on the dollar.

With fraud being alleged, plaintiff's attorneys literally around the world are looking into suing Goldman on behalf of clients ranging from small towns to large pension funds to AIG itself. An AIG action would cause considerable consternation for Goldman and its CEO, Lloyd Blankfein, to say nothing of potential monetary damages.

Further down the food chain are millions of US homeowners who may have been swindled by unscrupulous mortgage brokers and the banks themselves. Everybody was writing mortgages, and anyone with a pulse was the qualifying criteria. While the big banks may square off for millions and billions of dollars, a deluge of class action and individual suits could overwhelm already burdened court systems across the country.

Homeowners were taken for various rides with interest only loans, balloon loans, Alt-A's and other variable-rate vehicles, the primary fraudulent factors being almost always the same: inflated incomes on top of inflated appraisals. The volume of loans meeting the fraud standards could run as high as 70% of all loans written between 2003 and 2007, when the sub-prime market reached its climax and then began to quickly deflate.

Naturally, these court cases could run on for years, but the potential litigation fees for adept attorneys could be astronomical. Suing anything and anybody related to the the mortgage or securities industry appears to be a growth sector for the economy, with high hopes to recoup either money or real estate as the eventual goal.

With all that as background, Wall Street will likely remain in a relatively cautious mode, especially once earnings season passes in two weeks. Without a catalyst to move stocks higher, the potential for financial disaster rears its ugly head again and could spook many traders who already aren't overwhelmed with love for the workings of Wall Street.

Stocks pushed ahead again on Tuesday, though there wasn't much lift to the effort, especially concerning Dow stocks. Once again, Goldman Sachs' trading desks were likely underpinning the whole market, keeping the coast clear for Blankfein, et. al.. Volume was decidedly lower than the previous two sessions, an indication that some degree of normalcy has returned, though what normal is in these turbulent times is anybody's guess.

Dow 11,117.06, +25.01 (0.23%)
NASDAQ 2,500.31, +20.20 (0.81%)
S&P 500 1,207.17, +9.65 (0.81%)
NYSE Composite 7,669.11, +72.55 (0.96%)

Gainers beat back losers by a healthy margin, 5102-1418. There were 539 new highs to just 29 new lows.

NYSE Volume 5,797,391,000
NASDAQ Volume 2,006,695,375

Commodities rebounded smartly, with oil gaining $2.00, to $83.45. Gold was up $3.40, to $1,138.60, and silver added 9 cents to $17.82.

The SEC-Goldman Sachs saga is still in the prelude. It's almost a certainty that fireworks will develop out of this singular action, leading to more lawsuits using the SEC's action as a basis for argument. Already, an Italian bank is suing Citigroup, alleging misrepresentation on a complex swap arrangement.

Stay tuned. There's more to come.