Tuesday, July 31, 2007

Credit Crunch

The continuing downfall of Wall Street's fanatical credit ponzi scheme is unmistakable. The housing sector implosion is spreading like wildfire, into corporate junk bonds, credit cards (have you gotten your "notice" yet? The one that says your interest rate is going up?), and mainstream mortgage lending.

The plain fact is that we're on the verge of a complete economic meltdown - caused by loose credit and regulatory policies - that not even the Secretary of the Treasury and his cohorts in the Working Group on Financial Markets (aka, the PPT, Plunge Protection Team) are powerless to stop it.

Dow 13,211.99 -146.32; NASDAQ 2,546.27 -37.01; S&P 500 1,455.27 -18.64; NYSE Composite 9,554.50 -68.68

Add to that over-arching concern the idea that the United States has been under the control of a gang of half-cocked thugs who have raided the Treasury, destroyed our military (to say nothing of the irreparable damage done to the nation of Iraq) and broken laws with impunity. The Congress has been unwilling to take the necessary action to remove these treasonous criminals from office and the media has been complicit in undermining the will of the people by simple avoidance of real news.

We're in one heck of a mess and even the titans of Wall Street are afraid. Well they should be. They stood by, taking profits and looking the other way for the past 6 years.

With the markets down another day - make that 6 of the last 10 - the unwinding has only begun. Anyone with any smarts is already 50-60% in cash or other liquid assets (a case of booze does count) or short or buying puts on the CBOE. Playing the downside is the only reasonable way to make money right now.

The damage was evident in our two key metrics: Decliners led advancers, 7-5 and new lows checked in at 657 to 133 new highs.

On top of all of this, oil futures for September delivery were up $1.38 to $78.21, an all-time high. Like salt in the wound, you have to pay more to get nowhere at any speed.

Gold was up $2.30 to $679.30; silver rose 11 cents to $13.02. From the looks of things, it might be the absolute right time to invest in the metals. The markets are a wreck and the books have been cooked.

Impeach or die.

Monday, July 30, 2007

Dead Cat Bounce

Investors shook off last week's monumental declines and searched for bargains amid the wreckage on Monday. All the major indices showed decent gains on relatively strong buying. There was certainly some resolve to Monday's rally, but whether or not it will last is another question altogether.

Dow 13,358.31 +92.84; NASDAQ 2,583.28 +21.04; S&P 500 1,473.91 +14.96; NYSE Composite 9,623.18 +114.95

Make no doubt about it, there's a big, big problem inside the sub-prime mortgage mess and it's leaking over into corporate borrowing and mainstream mortgage lending. The simplistic reassurances of people like Ben Bernanke and Hank Paulson are masking a problem that goes to the heart of the world banking systems.

Money and credit has expanded worldwide at an astonishing rate and there's payback on the way. For a clue, watch merger and acquisition (M&A) activity over the next few weeks and months. It's already slowed down after a rash of big deals earlier in the year. Private capital has gone soft and conservative, and these people know what they're doing - it's their money, after all. CNN Money has a particularly propitious story on stalled funding for some big buyouts.

Over the next month and a half, expect more fallout, because drops like we witnessed last week do not occur in a vacuum. There's more to the story and it's a good bet that the invisible hand of the Plunge protection Team (PPT) was again at work today. Shortly after the markets opened, they took an unhealthy dip, but quickly bounced back to the positive. All of the indices hugged the flatline until just after noon, when all of them took off into positive territory for the remainder of the session, trademark market manipulation by the usual suspects.

As is the fashion of the market manipulators of the secretive Working Group on Financial Markets, they prefer small losses over long periods of time rather than big, spectacular, headline-grabbing declines.

Their unseen actions in the markets cause a sheep-like follow-along response, as evidenced today. Advancing issues gained the upper hand over decliners by a 3-2 ratio, though the new lows were still holding sway in a rather ponderous manner, with 746 bottom-outers to just 93 new highs. That's still out of balance and augurs ill for stocks going forward.

One-day rallies are not a cure-all, and the same conditions that contributed to last week's sell-off still exist. Without the PPT, the markets may very well have finished lower again today. The stated goals of the so-called PPT are:
Recognizing the goals of enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation's financial markets and maintaining investor confidence

Keep an open mind and an open eye on how the markets - and, to a lesser degree, individual stocks - move in relation to events and non-events.

Since most companies have now already reported 2nd quarter earnings, the next six weeks will be a function more of emotion than fact and since the overall mood is still rather dubious about the future, sharp sell-offs may occur out of thin air. More likely are days of small double-digit-Dow losses, followed by some recovery, then the pattern repeating again. As it is, the Dow has traded lower 5 of the last 9 sessions and that measure bears close scrutiny. Should we actually be in a new bear market - which some analysts have suggested - the ratio of up days to down, in addition to the volume and point movements, will be a key divining tool.

Oil priced lower on the NY Mercantile Exchange, losing 19 cents to $76.83. Gold and silver both edged higher and continue to herald a breakout, though that's happened so many times in the past 18 months, nobody's giving it much credence.

Friday, July 27, 2007

Triple Bottom Breakdown

With no impetus to the upside, not even the shadowy Plunge Protection Team (the government's Working Group on Financial Markets headed by Treasury Secretary Hank Paulson) could quell the selling on Wall Street as dissatisfaction with corporate earnings and the implosion of capital markets sent the Dow to another 200+ point loss, hauling down the other major indices with it.

The week, which began with a 92-point gain on the Dow on Monday, turned considerably uglier as earnings reports and bad economic news - primarily from the housing and credit sectors - sent Wall Street into spasms of cynical, unstoppable, selling. The week was one of the worst ever for the Dow, losing 735 points, with losses of more than 200 points on Tuesday and Friday, and a 311-point loss on Thursday.

Dow 13,265.47 -208.10; NASDAQ 2,562.24 -37.10; S&P 500 1,458.95 Down 23.71; NYSE Composite 9,508.23 -146.15

The other major indices - the S&P, NYSE Composite and NASDAQ fared equally poorly in the paroxysm of panic selling. The Dow on Friday confirmed (and broke through support) a triple bottom breakdown at 13,265.47, with similar recent closes on June 7th (13,266.73) and June 12th (13,295.01).

The pertinent questions at this juncture are, 1. How much worse can it get?; 2. Is there an interim support level?; 3. Can the PPT finally staunch the ebb by buying overvalued shares (and will they)?; and, 4. Is there any safe haven for investment dollars?

The quick answers are that it can get much worse, interim support exists in the 12,100-12,300 area, nobody really knows exactly what the PPT can or will do, and as for a safe haven, cash is looking mighty good right now.

There is really no magic bullet to change the outcome of the massive unwinding of a near-decade-long credit and asset binge. Government policies have created a system so fragile and fraught with risks - seen and unseen - that a financial disaster seems to be the most likely occurrence at this juncture.

The obvious truths are that the market was severely overbought (the Dow was up nearly 30% from a year ago at the start of the week), mortgage failures will continue to proliferate due to an complete lack of oversight by regulators, and the contagion from mortgages will likely become systemic, spreading into all manner of credit instruments.

The key consumer is tapped out, the middle class is shrinking and afraid, and the trickle-down economic policies of the past 20 years have created a monstrous economy with a super-rich class, an impoverished middle and a growing, teeming bottom. America has gone from the world's greatest creditor state to the worst debtor nation in a span of just 50 years.

In a few words, we're pretty much screwed and it's beginning to show up in our markets. A good start would be to impeach all the top officials of the current administration and begin imposing some new standards of conduct for banks and other financial institutions to restore confidence in our capital markets.

A change in government isn't going to be a cure-all - far from it - but the numbskull liars currently in charge likely have more of a vested interest in overseeing the destruction of capital rather than the creation of it.

Next week and during the month of August, when the next wave of selling begins in earnest, officials of the NASDAQ and NYSE may consider closing the markets for a week, allowing for some time to contemplate next moves and reassure a frightened public.

This is no time to be giddy. This market has been overstretched - the bull market is something of the order of 57 months old - and in a very, very precarious condition. The US economy is also an extremely sick patient. Extreme actions may be the best medicine.

Surprisingly, market internals were not nearly as dismal as yesterday's. Declining issues beat advancers by an 11-5 ratio. There were few bright spots as new lows submerged new highs, 706-85.

Just to make matters even more cheerless, oil futures rose $2.07 to close at $77.02, close to an all-time high. Gold and silver continued to decline, oddly, as market manipulation is running rampant. The precious metals should be showing strength at a time like this. instead they are dropping along with all other asset classes.

Get ready for a long, long downturn, similar to Japan's 20-year deflationary cycle. It's been predicted and the stock market is telegraphing it.

There were a good number of earnings reports issued on the day, none of them of much consequence considering the overall tenor of the markets.

Have a great weekend.

Thursday, July 26, 2007

Dark Thursday, Black Friday?

Anyone who was surprised by today's dramatic sell-off simply has not been paying attention. The signs were everywhere: weak second quarter corporate earnings, an outright implosion in the US housing market, sub-prime defaults beginning to leak over into mainstream mortgage loans and corporate lending, a market soaring (the Dow was up 30% in just the past year) over and beyond 50 and 200-day moving averages.

Everything was in place for a selling spree of monumental proportions and on Thursday, it all came to fruition.

Dow 13,473.57 -311.50; NASDAQ 2,599.34 -48.83; S&P 500 1,482.66 -35.43; NYSE Composite 9,654.43 -275.93

The day began badly with ExxonMobil (XOM) announcing - prior to the open - that it had fallen short of analyst expectations for the 2nd quarter. Boo hoo, the largest corporation in the world and the company held widely responsible for causing people so much pain for US motorists only booked $10.26 billion, or $1.83 a share, from $10.36 billion, or $1.72 a share, a year earlier. Analysts were hoping for $1.96 per share. They were sorely disappointed and the stock lost more than 6 % on the day.

At 10:00, with the Dow already down more than 100 points, the Commerce Department provided more proof that the US housing collapse was getting even worse than anticipated. New home sales were down 6.6% to 834,000 units, the biggest percentage drop in 6 months. Sales are 22.3% lower than they were a year ago. Additionally, the median price dropped to $237,900, down 2.2% from a year ago.

As the day progressed, the selling intensified. From noon through 2:30 p.m. the Dow fell by more than 200 points as volume reached historic levels.

So powerful was the downdraft, that even oil traders were scared. Crude, up to $77 earlier, fell through the afternoon, eventually closing down 73 cents at $75.15. Gold dropped another $11, with silver closing 20 cents lower.

The Dow bottomed at 13,335.30, a loss of nearly 450 points. Then, something strange happened, just like yesterday. The Dow jumped nearly 90 points in a matter of minutes. It was either the invisible hand of Maynard Keynes, but more likely the clandestine hand of the Plunge Protection Team (PPT), otherwise known as the working group on financial markets, created by Ronald Reagan to prevent a repeat of the Wall Street meltdown in October 1987.

As usual, the foreign press - in this case the London Telegraph - had the story more than a year ago.

Nevertheless, not even Treasury Secretary Henry Paulson and his able team of financial commandos could stem the tide. By days end, the markets were in tatters, with advancers swamped by declining issues by a ratio of 7-1. New lows hit a number I have heretofore never witnessed - 1110 - to only 104 new highs.

And whatever the interlopers did to spike the market, it broke the feeds to Yahoo Finance and CNN Money. The volume figures on Yahoo Finance were totally knocked out (see the chart at right).

Judging by the late figures, the volume was the highest of the year, surpassing the mark of 4.283 billion shares, set yesterday. The overall Dow drop of 311 points was second only to the China rot on February 27 of this year.

There were over 400 stocks reporting on the day, but the biggest stories belonged to ExxonMobil (XOM), Apple (AAPL, beat estimates, +8.74), 3M (MMM, beat estimates), Black & Decker (BDK, beat estimates on lower profit, lowered guidance, -6.88), Office Depot (ODP, met on lower profits, -1.79) and Dow Chemical (DOW, beat, -2.22).

There will be more tomorrow, as investors digest earnings after hearing the government's preliminary figures for 2nd quarter GDP prior to the market open. The so-called "experts" - who haven't been remotely close lately - are predicting 3.2% growth. After Q1's horrific 0.7% gain, anything short of that number will likely precipitate even more selling.

Make no doubt about it, without the interference from government insiders, today's loss could have easily been 500 or 600 points. This slide certainly isn't over. In fact, it's probably only the beginning of a long, painful unwinding of an equally-long credit binge.

The fear is not in the second quarter results, but in the future, with an interest rate drop now becoming more and more of a distinct possibility as the US lags behind other countries - developed and emerging alike.

Wednesday, July 25, 2007

Rigged Rally

Any doubt that the US stock markets have been, are being or can be manipulated was put to rest today at precisely 3:00 p.m. Eastern time. It was at that moment that the Dow Jones Industrials climbed an extraordinary 50+ points in just over one minute. There was no news, no report issued that would move the market, only the covert actions by groping, free market fondlers.

Briefing.com called the 3:00 jump a "technical trade," which is a good substitute for "we don't know," and the Fed's Beige Book was released at 2:00, not 3:00, but maybe it took a while to digest.

In any case, the final result was a healthy gain for the Dow, with the other indices tagging along.

Dow 13,784.50 +67.55; NASDAQ 2,648.17 +8.31; S&P 500 1,518.09 +7.05; NYSE Composite 9,930.36 +20.41

Other than the faux late-day rally, it was really a see-saw session with the markets initially buffeted by stellar earnings reports from Amazon (AMZN) and Boeing (BA), then battered by the National Association of Realtors' (NAR) existing Home Sales for June, which came in well below estimates, suggesting that, considering the current malaise in the housing market, those estimates might want to be a little less optimistic going forward.

It was the worst showing for housing in roughly 4 1/2 years, though that in itself should not have been much of a surprise.

Elsewhere, companies were churning out 2nd quarter earnings reports, and some actually weren't all bad.
  • Xerox (X) beat estimates by a penny, but was pounded lower by 1.10 (nearly 6%).

  • Colgate-Palmolive (CL): Excluding restructuring charges, net income in the most recent quarter was $457.5 million, or 84 cents per share. Analysts expected earnings per share of 84 cents.

  • ConocoPhillips (COP) posted income, excluding extraordinary items, of $4.8 billion, or $2.90 a share, compared with $5.2 billion, or $3.09 a share, during the second quarter of 2006. The results were well above the $2.68 analyst expectations.

  • Freeport-McMoRan Copper & Gold (FCX): On the acquisition of rival Phelps Dodge in March and increased metal pricing, net income after paying preferred dividends rose to $1.10 billion, or $2.62 per share, from $367 million, or $1.74 per share, a year ago. Revenue surged to $5.81 billion from $1.43 billion last year. Analysts surveyed by Thomson Financial were looking for profit of $2.71 per share on revenue of $5.27 billion.
  • GlaxoSmithKline (GSK): Pretax profit was flat at £1.896 billion -- compared with £1.897 billion a year earlier -- and was ahead of analysts' consensus expectations of £1.833 billion. Net profit rose to £1.36 billion from £1.34 billion a year earlier.

  • Apple (AAPL): (After the close) For fiscal 2007 third quarter ended June 30, 2007, posted revenue of $5.41 billion and net quarterly profit of $818 million, or $.92 per diluted share. These results compare to revenue of $4.37 billion and net quarterly profit of $472 million, or $.54 per diluted share, in the year-ago quarter.

The story beyond the headline numbers was in stark contrast. Decliners beat advancing issues by a 3-2 ration, and new lows swamped the market, beating new highs by 630-134 (no, that's not a misprint).

Oil posted huge gains on the NY Mercantile Exchange, with crude up a massive $2.32 to $75.88. So, square those facts and numbers with a nearly 70-point rise on the Dow... really, try it.

Gold was hammered down $11 to $673.80, with silver losing 29 cents to close at $13.15.

More hijinks are in store for certain tomorrow, as new home sales figures for June are released and another 400+ companies roll out earnings reports.

Tuesday, July 24, 2007

Bear Claws

How bad was it?

It was in the top five worst performances for the combined indices this year, and likely the third worst showing (at least for the Dow it was). What triggered the Tuesday tempest was poor showings by a multitude of companies reporting second quarter earnings, most notably, McDonald's (MCD) huge miss and a miss by DuPont (DD) prior to the market open and Texas Instrument's (TI) poor showing announced Monday after the close.

Dow 13,716.95 -226.47; NASDAQ 2,639.86 -50.72; S&P 500 1,511.04 -30.53; NYSE Composite 9,909.95 -211.63

Here are just some of the early headlines, which seemed to get worse as the trading session wore on.

IN PLAY: Corn Products reports 2Q07 results; beats by $0.09
DuPont reports flat 2Q earnings
Kimberly-Clark 2Q Profit Beats Outlook
Legg Mason profit climbs 22 percent
Lexmark net profit slips 16 percent
Northrop 2Q profit rises 7%
PepsiCo 2Q Profit Rises 13 Percent

While there were a smattering of positives, they were overwhelmed by more than just a few companies not meeting 2nd quarter estimates.

Declining issues crushed advancers by a 5-1 margin and new lows swamped new highs, 642-162.

Not even bonds, tame, with the 10-year note yielding 4.92%, or oil, down $1.33 to $73.56, could pick up the spirits on Wall Street. The continual unwinding of the sub-prime mortgage blow-up (now spreading into other credit areas) combined with the spate of earnings disappointments led to an all-out rush for the exits.

For those with weak stomachs, stop here, because I'm going to tell you why it's going to get worse the rest of the week.

First, more companies will be releasing earnings reports and some are certain to miss estimates. Investors are in a sour mood already, and they simply don't need any more reasons to sell. Later in the day, US Steel (X) reported a 25% dip in profits from the year ago period. Net income fell to $302 million, or $2.54 per diluted share, for the quarter, from $404 million, or $3.22 per share, during the same period last year. Analysts were looking for earnings of $2.35 per share on $4.05 billion in sales and the stock ended the day up 42 cents at 106.41.

After the close, Amazon (AMZN) booked solid profits. Earnings climbed to $78 million, or 19 cents per share, from $22 million, or 5 cents per share during the same period last year, soundly beating expectations of 16 cents per share.

Eli Lily (LLY) also reported after the close. Excluding charges, adjusted earnings totaled $978.7 million, or 90 cents per share. Analysts had expected 82 cents per share on that basis.

Tomorrow, in addition to the more than 300 companies reporting 2nd quarter earnings, the following report prior to the open:
Colgate-Palmolive (CL), ConocoPhillips (COP), DaimlerChrysler (DCX), Freeport-McMoRan Copper & Gold (FCX), GlaxoSmithKline (GSK), Xerox (XRX)

After the close:
Apple (AAPL), Pulte Homes (PHM), Symantec (SYMC), Boeing (BA).

Additionally, Existing Home Sales for June will be out at 10:00 am. On Thursday, New Home Sales figures for June and on Friday, the preliminary 2nd quarter GDP estimate.

With those economic reports on the way, traders may have taken an early hiatus, expecting the worse. It's likely to not be as bad as the worst skeptics suspect, but don't look for a quick turnaround - at least not this week.

Monday, July 23, 2007

Dwindling Gains and Is OPEC Friendly?

After barely surpassing the magical 14,000 mark last week, the Dow Jones Industrials struggled to get close again on Money Monday, but close was all they could do. The blue chip index got as close as 27 points from the mark, but that was all, and the index closed some 30 points below that level.

Dow 13,943.42 +92.34; NASDAQ 2,690.58 +2.98; S&P 500 1,545.90 +11.80; NYSE Composite 10,121.58 +41.65

While the Dow and S&P were up handily, the NASDAQ didn't fare quite so well, rising just less than 3 points on the session.

Earnings were still the driver, with Merck (MRK) and Schering-Plough (SGP) getting off first thing in the morning, prior to the open.

  • Merck (MRK) said second-quarter net income rose to $1.68 billion, or 77 cents a share, from $1.5 billion, or 69 cents a share, a year earlier. Excluding restructuring and other charges, official earnings rose to 82 cents a share from 73 cents a share a year ago, exceeding the widely-held forecast of 72 cents per share. Shares of Merck soared on the news, up 3.31 to 52.33.

  • Schering-Plough (SGP): Net income climbed to $517 million, or 34 cents per share, after preferred dividends for the quarter ended June 30 from $237 million, or 16 cents per share, a year ago. The stock lost 19 cents, closing the session at 31.30.

  • For Dick Cheney lovers (and who doesn't love Dick?), Halliburton (HAL) reported net income of $1.53 billion, or $1.62 a share, up from $591 million, or 55 cents, a year earlier. The most recent quarter's results include a gain of $933 million relating to the KBR split. Analysts were only looking for 56 cents, so the stock made a new 52-week high during the trading session before closing up 1.17 at $37.74.

  • After the close, American Express (AXP) reported second quarter net income for the quarter also totaled $1.1 billion, up 12 percent from $945 million a year ago, and 0.88 per share, up 16 percent from 0.76. Analysts were seeking 0.86 and their solid quarter should help stocks on Tuesday.

  • Texas Instruments (TXN) reported revenue of $3.42 billion for the second quarter of 2007. Earnings per share (EPS) were $0.42, down from 0.47 in the year-ago period. The results were in line with expectations, but the results will do little to excite tech investors.

Decliners actually led advancing issues by a narrow ratio of roughly 16-15, while new highs narrowly beat new lows, 327-286. These numbers are in line with our own expectations that this earnings season is not as robust as Wall Street might like. With a preliminary reading on 2nd quarter GDP due out on Friday, this week could determine direction for the remainder of the summer, and it's not looking particularly encouraging.

Who's the best friend of the American motorist? Would you believe OPEC President and UAE Energy Minister Mohammed al-Hamli? How about Hasan Qabazard?

Concerned over high prices, al-Hamli said that the world economy was still expanding, despite the exorbitant price for crude. Analysts saw his comment as indicative that OPEC may announce a supply increase at their September meeting.

Qabazard, head of OPEC's global research division, stated separately that a price of between $60 and $65 per barrel would be advantageous for both producers and consumers.

Light crude settled 90 cents lower at $74.89 a barrel on the New York Mercantile Exchange. Kudos to our friends in the Arabian world! They actually may be more concerned - and effective - about lowering gas prices than our very own Congress or President. Ya gotta have friends...

Meanwhile, the rally in gold and silver was cut short, with both falling marginally on Monday.

With techs showing some weakness today and after-hours and readings on existing and new home sales due Wednesday and Thursday, respectively, Tuesday may be a good time to exit positions if the market doesn't respond well by mid-day.

Tomorrow's earnings calendar is reasonably heavy, with reports due from Amazon.com (AMZN), AT&T (T), DuPont (DD), Eli Lilly (LLY), JetBlue Airways (JBLU), McDonald's (MCD), Occidental Petroleum (OXY), PepsiCo (PEP), UPS (UPS), United States Steel (X), and many, many others.

Friday, July 20, 2007

Google, Caterpillar Sink Dow

After the close on Thursday, Google - for the second time in its brief 2-year existence as a public company - missed analyst expectations and sold off wildly in after-hours trading. On the open, Google (GOOG) was down 36 1/2 points, at 511.90, from the previous day's close. The stock regained some of the loss during the trading day, closing at 520.12, for a loss of 28.47.

With Google still fresh in the rear-view mirror, Caterpillar released second quarter results prior to the open, sinking the general market. The company earned $823 million, or $1.24 per share, in the three months ended June 30, down from $1.05 billion, or $1.52 per share during the same period last year. Analysts had expected a profit of $1.49 a share on revenue of $11.12 billion. The miss was staggering and shares traded lower by 3.78, closing at 83.20.

Dow 13,851.08 -149.33; NASDAQ 2,687.60 -32.44; S&P 500 1,534.10 -18.98; NYSE Composite 10,072.93 -121.08

Damage was widespread, as declining issues outpaced advancers by a 7-2 margin. New lows retook the edge over new highs for the second time in the last three sessions, 368-228.

Other issues reporting on the day were:

  • Citigroup Inc. (C): Net income rose to $6.23 billion, or $1.24 per share, in the second quarter, from $5.27 billion, or $1.05 a share, in the same period a year earlier. Analysts had sought 1.13 per share, but, shares of the nation's largest bank still were down 40 cents on the day, closing at 50.73

  • Schlumberger (SLB): Amid the dour tones of the day, the oil services company posted net income for April-June of $1.26 billion, or $1.02 per share, compared with $856.9 million, or 69 cents per share, in the year-earlier period. Revenue rose to $5.64 billion from $4.69 billion a year earlier. Analysts had expected earnings per share of 95 cents on revenue of $5.53 billion. Shares rose 3.23 to 96.68.

  • Wachovia Corporation (WB): Net earnings increased 21.1% to $2.3 billion, or $1.22 per share, from $1.9 billion, or $1.17 per share in the year-earlier period. Those results were in line with analyst expectations of 1.22 per share. The stock, however, sold off sharply, finishing the session down 1.63, at 49.98

Microsoft (MSFT) was also in line with estimates, but was punished after a series of upside surprises. Shares of the software maker declined 0.35 to 31.16 on volume that was nearly double the average.

Oil dropped 35 cents to settle at $75.57. Gold rose another $6.60 to end at $684.70, while sister silver added 3 cents to $13.40. Friday was the culmination of the best week for the metals in at least 3 months.

Monday will witness more earnings reports with a number of heavyweights, including American Express (AXP), Halliburton (HAL), Merck (MRK), Schering-Plough (SGP) and Texas Instruments (TXN).

Results thus far have been less-than-inspiring, with a fair share of misses and few clear winners. The week will be important as the majority of US companies will have reported by Friday.

Economic indicators will also be in focus, with existing home sales at 10:00 a.m. on Wednesday, new home sales on Thursday and a preliminary reading on GDP for the 2nd quarter out prior to the market open on Friday. Analysts are expecting GDP to show a 3.2% gain. This, on the heels of first quarter's dismal 0.7% showing, may be a bit optimistic. Anything below 2.5% may signal further weakness and precipitous losses in stocks.

Thursday, July 19, 2007

Late Surge Takes Struggling Dow Past 14,000; Google Misses

While the Dow spent all of the day in positive territory, it only broke through 14,000 briefly at various points during the session, and actually looked like it was not going to make it as of around 2:30 when the index hung about 40 points below the psychological barrier.

Dow 14,000.41 +82.19; NASDAQ 2,720.04 +20.55; S&P 500 1,553.08 +6.91; NYSE Composite 10,194.01 +45.73

A late-day surge sent the Dow over the top, setting another in a series of all-time closing highs. The NASDAQ and S&P followed suit as a spate of earnings eased investor fears, though there still were more than a fair share of misses on Wall Street. Technology stocks carried the day, with IBM leading the way.

Among companies reporting second quarter results, were:

  • Bank of America (BAC): Net income rose to $5.76 billion, or $1.28 per share, from $5.48 billion, or $1.19 per share, a year ago, though the company set aside 1.81 billion to credit losses. Analysts were seeking $1.20. The stock traded marginally lower.

  • Capital One Financial (COF): Net income totaled $750.4 million, or $1.89 per share, in the April-June period, up from $552.6 million, or $1.78 per share, in the year-ago quarter. Analysts were looking for $1.68 per share on revenue of $4.07 billion. The company reported revenue of $3.57 billion. Shares were off 87 cents prior to the after the bell announcement, but improved in after-hours trade.

  • Google (GOOG): The Mountain View-based company earned $925.1 million, or $2.93 per share, during the three months ended in June. That compared with net income of $721.1 million, or $2.33 per share, at the same time last year. Analysts were looking for $3.59 per share. Shares were off more than 30 points (6%) in after-hours trading

  • Honeywell (HON): Quarterly earnings rose to $611 million, or 78 cents per share, for the three months ended June 30 from $521 million, or 63 cents per share, in the year-ago period. Analysts expected 0.75 per share.

IBM, which announced earnings after Wednesday's close, rose another 4.78 to 115.86 after it reported a profit increase of 12% on unexpected gross income. The stock's stellar performance was responsible for much of Thursday's gain, though that may well be offset by Google's missing the mark. Google reported after the close on Thursday, so Friday may be a rocky session, with options expiration also occurring.

Advancing issues led decliners by a 19-12 margin. New highs moved back ahead of new lows, 464-220, a sharp reversal from yesterday.

Oil closed at its highest level of the year, $75.92, up another 87 cents on the day. Gold and silver traded higher with gold at $678.10, a $4.40 gain. Silver was up 9 cents to $13.38.

On tap for tomorrow (with analyst expectations):

  • Caterpillar Inc. (CAT) 1.49

  • Citigroup Inc. (C) 1.13

  • Schlumberger (SLB) 0.95

  • Wachovia Corporation (WB) 1.22

Wednesday, July 18, 2007

Markets Pare Gains on Profit Weakness

Earnings continued to roll out on Wednesday, with the following highlighting a heavy day of releases:

  • CIT Group (CIT): Second-quarter loss after paying preferred dividends of $134.5 million, of 70 cents per share was reported, compared with a profit of $236 million, or $1.16 per share, in the year-ago period. The results include a charge of $495.3 million, or $2.58 per share, from the planned exit of its home lending business, making CIT yet another casualty of the subprime mortgage industry implosion. Analysts expected 1.35. The stock dropped 6.26 (11.29%) on the news.

  • eBay (EBAY): Reported earnings of $375.8 million, or 27 cents per share, compared with earnings of $250 million, or 17 cents a share, for the same period last year. Analysts expected 0.32

  • Gannett (GCI): Excluding a $73.8 million gain from the sale of several newspapers and earnings from discontinued operations in both periods, Gannett earned $289.9 million from continuing operations in the quarter, down 4.8 percent from $304.5 million in the same period a year earlier. Per-share earnings on the same basis came in at $1.24 versus $1.28 in the same period a year ago. Analysts expected 1.21

  • Pfizer (PFE): Excluding items, adjusted profit fell 20 percent to $2.94 billion, or 42 cents per share, from $3.66 billion, or 50 cents per share, a year ago. Analysts expected 0.50

  • Piper Jaffray (PJC): Second-quarter net income was $9.3 million, or 52 cents per share, compared with earnings of $4.1 million, or 21 cents per share, in the second quarter of 2006. Analysts expected 0.74. Shares were off 3.69 (6.72%).

  • Southwest Airlines (LUV): Earned $278 million, or 36 cents per share in the April-June quarter, compared with $333 million, or 40 cents per share, a year earlier. After adjusting for fuel-hedging transactions, Southwest said it would have earned 25 cents per share. Analysts expected 0.22

  • United Technologies (UTX): Earnings per share for the quarter that ended June 30 were $1.16. Analysts expected 1.15

Most of the big names offered disappointing results, and it took a toll on the overall market.

Dow 13,918.22 -53.33; NASDAQ 2,699.49 -12.80; S&P 500 1,546.17 -3.20; NYSE Composite 10,148.28 -22.08

The results thus far for companies reporting 2nd-quarter earnings have been mixed with some major misses, not a positive trend for a market that's just made new highs. Add to the sour mood of today, Fed Chairman Ben Bernanke's remarks that the sub-prime lending ordeal is likely to worsen, though the US economy is in good overall shape. He has his doubters, however, and signs of a significant slowdown are everywhere.

Today's trade was also somewhat deceptive. All of the indices were down more than twice their closing losses. Some serious tape-painting occurred in the last hour of trading.

Declining issues once again overwhelmed advancers, by nearly a 2-1 margin. New lows surpassed new highs for the first time in weeks, 375-229. This is a definite sell signal that's been building for weeks.

Oil continued to weigh on the market as well, with the price of crude for August delivery gaining another $1.03 on the NY Merc, to close at $75.03.

Gold moved up to $673.70, a gain of $7.80, while silver added 27 cents to close out at 13.29. There's a growing number of commodity specialists who believe the precious metals are due for another run-up on inflation concerns, though both are near historic highs and have been stuck in trenches for more than 18 months.

There may have been consolidation in these commodities as positions have been unraveled, though most of the speculators are calling for doubling or even tripling in price over the next 2-3 years. Those predictions have been around for years, and, following the movements of the metals, they are highly cyclical and they seem to be on the downside of their most recent bullish cycle.

On the other hand, the gold cycle is very long, and neither gold nor silver has yet to show signs of breaking the long term uptrend. With inflation running rampant, they are not the worst investments, but stocks have performed much better over the last year and a half. These should be only held in large quantity if the potential for a complete market crash is high, and that's certainly not the case at present.

Watch out for the remainder of this week. Any more profit disappointments may just cause outright flight from equities for the summer.

Tuesday, July 17, 2007

Earnings, Politics Swing Markets

For the nest two weeks, market movements are likely to be a function of 2nd quarter earnings reports, though Tuesday may have been an exception.

Of the major reports flowing from corporate offices, the following:

  • Forest Labs (FRX): Net income rose to $268.2 million, or 83 cents per share, in the fiscal first quarter ended June 30, from $200.6 million, or 62 cents per share, a year earlier. Analysts had expected 77 cents per share.

  • Johnson & Johnson (JNJ): Net income, $3.1 billion, $1.05 a share, up from $2.8 billion, or 95 cents, earned in the second quarter last year. Analysts were calling for $1 a share.

  • Merrill Lynch (MER): Net earnings rose to $2.14 billion, or $2.24 a diluted share, compared with $1.63 billion, or $1.63 a share, in the year-earlier period. Analysts sought 2.02 per share.

  • Coca-Cola (KO): Profits, on a continuing operations basis, were $1.98 billion, or 85 cents a share, cleanly beating Wall Street's call of 82 cents a share.

  • Wells Fargo & Company (WFC): Net revenue of $2.28 billion, or 67 cents per share for the 2nd quarter, compared with net income of $2.09 billion, or 61 cents per share, a year earlier. The numbers were in line with expectations of 0.67 per share.

  • CSX Corporation (CSX): Reported earnings of $324 million, or 71 cents per share. Last year the company reported second quarter earnings of $390 million, or 83 cents per share which included a one-time 25 cent gain, so analysts were only looking for 64 cents and the company delivered handily.

  • Intel Corporation (INTC): The company reported revenue of $8.7 billion and earnings per share of 22 cents in the second quarter including a tax item that boosted EPS by 3 cents. The resulting 19-cent-per-share profit figure was in line with analyst expectations.

  • Yahoo, Inc. (YHOO): Net income for the second quarter fell to $161 million, or 11 cents per diluted share, from the year-earlier quarter's $164 million (0.11). Results were in line with lowered expectations of 11 cents per share.

Note that all of the companies listed above either beat or met expectations, but the overall market barely budged.

Dow 13,971.55 +20.57; NASDAQ 2,712.29 +14.96; S&P 500 1,549.37 -0.15; NYSE Composite 10,170.36 -17.82

Why? Could it be the price of crude oil, which hit a high of $75.35 earlier in the day before being hammered down to $74.02, a loss of 13 cents? Or the shifting political tides in Washington, which look to put Bush & Co. out of business in a matter of months? There's a storm brewing, and impeachment and military failure in the field (which has already occurred) are not likely to aid the mood on Wall Street.

Oil will slide to less than $60 per barrel if an end to the Iraq situation is found soon and it's looking more and more like that will be the case, but Wall Street isn't so sure, plus, the finality of the Bush administration may mean closer scrutiny of corporate governance and possibly even an SEC with real investigative and subpoena powers.

So, politics are moving the markets, even while corporate earnings are about as solid as one would like.

Decliners beat out advancing issues by an 11-9 margin and the gap narrowed again, with new highs checking in at 430 to 211 new lows.

On tap for tomorrow (company, ticker, expectations):

  • CIT Group (CIT) 1.35

  • eBay (EBAY) 0.32

  • Gannett (GCI) 1.21

  • Pfizer (PFE) 0.50

  • Piper Jaffray (PJC) 0.74

  • Southwest Airlines (LUV) 0.22

  • United Technologies (UTX) 1.15

Gold and silver were both marginally lower. No surprise there.

Monday, July 16, 2007

The Dow Stands Alone

Another Monday meant another record close for the Dow Jones Industrials, but, while the blue chip index climbed closer to the 14,000 mark, all other major US equity indices were lower.

With earnings season going full tilt, investors took on a cautious tenor against the backdrop of spiraling energy prices and a general weariness caused alternately by the spectacular gains of recent days and the mid-summer doldrums.

Dow 13,950.98 +43.73; NASDAQ 2,697.33 -9.67; S&P 500 1,549.52 -2.98; NYSE Composite 10,188.18 -32.49

Volume was very light and all of the indices traded in extremely narrow ranges.

Declining issues beat advancers by a 2-1 margin. The gap between new highs and new lows continued to narrow, 478-193. This is indicative of a consolidating phase and sluggish overall trade. Expect to see some pullback unless corporate profits roll in very positively.

Reporting on Monday were Mattel (MAT), in line; Novellus (NVLS), beat estimates by .02; Sun Bancorp (SNBC), 0.22 vs. 0.17 EPS a year ago; and W.W. Grainger (GWW) beat estimates by .02, 1.19 per share.

A number of heavyweights are on tap for tomorrow, with expected EPS:

  • CSX Corporation (CSX) 0.64

  • Forest Laboratories (FRX) 0.77

  • Intel Corporation (INTC) 0.19

  • Johnson & Johnson (JNJ) 1.00

  • Merrill Lynch (MER) 2.02

  • Coca-Cola Company (KO) 0.82

  • Wells Fargo & Company (WFC) 0.67

  • Yahoo, Inc. (YHOO) 0.11

Of particular interest are Merrill Lynch, Yahoo and Coca-Cola. Merrill will be in focus because of its position in the financial services industry, which has done extremely well over the past 3 years. Coca-Cola is a top-performing blue chip which is expected to report strong numbers regarding sales in emerging markets. Yahoo has already warned investors that they will not meet their numbers. Investors are hoping that they don't miss too badly.

Oil rose another 22 cents to $74.15. Gold and silver were marginally lower.

Friday, July 13, 2007

Stocks Plow Ahead; Oil Out of Control

Well, you've made it through Friday, the 13th, unscathed. Well, at least you've made it this far. As I write, it's after 10:00 in London, so those superstitious Brits should be OK by now. The US stock markets had a pretty good day, even after a monstrous upwind on Thursday. All major indices managed gains again, though not nearly as large as yesterday's.

Dow 13,907.25 +45.52; NASDAQ 2,707.00 +5.27; S&P 500 1,552.50 +4.80; NYSE Composite 10,220.67 +22.98

This week's substantial gains occurred in the face of dismal retail reports, with consumer spending down 0.9% for June, with some spots of positive news. US equity investors should become more accustomed to stock gains against a backdrop of a weakening US economy, as the global nature of many companies affords them lesser dependence on the American market. With globalization, the US economy will continue to become more and more marginalized until it is nearly an afterthought for equity investors.
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For Friday, advancing issues were beaten slightly by decliners, as the trade was spotty and volume moderate. Likewise, new highs weakened a little against new lows, 562-164, though the tone was still heavily weighted to the positive.

Oil continued its ridiculous price spiral, rising another $1.43 to $73.93. I'm sorry, but that's just plain absurd. The price of crude has absolutely no basis in reality. It is the most manipulated, monopolized, contrived price structure in the world. There are no shortages anywhere and new wells are being found and drilled every day. The oil pricing mechanism is plain and simply a get-rich-quick scheme for billionaires - like they need more.

As disgusting as that is, gold and silver were marginally lower. After such a great week in the markets, leave it to the oil freaks to throw a wet towel on the entire event. Bah.

Thursday, July 12, 2007

Wall Street Surprise

Just a few days ago, earnings season looked like it was going to be an enormous flop, but after the best session on the Dow since October 2002, all is well again in the financial world.

The Dow Jones Industrials rocketed skyward by 283.86, shattering the old record of 13,676.32, set just over a month ago on June 4, by a mile and then some, more than 185 points better, in fact. The S&P also rose to a new all-time high while the NASDAQ closed at its best level since February 2001.

Dow 13,861.73 +283.86; NASDAQ 2,701.73 +49.94; S&P 500 1,547.70 +28.94; NYSE Composite 10,197.69

A single catalyst for the big move has yet to be unearthed, though the mainstream financial press is giving retailers - especially Wal-Mart which showed same-store sales up more than 2% in June - most of the credit. More to the point would be the considerably low interest rates which continue to persist at around 5% - an historically low level - feeding more money into stocks, mutual funds, hedge funds and ETFs.

US equities are currently awash in capital, with literally no end in sight. The credit expansion of the past 6 years has created an unimaginably robust bull market which has run longer than any in recent memory. Off the lows of October 2002, we are now well into this bull run's 58th month, and that's a long, long run.

The other major catalyst is the maturation of globalization. Companies are just now beginning to see the world as a whole, complete with outstanding opportunities in emerging markets and leveraging of entire economies. The world hasn't seen this kind of explosive growth - amid a somewhat stable environment - ever, and most of the global giant companies are listed on US indices.

On the day, advancing issued hammered decliners by nearly a 3-1 margin, while 577 new highs dwarfed 162 new lows.

Normally, any good market reporter would through a word of caution in on a day as spectacular as today, but the best this one can provide is a reminder that tomorrow is Friday the 13th. The boom continues, and there seems to be nothing in the way to slow it down.

The only price lower on the day was that of oil futures, which fell a paltry 6 cents to a still-ridiculous $72.50. Americans, hardy lot that we are, have adjusted to $3.00 per gallon gasoline, so even the mad oil barons are plotting new ways to make more money. Gold was up $6.20 to $668.30, while silver advanced 21 cents to $13.18, proving that even bad dogs have good days.

Tuesday, July 10, 2007

Retail Swoon, Oil Boom Slams Stocks

I've been saying this for months - that the price of oil in the futures markets is unsustainable and may be sowing the seeds of catastrophe for the markets and world economy - and today, finally, that thinking has come home to roost.

While the oil monopolists were boosting the price of light sweet crude another 62 cents - to close at $72.81 - stocks in New York were taking a beating. Adding to the malaise were inconsequential comments from Ben Bernanke, who is beginning to look more and more like a one-term paper tiger, earnings warnings from Home Depot (no surprise there) and Sears, and some more sobering news on the sub-prime front, all of which added up to a big, fat bummer for US investors.

Dow 13,501.70 -148.27; NASDAQ 2,639.16 -30.86; S&P 500 1,510.12 -21.73; NYSE Composite 9,953.57

Get ready for a dramatic turn-around for stocks, if today's trading was any indication. Of course, the markets themselves may have sent a powerful message with the losses, and it just may wake up some people as to the potential for long-term damage by oil prices in the sky. The remaining days of this week should be telling.

The damage was widespread, affecting all sectors and industries, though retailers were hardest hit. Declining issues led advancers by a 3-1 margin, while new highs eked out a win over new lows, 260-220. Once again, this stumbling could be just the silver lining of the dark cloud suddenly settling over Wall Street. It's a bit premature to make predictions, and tomorrow's follow-through (or lack of one) will be telling.

This kind of sharp move, however, is indicative of turning points, and there have been no lack of them lately, though the markets always seem to find a way to survive and move ahead. It's going to be a very bumpy earnings season.

Gold and silver made minor moves to the plus side.

Monday, July 9, 2007

Markets Move Forward in Cautious Session

With 2nd-quarter corporate earnings reports on the horizon this week (Alcoa announced after the close, posting earnings of 81 cents per share, in line with estimates, but down 4 cents from the same period in 2006), investors took a cautiously-positive tone in a session characterized by sluggish trade and squaring widely-held positions. There was little in the way of speculation, as most of the action over the next few weeks will have earnings as a catalyst.

Dow 13,649.97 +38.29; NASDAQ 2,670.02 +3.51; S&P 500 1,531.85 +1.41; NYSE Composite 10,099.60 +24.21

This is a very heady time for the market and one in which savvy players will make significant plays on stocks. The most animated of the trading will likely be next week, when the bulk of the S&P 500 stocks report and options expire (July 20).

New highs were again well ahead of new lows, 564-100, though advancers and decliners were virtually in a dead heat. Once again, these internals demonstrate that investors are buying stocks that are already showing gains, and shedding losers, though at a reduced rate. We're almost certain to see more of a leveling between the new highs and lows as the quarterlies flow to the market and the media.

With more than 5500 stocks on the NYSE and NASDAQ not represented in the daily high-low numbers, a smart strategy at this juncture would be to go long on companies approaching their 52-week high and either avoid, short-sell or buy puts on those nearing the bottoms of their ranges. You're likely to find winners on both sides of the trade, depending on how much risk you can maintain and how far you wish to spread your money. a few big winners could give the usually pedestrian month of July a bit of luster.

Oil actually fell back a bit today, down 72 cents to $72.19, though it is still extraordinarily high. Oil futures prices have yet to be reflected in pain at the pump, but it's certainly coming, probably right around the time of the Labor Day holiday weekend, which falls on September 1, 2 and 3 this year, coinciding with back-to-school, one of the busiest driving seasons of the year. It hopefully will be Big Oil's last gasp, as the political storm currently percolating in Washington, DC should be blowing its top at that time.

Naturally, politics don't make markets, but some swing in the consensus - especially concerning Iraq - could foment radical changes in corporate governance and oversight down the road. It may be wishful thinking by liberals and free-marketers alike, but change has been in the winds for months. Watch the month of August for signs that the bull is about to wind down or make a significant correction.

Gold and silver made gains today, though they're almost certain to give them back during the course of the week, if not tomorrow.

Friday, July 6, 2007

Benign Jobs Data Spurs Stocks

The Labor Department set the tone on Friday, with a report suggesting the US economy is growing at a moderate pace, creating 132,000 new jobs in June. On the news - released an hour prior to the opening bell, investors snatched up shares even as oil prices approached all-time highs.

Dow 13,611.68 +45.84; NASDAQ 2,666.51 +9.86; S&P 500 1,530.44 +5.04; NYSE Composite 10,075.39 +49.15

While the new jobs created were in line with expectations, the continuing rise in the price of oil - up a full $1 on the NYMERC to $72.81 - may be expected, though hardly welcome.

Advancing issues outpaced decliners by a 7-5 margin, There were 459 new highs to just 112 new lows. The numbers suggest the markets are ready for another upsurge, with the Dow poised just 65 points short of recent highs set on June 4.

Gold and silver fought back to levels seen on Tuesday. Overall, the week was more marking time for the metals than anything substantive.

Thursday, July 5, 2007

Oil or Jobs: Which Will Turn Markets?

Trading on Wall Street was less than dramatic today with a split decision among the majors, though there was little left to the imagination over on the oil futures pits.

Light crude for August delivery rose as high as $72.35/barrel before falling back to close up 40 cents at $71.81. The price was the highest of 2007 and close to the all-time high of $72.17 in April of 2006.

Dow 13,565.84 -11.46; NASDAQ 2,656.65 +11.70; S&P 500 1,525.40 +0.53; NYSE Composite 10,026.24 -6.37

Internally, the market displayed the nature of the day's trade. Decliners led advancers marginally, by a 10-9 margin, though new highs still held sway over new lows, 423-139.

This leaves the end of the week as an open question. Despite ample inventories, oil still remains a threat to take down the entire economy. Tomorrow, the June jobs report is due out at 8:30 am - prior to the market's opening - setting the stage for potential calm or calamity.

Judging by the tenor of today's trade, oil continues to be the elephant in the middle of the room, coloring all investment decisions. By now, it's apparent to most wizened investors that the big oil companies are operating under the guise of an illegal, price-fixing cartel, and that the government is in no case about to lift even a finger to curtail their activities. In fact, the Supreme Court ruled last week that producers and retailers could fix prices without penalty, in effect overturning a key provision of the Sherman Anti-Trust act. The court essentially gave a green light to oil companies and any other group of manufacturers to dictate prices at the retail level. It's a tremendous boon to corporate interests, and a severe blow to consumer protection.

As though the oil combine weren't enough about which to worry, tomorrow's jobs report may be a bombshell which sets off a major selling session. If the consensus is correct, it will be uninspiring to either side, but if the report shows less than 120,000 new jobs, investor reaction may be extremely negative. Recent economic reports have been less than favorable, and this would be another nail in the US fiscal coffin.

On the other hand, if there's a significant surprise in the aforementioned report along the lines of 150,000 new jobs, it would serve as a significant buy sign. The probability of an upside to the jobs report is low, however, at roughly 20%. In other words, don't bet on it. Coupled with the continuation of the oil rally, the jobs report has about a 40% chance that it will miss the already low bar. The other 40% probability is that the new jobs created will come in at a level of 120-135,000. The chance of oil selling off is practically nil.

Despite what occurs on Friday, any move may be short-lived, as second quarter earnings reports are now on the horizon and will serve as drivers for the indices through the first week of August. That jobs reports, though, may set some tone and give an indication of where the US economy and, to an uneven extent, the stock markets, are headed.

In related commodity news, gold lost $4.80 to end the day at $650.60; silver was off another 11 cents to $12.58. The metals are sinking under their own weight.

Tuesday, July 3, 2007

Stocks 2-for-2 Prior to Holiday

The major indices all recorded gains for the second straight day in a shortened session which ended at 1:00 EDT. Investors will get back to trading after a 1-day hiatus for the 4th of July, and the Thursday and Friday sessions could be turbulent.

With just two hours left in the session, the National Association of Realtors released their May Index of Pending Home Sales, showing a decline of 3.5%, close to a 6-year low. The continued weakness in the housing markets is no longer news, despite the protestations of Secretary of the Treasury Henry Paulson, Fed Chief Ben Bernanke and former Fed head Alan Greenspan, who all describe the situation as either "contained" or "manageable."

The value of their short-winded explanations can be summed up by an equally brief quip: HOGWASH. It was Greenspan's easy-money policy that created the bubble in real estate, and now that it's deflating, they're too chicken-hearted to own up to the truth. Prices are falling like rain, consumers are tapped out and the sub-prime financial debacle is going to get worse - probably much worse - before it gets better.

The reality of the housing crisis in America is that financially strapped homeowners are increasingly unable to keep up with rising mortgage payments in ARMs, interest-only and other nefarious mortgage instruments created by banks with tacit approval by the Fed, the bulk of which have yet to re-price.
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Over the coming 18 months, billions of dollars in mortgage debt is going to go bad and with it some heavily-invested hedge funds.

Attempting to unload their sub-prime backed instruments as quietly and as quickly as possible, the hedgies are finding few takers and by fall, outright dumping will be the rule of the day. Hundreds of billions of wasted dollars are going to be taken right out of circulation when the hedge funds go belly up and they will likely have a major impact on all markets in a cascading series of defaults and banking busts. The end game will be a calamity for stocks as investment dollars are ground out of existence.

Fortunately, due to the size of the American and world markets, much of the carnage will come in waves, beginning in late summer to early fall, though they will accelerate through 2008. Most investments are safe for the time being, though the latter part of this quarter and all of the 4th quarter could be quite dicey.

This bull has nearly run its course, and like all good bulls, at the end of the run, it's going to leave behind a sweating, stinking mess.

Dow 13,577.30 +41.87; NASDAQ 2,644.95 +12.65; S&P 500 1,524.87 +5.44; NYSE Composite 10,032.61 +35.18

in addition to the housing woes moving the markets, on Thursday, the government reports crude inventories, which probably won't amount to much, but the markets will be anticipating Friday's June Labor report, about which investors may be somewhat less than enthusiastic. The forecasters are calling for 125-135,000 new jobs, though there's a growing consensus that even that mild reading may be missed. If the jobs report comes in under 100,000 new jobs, there will be a momentary pause by those who think it may give the Fed some more reason to cut interest rates, but then there will be a rush toward the exit doors. Depending on the number of new jobs the Labor Department decides to say were created in June, Friday could be a Bear bash or a bore.

Today's activity was more of a mop-up from yesterday's handsome gains, with some adding to positions without much fanfare. Advancing issues again were ahead of decliners, 3-2. There were 439 new highs to 107 new lows. A solid day all around.

Oil was priced 21 cents higher on the day, at 71.30, while gold fell $3.50 to $655.70 and silver lost 6 cents of its luster, at 12.69.

Happy Independence Day!

Monday, July 2, 2007

Stocks in Broad Rally as 3rd Quarter Ensues

After three weeks of see-saw trading which resulted in less than a 1.5-2% loss on the major exchanges (most of which was recovered today), investors took the beginning of the 3rd quarter as an opportunity to buy.

This was not an unexpected occurrence, as noted by the experts, there had been a significant amount of portfolio paring and clipping of losses, with only a small dose of outright profit-taking in winning positions.

The markets were up right out of the gate and the action was steady throughout the session even though volume was relatively light. This being an unusual trading week, with the Independence Day holiday smack in the middle of it, there are surely fewer active traders to be found.

Dow 13,535.43 Up 126.81; NASDAQ 2,632.30 +29.07; S&P 500 1,519.43 +16.08; NYSE Composite 9997.43 +124.41

There was no mistaking the direction of the market on Monday, as advancing issues trounced decliners by a better than 5-2 margin and there were 409 new highs to just 123 new lows.

Stocks weren't the only winners on the first trading day of the 2nd half of the economic year; oil jumped another 41 cents to close at another 2007 high of $71.09. With the biggest holiday of summer just another day away, the oil barons are making sure that American motorists pay through the nose at the pump (pardon the sloppy metaphor).

What may be driving the most recent rise in oil prices is the fact that the holiday will be in mid-week, somewhat limiting long-distance travel and forcing the hand of the oil cartel to jack prices to make up for slack demand. That's how the supply-demand logic works for the oil companies. If they sell less, they'll make up for it with higher prices, and make no doubt, there's price fixing at the very highest levels of industry.

Despite the troubling and potentially criminal behavior of the oil crowd, the US economy still seems to be humming along quite well. Interest rates are still historically low and GDP growth (or lack thereof) probably bottomed out in the 2nd quarter, though we won't know for sure for another 3-4 weeks. By that time, corporate earnings reports will be at full tap, so if news is not good on the overall economy, it could come as a shock. Regardless, corporate earnings are still on a buoyant tack and another rally to new all-time highs is likely to occur within the next 3-4 weeks.

It's prime time to put unused capital to work, shed losers and reinvest in companies that have been meeting or beating street estimates. Tomorrow, and over the next few days' posts, I'll offer some specific stocks and sectors.

Gold and silver posted gains of $8.30 and $0,27, but they look more like a dead cat bounce than anything indicative of a new direction in the metals markets.