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!