Friday, August 31, 2007

Ba, Ba, Bernanke lulls sheep to sleep

For all the money they control, the investor class - and I use that term loosely - is not very bright. As an investor, you may find that statement offensive, but, if you've bought stocks over the past few weeks, well, then it does apply to you.

Sure the market has bounced back a little and today it was up sharply. But, pay attention and you'll get an inkling of why I think investors are more akin to sheep than wolves.

Fed chairman Ben Bernanke, speaking at an economic symposium at Jackson Hole, Wyoming, said that the Fed will "act as needed" to keep the credit crisis from harming the general economy.

Fine. Dandy. What did everyone expect him to say?
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"We at the Fed will not stand in the way of economic upheaval?" Or, "You idiots got yourself into this mess, so don't expect us to bail you out?" Actually, he did somewhat say the latter, suggesting that financial institutions and consumers who took bad risks in the sub-prime mortgage market - from both sides of the transaction - would not receive special treatment from the Fed.

And well they should not. These people made their beds, now they can sleep in them, whether they have four walls and a roof over their heads or not. If you parse Ben Bernanke carefully, he, much like his predecessor, Alan Greenspan, doesn't really say much. It's probably because they, like most artists of economics (remember, it's not science), don't really have any pat answers. They make it up as they go along.

So, those who cheered the Chairman's utterances today, are even more clueless than our wing-and-a-prayer Federal Reserve heads. Many take very little prodding to charge headlong into the maw of Wall Street, much like a sheep being led to shearing or slaughter. Baaaaaa!

Dow 13,357.74 +119.01; NASDAQ 2,596.36 +31.06; S&P 500 1,473.99 +16.35; NYSE Composite 9,596.98 +140.34

Today's advances exemplifies the current culture of wary wolves and unsuspecting sheep. The wolves sat back (looking more like bears), while the sheep followed the lead of both the Fed Chairman and the President (who believes anything he says?), who outlined plans to bail out people who stretched beyond their limits to get into homes during the boom.

It's actually laughable that the same president who sat back and did nothing while unregulated lenders were offering interest-only, no-down-payment loans to people who were poor credit risks in the first place. Trusting the Bush administration to help out the same people who were harmed by government's lack of oversight and regulation is like asking a fish to jump onto a hook. The result is the same: the fish gets snagged, scaled, grilled and eaten.

In any case, advancing issues were far ahead of decliners, by a whopping 4-1 margin. Volume, however, was once again anemic, so trusting this rally is for those with only the blindest of faith. New highs exceeded new lows, for the first time in over a month, narrowly, 123-107.

Most of the stocks moving were hoisted by the brokerages, after all, so Bear Stearns, Lehman, Merrill and their lot will be stuck with even more overpriced securities. Joke's on them. Ha Ha.

Oil priced 68 cents higher to close at $74.04 (Happy Labor Day). Gold was up $8.00 to $681.90, while a troy ounce of silver brought another 27 cents, at $12.23.

The markets and many businesses are closed on Monday, for Labor Day, a day in which many will be paid for taking a day off. Hey, it's the American Way, right?

Thursday, August 30, 2007

Turning the screws slowly

Every day, the US equity markets get one day closer to implosion. Repeated interventions - overt and covert - by members of the Fed and the PPT (President's Working Group on Financial Markets) merely delay the inevitable bust. US stocks are still, by almost any measure, horribly overvalued, puffed up by mountains of debt, and ripe for collapse.

When the "reckoning day" does finally come, it may be spectacular. On the other hand, the Fed's management of the market may result in a long, slow, painful, tortuous decline over time, such as what we've been seeing lately. Monday, the market was down; Tuesday, down even more; Wednesday we witnessed a remarkable one-day rally the came from out of the blue, Thursday, down again. Friday's direction, nobody knows, but the general path is toward the bottom - of that, most of us who entertain to study such events are sure.

Thursday was pretty much a non-event as far as movement was concerned. The main US indices were down throughout most of the session and ended that way, except for the NASDAQ, which made a remarkable 45-point move early in the day and remained in positive territory through the close. PPT fingerprints were all over that particular market oddity.

Dow 13,238.73 -50.56; NASDAQ 2,565.30 +2.14; S&P 500 1,457.64 -6.12; NYSE Composite 9,456.64 -52.28

Volume was pathetic once more, as traders attempt to wring a last bit of sunshine out of the summer. Internally, the numbers revealed more of the same. Declining issues beat out advancers by a 4-3 margin. New lows beat out new highs, 166-84.

Oil futures took a moderate decline of 15 cents on the day to close at the absurd figure of $73.36. Gold and silver also were down on the day by marginal amounts. Silver lost a nickel to fall to $11.98. Gold was off $1.50 to $673.20.

Two pieces of news were noteworthy. As expected, Q2 GDP was revised higher. The preliminary read came in at 4.0% versus the advance estimate of 3.1%. Investors barely noticed, especially when news appeared that Sears Holding Co., which operates Sears and K-Mart stores, saw 2Q profit fall by 40%.

Much of Sears' problems are internal, though no doubt their results were partially colored by declining consumer interest in spending every last dollar. The retreat of the consumer is a vexing issue which will only exacerbate the ongoing credit and cash squeeze.

Tomorrow, Fed Chairman is scheduled to speak at the annual shindig of financial big-wigs at Jackson Hole, Wyoming. The event is usually a watershed for bluster and Fed policy mouthings, though why anyone will be even marginally interested is a good question. Bernanke's not about to tip his hand regarding internal Fed policy. Most of what he says will be gloss and devoid of substance.

Ho-hum. Friday's likely to be a really slow day in advance of the Labor Day holiday. Take a break, have a barbecue and some cold beer and get back to the depressing stock market on Tuesday. It will surely be more interesting then.

Wednesday, August 29, 2007

One-day wonder

1:45 pm Eastern, the Dow was up about 75 points. By the end of the day the geniuses who dropped it 280 just yesterday decide to tack on another 170 or so and send it soaring into the close. Naturally, all other indices followed diligently along.

This is textbook volatility in a decidedly bear market. It's not unusual for traders to act like sheep when the market makes bold moves one way or another. Usually the only winners are day-trading experts at brokerages and a few plucky individuals who play the market for a living. These moves to the upside are nothing more than knee-jerk responses to momentum. If one is really nimble and smart, one can make a bundle of cash on these moves. Unfortunately, most investors aren't constantly trading on momentum, and that's probably for the good.

Dow 13,289.29 +247.44; NASDAQ 2,563.16 +62.52; S&P 500 1,463.76 +31.40; NYSE Composite 9,508.92 +219.43

Advancing issues did an about-face from the previous day, with nearly 5 gainers for every loser. However, the rally on Wednesday failed to kill off the one supreme indicator of the bear. New lows buried new highs, 169-65, a measure that's been giving a bearish reading since the first major pullback on July 24, a span of 27 straight sessions. Until there are more new highs than lows, this market is going to be the haven of hucksters and day-traders, and there will be plenty of losing trades. Practically anything bid up will come down.

Volume was also somewhat on the moderate side. There simply is not a lot of serious activity in the markets. More people are afraid to take risks now than ever in the past 4 1/2 years and many are wondering how long they can ride along without selling whatever gains they have and/or paring their losses.

With stocks moving higher, it didn't take long for the oil traders to jump on board, boosting crude futures for October delivery by $1.78, to $73.51, citing supply shortages, which magically appear out of nowhere whenever the greedy bastards want to make more money. It's simply absurd to believe that oil is actually controlled by any kind of supply-demand cycle. The reality is that the entire market is rigged for the benefit of the major oil companies.

Gold was up $1.90 to $675.40 and silver added 8 cents to close at $12.01. The mini-moves in the metals, in relation to oil, were somewhat akin to a curtsy and a bow. In reality they mean little. All commodities are about to get sunk as the fallout from the credit miasma continues to eviscerate businesses around the world.

Little by little, the credit woes are creeping forward, silently. Eventually, they come into public view and everyone is shocked that Americans could not continue to borrow and spend indefinitely. It's just the way the world works.

Tuesday, August 28, 2007

How dumb can investors be?

Watching the recent activity on the stock market - especially today - offers a glimpse into the mind of the investor. When the Fed released minutes from their last meeting, stocks, which were already down, again, as usual, as they should be - fell even further as investors didn't cozy up to the idea that the FOMC was not seriously considering cutting the federal funds rate.

Hello! Earth to investors! The Fed isn't going to cut rates at this juncture because that would only exacerbate the conditions which afflict this sick market. The Fed is not about to bail out people who lost money on derivatives, packaged sub-prime mortgages, stocks, mutual funds or any other financial instrument.

The idea that supposedly "smart" individuals trading stocks would wait to hear the official word from the Fed that they weren't about to apply essentially what amounts to a band-aid to the economy. The economy will fail or succeed without help from the Fed. It always does, despite the weight people put on the actions of the beloved Federal Reserve.

Plainly, the people working on Wall Street are overpaid mimicking morons who follow, sheep-like, every movement (or non-movement) of the Fed instead of focusing on fundamentals in the stocks they are trading. If it wasn't so sad, the attitude of traders these days would be laughable.

Dow 13,041.85 -280.28; NASDAQ 2,500.64 -60.61; S&P 500 1,432.36 -34.43; NYSE Composite 9,289.49 -239.44

The Dow lost nearly 100 points in just the last hour - after the release of the Fed minutes. It doesn't really matter when the market moves lower, it is simply enough to know that it will and that there's little, if anything, the Fed or anybody else can do about it. Conditions in the credit markets are so entirely warped and information so sketchy that nobody is really sure of how bad the damage is and how severe the fall of the economy will be.

Suffice it to say that when the market - that being made up of mostly clueless traders - is unsure, it will not perform well. The credit markets are of vital importance to businesses and consumers alike and they are in a condition of complete disarray. As I've said here before, a crash is almost a certainty, it's only the exact timing that isn't known.

For every advancing issue today, there were five that were declining in price. There were 58 stocks making new highs and 150 making new lows. The stage has been set for some time now. Shortly, probably after the Labor Day holiday - or maybe just before it - all of the actors will take their places and deliver a hammer blow to stocks, not just in the US, but worldwide. It's going to be a sobering situation.

Oil and gold declined by marginal amounts. Silver was unchanged at $11.92 per ounce. Commodities are now acting as a proxy for the economy. Lower prices mean slack demand and there's a trend forming, though the oil markets, in particular, are still very much detached from reality. When oil falls, it will be a large drop. We could see oil prices down to levels that may actually stimulate the economy instead of acting as a hidden tax. Gas at the pump may be below $2.50 per gallon by Christmas, if not sooner.

The carnage on Wall Street is magnificent and we're just getting started. The next shoe could drop at any moment. Stay tuned and be nimble... and not stupid.

Monday, August 27, 2007

Blue Monday

The markets opened on a lower note and were pushed further into the red by another in a continuing series of bad reports from the housing sector, today's detailing a further decline in existing home sales and lower prices for existing homes.

The actual numbers have now become somewhat irrelevant.
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Anybody with a pulse knows that the housing market has been fractured, though nobody really wants to admit to how badly it is broken and how serious the effect will be on the general economy.

Allow me to be the bearer of bad news. As bad as you think it might be, multiply that by 3 and you may come close. The coming recession will likely be the deepest and longest of the post-war era. Banks, mortgage finance companies, Wall Street brokerage houses, private equity managers the Federal Reserve and various elements of the federal government have unwittingly colluded in producing a near-catastrophic financial environment rivaled only by the crash of 1929 and the ensuing Great Depression.

Dow -56.74, 13,322.13; NASDAQ -15.44, 2,561.25; S&P -12.58, 1,466.79; NYSE Composite-78.11, 9,528.93

I cannot state with any more urgency than to say that the American banking and credit markets are in a liquidity crisis unmatched by anything most people under the age of 80 can remember.

A few points to ponder:

  • The US equity (stock) markets were so close to a complete crash at various points over the previous three weeks that not only our own central bank - the Federal Reserve - had to intervene, but so too did the Bank of Japan and the European Central Bank.

  • Countywide Financial (CFC), the nation's largest mortgage issuer, faced a liquidity crisis so severe that they were within days of declaring insolvency. Only by tapping a monstrous $11.5 billion line of credit and receiving interim funding of $2 billion from the Bank of America were they able to stave off complete catastrophe.

  • Wells Fargo (WFC) had a two-day outage of their online banking and ATM machine network which the company blames on a "computer glitch." The real cause for this shutdown or closure of their banking operations may never be known.

  • Citigroup and Bank of America, last week, requested and received an exemption from the Federal Reserve, allowing them to loan more money to their brokerage affiliates which were bleeding cash from bad mortgage loans and a meltdown in derivative positions.

  • The price of gold sank $22 in one day as nervous financiers sold the metal in order to raise cash.

  • The Federal Reserve lowered the discount rate - the rate at which member banks can borrow - 50 basis points, from 5.75% to 5.25% and also extended the repayment period from one day to 30 days. That window of liquidity opportunity will begin to close within 3 more weeks. At that point, Fed banks will be forced into a position of having either to borrow more or shut down some operations.

  • A number of financial institutions - mostly hedge funds and mortgage financing interests - have already been shuttered due to a failure to meet ongoing obligations.

All the while, Congress and the president have been on vacation. There has been only cursory lip service paid to the situation, though anyone who understands finances, and especially debt, knows that the condition of the US economy is grave.

Volume on the NASDAQ today was 1,285,962,361 shares, the lowest figure of the year. Traders are actually afraid to commit to this market. We are approaching a condition of inertia and illiquid markets which could shut down much of the world economy.

Declining issues outdid advancers by a better-than 2-1 margin. There were 130 new lows to 109 new highs, numbers that reflect the serious shortage of both buyers and sellers in the market.

Oil futures continue to be completely detached from reality, gaining 88 cents to close at $71.97, a price that cannot be justified or supported at any juncture in the supply chain. Regular gas has been declining over recent weeks, an unprecedented event during the usually-busy summer driving season. The decline in gasoline prices is an indicator of the general welfare of the US economy. People are driving less - much less in some cases - reducing demand on a current oversupply.

Gold and silver declined by marginal amounts again as the commodity markets continue their slow price disintegration.

There are crossed signals coming from all manner of sources - economic, political, military - that the world is on the verge of a major upheaval event. If recent history - the past 200 years - is any kind of guide, our world, as we know it, is about to be shredded by a combination of various forces of oligarchies, secret societies, ill-conceived government actions and tyrants.

If you are not yet afraid, you should at least be concerned. If you are afraid, your fear has good reason to manifest itself.

Friday, August 24, 2007

Spinning bad news into good (and withholding the worst)

Headlines can be misleading.

Today's big news, courtesy of the AP, is a case in point:

Home Sales, Factory Orders Both Rise in Encouraging Signs for Economy

It's only half true, or maybe less. The part about factory orders is pretty much spot on. Companies spent freely in July. Of course, that was before credit woes hit Wall Street and Main Street like a sledgehammer in August.

As far as those new home sales figures are concerned, there's a real double edged sword in play. Sure new home sales were up 2.8% in July - from June, when they were down 4% - so, isn't that still a net loss?

Additionally, the headline writers took the more optimistic of views concerning housing. Sales of new homes are off 10.2% in 2007 versus 2006.

The bit about "Encouraging Signs for Economy" is nothing more than an editorial, which, in strict journalistic terms, is out of place and out of bounds.

A more realistic headline might have been, "Factory Orders Up, New Home Sales Remain Down as Investors Await August Data."

Dow 13,378.87 +142.99; NASDAQ 2,576.69 +34.99; S&P 500 1,479.37 +16.87; NYSE Composite 9,607.04 +128.42

The financial press is as guilty as the mainstream for spinning news stories to suit a political agenda. Nobody wants the economy to falter, just like we don't want more bloodshed in Iraq, but that doesn't give the AP or any other news outlet carte blanche to adjust the headlines. Facts are facts, and they should be reported as thus, without embellishment. If the AP wants to mold the psyche of the American public, maybe they ought to start up a blog, where the rules are less well-defined.

Nevertheless, putting the smiley face on the news did lift investor spirits somewhat on Friday. Those reckless enough to be buying stocks faced little resistance in the market. Sellers were all too happy to give up their shares at a premium as the market advanced. Volume on the the Big Board was downright anemic. Over on the NASDAQ it was just another sluggish session.

Meanwhile, signs that the worst may not yet be over for the nation's largest mortgage firm, Countrywide (CFC), continued, as traders sent shares lower by 1.02 to close at 21.00, on heavy volume. 60 million shares of the stock changed hands. Average volume for the equity is 25 million.

Advancing issues clobbered decliners by nearly a 3-1 margin. New lows continued to hold sway over new highs, however, 125-87, and that metric is troublesome for bulls.

A commodities shot up on the day as well. Oil caught a bid and rose $1.26 to $71.09. Gold gained $9.10, with silver tagging along with a 30 cent gain.
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The commodity moves are foolhardy, just like today's stock market. Within weeks - if not days - these gains will be wiped away as the bad news in the credit sector dribbles out.

The Dow advanced just about 300 points for the week. Despite the impressive move, it should be noted that it was done on slim volume and the index is still more than 600 points below the highs reached in July.

There's a wall of worry to climb, and this market is just getting to the steep part.

Naturally, at 4:40 PM EDT, after the markets had already closed, came news that the Fed had bent their own rules to help member banks in the liquidity crisis.

According to the article, both Citigroup and Bank of America, earlier this week, requested and received an exemption allowing them to loan more money to their brokerage affiliates who were bleeding cash from bad mortgage loans.

Both the timing of the release of this information and the rule-breaking by the Fed and its members smell to high heaven. As usual, the American public is kept in the dark until after the fact. The liquidity crisis, as I've said over and over again, is the most serious financial situation the US has faced since the Great Depresssion.

Thursday, August 23, 2007

Acting like pirates

Ahoy, maties! It's time investors shed the wool that's been pulled over their collective eyes and now covers most of their bodies, put on an eye-patch and begin swinging swords at stocks.

Today's rescue of Countrywide Financial by Bank of America failed to ignite the rally hounds on Wall Street. While the stock of Countrywide - which faced a serious bank run last week (see story) - gained in after-hours and pre-market trading, the $2 billion injected by BofA is actually nothing more than a thinly-veiled takeover move.

The "loan", which is, in reality, convertible preferred securities priced at 7.5% which can be converted into common stock at $18 a share. If exercised, that would give BofA a 17% stake in the company, but the nation's largest bank would be unable to sell those shares for a period of 18 months.

So, is BofA really thinking "takeover" as opposed to "bailout"? And why was Countrywide so eager to accept money at 7.5% when the Fed just lowered the discount rate to 5.25% and extended the loan period for member banks to from 24 hours to 30 days.

Countrywide obviously cannot access that Fed money, but the 2.25% spread between what BofA is loaning them and the discount rate is the cost of doing business these days.

With a borrowing cost of 7.5%, Countrywide will have to either charge customers somewhere upwards of 9% to customers in order to remain even marginally profitable or sell off a chunk of the company to a "rival" at a discount. It's not a pretty world Countrywide is looking at these days.

In a few words, they're doomed. The larger banks will take the better loans, offering lower rates than Countrywide, who will be forced into a position of sick sister, having to deal with jumbos, home equities, and lenders of less-than-impeccable quality.

This comes at a time when the screws have been tightened considerably already and Moody's is still considering whether or not to lower Countrywide's bond rating to junk status.

By mid-day the markets had turned to mush. Countrywide, up as much as 2.50 early on, was ahead less than 1 point. By 2:00, the earlier gains had all but disappeared, with Countrywide trading as low as 21.98, only 16 cents better than its previous close. The stock closed up a mere 20 cents, at 22.02.

Dow 13,235.88 -0.25; NASDAQ 2,541.70 -11.10; S&P 500 1,462.50 -1.57; NYSE Composite 9,478.62 +1.49

Surely, savvy investors weren't buying the we're out of the woods story being circulated by the banks, the Fed and various shills in the financial press.

All of which brings me to the pirate analogy. Investors, or at least people with an eye on not getting killed in this market, should be looking at short-selling or buying puts on vulnerable companies. Obviously, those in the financial sector are ripe for plunder, though some have already been slashed to pieces.

Like good pirates, traders should look for shifts in opportunities as conditions on the financial seas change. Companies with high debt levels and shaky balance sheets will be prone to suffer some of the more dire circumstances.

As events warrant, I'll be posting some of the better-looking short stories and puts plays right here. For the time being, I'm keeping a close eye on Wells Fargo (WFC), which suffered a two-day computer "glitch" over the weekend which pretty much shut down online operations.

In the aftermath of the 1929 stock market crash, various states and eventually the United States government ordered banks closed due to a liquidity crisis. At the time, they used the innocuous terminology of bank "holidays" to lessen the impact on the American psyche. Might Wells Fargo's "glitch" auger more such technology-related failures as a cover for systemic financial failure? Time will tell, but it's almost certain that soon, cash will again be king.

On the day, declining issues held a 5-4 edge over advancers with the bulk of the losers on the NASDAQ. There were 128 new lows and 79 new highs on lower-than-average volume. So much for volatility. People are afraid to trade in this environment and the risk that hordes of investors might cash out far outweigh the potential for a meaningful recovery in stock values.

Oil crept up 57 cents to $69.83, while gold lost 30 cents and silver added 7 cents. If a credit and cash crunch is upon us, an implosion in commodity prices may be just a warning shot of what lies ahead.

Wednesday, August 22, 2007

How sweet is it?

Investors, after taking somewhat of a pause the past few days, piled into stocks like they had no other place to spend their money. Of course, some of them just don't know any better. Some just follow the crowd. Others are desperate for gains and some just like gambling, and that's what this market has turned into - one big, fat, dumb casino.

Dow 13,236.13 +145.27; NASDAQ 2,552.80 +31.50; S&P 500 1,464.07 +16.95; NYSE Composite 9,477.13

Some readers may complain that I have been too negative concerning market realities, suggesting that the US economy is in good shape and that the government will save us from any economic calamity.

While the general economy is not yet a shambles, and the government will make various attempts to stave off meltdowns in the stock market, there are underlying circumstances which cannot be overlooked easily. The swooning housing and mortgage market are going to have serious consequences. Already today, the AP is reporting that more than 40,000 jobs have been lost in the mortgage industry in the past month. More than half of those have been announced in the past two weeks, and there are surely more to follow.

What will those 40,000 white-collar types do for work. Many are used to relatively high incomes and lifestyles, as the housing boom spoiled many of them and, like home buyers and house flippers, they thought the boom would never end.

Well, it has, and all of these people are up against a rising tide of debt. The mortgage industry layoffs alone will push the unemployment numbers higher next month and, be reminded, the mortgage meltdown is still in its early stages. The actual peak for repricing of 2/28 loans doesn't occur until March of 2008.

So, do you still think we're out of the woods and today's gains in stocks are a sign of more good things to come? Don't be fooled by the headlines and smiles on the faces of the likes of Maria Bartiromo and others in the financial press. Remember that these people are reporters, or in the case of the precious Ms. Bartiromo, nothing more than talking heads. Most don't have degrees in economics, but maybe in journalism. That and a willingness to tow company line will get you a job at CNBC or the forthcoming FOX Financial Network. They are not experts, though they do play them on TV.

Today's markets are merely a reflection of a temporary oversold position, not indicative of a rally formation. There is more trouble on the horizon, and you can bet that as soon as it becomes apparent, there will be a rush of selling. The Fed will have to step in and calm markets - oh, by the way, the Fed did add $2 billion in liquidity this morning - though their efforts can only easy pain temporarily, like putting a band-aid on a knife wound. It holds for a while, but soon, the bleeding overwhelms it.

But today was a day of bargain hunting. Advancing issues clobbered decliners by a 3-1 margin, but new lows continued to hold sway, 153-84, over new highs, though those numbers are nowhere near the extremities exhibited two weeks ago, at the height of the credit squeeze panic.

Oil was down again today, with futures for October delivery off 31 cents to $69.26. Since there have been no disruptions to supply, and demand is only moderate at best, paying a premium at this juncture could be a fool's game. By November, the price for a barrel of crude could be closer to $55 than $65 and gas in the US could average something along the lines of $2.40 per gallon. The world economy simply cannot sustain growth with energy prices dragging it down. The oil barons are beginning to awaken to a new reality.

There was some nibbling in the precious metals. Gold rose $2.50 to $668.70, while silver gained 6 cents to $11.73. Both may seem like bargains, but they have to work off the excessive selling from the past two weeks before making serious gains. If they continue to trend higher in the short term, latch on for a nice ride.

Behind the scenes there are major machinations going on at the Fed, the Treasury, in board rooms of central banks and even on Capitol Hill. We're not sure exactly what their plans are, but we can safely assume they will be based on alchemy and black magic rather than serious economic planning.

You do know that economics is taught in colleges as a liberal art, don't you?

Tuesday, August 21, 2007

Who turned out the lights?

If you thought yesterday was a slow trading day, you may have wanted to hang around for today's snoozy session.

Except for a flurry of trading in the final minutes, it was one of the dullest sessions of the year, so make that two days in a row that investors have pretty much sat on the sidelines.

Dow 13,090.86 -30.49; NASDAQ 2,521.30 +12.71; S&P 500 1,447.12 +1.57; NYSE Composite 9,332.54 +6.33

There was no need for Fed injections of liquidity or PPT behind-the-scenes maneuvers. There was little urgency to even show up on the trading floor. Nothing much at all was happening. It was really, really, really quiet. Almost spooky.

The Dow was down, but all the other indices closed lower. This is what happens when governments interfere in free markets. Inertia. Nobody trusts anything any more. It's neither a buyer's nor a seller's market. This is a dead market and that's not a very appealing state of affairs.

Without trading activity, people will soon begin another round of selling. While the market hates uncertainty (and there's still plenty of that going around), it absolutely despises complacency. If nobody's interested in buying, then stocks, like just about any other traded commodity, get marked down, just like a sale on shoes that have gone out of style.

Advancing issues superseded decliners by a 4-3 margin. New lows outdid new highs for the umpteenth consecutive session, 190-66.

There was just a little more interest in the oil market, where September futures expired with a whimper rather than a bang, down $1.65 to $69.45. Oil under $70 a barrel? I thought supplies were tight? What's next? $2.00 gas?

Even commodities markets were cool. Gold was down 30 cents to $666.30. Silver is rapidly approaching the bargain basement. On the day it lost 23 cents to $11.67 an ounce.

The truth of the matter in all of this is that there really is a liquidity crisis. We're not out of it. In fact, we're just getting started. A lot of hedge funds are out of the market, forced to liquidate to cover their market calls. Big money is sitting still, preferring bonds for the moment. Wall Street is now seen as having huge cracks in the pavement, big enough for large things to fall through, like people, businesses, banks and buildings.

Big Ben Bernanke made an appearance at the Capitol, reassuring Senator (hello, I'm running for president too) Dodd, Chairman of the Senate Finance Committee, that he would make use of "all tools necessary" to calm the volatile financial markets. Judging by the action the past two days, he already has.

Bernanke is nothing but a hack, and a rookie at that. Whatever he does will be viewed skeptically. Remember, this is an avowed adherent of "targeted inflation." His core ideas, roundly expressed in a 2002 speech titled, Deflation: Making Sure "It" Doesn't Happen Here are somewhat along the lines of dropping money from helicopters.

Essentially, Bernanke's solution to every kind of crisis, as was that his predecessor, Alan Greenspan, is to throw money at it. That's exactly what he did by lowering the lending rate and requirements in the discount rate, so a cut in the federal funds rate shouldn't be far behind. With the markets now drubbed into an unconscious trance, he'll probably make an "emergency" cut before the Fed's next scheduled meeting on September 18.

God save us all. We're being led down the garden path by a gang of fools and thieves.

Monday, August 20, 2007

Gentle PPT nudging

Lest we all believe that 13,000 on the Dow is a number beneath which we dare not tread, today's positive close bears little resemblance to the underlying market realities.

About 2:15 pm ET, the Dow was resting comfortably at the magic 13,000 mark, when all of a sudden buying broke out like a spreading fire. A little over an hour later, the Dow had risen to its high of the day, 13,181.66 - a gentle nudge (no doubt by our friends at the President's Working Group on Financial Markets, otherwise known as the Plunge Protection Team or PPT) of 181 points to the good.

While the market pared off some 60 points of froth over the final 30 minutes, the volume tells much of the story. Nobody was actively trading. In fact, today's action was among the slowest of the year. Fewer shares were traded today than any other since July 3rd, a half-session at that. Apparently, the 600-point boost given to the market between Thursday afternoon and Friday was not enough to quell the fears of traders, other than the most intrepid (or stupid).

The ongoing mess that is the world banking and credit system has recently come within a whisker of complete collapse and Wall Street has taken notice. Either that, or half the brokers and fund managers in the world decided to begin their summer vacation today.

Dow 13,121.35 +42.27; NASDAQ 2,508.59 +3.56; S&P 500 1,445.55 -0.39; NYSE Composite 9,326.21 +11.22

Indicators were not encouraging. Advancing issues led decliners by a narrow 5-4 margin and new lows outnumbered new highs once again, 198-59.

Light crude priced lower, closing 86 cents lower at $71.12. Gold and silver took marginal losses, remaining at somewhat attractive buying levels.

The credit woes that beset Wall Street for much of the past four weeks persist, as stocks in the financial sector were hit once again.
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Merrill Lynch (MER), Bear Stearns (BSC), Bank of America (BAC), Lehman Bros. (LEH) and Citigroup (C) all took on water, with the brokerages all down at least 1.5%. Mortgage lender Countrywide (CFC) was absolutely whacked, losing 1.62 to 19.81, a 7.56% decline.

Countrywide, the nation's largest home mortgage financier, last week said it had to tap an $11 billion line of credit, since they were unable to raise funds in the market. Alongside that message was the disclosure that Countrywide originated more than $40 billion in sub-prime loans in 2006. Lenders have become so skeptical of packaged mortgage instruments that Countrywide finds itself without much support in financial markets. As highly leveraged as it is, a continuation of the credit squeeze could foster even more declines in its stock price and possibly even more serious circumstances, including forced liquidation.

That a company as robust as Countrywide could be facing bankruptcy within months is a startling development. The company is the undisputed leader in originating home mortgages, and its collapse - which was narrowly averted last week - could have far-reaching effects, both financial and psychological.

There is no antidote for non-performing loans. The solutions for lenders are somewhere between horror and catastrophe. Despite all the interventions and happy talk from Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke, this crisis is nowhere near an end.

Friday, August 17, 2007

The Fed blinks; PPT's perfect timing

After yesterday's 300-point moon shot into the close, today's 50 basis point decrease of the discount rate propelled stocks another 200 points higher on the Dow. That's 500 points in just about an hour! Nice going.

Unfortunately, it's mostly forth, but one must understand the machinations of the manipulative class. The PPT (Plunge Protection Team) bought up shares yesterday at just the right time, didn't they? Even better, there was a load of activity on some option calls which expired today on companies such as ExxonMobil (XOM), Lehman Brothers (LEH), Citigroup (C), American International (AIG), Merrill Lynch (MER), Bear Stearns (BSC) and Countrywide (CFC). The real players in this market sold stocks this morning and cashed out options for fat one-day profits.

Goody for them. However, the rest of the poor suckers out there aren't privy to the same inside info, and will probably suffer losses later on, as the credit fiasco spreads.

The little bonus from the Fed this morning came after Japan's Nikkei lost 874 points overnight (5.42%) and European markets were still struggling. It's a temporary measure, a stop gap. Stocks will get hit further next week.

Dow 13,079.08 +233.30; NASDAQ 2,505.03 +53.96; S&P 500 1,445.94 +34.67; NYSE Composite 9,314.99 +227.89

Hypnotized investors bought up shares like the sheep they are,
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being led unwittingly to slaughter. American investors have to be the least sophisticated moneyed bunch on the planet. They have been played like so many banjos.

Advancing issues outdid decliners by a 4-1 margin, but we're not out of the woods yet. There were still 296 new lows to 123 new highs.

Oil was up another 98 cents to $71.98. Gold and silver also got a boost. Gold was higher by $8.80; silver added 31 cents.

It was such a great show.

Thursday, August 16, 2007

Who caught the falling knife?

The burning question on my mind - and that of many astute investors, brokers and analysts, I'm sure - is who stepped in to the morass today and actually bought stocks when the Dow was down as much as 340 points at mid-day and off 300 points as late in the day as 3:15 pm.?

It would have to have been a magnificent leap of faith for so many investors to begin snapping up bargains at the same time. Maybe there was a case of mass psychosis on Wall and Broad that sent brokers,trancelike, to their trading machines to begin punching in buy orders.

No, readers, there can be no doubt that this spectacular rally was nothing more than the work of the mysterious Plunge Protection Team, better known as the PPT or the President's Working Group on Financial Markets, established by executive order by Ronald Reagan following the crash of 1987, and in operation - in some form or another - ever since.

The modus operandi is unmistakable. Once the PPT gears into action, stocks climb at dizzying speed and generally in non-stop fashion, just like today. It is also usually the case - as today - that the US markets will run counter to the trends set in the rest of the world's equity index. Today, markets in Europe were roiled, in their worst day in four years while the US markets staged a "miraculous recovery."

Dow 12,845.78 -15.69; NASDAQ 2,451.07 -7.76; S&P 500 1,411.27 +4.57; NYSE Composite 9,087.10 -1.94

Are US stocks so special, or our traders so astute, that they saw such tremendous buying opportunities that they would erase 300 points in losses on the Dow in a matter of 45 minutes? No. Never. The entire afternoon was a charade, designed to keep the public in the dark and avoid an all-out panic.

And they probably accomplished their mission. Americans are so gullible and, may I say, ignorant, as a group. We'll swallow any cockamamie story that is fed to us. We believe that FOX News is actually a news network, or that the Bush administration knew nothing about the 9/11 attacks until they actually took place.

The vast glut of American investors will certainly swallow this miracle rally story. Most of them are too concerned with making sure the tires on their Escalade are shiny or that their Blackberry is the newest model with the most gadgets to care much about the value of their retirement portfolio.

Seriously, what other people, as a group, would allow nameless people to manage an account which will be responsible for their financial well-being years from now? Americans will buy the phony story f today's markets.

You shouldn't. I don't. The global financial system has been brought to its knees and there is no easy way out. A stock market crash is inevitable, or, at best, with a helping hand of the PPT, a long, slow, tortuous decline. You don't have a choice in the matter. The powers that be, behind closed doors, will decide how it's going to play out.

Personally, if I'm going to lose a limb, I'd rather it be cut off with a single blow rather than a thousand small cuts and gnaws over a long period of time. The PPT obviously are fans of Chinese water torture.

Regardless of the intrigue by the PPT, the markets still took a pretty good beating and a lot of people lost more money today. Declining issues held sway over advancers by a 9-5 margin and new lows swamped new highs by a shocking 1475 to 47. To put that number in perspective, nearly one out of every four stocks listed on the NYSE and NASDAQ combined made a 52-week low TODAY!

Rally my arse! Stocks do not just turn corner and head the other way in the midst of a total collapse. Said collapse is still on track. Don't buy the hype.

To get an idea of how seriously close we are to witnessing the total collapse of world economies, check the oil futures today, which sold off as low as $70.10, settling with a loss of $2.33 to end the day at $71.00, on concerns that current and future economic conditions would foment a decline in demand for petroleum products such as gasoline, automotive fuel, petrol, call it what you will. These intrepid plungers don't scare easily, but judging by today's futures prices, they're more than just a little shaken up.

Quite possibly the strangest trading of the day - and the past few weeks, for that matter - has to be in gold. The shiny stuff fell by $21.70 to $658.00. Silver played along, dropping $1.06 to $11.50. For silver, it was a 9% decline in one day. The metals markets are supposed to be somewhat less volatile than that, besides the fact that they should be going up as stocks go down. They surely didn't today and haven't been of late.

The answer to why gold and silver sold off is simple. Everything that isn't cash is being sold to raise liquid funds, metals not excluded.

"Gold's slide into negative territory took an a new and decidedly ominous dimension on Thursday, as price support after price support gave way in the wake of mounting massive liquidations from all quarters," said Jon Nadler, an analyst at Kitco Bullion Dealers, in emailed comments.

"A wide range of commodities were being badly sideswiped in the frenzied quest to raise cash in order to mitigate stock losses by individual and institutional investors alike," Nadler said. "This was a very ugly day across the board."

We'll take his word for it.

Wednesday, August 15, 2007

Cash: "It's good to be king."

Money talks, so the old expression goes. And in this market, cash has let word out that it still matters. A lot of investors of all stripes have taken heed, fleeing equities for the relative safe have and warm feeling of cold greenbacks.

Those forced to be invested, such as mutual, hedge and pension funds, don't have it so easy. They are forced to hang in and suffer with the rest of the suckers. Some even buy more, throwing caution to the wind along with the rest of their money.

The Fed is in a tough spot. Many are calling on Ben Bernanke to lower interest rates in an effort to free up capital markets and give the US indices a little bit of a boost. They won't do it and shouldn't. The malaise of this market was occasioned by easy credit; cutting rates would be like giving an addict more crack.

Today's package of misery was brought to investors by more credit-related issues, as potential losses at Countrywide Financial Corp. and trouble financing deals at KKR Financial Holdings sent more shock waves through the financial community. For those already in cash, the scene is almost hilarious, watching brokers, bankers and financiers squirm and fidget over their lost dough. Many of them are deserving of the afflictions, having bought into a housing bubble that sent everything, including stocks, over the rainbow.

Dow 12,861.47 -167.45; NASDAQ 2,458.83 -40.29; S&P 500 1,406.70 -19.84; NYSE Composite 9,089.04 -165.23

The Dow traded below 13,000 for the first time since April 25 and is likely to stay there for a long time, barring some kind of dead cat bounce or jolt from the various central banks that have been funneling money into stocks for the better part of the last two weeks. The Fed snuck in another $7 billion today. It did no good and one gets the feeling that the banks are on the verge of throwing in the towel... which would be wise.

Our own scorecard for the Dow shows 8 sessions in positive territory and 12 on the minus side since the all-time peak at 14,000.41 on July 19. That's over 1100 points lost in less than a month - about 8%.

Declining issues took it to advancers by better than a 3-1 margin. New lows totaled 707. There were only 46 new highs. Every single indicator points to more losses ahead.

I've asked colleagues to find bright spots. None of them have been able to, though I've come up with two: shorts and option puts players are making a fortune, and this will end, eventually. Stocks go up and down. They went up for more than four years running. A couple of years of downward trajectory is only fitting.

Maybe there's a third positive: charts (and fundamentals) still matter. The indices broke through 200-day moving averages and the Dow, in particular, is about to cross over its 50-day MA.

Oil was up another 95 cents to $73.33. Oddly enough, gold was unchanged, while silver actually lost 19 cents to $12.56. When the lid comes off the metals, look out. They will serve notice that calamity is finally upon the fiat money, fractional-reserve banking system.

Tuesday, August 14, 2007

Pick a number

This market is hellish, though some will tell you that it's technically not a Bear... yet. Those people will soon be revising their estimates and advising their clientele differently. With nearly 1000-points lost on the Dow since its peak on July 19 (remember 14,000?), this is about as clear an indication that the 4 1/2 year party that was recently Wall Street is quickly turning into Skid Row.

With another 200+ point decline, not only the US equity markets, but economies worldwide are on high alert. The entire fractional-reserve fiat money banking system is about to blow sky high, so pick a number and see how close you come to calling the market bottom.

I'll venture a guess at 9380 and a date of maybe February, 2010. Crashing through various psychological barriers like 13,000, 12,000, 11,000 on the way down, there are certain to be a number of times in which the markets look to have turned a corner, but they will be, sadly, false fronts. Only after disposing of the 10,000 level will psyches be truly mushy enough for a stable rebound.

Dow 13,028.92 -207.61; NASDAQ 2,499.12 -43.12; S&P 500 1,426.54 -26.38; NYSE Composite 9,254.27 -174.59

A fall to 9680 would be a 33% pullback from the 14,000 high, and that may be somewhat optimistic. Off the October 2002 low of 7286.27, such a decline would be a retracement of 69%. Fibonacci adherents take note.

Today's selling was the result of a complete lack of repo lending by the Fed and - who knew? - more credit-related issues, especially that of Sentinel Management Group, which oversees about $1.6 billion in assets, who told clients that it may block redemptions from the fund to avoid forced liquidation. That and more concerns about over the exposure of brokerages Bear Stearns and Lehman Brothers to mortgage-backed issues set the sellers afire.

Additionally, 17 Canadian trusts have sought help from banks to repay loans that are due.

Could this be the beginning of a dark chapter in global finance? It certainly appears so. Central bankers have been nervous for weeks and the credit and liquidity woes once thought to be contained are beginning to spread to foreign investments and money market funds. What's worse is that the re-pricing of roughly $1.3 trillion in so-called 2/28 ARMs has yet to occur. The bulk of these loans - $1.7 trillion - were made in 2005 and 2006, so we're are just seeing the proverbial tip of the financial iceberg.

2/28 ARMs are mortgage loans in which only interest is paid during the first two years. Upon repricing, interest and principal is calculated over the remaining 28 years of the loan. Monthly mortgage payments typically skyrocket and homeowners default. California, Ohio and the tri-state region of New York, Connecticut and New Jersey have been the hardest hit to date, with more than 500,000 defaults recorded during the first six months of 2007.

This is a snowball rolling downhill, as defaults escalate, homes will be lost, many billions of dollars worth of notes will become worthless paper and consumer spending, by sheer weight of numbers, will gradually falter.

Already, Wal-Mart, the nation's largest retailer, has revised estimates lower for the remainder of 2007. Subsequent revisions are to be expected from other retail concerns.

Once spending is curtailed, job cuts will follow in all manner of industries. Non-essential positions will go first, such as clerical and support staff, but the cuts could cripple many going concerns. On top of all this, many states have initiated mandatory minimum wage requirements above national standards. At just this point in time, many businesses will choose not to hire rather than commit to labor costs they feel are too high.

One positive note is that inflation will become a thing of the past. Businesses will cut prices in an effort to remain afloat. Many will not survive.

This is, of course, the nightmare scenario similar to that of the Great Depression, which was a worldwide phenomenon. Ruined lives, fortunes lost, displacement of people and separation of families were the outcomes. The parallels are there: overpriced stocks, easy credit, lack of regulatory control.

Today's internals were some of the worst to date. Declining issues beat advancers by a 9-2 margin. New lows swamped new highs, 614-54.

Of the 30 Dow stocks, only one, ExxonMobil, traded higher, and that was only by a mere 21 cents.

Oil for September delivery on the NYMerc rose 76 cents to $72.38. Some people are simply out of touch with reality.

Oddly enough, the precious metals have yet to respond to the ongoing calamity. Gold lost $1.20 to close at $679.70; silver lost 11 cents to $12.75. These are absolutely shrieking buys, though there's a belief that the markets are being contained by big money, notably the world's central banks.

Once the lid is lifted off these commodities, prices are sure to soar 15-25% in a very short span.

Tomorrow's another day... another day closer to a date with financial destiny.

Monday, August 13, 2007

It's worse than you think...

Today's headline was inspired by some weekend and Monday morning reading.

The US equity markets, battered and bruised by fears of an underlying credit catastrophe, are in worse shape than most average investors - and even some experts - would like to believe.

After last week's rescue by the Federal Reserve, which injected $38 billion into the markets, word came to our shores that on Monday, the Fed was injecting another $2 billion on top of $5 billion shoved in by the Bank of Japan and the European Central Bank's "loan" of $65.3 billion. Over the last week of trading the ECB has added more than $200 billion. Since Thursday, the Fed has added $62 billion in liquidity. That's a lot of liquidity, yet it was only enough to lift the markets temporarily on Monday.

Dow 13,236.53 -3.01; NASDAQ 2,542.24 -2.65; S&P 500 1,452.92 -0.72; NYSE Composite 9,428.86 -6.18

We're in dire straits and headed for a crash of magnificent proportions. The BofJ and ECB are helping out because they have a vested interest in keeping the US economy afloat. Many of their wealthiest citizens are heavily invested in US stocks. Further, a crash of the US economy - which is, after all, a near certainty, since we've gone from being the world's largest creditor nation to the world's greatest debtor nation in a matter of just 50 years - would have a ripple effect so pronounced that if would take down most other markets with it.

So, the world economy is on the brink, and we're getting billions in financial aid from around the world. Anybody - and I mean ANYBODY - who is even considering investing in stocks at this juncture ought to be institutionalized. This is the most dangerous market situation since the 1929 crash, and nothing short of an economic miracle is going to prevent a serious, damaging, long-term, worldwide meltdown.

The multiple cash infusions by world banking interests are desperate gambits. By becoming the buyers of last resort, central banks are literally taking the place of real, live investors, those same people who are exiting the market at a speedy pace. All the cash infusions do is shore up stocks for the near term, allowing larger brokerages and mutual funds to exit as quietly as possible, with minor losses rather than huge ones.

In the end - and mind you, I'm no expert on global financial transactions - the central banks will be stuck with stocks that were purchased at significant premiums. Weeks and months from now, these "repo" purchases will look as foolhardy as a horse racing plunger's last bet on an aging and feeble nag.

The underlying problem is that the money being spent to buy these stocks is generally that of governments, or in other words, our tax dollars at work. Since we don't get to vote on how our money is spent, this exercise in futility is just another in a long series of bad spending examples by derelict national governments, which are really nothing more than massive criminal conspiracies, disigned to keep the lower and middle clasess in a condition of near slavery and relative poverty.

When the central banks get around to selling these stocks at 20, 30, 40% losses or better, the citizenry will get the bill in the form of massive tax increases, depleted services and general unaccountability by those supposedly in charge. It's a swindle of the highest, most despicable order.

We should be used to it.
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It's been going on for years. The final outcome will be massive disruptions to financial systems world-wide, a lower standard of living for nearly everyone, bankruptcies at an all time high, pension fund defaults, and misery all around.

We can thank our leaders and the heads of state-run banks for what they will have wrought, most notably, Sir Alan Greenspan (he was knighted by Queen Elizabeth II in 2002), whose sloppy handling of the economy and penchant for loose monetary policies produced the series of bubbles - first the dotcom debacle, then commodities and finally the housing blow up - that led to this eventuality.

The rich will surely get richer by comparison. Many are already heavily invested in gold and other, more stable currencies than the greenback. The little guy, 20% of whom will find themselves out of work within the next two years, will be forced into a world of lowered expectations and general despair.


The market internals were suitably mixed. with declining issues beating out advancers barely. There were 346 new lows, but a paltry 73 new highs.

Oil was up marginally, while gold and silver were lower by negligible amounts. With so much uncertainty, inertia is beginning to set in everywhere. Volume on the equity markets was normal, but well below levels of last week.

Friday, August 10, 2007

The Fix Is In

As investors - and guys who wear pinstripe suits but really haven't a clue - nervously watched the Dow Jones Industrials plummet by another 200 points this morning, the intrepid manipulators from the Federal Reserve Bank (working, no doubt, in concert with the Plunge Protection Team) pumped two injections of "liquidity" into the markets in the morning and added a smaller boost in the afternoon.

In other words, the Fed bought stocks from brokers who, as part of the so-called "repo" deal, agreed to deposit the funds in Federally-insured member banks.
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Thus, a mammoth crash and thud was averted.

When the fed buys stocks, they aren't just fishing nor fiddling. Today's double dose was a total of $34 billion, designed to keep order in the face of an imminent sell-off. Late in the session, with the markets still down smartly, the Fed added another $3 billion.

Apparently, it worked, because the markets failed to melt down as many feared they would. However, these measures are little more than band-aids in a market that is hemorrhaging on multiple fronts.

Due to the blow-up of sub-prime mortgage loans, note holders find themselves stuck with much worthless paper. The spill-over into derivative, insurance, M&A and other credit markets has been stoking fears of financial calamity.

Without a doubt, this is a big mess that's not going to end soon or resolve in a pretty way. Billions of dollars are going to be lost, credit markets will become frighteningly tight and even the Fed's money won't be enough to secure liquidity and order in the equity markets. What's especially frightening about the situation is that the Fed was forced to take such extraordinary measures to shore up markets.

The "repo" swaps are not new. They've been used during other stressful periods, such as in the winter after 9/11, but their effect is marginal. The announcement that the Fed is taking the action is actually much more of a salve on the nerves of traders than the actual money making trades.

Dow 13,239.54 -31.14; NASDAQ 2,544.89 -11.60; S&P 500 1,453.64 +0.55; NYSE Composite 9,435.04 -14.27

The downside of such action, however, is that the Fed eventually has to balance its own books, and buying up stocks in a sliding market - catching the proverbial falling knife - is poor investment strategy, to say the least. When the Fed unloads these stocks, often at a loss, it creates a glut on the market and costs the Fed money. Of course, the Fed can just print up more, and they do, making all those dollars in your pockets worth a little less.

Again, it's nothing more than a stop-gap measure and far from a solution. The real solution would be to allow the market to take its own course, and let the losers lose and the winners win. For all the talk of "free markets" by Fed governors and other high government officials, they certainly act like they have little to no faith in what they preach.

The crash is upon us. With the Fed's help, it will be worse than it has to be. Tighten your belts, we're headed for recession-land.

Market internals allow for a much better understanding of what really happened on Wall Street this Friday. Declining issues rolled over advancers by a 9-5 margin. New lows swamped new highs, 736-82. Even with the Fed's helping hand, there were plenty of casualties on the day.

Oil continued to slip, down 12 cents to $71.47, but still far from it's bottom, which is just a matter of time. Gold perked up $8.80 to $681.60; silver rose 17 cents to $12.87. These are still screaming buys and now would be a good time to stock up.

The coming weeks and months hold still more intrigue and downside. The bulk of the sub-prime loans which are subject to repricing and therefore, default, have yet to do so. October through next March will bear witness to an avalanche of mortgage defaults and a share of bank and financial concern failings.

Cash is king for now, especially if it's in Euros or gold.

Thursday, August 9, 2007


Let's call a spade a spade.

This market is all but wiped out, as is the US economy. We'll be lucky if we're not invaded by a foreign power.

We've had a president in office for the past 6 1/2 years - and for the most part, a compliant Congress of his party - who's done everything in his power to dismantle the social fabric and the constitution and spend and borrow every last dime of our nation's wealth.

The policies of George W. Bush and the lack of regulation and oversight of the administration and congress have put the nation on the precipice of capitulation. Our financial system is about to implode under the weight of bad loans made right under the eyes of our elected and non-elected officials. The former and current Secretaries of the Treasury and Chairmen of the Fed, Alan Greenspan and Bernanke, are the main delinquents. The current holders of those offices should be immediately relieved of their duties and the president should be impeached. They have failed us miserably and probably engaged in criminal activity. At least in the President, Vice President and Attorney General's case, we are sure that they did.

Those who do not agree should take account. Our bridges and roads are crumbling, we spend billions a month in a war effort that has produced no tangible result except death and destruction, and now our financial institutions are under siege.

If that's not enough, maybe you'd prefer to wait until some of the banks fail or we go to war with Iran or the president declares martial law. Maybe then you'll wake up from your stupidity-induced stupor and see what liberals and progressives have been screaming about.

Or maybe you're content watching and believing in whatever lies they tell you on FOX News. In that case, go ahead and stick your head in the sand. The real intellectual forces of this country have no use for you and your kind.

Dow 13,270.68 -387.18; NASDAQ 2,556.49 -56.49; S&P 500 1,453.09 -44.40; NYSE Composite 9,449.31 -296.89

The Dow Jones Industrial Average lost 380 points today. That's one hefty loss. The other indices followed and it's very likely that the losses would have been larger had not the PPT (Plunge Protection Team, aka the President's Working Group on Financial Markets) been stepping in to stem losses.

Meanwhile, Mr. Bush is heading out of town for a 3 week vacation, but he made sure to mention, before he left, that taxes on corporations should be lowered. After all, Bush made the tax system safe for millionaires and billionaires, why not multi-national corporations who have little to no allegiance to the United States of America?

More ill-advised policy. Just what we need.

Market internals were not as bad as one would expect. Declining issues outpaced advancers by a 15-6 margin. There were 197 new highs, but 606 new lows.

Oil futures closed down 56 cents, to $71.59. Gold and silver were absolutely shattered, with gold off $13.50 and silver down 47 cents. A buying opportunity.

By the way, if you think today was bad, it was only the 2nd worst day of the year, and there's more downside ahead - a lot more.

The Dow, S&P and NASDAQ are all still positive for the year, but one gets the felling that it's a temporary condition. The Dow closed 2006 at 12,463. We're getting closer.

Wednesday, August 8, 2007

More Manipulation in Stocks

The US equity markets are beginning to take on theater of the absurd qualities, and Wednesday's trading patterns were possibly even more ridiculous than any of the preceding week.

Looking solely at the Dow Jones Industrial Average, here's how the day went. Stocks were higher right out of the gate and continued in an orderly climb until peaking, up 190 points, just prior to 2:30 pm. Then, without warning and without any notable news event, the index retreated to break even at just before 3:30.

A drop of 190 points in an hour? Well, we've seen gains of that magnitude in the same time frame, so why not?

Alarmed, the government meddlers from the PPT (Plunge Protection Team, aka, the President's Working Group on Financial Markets) quickly swung into action, sending the index soaring to a close 153 points higher. Sweet. Brilliant. Bravo. Bulls**t.

This market is now being so openly gamed that the players aren't even trying to disguise their moves. The whole operation is designed to keep the public in the dark and avoid panic selling in the face of a serious credit squeeze and the imminent collapse of certain financial institutions. What we are not seeing behind the scenes - and probably will be covered up neatly in SEC filings (yes, they will lie), are billions of dollars being lost, wasted, fondled and otherwise misused in derivative markets, forex trades, futures and other odd-ball, shadowy "investment" vehicles. We may never know exactly what is occurring.

Dow 13,657.86 +153.56; NASDAQ 2,612.98 +51.38; S&P 500 1,497.49 +20.78; NYSE Composite 9,746.20 +140.13

What we do know, beyond any doubt, is that the markets are being pulled, kicking and screaming, to the upside by agents of the government, acting "in our best interest" on our (formerly) free, open market exchange.

Investors should be at the height of outrage, but this kind of thing has happened before and will happen again. Most casual observers will never even look at a one day chart of the Dow, the NASDAQ or any other index for that matter. Most don't even look at charts of the stocks they own, whether they be in mutual funds or owned individually.

The general public is being taken as fools and rightfully so. They are.

It's barely worth commenting on anything in this rigged market, since fundamentals, reports and sound investment strategies no longer matter. The markets are going to continue to rise until the next election, Democrats and honest investors be dammed. All is well. Look away now.

The spectacular gains of the past three days (465 points on the Dow) are all the more disturbing in the face of the slumping housing market, though the National Association of Realtors (NAR) announced today that median home prices would fall less sharply than previously expected (1.2% instead of 1.4%). Tell that to sellers in Ventura, California or Vero Beach, Florida. The NAR is interested in keeping prices higher, so their credibility should also be called into questioned.

Advancers trounced decliners for a change, by a 9-2 margin, but new lows were again well above new highs, 636-358. The "players" made a lot of money going long today, though they still were unable to lift all of the sinking ships.

Speaking of rigging, oil lost 27 cents in futures trading, closing at $72.15. Gold was up $4.00 and silver added 8 cents to 13.17. There's still time to buy the metals!

Tuesday, August 7, 2007

Fool's Gold

Like the iron pyrite miners mistook for the real thing in gold rush days, this week's market has all the metallic luster and brassy hue of Fool's Gold, and similarly, nothing of real value.

As was noted profusely and extravagantly in yesterday's post, this market has all the tell-tale signals of intense manipulation by people with an interest in keeping the status quo intact. What that means for Mr. and Mrs. Average Investor is a great deal of knock ups (and downs) without any endurance.

Tuesday's squeamish advance was a case in point.

Stocks hovered around the flat line, as they often do on Fedspeak days such as this, until 2:15, when Ben Bernanke and the FOMC board announced that they would again do nothing, neither raising nor lowering key rates, keeping the Federal Funds rate at its year-long level of 5.25%.

The reaction by Wall Street was tantalizingly dubious, as stocks first fell to their lows of the session, only to bounce back an astonishing 250 points between 2:30 and 3:30, before finally exhausting themselves for nothing more than a modest bounce to the plus side.

Dow 13,504.30 +35.52; NASDAQ 2,561.60 +14.27; S&P 500 1,476.71 +9.04; NYSE Composite 9,606.07 +52.30

Once again, we have to recognize the not-so-invisible hand of the Plunge Protection Team (PPT) involved in boosting prices in the later stages of the trading day. 250-point moves don't just appear out of thin air, especially after a disappointing proposition from the Fed.

It can be safely assumed that the Fed is in such a bind right now that standing pat may save face, but it's hardly prudent. Many people (mostly people ignorant of the real depth of the financial mess Wall Street is in) were rooting for a rate decrease, when it is just that kind of thinking and policy - looser credit - that got the financial world into the current dreariness in the first place.

Those more astute in these matter would rather see the Fed ratchet up both the rhetoric and the rate, inflict a bit of short term pain, but set off for a long term solution. Doing nothing only extends and exacerbates the condition. We're in for a cold end of the summer.

As they've been for most of the past to weeks, market internals were just short of miserable. Advancing issues actually outplayed decliners by a 4-3 margin, though new lows swamped new highs, 792-168. It's kind of like the Yankees playing their single-A farm club. It's a nice show, but eventually it's still a beating.

One also gets the feeling that the only people who understand what's really happening are bond and commodity traders. While I won't attempt to match wits with the fixed-return community, traders of oil futures showed signs that the jig may be up. Prices advanced slightly, up 36 cents, to $72.42 and moved in a mostly negative band as low as $71.20. We're on the verge of seeing oil dip below $70 as the summer turns to fall and drivers take less trips.

Gold and silver are now screaming buys as they've retraced only slightly from recent highs. While stocks are set for more poignant plunges, the metals offer safe haven. Tomorrow's almost certain to be witness to a sell-off, with bigger blows possible later this week. The last two days were nothing more than relief via fondling.

Monday, August 6, 2007

Shades of 2001

Today's rally reminded me of another time - not so long ago - in which the markets experienced volatile swings to the upside and down. It was the Summer of 2001 and the markets were being roiled by fraud scandals (Enron, WorldCom, et. al.) and weak economic numbers.

The story begins with the Dow trading to an intra-day high on June 29 of 10,729.18 and hitting an intra-day low of 9.431.07 on September 10.
Dow losses July, August, Sept., 2001
July 6 -227, July 12 +237, July 23 -152, July 24 -177, July 25 +164

Aug. 8 -165, Aug. 17 -152, Aug. 21 -146, Aug. 24 +194, Aug. 28 -160, Aug. 30 -171
Sept. 6 -193 Sept. 7 -235
On September 10, the market had one of the most volatile sessions ever, a range of more than 400 points, eventually losing 0.34. No, that is not a misprint. On September 10, the Dow Jones Industrials lost thirty-four cents.

We all remember what happened the following day. On September 11, two airliners crashed into the World Trade Center in New York City, resulting in the worst single man-made catastrophe on mainland America in our history. The financial markets were closed down for a week, and when they reopened on Monday, Sept. 17, the Dow lost another 685 points, as panicked investors scrambled to get out of positions.

Three trading sessions later, on September 20, the Dow lost another 383 points, followed by another 140 point loss the following day. The total loss for that week was a staggering 1,370 points.

Eventually, the market would bottom, though it took more than a year, with the Dow hitting a closing low of 7,286.27 on October 9, 2002. The NASDAQ fared much worse.

I mention this not because I think there is going to be another 9/11 (though history does tend to repeat itself). We may already have witnessed our planned disaster for the year - the Minnesota bridge collapse - without the nasty side effect of a tumbling stock market. I may be going overboard on a conspiracy tangent, but I wish to point out the similarities between the market of 2007 and that of 2001.

We are definitely in a bear market, and that's made all the more obvious by the conspicuous presence of rather large, late-day rallies, like Monday's. But all along, the market continues on a downward path. There is certainly more downside to come.

Dow 13,468.78 +286.87; NASDAQ 2,547.33 +36.08; S&P 500 1,467.67 +34.61; NYSE Composite 9,553.77 +183.17

Today's rally was also one of the narrowest on record. Declining issues actually outdid advancers, 3194 - 3185 and new lows swamped new highs, 1176-102. There are 6546 stocks on the NYSE and NASDAQ combined. That many lows mean that nearly 18% of all stocks hit 52-week lows. A 286-point gain on the Dow can surely hide a lot of evils.

Of the 30 Dow stocks, only one - Alcoa - showed a loss.
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Once again, somebody is playing favorites. This has to be one of the phoniest rallies ever. Get ready for another scoop from FOX News. When 18% of the market is hitting new 52-week lows, the rest of the market is usually not euphoric. There's manipulation of a massive degree being foisted upon unsuspecting investors - mostly individual traders and mutual fund holders. You see big gains on one hand, though on the other, your stocks, or your funds, are down.

One more comparison to 2001 is in order. Tomorrow the Federal Open market Committee of the Federal Reserve meets to consider any rate changes. There is a growing number of cries for a 25 basis point decrease from 5.25 to 5 percent. The August 21 FOMC meeting release reads as follows:
Release Date: August 21, 2001

The Federal Open Market Committee at its meeting today decided to lower its target for the federal funds rate by 25 basis points to 3-1/2 percent. In a related action, the Board of Governors approved a 25 basis point reduction in the discount rate to 3 percent. Today's action by the FOMC brings the decline in the target federal funds rate since the beginning of the year to 300 basis points.

Now, just as then, the Fed may be thinking that it's time to loosen credit again. Sadly, that's what got us into this mess to begin with. Further loosening will only exacerbate an already bad situation. Better to tighten rate policy and inflict some small degree of suffering than risk an overwhelming, years long, inflationary stagnation.

Meanwhile, oil was dumped in a large way, with futures falling $3.42 to $72.06. The handwriting is on the wall. The hand-wringing has yet to begin.

And just how does ExxonMobil gain 1.46 (1.76%) on that news? Somebody enlighten me to the new math and the new market dynamics because I'd say I'm confused, but I'm not. The kinds of things that occurred today are just not supposed to happen... unless, of course, somebody's tinkering with the machinery of the free market.

Gold and silver posted marginal losses. Stock up.

Friday, August 3, 2007

Bad Finish

The end of the week always seems to provide some perspective, even if it occurs as an afterthought. I've been saying right along that the markets were shaky and Friday's figures indicate that I've been very much on the right track, so pay attention!

Head for the hills. Today was another in a continuing series of ugly trading sessions.

Dow 13,181.91 -281.42; NASDAQ 2,511.25 -64.73; S&P 500 1,433.06 -39.14; NYSE Composite 9,370.60 -248.73

Prior to the market opening, the Labor Dept. announced that July payrolls came in well below expectations of 135,000 new jobs, with the addition of just 92,000. According to some people's fudgy math, this translates into a 0.8% annual rate of growth which, by some accounts, would be sufficient to keep real GDP growth at the expected rate of 2.75% for the second half of the year. Dream on. The labor figures have been cooked, fried, refried, baked, grilled and fricasied to a point at which they are scarcely believable.

The day dawdled on until about 2:00 pm, when the floodgates opened and sellers spilled blood into the streets.

Market internals took a turn from nearly OK to horrific. Declining issues overwhelmed advancing ones at a 5-1 clip. New lows were once again beyond reason, with 792 issues (that's a whopping 13% of the whole market) hitting the skids. There were just 126 new highs.

Once again, the spreading contagion from the credit markets made it sensible to leave stocks alone. The US financial system, already under stress from years of government spending waste and an enormous trade deficit, is in tatters from the largely-unregulated mortgage business that is forcing people into foreclosure at record numbers.

While the big wigs in Washington - people like Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke - continue to spread the word that risks from the sub-prime mortgage mess are "contained" and "not serious", investors are taking whatever profits they have and leaving town.

The credit crunch even has people in the oil pits worried. Seriously, if there's going to be a recession - and it looks like it could be a long and serious one - there's no way oil will be able to maintain its current pricing structure. At some point, the demand side of the equation will send oil and gas prices tumbling. Crude for September delivery lost $1.38, closing at $75.48.

The precious metals finally made headway, as the future looks all the more certain - gloomy - which is good for gold bugs. Gold rose $7.80 to $684.40, while silver added 16 cents to $13.16. A good hedge would be to buy as much silver as possible as soon as you can.

Happy hunting.

Thursday, August 2, 2007

The PPT Plans to Save the Nation

They did it again.

It wasn't as dramatic as yesterday's 200-point move in 35 minutes, but there it was again, our guardians of the economy, the guiding hand of the Treasury, Federal Reserve, SEC and the Commodity Futures Trading Commission, acting in concert, pumped the Dow Jones Industrial Average another 120 points between 3:00 and 3:30 pm. They then allowed the market to readjust and close with another 100-point gain.

This time they took the NASDAQ along for the ride and left the S&P and the poor sister NYSE Composite behind; up, but by a lesser percentage than their favored 30 Dow stocks. The tally today was 25 gainers and just five losers within the Dow component stocks. Nice. Healthy. Bullscoot.

Dow 13,463.33 +100.96; NASDAQ 2,575.98 +22.11; S&P 500 1,472.20 +6.39; NYSE Composite 9,619.33 +46.28

The market internals were somewhat improved today, with advancers actually outdoing decliners by better than a 3-2 margin. New lows continued to lead new highs, however, 417-133. The markets are coming back toward equilibrium, but it's not going to last - the underlying forces of the sub-prime meltdown are simply too powerful.

Oil traded 33 cents to the upside, closing at $76.86. Gold and silver were up marginally, with silver right at $13.00 per ounce.

There are compelling reasons to buy into the metals, though those markets seem to be as manipulated - lower - as the Dow Jones. With Rupert Murdoch set to take the reins at the Wall Street Journal - a sad day for us all - the FOX is actually going to be in the hen house.

Make no mistake, the powers that be are in no mood to allow the Dow and other indices to drift lower. That said, it needs to be pointed out that the chances of making new highs are also quite remote. The credit markets are busting and the worst is still to come, right about time for a nice little election in the US, so the blame can be laid at the feet of the party soon to be (or already) in charge. History will be rewritten. It is every day, and it's all absolutely rubbish.

Wednesday, August 1, 2007

Dow Funny Business

Realistically, a 152-point rise on the Dow will divert most people's attention away from the systemic economic problems faced by the US economy and the cynical pumping of selected stocks by the PPT (Plunge Protection Team, Working Group on Financial Markets).

Anyone paying a little closer attention (like me) would notice that the Dow outperformed the NASDAQ and NYSE Composite by nearly a full percentage point on the day and dragged the S&P 500 up 0.72% due to the overlap between the indices.

Dow 13,362.37 +150.38 (1.14%); NASDAQ 2,553.87 +7.60 (0.30%); S&P 500 1,465.81 +10.54 (0.72%); NYSE Composite 9,572.87 +18.37 (0.19%)

Also, only two of the 30 Dow stocks finished in the red. Contrast that to the broader market, where declining issues led the way over advancers, 3748-2602, or roughly 3-2. Hmmm... a 28-2 upside trouncing by Dow stocks, but a 3-2 downside whipping for the overall market? Somebody's toying with us.

Surely. Absolutely. Without a doubt.

There were 861 new lows to just 95 new highs. So, where's the happy pill? The US equity market is about as phony as a Tennessee 3-dollar-bill. Maybe worse. A quick study of the Dow chart for Wednesday, August 1, tells the real story.

The Dow zig-zagged across the flatline until about 3:30, when the Dow was down about 50 points. Since the manipulators could not stomach another down day (make that 5 up and 6 down since the most recent record-high close), they pumped it a full 200 points in the final 35 minutes of trading. Nice! But not really. There are serious problems, as evidenced by the numbers just presented and the late day rally was designed to keep the stock market and our failing economy off the evening news and front pages of newspapers.

Speaking of newspapers, one should begin to be vary wary of anything emanating from the Dow Jones newswire, now that mogul Murdoch has his claws firmly entrenched. The deal was supposedly struck yesterday - or the day before - and it's just another knife into the already-exposed hide of American journalistic integrity. Forget that. You now simply cannot believe anything you read, anywhere. It's all subject to spin and headline writers, wrappers and margin noters. US media is a near-total sham. (Trust me. I at least try to give your the truth.)

While the markets were toying with our psyches, pressure on oil prices eased, losing $1.68 on the day, to close at $76.53. Thank goodness. And you can call off the gold rush. It was down $3.40 to $675.90. Silver dipped 6 cents to $12.96. Those minimal drops may be just small enough to pique some buying interest. Considering the coming banking fiasco, I'd be buying the metals here. A year from now, it could look like a very prudent move. Besides, there really isn't much downside risk in either gold or silver at these levels. You may not make a killing, but you shouldn't lose any value to inflation either.