Friday, September 28, 2007

End of Quarter Apathy

Friday was the final day of trading for the third quarter. Usually there's quite a bit of trading activity when a quarter ends because mutual funds and institutions generally unload or pick up stocks for their various portfolios, but this day ended with a whimper instead of a blast.

Trading volume was light, and, as the recent market activity continues to suggest, the market has no direction because investors on either side of the buy/sell equation have been spooked and rendered somewhat inert by the credit calamity and the Fed's gigantic rate cut.

Nobody wants to believe or admit that there's still a problem in credit markets, even after central banks injected over $1 Trillion in liquidity over the past six weeks. The Fed cut the discount rate a full percentage point and the federal funds rate by 1/2%. The resultant rally on Wall Street was the expected result, as was the run-up in gold, silver and oil, and the run-down of the US dollar, which continues to reach new lows against the Euro and other currencies daily.

Dow 13,895.63 -17.31; NASDAQ 2,701.50 -8.09; S&P 500 1,526.75 -4.63; NYSE Composite 10,039.28 -17.67

Logic would suggest that a lower value for he dollar would drive stock prices higher (since the money backing those stocks is worth less every day) and logic would, of course, be correct. However, the long term aspect is frightening. Stocks will price themselves to infinity as the US dollar buys less and less of everything. Sure, you'll own 10,000 shares of stock XYZ at an all time high, but you won't be able feed your family with the proceeds because bread is now $400 per loaf.

The Fed rate cut may have been good for multi-national firms and their stock prices, but it is inherently inflationary. More news on that front came in the form of today's core PCE deflator, a favorite inflation indicator for the Fed, being up only 0.1%.
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However, year over year core-PCE is 1.8%, close to the high end of the Fed's "target range" of 1-2%. This serves only as more evidence of the fraud in statistics and the Fed's overall rationale. Core-PCE (personal consumption expenditures) covers everything except food and energy, the two items that have more impact on everyday life than anything else and the two areas which have been rising the most over the past two years.

Analysts say the Fed will be able to justify more rate cuts in coming months with inflation so low, but the idea that inflation has or is being contained is a figment of some very dull economic minds. Adding in fuel and food expenditures, inflation has been running at a steady rate of over 4% for at least the last three years.

But, using the Fed's numbers, we'll all be told that inflation is not a problem as the Fed cuts rates again and again, debasing our currency even further. If you thought Alan Greenspan was a master economist, you'll love Ben Bernanke. Greenspan only damaged the economy with his boom and bust strategy. Bernanke intends to break it permanently.

Declining stocks once again held sway over advancing issues, by a 4-3 margin. New highs ruled the day, beating new lows, 310-172, a fairly slim advantage.

Oil dropped $1.22 to a mere $81.66, but gold and silver had banner days, with gold up a whopping $10.10 to close at an even $750.00 per ounce and silver adding 28 cents to $13.92.

The money's in the metals, the dollar's in the toilet, but the DJI is just $105 points away from the all-time high. For a holistic, humanistic view of economics, I suggest taking a drive to buy a gallon of milk. That's where it's really at. Thanks, Mr. Bernanke. Sleep well, you bastard.

Wednesday, September 26, 2007

Stocks Gain on GM/UAW Pact

The most significant event in terms of stocks came in the form of a labor/management agreement between General Motors and the United Auto Workers (UAW), ending a one-day-old strike of 73,000 union members. Nobody - not the company, the union, the government or the financial community - was in the mood for a protracted job action, and concessions from both sides lifted investor spirits.

Dow 13,878.15 +99.50; NASDAQ 2,699.03 +15.58; S&P 500 1,525.42 +8.21; NYSE Composite 9,980.12 +46.30

Advancing issues outpaced decliners by an 8-5 margin and new highs retook the lead over new lows, 304-187. The see-saw battle continues as the market seeks direction.

Oil gained 77 cents to close above the $80 mark again, at $80.30. Gold and silver took a brief respite from their recent heady advances.

While the housing and debt markets are still in a shambles, Tuesday was a day of gains built largely on the backs of labor and management negotiators. Tomorrow, reality may set in once again.

Tuesday, September 25, 2007


Consumer confidence for September dropped to 99.8, after registering a revised 105.6 in August; existing home sales dropped to a 5 year low according to the National Association of Realtors. The markets barely budged.

It is entirely possible that the news was expected or hardly damning enough to put a major dent in investor confidence. There's also the suggestion that if the economy continues to struggle, the Fed will simply rate cut its way out of any possible problems.

Then again, maybe the market is suffering from paralysis and inertia, manifestations of the deeper illiquid conditions in the credit markets. Apprehension and fear have the effect of freezing the target - deer in the headlights syndrome.

Dow 13,778.65 +19.59; NASDAQ 2,683.45 +15.50; S&P 500 1,517.21 -0.52; NYSE Composite 9,933.82 -12.60

Market internals show a much different and more bearish picture. Declining issues led advancers by better than a 3-2 margin for the second straight day. More importantly, new lows took the lead from new highs - flipping the previous short-term position - 244-163. That's significant because it's indicative of weakness at the bottom of the market, and weakness usually spreads itself upward. Once the worst positions are eviscerated, the sellers move up the ladder, inducing indecision on a more widespread platform. Without any catalyst to take markets higher (outside of an emergency rate cut) stocks should drift lower the rest of the week.

Intensifying the concept that markets are becoming more and more torpid, November crude contracts fell by a whopping $1.42 to $79.53, but gold and silver maintained their positions of strength. Gold dropped just 50 cents; silver lost 2 pennies.

There was little ambiguity in the Dow stocks, split right down the middle with 15 higher and 15 lower. Wal-Mart (WMT) and Home Depot (HD) led the decliners, while defense stocks, Honeywell (HON), United Technologies (UT) and Boeing (BA) paced the winners.

The rest of the week includes a modest economic calendar, with reports on Durable Orders on Wednesday; Final 2Q GDP, New Home Sales and initial unemployment claims on Thursday.

Ho-hum. We're going nowhere fast.

Monday, September 24, 2007

Let the selling begin!

Since the Fed sought to rescue markets and savage the US dollar with a 50 basis point cut in the federal funds rate last week, US indices have floundered, and Monday displayed in clear view, the handwriting on the wall. Stocks struggled between positive and negative most of the morning until finally succumbing to selling pressure in the afternoon.

Dow 13,759.06 -61.13; NASDAQ 2,667.95 -3.27; S&P 500 1,517.73 -8.02; NYSE Composite 9,946.42 -35.41

Once again, the financial sector was front and center in the selling front as banks, mortgage lenders and brokerages variously took hits in advance of Tuesday's key reading on new home sales (10:00 am).

The credit markets are still unstable, though a little improved since the calamitous days of July and August. Still, deals are not being done in the M&A departments of major brokerage houses, dampening third quarter profits. With earnings due out for the majority of the market in the coming 3-5 weeks, analysts are busy revising estimates accordingly.

While most stocks outside the housing, building and financial sectors may fare reasonably well, the overhang from the housing, mortgage and credit situations will not make for a pretty earnings season.

The walkout and strike of 73,000 UAW workers at GM plants also acted as a damper on Monday and may become to a considerable drag on the economy if the strike is not settled quickly.
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That doesn't seem to be in the cards, as union leaders say they and GM negotiators (acting as the lead for Ford and Chrysler) are far apart on a number of considerations, not the least of them being how much GM and other automakers will contribute to a UAW-managed health care fund.

Monday's trading saw declining issues take the lead over advancers by better than a 3-2 margin. New highs remained temporarily afloat over new lows, 266-171. That gap is narrowing, boding ill for bulls, again.

Oil eased 67 cents to $80.95, while gold and silver added negligible amounts. Gold is poised to break through multi-year highs should the markets (equity and/or credit) begin to rupture.

Tomorrow's reading on new home sales will likely send equities into a tailspin, along with the understanding that the UAW strike will be an extended experience lasting weeks and maybe months, instead of days.

Friday, September 21, 2007

Dead Money?

The US greenback has taken a major hit in the currency markets since the Fed rate cut on Tuesday. Incredibly, there's actually some debate over whether a weaker dollar is good for the US. It's not. Our currency is being devalued so rapidly that we risk becoming a third world economy. Since we import nearly everything, and have negative trade balances with just about every country in the world, expectations for inflation run rampant.

Dow 13,820.19 +53.49; NASDAQ 2,671.22 +16.93; S&P 500 1,525.75 +7.00; NYSE Composite 9,981.83 +45.36

That doesn't matter to Wall Street, or so it appears. The stock market, continues to cruise along as though nothing unforeseen is occurring. All the time, the value of the dollar is being eroded - and rapidly.
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Bernanke's rate cuts may have been a potent tonic for stocks, but it's been toxic acid for the currency.

On Friday, there was some limited buying on solid volume, with advancers outpacing decliners by a 3-2 margin. New highs totaled 286, to 131 new lows.

Oil and gold eased modestly, while silver rose 15 cents to 13.62. With options expiring, a tumultuous week ended on a somewhat positive note, though many inefficiencies still need to be wrung out. Monday and Tuesday may offer more direction.

Thursday, September 20, 2007

Working off Excess

One of the functions of an efficient market is to work off excesses. Though the US equity markets are far from perfectly efficient, that process began yesterday and continued, though somewhat fitfully, today.

Dow 13,766.70 -48.86; NASDAQ 2,654.29 -12.19; S&P 500 1,518.75 -10.28; NYSE Composite 9,936.47 -34.43

The excessive buying and short-covering from Tuesday and Wednesday morning were being dutifully expelled on Thursday. As soon as options expire on Friday, the market will regain its senses and continue back down. There simply isn't a meaningful catalyst to send the markets any higher. In fact, they are already overvalued.

Declining issues held a 5-2 edge over advancers, though new highs remained ahead of new lows for now, 221-122.

The absurdity in the oil business certainly isn't a positive. Crude for October delivery leapt to another all-time high of $83.32, gaining $1.39 on the day. Also showing signs that the economy is a serious mess, gold gained $10.40, approaching the interim high at $739.90. Silver was also up 37 cents to $13.47.

Credit markets are still in a shambles worldwide and many more homeowners will face foreclosure the rest of this year and through 2008. Stocks are being kept afloat by inflation and fear alone. Soon, the true direction will be found as the economy flounders into recession, despite the jawboning and rate cuts from the Fed.

The close of the week should bear witness to late-day selling as investors are still not convinced that US equities are all they're supposed to be. Earnings season is less than two weeks away. Get ready for some major movements.

Wednesday, September 19, 2007

Party Crashers

There is usually a lot of hot air circulating around the caverns of Wall Street, but between yesterday and today, the gum flapping and effusion of carbon dioxide was absolutely stifling. Stocks and mutual funds were talked up as though the magic of Ben Bernanke's federal funds rate cut actually made them worth more. The word genius was bandied about.

In other circles, words such as idiot, traitor and appeaser were heard spoken near the Chairman's name. Not everyone was equally enamored with the re-ignition of easy credit.

Holders of dollars - which would be just about every American citizen - were sullen as the dollar sank to new depths against other, more stable, currencies. Only the debt-ridden corporate culturalists were really in a celebratory mood, and by the end of the trading session, the market had cooled considerably.

Dow 13,815.56 +76.17; NASDAQ 2,666.48 +14.82; S&P 500 1,529.03 +9.25; NYSE Composite 9,970.90 +61.87

By the end of the day, the NASDAQ and S&P had pared earlier gains by more than half, the Dow lost 2/5ths of the morning advance. Cooler minds had crashed the party and were prevailing late in the day. Wall Street's cheap credit rally was fizzling.

Nonetheless, Advancing issues outpaced decliners by a healthy 2-1 margin and new highs at last put some distance over new lows, 411-107.

While Wall Street was partying, signs that the underlying economy was in tatters were everywhere.

Oil gained 42 cents to close at $81.93, another record. Banking bellwether Morgan Stanley (MS) missed their quarterly estimate by 16 cents and took a beating. Housing starts fell to their lowest levels in 12 years. The dollar was being sold off against the Euro, hitting a new low of .7162 or an exchange rate of $1.3963 dollars per Euro. Less than a decade ago, one Euro cost 87 cents. The value of the greenback has fallen by more than 40% in just 8 years.

Gold rose $5.80 to $729.50. Silver added 18 cents to $13.11. All aboard the commodities train. It's about to leave the station.

Bernanke gave away the house to save the pretty front porch. His rate cuts will certainly be tonic for Wall Street, and toxic for the US economy. The liquidity crisis continues apace. There will be major bank failures within the next 18 months as the credit cycle spirals ahead without anyone, including the Chairman of the Federal Reserve, the Treasury Secretary, Congress and the President, acting responsibly.

Tuesday, September 18, 2007

Ben Bernanke, Golden Goose

The FOMC of the Fed pleased all of Wall Street by cutting the federal funds rate by a full 50 basis points on Tuesday - from 5.25 to 4.75% and investors responded with the biggest single-day gains of the year.

Dow 13,739.39 +335.97; NASDAQ 2,651.66 +70.00; S&P 500 1,519.78 +43.13; NYSE Composite 9,909.03 +301.28

Stocks were already higher on the day (the Dow was up about 90 points) when Bernanke unleashed his first real policy directive onto the market. The response was impressive, though highly predictable. Buyers were running over each other to buy stocks which just a few days ago they shunned. It was everything Wall Street wanted and then some, though the cuts signal that there are indeed deep, troubling technical conditions in the US economy which needed this kind of kick-start.

Among the issues facing the US economy are a continuing credit crisis, stemming from loose policy in mortgage markets and hedge funds, a stalled-out employment market, the twin deficits - the government's and the trade imbalance - high oil prices and a weakening dollar.

Today's 1/2-point cut did nothing to salve any of those wounds, yet Wall Street found the news to be encouraging enough to go headlong into an outright exuberant shopping spree.

Bernanke, supposedly a cautious sort, showed that he could and would take decisive action to spur markets. Many expected him to only cut rates 25 basis points, but this decision showed him to be as loosey-goosey as his predecessor, the wily Alan Greenspan.

How long the excitement will last on the Street remains to be seen. The Dow is now less than 300 points from its all-time closing high and the NASDAQ, which had been sluggish of late, threw in a 70-point gain on the day. Much of today's gains were surely short covering, as those betting against the market were shocked into buying up borrowed shares.

Bernanke also cut the discount rate by the same number, to 5.25%, a move to keep liquidity in the banking and brokerage sectors.

Internals were stunningly one-sided. Advancing issues outdistanced decliners by a 6-1 margin, and new highs finally had a positive day, trouncing new lows, 268-170.

Oil continued to rise unnoticed through the euphoric atmosphere, gaining 88 cents to another all-time record high of $81.45 a barrel. As expected gold and silver were silent, both posting negligible gains.

Bernanke may be the Golden Goose today, but the question of whether he will be able to deliver more golden eggs and guide the economy through a rough time, remains an open question.

Monday, September 17, 2007

Stocks Slide Awaiting Fed

In what could only be described as sluggish trade, US indices moved narrowly to the downside on Monday as investors took an extended weekend in advance of the FOMC meeting on Tuesday.

At 2:15 pm Eastern tomorrow, the Federal Open Market Committee of the Federal Reserve will make the most important announcement of the week, maybe the month. At that time, Chairman Ben Bernanke and the Fed governors will announce one of three rate moves: 1. No change in Fed Funds rate; 2. a 25 basis point decrease; or 3. a 50 basis point increase. Essentially, no other moves are possible and the odds are on the middle move, dragging rates down from the current 5.25% to an even 5%.

The Fed hasn't moved rates in well over a year, and the Wall Street gang would love to get a 50 basis point reduction, though Chairman Bernanke has shown lately a resolve to take a rather circumspect and conservative approach.
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What will probably come out of the meeting is the 25 basis point move with some language in the release indicating that more cuts may be necessary.

The functional word is may, in that Bernanke is likely not convinced that looser credit is necessarily a good thing for the economy, Wall Street be damned. What the Fed understands more than Wall Street is that Fed rate moves have less to do with the smooth functioning of the economy than do government policy, which has been dreadful for at least the past 6 years. The federal government has done nothing to reduce deficits, ease gas prices, balance the trade deficit, create American jobs or generally do anything of substance to improve the general welfare.

It's for that reason that the Fed may opt to do nothing, allowing market forces to work itself out. The Bernanke Fed doesn't want to be portrayed as a fixer or bail out artist, though behind the scenes they've made liquidity readily available in response to the sub-prime-induced credit crisis.

Dow 13,403.42 -39.10; NASDAQ 2,581.66 -20.52; S&P 500 1,476.65 -7.60; NYSE Composite 9,607.75 -65.90

Despite the thin trade, market breadth was pretty stunning. Declining issues swamped advancers by a 5-2 margin and new lows raced ahead of new highs, 224-117. These indicators reflect a continuing bearish bias that even a 50 basis point rate cut will not vanquish.

Wall Street bulls know they are in trouble and they're likely going to try to make Bernanke a scapegoat, instead of understanding and revealing that fundamentals in the market and fiscal policy still matter.

Meanwhile, oil hit a new high of $80.57, gaining a whopping $1.47 on the day. The absurdity in the oil markets will eventually cause a bust of major proportions. Nobody is paying that rate in futures markets except manipulators and blind speculators.

Gold shot up another $6.00 to close at an 18-month high of $723.80. Silver added 20 cents to $12.90. The rise in the metals augurs nothing but trouble for equities, as though anyone needed a reminder.

Tomorrow ought to be a doozy.

Friday, September 14, 2007

Stocks Gain Amid Turmoil

There hasn't been much good news concerning the US economy of late, yet investors - or maybe the goodfellas at the PPT - saw fit to boost stocks over the course of a slow trading week.

Oil prices reached an all-time high; the internal, arcane, technical and highly-secret credit malaise has reached astonishing proportions; consumer spending is disappointing and capacity utilization is flat. Add to those list of ho-hums the bailout of Northern Rock, the U.K.'s fifth-largest mortgage lender, by the normally stoic Bank of England. The BofE will prop up Northern Rock with an undisclosed infusion of credit and capital as a "lender of last resort."

Dow 13,442.52 +17.64; NASDAQ 2,602.18 +1.12; S&P 500 1,484.25 +0.30; NYSE Composite 9,673.65 -4.47

While markets in Europe were roiled by the news, US markets barely skipped a beat on a very slow trading day. Stocks for the week experienced excellent gains in hopeful advance of a Fed rate cut when the FOMC meets on Tuesday. With expectations high and largely priced-in, anything short of a 50 basis point cut by the Fed in the Federal Funds rate - from 5.25 to 4.75 - will send markets reeling.

One look at a 5-year chart of the Dow (see right) will reveal that we may be looking at the final run of a very long bull market. The last rise, from 12,000 to 14,000 was spectacular, though interrupted by a serious hiccup in February, which should have served as notice that the end was in sight.

The recent volatility amid now slim trading markets indicates that the credit crisis fomented by sub-prime loans and packaged mortgage investments gone bust has spread throughout the economy and is still growing. A rate cut next week will only exacerbate the condition rather than heal it.

Nonetheless, advancing issues outpaced decliners by a 4-3 margin again today, though new lows retained their lead position over new highs, 224-137. This broken metric continues to indicate a fundamentally weak market, spurred higher by unwise speculation.

Oil fell back 99 cents after setting a record high price on Thursday,
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closing at a still-unsustainable $79.10. Gold was down a piddling 10 cents while silver gained 3 pennies. It truly was a day to stay home.

Looking ahead to next week, don't expect much action until the Fed release at 2:15 on Tuesday. After that, it's anybody's guess and highly dependent on what the Fed decides. The market and various analysts (who have shown time and again how wrong they can be) are predicting at least a 1/4-point cut by the Fed, though most would prefer 1/2-point. Either way, they are all wrong and a Fed cut, or worse, a series of them, will send the economy into an even deeper and longer tailspin. Count on it.

Thursday, September 13, 2007

Credit Crunch Bail-Out

According the Mr. Practical at Minyanville, "World-wide central banks injected $383 billion in credit to the world’s banks just in August. That is just an amazing number. It is unprecedented."

Of course, Mr. Practical is right. World central banks are in a precarious position. All of this money sloshing around is likely to find some places to blow up, and the most likely places are in the US and Great Britain, where the excesses and risk-taking have been phenomenal.

What does this all mean? According to Mr. Practical (and I've noted this as well), the stock markets have seized up and are being kept afloat by the unprecedented infusions of capital from central banks, who may, when this all unravels, face one of two conditions: 1. their own bankruptcy (highly probable in the US), or 2. Ownership of vast portfolios of stocks (the end of free markets).

Neither of these conditions is desirable. Worth noting is yesterday's move by the Senate Finance Committee to raise the debt limit to nearly $10 trillion. So, maybe the federal government will buy up most of Wall Street's troubled stocks with debt, sell it to China and thus avert a bloody war by allowing foreigners to take over all US assets without firing a single shot. That's a very nifty strategy by our nitwit Congress and sly fox administration, though overtly treasonous. They should all be in jail.

Interestingly, today's outsize market gains were led by two of the most debt-ridden companies on the planet, General Motors (GM) and Countrywide Financial (CFC). GM was up 10% on news that UAW president, Ron Gettelfinger, agrees in principle to the creation of a multibillion-dollar health-care trust fund. Countrywide was up 13% on news of another round of emergency funding, to the tune of $12 billion. Neither the names of the creditors nor the terms of the loan were disclosed.

Dow 13,424.88 +133.23; NASDAQ 2,601.06 +8.99; S&P 500 1,483.95 +12.39; NYSE Composite 9,678.12 +79.39

Technology, located mostly in the NASDAQ, lagged the market badly as the Dow Jones Industrials led the way. As large as the gains may have seemed, the breath of the market was rather thin. Advancers held a 5-4 margin over declining issues. New lows continued to lead new highs, 207-155. The fundamentals of this market still are not positive despite a couple of solid sessions this week.

Keeping some perspective, oil was up only 18 cents, though it cracked a new all-time high, closing at $80.09. The gold rally has stalled for the time being, with the yellow stuff down $2.80 to $717.90. Silver eased 11 cents to $12.68. If you're looking to bet on the metals, silver is well undervalued in relation to cousin gold, though price pressures from manufacturers could have some say in keeping the price down for now. It's still a very solid hedge position at current levels and I wouldn't chide anyone buying at any price under $13.25.

It also should be pointed out that trading was light on major exchanges. Key events to keep in mind are tomorrow's nationwide stand down by the Air Command and Tuesday's Fed meeting. There may be major news on the political front stemming from tensions in the Middle East, which have reached a boiling point not only on Capitol Hill, but throughout the region.

Wednesday, September 12, 2007

No Truth and Fewer Consequences

The markets bounced around the flatline in a day which ended up being of little real consequence.

Dow 13,291.65 -16.74; NASDAQ 2,592.07 -5.40; S&P 500 1,471.56 +0.07; NYSE Composite 9,598.73 +1.12

Losing issues outnumbered winners by a 4-3 margin and new lows defeated new highs, 201-158. The song remains the same. The markets are weak and the trend is lower.

The real action was away from Wall Street, in the oil bourses and at various press conferences. First, oil jumped another $1.68 to $79.91 on - the usual suspect - supply concerns. It's gotten to be such a ridiculous song and dance that there really doesn't need to be a reason, only knowledge that the price is higher.

Oil companies are raking in obscene profits, sheiks and sultans are rolling in cash and the US dollar is crumbling. Without any semblance of leadership in Washington, consumers in the US, and to a degree, around the world, are being raped by higher prices for gas, home heating fuel, jet fuel and just about anything else that involves petroleum. It's a death spin of global magnitude which will eventually price everyone out and send economies everywhere into dizzying tailspins.

Couple high prices with the strained credit markets - now being soothed by Fed-speak and talks between Treasury Secretary Hank Paulson and heads of beleaguered finance companies such as Countrywide Financial - and you have a strangulation effect on the middle class and a morass at the center of global finance.

The remaining mortgage financiers are going to be bailed out by the government, as are a slew of undeserving homeowners who got into bad deals with no money down and could as well understand the terms of their loans as practice brain surgery. For those who have already hit the skids, too bad. It's a horrid solution to a real problem and quite unfair to many parties. One speculator was heard saying, "we have free markets only until there's a problem that needs the government."

Therein lies the rub. The real bailout is for banks, mortgage firms and credit card issuers. Homeowners and consumers will still be on the hook, only for a longer period and at a slightly lower interest rate. It's oligarchy at the extreme.

Gold and silver took a breather, both registering marginal losses. With the Yom Kippur holiday beginning, the next three trading days - through Monday - will experience a slowdown of activity.

Stay tuned. There are fireworks yet to come. The credit crisis hasn't fully blown out and oil prices haven't yet stopped rising. The world needs a savior. Is there one out there?

Tuesday, September 11, 2007

Another Injection, Please

To commemorate the 6th anniversary of one of America's worst man-made disasters, the Fed and friends decided to pump more capital into the strained and strangled US equity markets. How much? The NY Fed offered up $34.9 billion, but only $3.5 billions was actually accepted and put to use. $2.365 billion of that was mortgage backed.

Turned out that it was more than enough as the markets percolated higher on moderate volume - better than most of the past two weeks' sessions - and closed with healthy gains.

The Fed loves this stuff, and of course, we couldn't be seen as weak on the anniversary of the 9/11 bedlam. Chairman Bernanke gave a speech today and said nothing about lowering the key Federal Funds rate for which Wall Street has been clamoring.

With the FOMC meeting just a week away, the market expects the Fed to lower the rate from 5.25% to a flat 5 percent or even 4.75%. Market players and analysts might as well be whistling Dixie because the Fed sees no absolute reason to do so and probably won't.

Dow 13,308.39 +180.54; NASDAQ 2,597.47 +38.36; S&P 500 1,471.49 +19.79; NYSE Composite 9,597.61 +139.97

Advancing issues overleapt decliners by a 5-2 margin, though the enormous updraft in stocks failed to loosen the grip of new lows over new highs. There were 188 stocks hitting 52-week lows, as compared to just 127 new highs.

These internal figures suggest either that today's gains were mostly short-covering or illusory and that more technical damage has been done in the markets than a one-day wonder is going to erase.

Crude oil rose 74 cents to an all-time high of $78.23 after OPEC agreed to boost its crude output by half a million barrels a day. Apparently, an imminent increase in supply turns classical economy on its head in oil markets. Prices should go lower instead of higher on supply increases. This fully completes the separation from reality in the oil markets.

What was probably more important to oil traders was the further erosion of the US dollar, which hit an all-time low against the Euro. With that, gold shot up $8.90 to $721.10, with silver tagging along, up 14 cents to $12.84.

This is exactly what the Fed doesn't want. Further deterioration of the greenback, which lower rates will encourage, will send inflation through the roof.

So, the question for Ben Bernanke is, which would you prefer, inflation or recession? Most are betting that the Chairman will opt for inflation. We'll see how disciplined a man this capitalist really is in a week (Hint: he should not lower rates).

Monday, September 10, 2007

Market a fickle friend

Monday's market movements were more of the same, with a zig-zag pattern ending slightly on the up side for most of the indices. In particular, the Dow was up on the open, traded 80 points lower just before noon, slowly moved to the highs of the day after 3:00 and faded badly into the close.

One trader was heard to say, "this is like my wife. I never know when her mood will change." And so it is in this most fickle, direction-less market in recent memory. After being hammered lower mid-August, it's been sideways ever since.

Much of today's gain was likely the cause of covert manipulation, short covering or butt-saving, since, with volume so dismally low, the only people trading are Wall Street hot shots and hedge fund managers.
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Sooner or later they will run out of witless fools to buy stocks and the markets will dry up completely, much like those serving corporate credit. In some ways, the stock market has already becoming illiquid, especially for low-priced, low volume stocks.

The S&P came dangerously close to support, hitting a low of 1439, and that's precisely when the trade reversed course. The big money doesn't want a meltdown, even though world markets are dangerously close, and buyers stepped in today to avoid collapse. Major European markets all closed lower, with the credit squeeze becoming front page news in Great Britain as the Bank of England on Friday was forced to make statements similar to our own Fed's, that they would continue to supply liquidity.

Dow 13,127.85 +14.47; NASDAQ 2,559.11 -6.59; S&P 500 1,451.70 -1.85; NYSE Composite 9,457.64 -28.80

Market internals indicated more weakness as declining issues outpaced advancers by better than a 3-2 margin and new lows superseded new highs, 257-92.

Oil priced higher by 78 cents, to $77.49; gold continued its rally, up $2.50 to $712.20, though silver lost 6 cents to finish at $12.70.

The most significant piece of trading information probably came from watching Countrywide Financial (CFC) drop nearly another point on Monday after announcing 12,000 layoffs after the market closed on Friday. Investors are not buying the stock even though the company is making an attempt to reduce costs. Rather, there was widespread selling early on, with institutional holder, AXA, reducing its exposure dramatically. Essentially, Countrywide, the nation's largest mortgage lender, has so much downside risk, that even massive layoffs (25% of their workforce) could not turn it around. The company has so many non-performing loans on its books and no place to sell their new originations that it could face liquidation itself in coming days.

In the spirit of full disclosure, I have a short position via January 20 put options on the stock. I am comfortable that the stock, currently at 17-and-small-change, will hit 12 within a month.

Happy trading.

Friday, September 7, 2007

Welcome to the Recession

Stocks were slammed again on Friday after the non-farm employment report showed the nation lost a net 4,000 jobs in the month of August. The consensus opinion was that the report would show a gain of 110,000 jobs. So much for the opinions of so-called experts. About the only thing the assembled group of economists, analysts and forecasters are expert about is being totally, completely and hilariously wrong.

Additionally, the numbers from June and July were adjusted lower, to gains of 69,000 for June and 68,000 from July. Essentially, the total of 133,000 new jobs in the prior three months, does not even come close to keeping pace with growth in the employment sector, as roughly a net of 130,000 persons enter the workforce per month.

So, the question is if employment growth is not keeping pace with the overall size of the workforce, how soon does that shortfall become reflected in GDP and plunge the nation into a recession? Broadly defined as two consecutive quarters of negative real GDP growth, the current employment numbers suggest that the 3rd quarter of 2007 - July, August and September - could show up as a net loss in GDP.

That would be one quarter. If the 4th quarter doesn't show improvement (and there's good reason to believe that this government - which has shown a propensity to lie about just about everything else - will fudge the numbers), we'll officially be in a recession.

It's not that evil a situation. A recession is just an ordinary, orderly slowdown in business activity. Some businesses are affected more than others. Some actually will do better. There will be job losses, lots of whining, more fear-mongering by the government and the press, but most of us will be able to go about our lives without too much bother.

Of course, about 15% of the population will feel real pain, either in the form of a job loss, home loss, pay cut, layoff or other calamitous outcome of poor macro-economic planning. And if the government and private sectors don't respond properly, the recession woes could spread beyond the select group to a broader portion of the society, deepening and widening the pain.

Dow 13,113.38 -249.97; NASDAQ 2,565.70 -48.62; S&P 500 1,453.55 -25.00; NYSE Composite 9,486.44 -151.11

At the heart of all of this is the credit crunch and coming banking scandal brought on by the popping of the housing bubble and the inevitable unwinding of the sub-prime mortgage fiasco. More on banks, financial services and their arcane reporting policies and how this is likely to become the locus of an enormous banking scandal.

In any case, the indices approached confirmation of bear market conditions. For some, today's losses will suffice, though many will wait until the S&P crosses the rubicon of 1430 to the downside or the Dow drops below 12,860, as explained in Wednesday's post. That's where support exists. Upside resistance is now just a dot far off on a distant horizon to which nobody can actually navigate.

Breadth was spectacular, albeit on low volume. Decliners overwhelmed advancing issues by a 4-1 margin. New lows took over from new highs in a large way, 214-67.

The detachment from reality in the world oil markets is nearly consummate, as crude for October delivery rose another 40 cents to $76.70, approaching an all-time record.
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Gold rose another $5.10 to $709.70, and silver got a big boost, up 23 cents to $12.76 an ounce.

It was a short but painful week for investors, as fears of complete financial meltdown reappeared. The Fed may want to lower interest rates at their next meeting, though that alone will not solve the problems created by years of loose credit policy and poor fiscal and monetary management at the top of our system.

Banks, bankers, economists and financiers are mostly to blame. Unfortunately for the rest of us, those same people will be called upon to fix this mess. Americans are in for a continuation of a long, ugly ride down the economic food chain. It's sickening.

Enjoy the weekend. We can set about to fixing this mess on Monday.

Thursday, September 6, 2007

Are you buying?

The market was up today, so, were you one of the buyers?

Usually, it takes more than a day of small gains to convince me to dive in, especially one day after I told anyone interested to stay out of this market.

The indices were simply marking time, on low volume, in advance of tomorrow's non-farm payroll employment report for August, which will be released at 8:30 am, prior to the market opening.

So, now do you understand why there were so few dipping their toes into the muddy market waters. They could be stuck in a downdraft before they're able to make a move.

What's important to note about today's sluggish volume was not who was trading, but who wasn't. The smartest money on the street is clearly sitting this dance out until a clear direction is indicated.

Dow 13,363.35 +57.88; NASDAQ 2,614.32 +8.37; S&P 500 1,478.55 +6.26; NYSE Composite 9,637.55 +54.38

So, if you were a buyer today, there's a palpable risk that you'll be a loser at the opening bell, because, non-farm payrolls for August are expected to be around 110,000, but may come in at half that number due to the huge layoffs in mortgage and banking related businesses. Of course, the Labor Dept. could do what they usually do, gently massage the numbers higher and then revise them next month, but, rest assured, this economy is barely producing enough new jobs to keep pace with the population and replace the jobs being lost. Sooner or later, there's going to be a settlement on what the figures really are, and it's not going to be a pretty sight.

Tomorrow could be that day.

Advancing issues on Thursday slipped by decliners by a 4-3 margin, while new highs recorded the slimmest of victories over new lows, 128-127. If you're looking for confidence, it certainly isn't in these numbers, which can best be characterized as breadth-less.

Commodities, especially gold, took a surprising turn today. Crude oil for October delivery was up 57 cents to $76.30 on lower inventory readings, but gold shot past the $700 mark, gaining $13.90 to end the day at $704.60. Silver also rose, but not in the same proportion, adding 18 cents to $12.53.

Something is surely afoot, as the spectacular rise in the price of gold could be presaging some serious difficulty ahead for stocks. Friday is shaping up to be a very interesting day indeed.

Wednesday, September 5, 2007

Get Out and Stay Out!

Today's headline should have appeared on all financial news outlets as a warning to investors. The waters of the US investment wading pool have been poisoned by bad sub-prime and interest only mortgage loans, mortgage-backed securities that are now not even worth the paper they're written on and a pile of derivatives - a true house of cards ready to collapse - as high as the moon.

There are numbers chartists will tell us to keep an eye on. These are, upside resistance and downside support on the S&P at 1490 and 1430 respectively. On the Dow, those figures are 13,695 and 12,860. Breaking to either side of those figures will indicate further movement in that particular direction.

People with practical risk aversion will see the problems looming - and already apparent - in the credit markets, and stay out of the market until a direction is confirmed. Those who have no appropriate understanding of risk will bet on one side or the other and go along for the ride. Unfortunately, the vast majority of US investors are always bullish, never willing to believe that there's anything wrong with the economy or the country, even when the evidence is clear.

And the evidence cannot be much more clear. The National Association of Realtors today released its index of pending sales for existing homes, which fell 16.1% in July from a year ago and 12.2% from the June reading. July's reading was the second-lowest ever for the index and its lowest since September 2001.

Of course, selling new and existing homes pales by comparison to the trillions of dollars that have been and will be blown up in the mortgage securitization fiasco. Meanwhile, the greed line on Wall Street starts with the analysts calling on the Fed for a rate cut. Easier credit, they assume, will save everyone's behind.

That's a fiction of the highest order. Repricing debt lower may have some soothing effect, but it's not going to heal the already deep wounds inflicted on mortgage companies, banks, hedge funds and others who trafficked in bundled mortgage-backed securities. And the president's plan is only going to shift the debt from the banks to the government (via the FHA), weakening the already weak dollar even more.

So, the message to investors should be GET OUT AND STAY OUT. Beware of falling stocks, which, by the way, took another tumble on Wednesday.

Dow 13,305.47 -143.39; NASDAQ 2,605.95 -24.29; S&P 500 1,472.29 -17.13; NYSE Composite 9,583.17 -115.51

Declining issues pounded advancers by a 5-2 margin while new lows surpassed new highs, 130-109.

About the only thing showing a gain today was the price of oil, which added 65 cents to $75.73. Talk about being out of touch! Gold and silver suffered marginal losses.

Tomorrow may see some moderation or more drifting to the downside, but Friday, when the Labor Dept. releases August jobs data, there will almost certainly be a wicked downdraft. Nothing's written in stone, however, so be patient until the markets confirm either bearish or bullish sentiment.

I know it's difficult, but SIT ON IT!

Tuesday, September 4, 2007

Stocks continue win streak

The Dow Jones Industrials closed on Tuesday at its highest point since August 8, though it is still 210 points below that level and a full 552 off the all-time high. On the first day back from the Labor Day weekend, the message was clear: there's room on the upside as well as the downside.

The Dow closed positively for the second day in a row, though follow-through beyond that is questionable. The Dow has not put together 3 winning sessions since that August 8 date, when the index closed at 13,657.86, and that number would need to be exceeded to re-confirm the bull market. Failing that, we would be in the early stages of a confirmed bear market.

Those of us willing to go out on a limb would suggest that we've already begun the bear, instead of being caught in the clutches of a nasty "correction", which was, in fact, cut off at the 10% declination by the Fed and the PPT, or Goldman Sachs, Lehman Brothers and the rest of that gang of thieving, conniving bankers and brokers.

While the Fed, the Treasury, the government, the big banks and brokerages, the financial press and that weird guy down the street with the funky hat don't want the general public to be alarmed that the stock market has turned bearish or that there's even a "correction", the matter seems somewhat already settled by scores of traders who are steering clients clear of US stocks and have been for the last three weeks.

Dow 13,448.86 +91.12; NASDAQ 2,630.24 +33.88; S&P 500 1,489.42 +15.43; NYSE Composite 9,698.68 +101.40

So, the sheeple investor is being led by the nose to a serious shearing, if not an outright, bloody slaughter. Those daring to dip a toe into the long side of the trade are willing to buy the absolute lie that the Fed and the banks can manage the destruction of trillions of dollars of investments without the US economy suffering so much as a hiccup. It's the blind faith of fools which is leading this market higher, without the benefit of any fundamental chart confirmation.

Buy if you like, but cooler heads are staying on vacation for the foreseeable future.

Volume on the markets today was better than it has been for most of the past three weeks, but hardly what anyone would call "heavy."
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Advancing issues were better than decliners by about a 5-2 ratio, and new highs outdid new lows (for the second day in a row), 164-101, though that margin is hardly convincing.

The Dow actually punctured upside resistance late in the day on Tuesday, but quickly retreated 40 points into the close.

Oil was up another $1.04 to close at $75.08, while gold added $9.60 to $691.50 and silver was up 22 cents to close at $12.45.

The peculiarity of the commodity surge is that it should not occur in a vacuum as this current manifestation is. The correlation between stocks, oil and metals is as broken as the credit markets. Albeit, life goes on, until, at least, the next calamity.

Keep an eagle eye on Dow 13,657. If that number is not exceeded, more downside can be expected in short order. Getting beyond that will take a herculean effort, or, failing that, extreme measures of manipulation by covert insiders.