More Money Down the Drain

Investors who pumped the Dow to new record highs on Monday are scratching their heads after two consecutive days of losses. What could have happened, buying so close to the high, with the overhang of the still-unwinding credit crisis, a slumping housing market, oil near all-time highs and the US dollar in the tank?

Talk of a looming recession still trickles from the lips of brokers who dare speak truth to power; the massive losses by major banks in the coming quarterly reports are mentioned in hushed whispers, in private meetings, but sometimes the fears are manifested in the trades, like today.

Dow 13,968.05 -79.26; NASDAQ 2,729.43 -17.68; S&P 500 1,539.59 -7.08; NYSE Composite 10,101.03 -74.81

All of the major indices took a hit on Wednesday, and the losses were double or more than Tuesday's. Declining stocks laid over advancers by a 5-2 margin while new lows gained ground on new highs for the second consecutive day, with the highs holding a 232-127.

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That gap has closed considerably and is signaling continued weakness.

Economic numbers have been benign for the most part. Investors may be looking for positive news from the September Non-Farms Payroll report, due Friday prior to the market open. Estimates call for 100,000 new jobs created, though last month's estimate was equally rosy when the report for August showed a net loss of 4000 jobs.

Oil slipped 11 cents to close at $79.94; gold and silver were marginally changed. Gold lost 60 cents. Silver was up 2 pennies.

What the payroll report holds in store for the markets is yet indeterminate. Stocks have been rising on bad economic news, in a convoluted logic that a weak economy will spur the Fed to lower interest rates even more. The thinking is that looser money will be invested and cause stocks to gain. The trouble with that is eventually, as economic conditions worsen, consumers will close their wallets and stop spending. That's the downside of the equation. Lower interest rates can only free up so much capital. Sooner or later, consumers, who make up 70% of GDP, must get some relief.

Lowering interest rates is inherently inflationary and weakens the dollar against foreign currencies. While that may be good for exports, again, consumers are stuck with higher bills for just about everything, being that the US has become an import-driven economy.

If there are less than 100,000 new jobs created, investors may get just what they're asking for, but the fruit of their desires may come with a bitter aftertaste.