The Brink of Economic Collapse

Today's rigging of the major stock indices - pushing stocks higher on one of the most potentially calamitous days ever - is one for the history books.

A little background is necessary to understand the measures taken to prevent a disastrous marketwide sell-off.

Prior to the market opening, MBIA (MBI) announced that they had taken serious writedowns due to the mortgage-backed securities that have imploded due to foreclosures. The company, a single line insurer, which only insures financial instruments, primarily municipal and corporate bonds, lost $2.3 billion, or $18.61 per share, in the fourth quarter. There were also murmurings of the company's AAA rating being cut by Standard & Poors.

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This was no run-of-the-mill insurance company. This is the company which has underwritten a large portion of the subprime loans, repackaged as collateralized debt obligations (CDOs) that have been blowing up all over the place. This was serious business.

Two articles cover the importance of MBIA and the weight of a potential ratings cut:

Mike Whitney, writing for Counterpunch has an excellent overview in his recent article, The Great Credit Unwind of 2008 in which he quotes CNBC stock guru Jim Cramer in an interview with Chris Matthews:

"...there are a group of insurance companies which insure all these bad mortgages and, Cris, I think they are all about to go belly-up, and that will cause the Dow Jones to decline 2,000 points."

Then there is Bloomberg's exclusive report, by Christine Richard and Katherine Burton, on hedge fund manager William Ackman, who ran up a $109,000 photocopying bill studying MBIA's business in 2002: Ackman Devoured 140,000 Pages Challenging MBIA Rating.

With that news in the hopper along with an "unexpected" rise in unemployment filings, when the bell rang on Wall Street Thursday morning, the index slumped an immediate 192 points but suddenly stopped in its tracks. For the rest of the day, it was nothing but roses, as all the indices gained, uninterrupted, for the remainder of the session.

What happened? The principals of MBIA came out and vociferously defended their AAA rating, saying they have met all of the requirements.

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Chief Executive Gary Dunton said in a conference call, "Our own conclusion is that the market has overreacted to the real and obvious problems that we've had, as well as to the fear-mongering and intentional distortions of facts about our business that have been pumped into the market."

Naturally, Dunton could not say just who was doing the fear-mongering or distorting facts about MBIA's business (likely because nobody is), but armed with these reassurances and a helping hand from the omnipresent, of late, Plunge Protection Team (PPT), a/k/a the President's Working Group on Financial Markets, it was nothing but blue skies and apple pie for investors in US equities all day.

Interestingly, with five minutes left in the session, S&P announced that it had cut its "AAA" ratings on FGIC Corp's bond insurance arm, and placed its top ratings on the bond insurance arm of MBIA on review for downgrade.

How inconvenient for investors who sent MBIA up 11% (+1.54, 15.50) on the day and dutifully bought all manner of other equities. All of that money "invested" in the bond insurer and elsewhere may just go "poof" when the market opens on Friday.

Consider that over the past two days, we learned that GDP grew by a mediocre 0.6% in the fourth quarter, unemployment claims are rising (the Labor Dept. laughably argued that Thursday's figures were somehow skewed higher by Martin Luther King's day, though they declined to say just how a day off would affect people filing for unemployment benefits), personal spending in December rose by the slowest pace since June, a tail-dragging 0.2%, yet stocks, somehow, continue to price higher.

Before the opening bell tomorrow, at 8:30 am, the non-farms payroll numbers - or labor report - for December will be released. Experts expect to see an increase of a meager 80,000 new jobs created in the month.

Dow 12,650.36 +207.53; NASDAQ 2,389.86 +40.86; S&P 500 1,378.55 +22.74; NYSE Composite 9,126.16 +131.71

Meanwhile, the number of new lows expanded again in comparison to new highs, 251-83, while advancing issues unsurprisingly held the advantage over decliners, 4567-1800.

Oil fell 58 cents to $91.75, while gold gained $1.70 to $928.00. Silver reached $17.00, up 24 cents on the day.

If the December jobs data is dull and there's more evidence of the US slipping into a recession, don't worry. The way the market is currently being manipulated, your stocks are almost certain to go up. (Please, don't take that advice seriously.)

NYSE Volume 5,369,650,500
NASDAQ Volume 2,925,491,250

Bears Spoil Wall Street Party; Bernanke Rebuffed

It didn't matter that 4th quarter GDP checked in at an anemic 0.6% growth.

It didn't matter that a couple trillion dollars have simply evaporated between housing foreclosures and the blowup of mortgage-backed securities and even more was eviscerated in the recent market downturn.

It didn't matter that the house and senate plan to give away another $150 billion from an already unbalanced budget.

All that mattered was that the Fed made money easier to borrow and spend, borrow and spend, borrow and spend.

But in the end, after a spectacular run, the market regained its senses, turned the tables on the perma-bull cult and sent Fed Chairman a chilling rebuke.

With the second major federal funds rate cut in 8 days - this one 50 basis points, in addition to the 75 basis points last Tuesday - Wall Street partied like it was... well, like it was 1999, all over again.

Dow 12,442.83 -37.47; NASDAQ 2,349.00 -9.06; S&P 500 1,355.81 -6.49; NYSE Composite 8,994.46 -51.56

The major indices spent all of the day - up until precisely 2:15 pm - in the red, but tacked on an immediate 150 points once the Fed announcement was official. Like so many Polaris rockets at launch, the indices went straight up, leaving behind a cloud of volume.

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Trading, which was sluggish before the rate cut, literally exploded. Shares began changing hands at a rate of 10 million per minute, a level of activity that persisted into the close.

By 3:15 the Dow was up 200 points. It was then that the bears took their revenge for the 1170 point intraday move between Jan. 22 and today (11,508.74-12,681.41), blowing off more than 240 Dow points of froth and setting the market up for a resumption of the equity carnage that has been January's signature.

The reversal was a stunning repudiation of Fed policy and Bernanke personally. The market, left to its own devices, is seldom wrong, and today it indicated that nothing would save the economy from the perils of a downturn.

The bear's trap worked to perfection and the message of the market is now crystal clear: we are deep into the wilderness and the bear is hungry, angry and large.

As expected, advancing and declining issues battled to nearly a stand-off, with decliners winning the day, 3559-2802. New lows checked in at 194. There were only 69 new highs.

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In earnings news among Dow components, Altria Group (MO 76.57 +0.45) saw 4th quarter profit fall 26 percent and announced a spin-off of tobacco company Phillip Morris; drug-maker Merck (MRK 46.47 -1.54) earned 80 cents a share in the fourth quarter, on sales of $6.2 billion, a 3% year-over-year increase; Boeing (BA 82.87 +1.91) posted net earnings of $1.03 billion, or $1.36 a share, up from $989 million or $1.29 a share, in the year-earlier quarter.

Tomorrow, all eyes will turn to Google (GOOG), as the search and advertising company reports 4th quarter results after the close. On Friday, prior to the open, the December labor report will be the main mover. Employment is in the market cross-hairs now that the flames of recession are being fanned.

Oil was up 11 cents to $91.75; gold traded $4.50 lower to $926.30; silver lost 4 cents at $16.76.

NYSE Volume 4,404,828,500
NASDAQ Volume 2,565,181,250

Stocks Trade in Narrow Ranges

The Dow Jones Industrials traded in a narrow, 50-point range for most of the day - between +30 and +80 points - while the NASDAQ carried on a day-long flirtation with the unchanged line.

Despite more disheartening news from the housing sector, investors were content to play wait-and-see on the Fed, whose Federal Open Market Committee (FOMC) began a two-day meeting. On Wednesday at 2:15 the committee will deliver their policy recommendation. Most analysts are calling for a 50 basis point reduction in the federal funds rate, though of late more see a 25% cut a distinct possibility.

The argument is that the Fed may send more of a message with a smaller rate cut, that the economy is not as bad as many fear, and that the Fed has matters under control.

While that may be provide some short-term, superficial salve to open wounds in the markets, the consensus that the economy will fall into recession (or already is in one) is gaining traction, along with the belief that such a recession will be long and deep, extending for as long as 18-24 months.

Dow 12,480.30 +96.41; NASDAQ 2,358.06 +8.15; S&P 500 1,362.30 +8.33; NYSE Composite 9,046.02 Up 67.61

Much of the angst centers around the housing crisis, which continues to dole out pain on a near-daily basis.

In a report issued by RealtyTrac Inc., the number of foreclosure filings in 2007 reached 2,203,295, up 75% from 2006. While the 2007 figures are serious, more troubling is that the trend appears to be accelerating.

A total of 215,749 foreclosure filings were reported in December, up 97 percent from December 2006 and bringing the fourth-quarter total to 642,150 filings on 527,740 properties — up 1 percent from the previous quarter and up 86 percent from the fourth quarter of 2006.

In earnings news, US Steel (X) saw profits trimmed significantly in the 4th quarter due to acquisitions and layoffs. Investors punished the world's 5th largest steel producer with a 7% haircut, pushing shares lower by 7.49 to 102.58.

Naturally, no bad news could derail the PPT-manipulated market from tacking on gains in advance of more money created out of thin air by the Fed. At 3:00, the Dow surged an additional 50 points, briefly piercing the 12,500 resistance ceiling. The other indices followed along dutifully.

Volume, for the second straight day, was laughably light, as prudent bears sat back and watched the unsustainable rally unfurl.

Advancers bettered decliners once more, 3914-2379, and the gap between new lows and new highs tightened considerably, with new lows still on top, 152-71.

Crude oil gained 65 cents to $91.64. Gold lost $2.00 to close at $930.80. Silver gained five cents to $16.80.

NYSE Volume 4,001,153,250
NASDAQ Volume 2,150,718,000

Stocks Rise on Pathetic Volume

To say that the volume of trade on Monday was low would be a serious understatement. Following a week of extreme volatility, investors apparently were willing to sit out today's session - and maybe tomorrow's and most of Wednesday's - in anticipation of the next move by the Fed.

Monday's volume was roughly 3/5ths of the average day last week. This is the exact gut response to extreme volatility and unexplained "bounces." Continued meddling by the Plunge Protection Team (aka President's Working Group on Financial markets) will eventually lead to something resembling a gran mal seizure in the markets. The Fed will be trading with itself and itself only.

Dow 12,383.89 +176.72; NASDAQ 2,349.91 +23.71; S&P 500 1,353.97 +23.36; NYSE Composite 8,978.41 +150.91

On Tuesday of last week, Fed Chairman Ben Bernanke proclaimed a 75 basis point reduction in the federal funds rate in an "emergency" move designed to stabilize markets. The previous day, which was a holiday in the US, markets tumbled worldwide in apparent response to rampant recessionary fears in the US.

Bernanke and his henchmen managed to keep the Dow Jones and other indices from melting down, but at a significant credibility expense. With the Fed's knee-jerk response to global markets, the onus is clearly on the Chairman to make a policy statement of import on Wednesday, as the FOMC concludes two days of meetings.

With the Fed poised to act in some manner - most expect another 50 basis point cut - a report that may have even more impact will be released before the markets open on Wednesday. That would be the Commerce Department's Bureau of Economic Analysis release of preliminary GDP for the 4th quarter.

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Best expert guesses are that the US economy grew by anywhere from 1.2 to 2%, and while those figures are a far cry from the robust 4.9% reported for the 3rd quarter, anything above zero will be welcome news on Wall Street. The fear is that the economy has already fallen into recession and any indication reinforcing that belief will have a significant cooling effect.

Also this week, a huge number of S&P 500 companies will be reporting earnings, as well as 9 Dow components, including American Express, (AXP) which after the close today reported a 6% decline in earnings from a year ago, 71 cents versus 75 cents in the 2006 4th quarter.

McDonald's (MCD), the world's largest restaurant chain, reported profits for the full year fell 32% to $2.4 billion, or $1.98 per share, from $3.5 billion, or $2.83 per share in 2006. 4th quarter profits were marginally higher, but the company advised that same-store sales in the US were flat for the October-December period.

Also reporting after the close was another Dow component, Verizon (VZ), which earned $1.07 billion, or 37 cents per share, in the 4th quarter, compared to $1.03 billion, or 35 cents per share, a year earlier.

Other Dow components reporting this week are 3M Company (MMM) on Tuesday, Altria Group (MO), Merck (MRK) and Boeing (BA) on Wednesday, Procter Gamble (PG) on Thursday and ExxonMobil (XOM) on Friday.

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Tech bellwethers, Yahoo (YHOO) and Google (GOOG), report on Tuesday and Thursday, respectively.

Advancing issues slaughtered declining ones on the day, 4593-1775. New lows surpassed new highs, 200-67.

Crude oil gained 28 cents to $90.99. Gold soared $16.40 to $927.10. Silver was up another 26 cents to $16.75.

If you're getting the feeling that something just isn't right about soaring gold, beaten down foreign markets and a 176-point rise on the Dow, you may just be on to something.

Tonight, the world will cheer President Bush's State of the Union address... because it will be his last. The US is in for a world of hurt, though the media and markets aren't giving us full disclosure as of yet. As usual, the American public will be the last to know when the curtain falls.

NYSE Volume 3,763,495,750
NASDAQ Volume 2,020,705,750

Sellers Resume Bearish Ways

It didn't take long for investors to continue their selling once the Fed and their internal, clandestine agents were through pumping the markets on the buy side.

Naturally, with news of the federal government handing out money to citizens percolating all over mainstream media, the index pre-market futures were goosed and the morning shows all headlined the "stimulus package."

On Good Morning America this morning, Diane Sawyer asked a real estate expert, "are we nearing the end of this recession?" This and similar false hope nonsense was being spouted all over the airwaves. Obviously, Ms. Sawyer, like most of her viewing public hasn't a clue as to the depth and seriousness of the economic crisis underway.

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Fortunately, the expert was clear, explaining that home prices probably wouldn't settle out until late 2008.

Over the past three sessions, the Dow, after bottoming out at 11,508.74 on Tuesday morning, rose an incredible 1014 points (8%) to 12, 522 on Thursday afternoon before pulling back somewhat to close at 12, 378.61.

Dow 12,207.17 -171.44; NASDAQ 2,326.20 -34.72; S&P 500 1,330.61 -21.46; NYSE Composite 8,827.48 -114.77

On Friday, the Dow gapped higher by another 108 points, reaching the high of the day (12,486.89) just 5 minutes into the session. From there, however, it was all downhill.

At 10:30 am, the 12,400 mark was breached, and as it turned out, for the day. Between 1:00 and 1:30 pm, the index sputtered around the 12,300 level, broke through that and headed still lower. Approaching 2:00 pm, the Dow had hit 12,200, down 178 points.

That 12,200 level would prove to be the battleground between the bulls and bears. Absent active participation by the PPT, the market was allowed to drift lower without the overt influence demonstrated over the past three sessions. At least until 3:00 pm, that is.

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Considering that the Fed is almost certainly going to cut rates by another 50 basis points next Wednesday, they need some kind of negative influence to make their move plausible, thus negating the immediate need for Plunge Protection. Still,with the markets down considerably for the day, the manipulators felt a need to pare back some of the losses. In a 10-minute span from 3:10 to 3:20, the Dow cut its losses in half. The other indices experienced similar moves.

Finally, in the closing 15 minutes, the PPT apparently stood down and the selling continued in a fierce manner, lopping off 100 points in a matter of minutes. When it was all said and done, the bears won again, though, for the week, the Dow gained a negligible 108 points. The S&P and NASDAQ closed the week with minor losses.

Internals were more pronounced. Declining issues took the lead over advancers, 3565-2812, and new lows continued to dominate new highs, 194-62.

Oil gained another $1.30 to $90.71. Gold and silver continued to forge ahead, with gold up $4.90 ($910.70) and silver ahead 16 cents ($16.49).

The protracted interference from the PPT continues to make trading difficult, especially for those playing the market short. The direction is clearly to the downside, but the PPT insists on preventing the markets from busting, which they eventually will. The distortions are evident to anyone trading and until the funds of the Fed and Treasury are exhausted, we are forced to live with this blatantly unethical condition.

Of course, market forces are more powerful than the machinations of a few madmen masquerading as government officials. The fear is that the influence of underhanded trades (and associated derivatives in the options market) is making conditions worse rather than better.

NYSE Volume 4,528,555,500
NASDAQ Volume 2,598,300,250

Bottom's Up!

From the stunningly stupid to the overtly optimistic and moronic misguided pundits and plagiarists who make up the financial news media comes word today that the bottom is in.

These calls began with the close of trading on Wednesday and continued here and there through the day on Thursday. Stocks could continue on an unlikely rise for another three weeks and these calls will all be proven wrong in the long run.

Let me be among the first to tell you: the bottom is definitely not in.

Markets have been roiled by a combination of bad news, poor economic reports, weaker corporate earnings, writedowns, bad loans, fear, panic and finally, desperate moves by the Federal Reserve and more sweeping stupidity in the form of free money soon to come from the political class.

All of this points to a world economy splitting apart not only at the seams, but also uncoupling from the moorings of a badly damaged banking and credit system. Fear is rampant, mistrust overflowing, especially among the well-heeled like those gathering in Davos, Switzerland, where the doubtable US Secretary of State, Condoleezza Rice, one of the more serpentine figures in world politics, declared glowingly, "the US economy is resilient, its structure sound, and its long-term economic fundamentals are healthy." Link.

Ms. Rice must think that those in attendance at the World Economic Forum are idiots. Just about everybody outside the United States knows that the US, thanks largely to the policies of her president's (Bush) administration, is a financial house of cards being sold off in parts precipitously to various Arabs, Orientals and other, more stable, companies, countries and individuals. Somebody forgot to give her the memo, apparently.

One has to love comments like this, from an article on a business web site: "This just doesn't feel like a real, full-blown recession to me."

It makes one wonder just what a recession is supposed to feel like. Is there real, physical pain involved in having your assets depreciated right before your eyes?

Take a look at just two serious articles today:
Housing prices to free fall in 2008 - Merrill - This report suggests a 15 percent drop in housing prices in 2008 another 10 percent drop in 2009, with even more depreciation likely in 2010.

Why the Fed can't save us - Here, Senior Editor Allan Sloan correctly points out that the Fed, which has cut rates four times already since September 2007 - from 5.25% to 3.5% - and is expected to cut another 0.5% next week, is running low on rate cut ammo.

That's more like it.

The big news today was another bombshell from the imploding housing sector. In a report released by the National Association of Realtors, the median price of existing homes fell for the entire year of 2007. Since records prior to 1968 do not exist, it is assumed that it was the first time the median price had registered a full-year decline since the Great Depression of the 1930s.

It's notable that reference is being made to the Great Depression, as more and more stories these days are carrying a similar connotation. While some economists are still arguing over whether or not we are in a recession, more adroit minds are pondering the potential of a global depression.

Most of the pieces are in place. The global financial system is about one or two serious events removed from complete failure. As it stands, Citigroup and Merrill Lynch are only still standing due to major cash infusions from sovereign funds from Singapore, China and Kuwait. An actual bank failure could occur at any time, triggering the ultimate catastrophe - the seizing up of the entire world financial system.

On Wall Street, however, where fantasy thumbs its nose at reality, stocks gained for the second straight day, today without as much overt assistance from the PPT, the Fed or any other nefarious agents who might prime the equity pump. No doubt, they were there, keeping the indices above break-even. The job is to restore calm and civility and keep the dastardly sellers and short-players in check... for a time.

Dow 12,378.61 +108.44; NASDAQ 2,360.92 +44.51; S&P 500 1,352.07 +13.47; NYSE Composite 8,942.25 +136.57

That the market will retest the intraday lows of Tuesday and Wednesday is not in question. It's only a matter of time before a bit of news or earnings reports or a piece of economic data once again sets the seller's sails for distant shores.

Today's internals were benign, if not wholly fatuous. Advancing issues raced ahead of decliners, 3861-2541. New lows moderated over new highs, 208-59. Trading was range-bound and, relative to the past few sessions, lighter.

Oil traders got the "all clear" signal and priced higher by $2.42, to close at $89.41. Gold rocketed $23.00 to the upside, to 907.00. Silver improved by 36 cents, ending the day at $16.33 the ounce.

With two consecutive days of gains, a Fed meeting less than a week off and the Super Bowl looming, we are in a significantly soft "bounce" period. The Fed and the PPT will do what they do best, manage the market, and everything should go along swimmingly for a time. Congress and the president are even playing nice, agreeing on a sweeping cash give-away program to boost the economy.

In typical fashion, however, the politicians will not actually deliver checks - ranging from $300 to $1200 - to "the people" until sometime in June, according to most estimates. As Washington goes, that qualifies as "fast.", one supposes. This $100 billion and another $50 billion in business incentives ought to stimulate somebody. By then, surely, we'll need more.

Ah, I almost forgot. The bottom is in. NOT.

NYSE Volume 5,790,062,500
NASDAQ Volume 3,019,970,750

PPT Rallies Markets, Raises False Hopes

I've mentioned the Plunge Protection Team (PPT) on this blog more than just a few times. While some people think that the President's Working Group on Financial Markets is some kind of chimera that I and other tin-hat conspiracy nuts have created out of whole cloth, there's more than enough evidence - including today's mythic 631-point rally - to prove that the PPT does indeed exist and now operates almost in plain sight.

Here are just three articles concerning the PPT from fairly credible sources:

THE TRAGEDY OF THE US STOCKMARKET Part 2 - PPT failing, panic in Washington...

Gold will rise, US Dollar would burn

Plunge Protection Team Now Official

There are many more which can be found using any search engine, but try this Google News search for links to current articles on the PPT.

After the absurd move today, rallying the Dow from a low of 11,644.81 to a high of 12,276.67, there should be no doubt that the US economy is in the midst of a serious crisis. The problem is that 95% of Americans don't know this because they will see the stock market rebounded today. Half will not know that the Dow was down more than 300 points. The other half will see that but simply not care.

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Economic reporters never mention the PPT, and always assign turnaround movements in the middle of market collapses as either bargain hunting, program trading or tied to the price of oil. So, the average Joe or Jane with money in their 401k thinks everything is OK. All the while the US dollar continues to sink into a black hole on the PPT's profligate spending in US equity markets.

All of this PPT-induced buying began at 12:45, when the markets bottomed out for the second straight day and it continued without interruption right through to the close.

Dow 12,270.17 +298.98; NASDAQ 2,316.41 +24.14; S&P 500 1,338.60 +28.10; NYSE Composite 8,805.68 +144.51

I have seen many a strange event on the markets, but today's takes the cake, the ice cream, plate, fork and napkin. Yesterday, I called the market rally the biggest fraud ever perpetrated in financial markets. I was wrong. Today's action takes that prize, hands down.

Let me be clear. Small investors in America are neither sophisticated or very smart. They get the majority of their information from television (CNBC) or paid shills, invest mostly in mutual funds which they barely comprehend and probably spend less than two hours per week analyzing market trends, individual stocks or financial events.

On the other hand, Americans still trust their federal government which is a major mistake. Here's a short list of non-credible functions, offices and people in the highest positions of power in the United States:

• The president and his administration and cabinet


• Congress: both houses are equally inept and unworthy of trust


• The Federal Reserve, the Chairman (Ben Bernanke) and the Board of Governors


• Treasury Secretary Henry Paulson


• Mainstream Media, especially ABC, NBC, CBS, FOX (lapdogs of the government)


• The SEC


• CEOs of any major corporation and all of the Dow companies

Thus, the not-so-clandestine operatives of the PPT get to manipulate markets without impunity, resulting in erratic and unexplainable movements like today. This inspires hope in the little people, even though that hope is based on nothing more than a government printing press spitting out $100 bills as fast as it can and operatives in the stock markets buying everything in sight with both hands.

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Market internals show just exactly how ridiculous today's 300-point gain on the Dow really is. Volume was the highest in a long time, surpassing yesterday's highest of 2008. That makes sense, since the PPT had to buy a lot of stocks while people were busy selling them and then covering their short positions as the fraudulent rise overwhelmed everything.

Advancers finally got a leg up on decliners, 4234-2198, but new lows were again dramatically ahead of new highs, 864-60.

Oil slipped by $2.22 to $86.99. Gold closed at $883.10, -7.20, while silver fell by 14 cents to $15.97.

Unless there's any doubt, nobody should be trading stocks unless they have a solid understanding of economics and the workings of the PPT, as the former is fundamental and the latter is a market dynamic which cannot be understated.

Stocks will eventually fall again, retracing the lows of today and yesterday. Within months, if not weeks, the indices should be well below today's levels, though due to the activity of the PPT, the timing of the collapse is difficult to discern.

If you are long stocks or call options, you should not be playing in this market. It's a very dangerous playground and some of the kids carry knives. If you're short or in puts - the advisable position - keep your stops fairly tight and a sharp eye on radical movements like today's. 600-point gains can drastically alter your profits.

NYSE Volume 6,765,203,000
NASDAQ Volume 3,585,647,750

Bernanke Blinks; Big One Forestalled

With markets tanking worldwide on Monday, the calls came in from central banks and economists around the world to Ben Bernanke to rush his rate cuts to the market to avoid a catastrophe.

By Monday night, the Federal Reserve Chairman had made up his mind and folded like a cheap suit, but the markets wouldn't know until around 8:30 am ET. Prior to that, here's what was flashing on trading screens:

06:47 am : S&P futures vs fair value: -57.3. NASDAQ futures vs fair value: -70.8.

06:47 am : FTSE...5586.70...+8.50...+0.2%. DAX...6729.26...-60.73...-0.9%.

06:47 am : Nikkei...12573.05...-752.89...-5.7%. Hang Seng...21757.63...-2061.23...-8.7%.

With the announcement of an emergency cut to the federal funds rate of 75 basis points (0.75%), the markets refused to go along. At the opening bell, the NASDAQ was down 114 points, the Dow fell 450 minutes after the open and at 9:33, the S&P was down 31 points.

From there, stocks took a u-turn, thanks to underhanded funding from the Plunge Protection Team (PPT) which immediately knocked 200 points off the Dow's losses. As the day progressed, the "invisible hand" of the PPT continued to pump money into stocks, nearly erasing the losses entirely.

Trading was highly suspect throughout the session. Volume was explosive in the first hour, then dawdled and dwindled, even though the totals were on the high end. In general terms, the Fed and Treasury pulled off one of the more dramatic and obvious frauds in stock market history.

Dow 11,971.19 -128.11; NASDAQ 2,292.27 -47.75; S&P 500 1,310.50 -14.69; NYSE Composite 8,661.18 -133.68

Even the press was involved in the fraud. In this story from Reuters, headlined on Yahoo Finance at 10:56 am as Wall St. cuts losses in half on bargain hunting, though the Reuters headline actually read, Market falls on recession worries.

From the article:

But by midmorning, major indexes had halved their losses, as investors snapped up beaten-down retailers, home builders and financial services companies after the Federal Reserve cut interest rates by 75 basis points in a surprise intermeeting decision.

That statement is almost certainly untrue and Reuters would be unable to provide proof if required. The story was later pulled from the list of available headlines. Nobody was buying stocks except agents of the Federal Reserve and the Treasury through their proxies at Goldman Sachs, Bear Stearns, Lehman Brothers and Merrill Lynch. This was typical Plunge Protection Team work, stopping the markets from a total washout, which was almost certain to occur, despite the Fed's desperate emergency rate cut of 75 basis points prior to the opening bell.

Stock manipulation was evident throughout the session, with the Dow closing to within 7 points of break-even just after 3:30 before selling off with gusto, losing over 120 points in the final 30 minutes.

While the Fed pumped $10 billion into the markets through their typical open market repurchasing (repo) activity, there was probably another $30-50 billion in secret, "underground" funds through the PPT, which is kept off-the-books and will likely never be revealed except to the inside players who manipulate the market with magic liquidity, flooding the world with fake capital and doing irreversible damage to the US dollar.

The point is that the markets are being falsely pumped to the upside and have been for years. There's likely an overhang of more than a trillion dollars worth of bogus liquidity that's been priced into stocks over the past 8-10 years. The number might actually be larger, and I am using a trillion as a conservative estimate.

Real damage is done to markets when manipulated by secretive bodies such as the PPT. Since equity prices are primarily perceived value, investors are subjected to stock prices that are an illusion. US stocks on average are probably worth 20-30% less than present values due to these distortions.

While the newspapers and internet reports will praise the Fed's "quick thinking" the truth is that stocks will continue to decline. Truly wise investors know that this market - and most other world markets - is teetering on the brink of collapse, and only clandestine operations saved it from total destruction.

The internals were telling. Declining issues pummeled advancers by 4064-2385, but the reading of new lows was literally the highest number I have ever seen. There were 2070 new lows to only 69 new highs. Nearly one in three stocks hit 52-week lows on Tuesday. Clearly, the market averted meltdown... for now.

Oil traded 72 cents lower, closing at $89.85. Gold was up $7.90 to close at $889.80. Silver gained just 2 cents to $16.04.

The view from this outpost is that investors should expect more severe losses over the next 3-6 months. The Fed's magic won't work indefinitely on a global financial system that's essentially broken.

NYSE Volume 6,256,598,000
Nasdaq Volume 3,109,516,000

Stocks Tank Worldwide. Is This the Big One?

Are we setting up for The Big One?

While America was taking the day off in honor of Martin Luther King, Jr., one of our nation's greatest defenders of liberty, equality and justice, markets around the world were crashing from the after effects of the credit crisis and now the looming confidence crisis in the USA.

This article tells most of the story, but the reality won't hit the US shores for another 12 hours. By the time US equity markets open, the Asian markets will have gone through another day and Europe's will be well into their afternoon sessions.

Some of the drops on Monday were shocking:
Britain's FTSE-100 -5.5%
France's CAC-40 -6.8%
Germany's DAX 30 -7.2.
Hong Kong's Hang Seng -5.5%

The meaning in all of this for US stocks is disturbingly real, since all of the declines worldwide are keyed to the fear of a US recession. As the so-called buyer of last resort, the US bears the blame and also will likely suffer consequences equal or worse than those of our fellow capital-intensive countries. After all, the recession is going to happen here first.

Shades of the Great Depression

While the actual causes of the Great Depression are still the focus of argument among economists, what remains clear is that most of the world was plunged into an economic abyss after the market crash in 1929.

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The actual extent of the damage to capital markets is still unclear at this point, and while not wanting to be alarmist, I've remained steadfast that the subprime mortgage blow-up was more of a trigger than an isolated event. So far, with the Dow already off more than 14% since the October peak, I've been right. And now it appears that we are in the second phase of a bear market, where losses are the steepest.

Where this is all headed is in the wrong direction. Using Fibonacci calculations of 33, 50 and 67% declines from the previous gain (roughly 6800 points), the declines would be of the order of 2244, 3200 and 4690 points on the Dow.

With the Dow already close to that 2244-point decline, I had expected a bounce and the gains on Friday morning might have been all there was. That makes the next stop around 11,000, and if that breaks down, somewhere around 9500 may be the bottom.

It could get worse, however, if, as anyone paying attention might recall, the stock market began its tremendous bull run at the start of the Iraq War in March of 2003. Considering the massive fiasco that campaign has devolved into, might there be some coupling of the market gains to the war "effort" and if so, what have we wrought but death, destruction and about a trillion dollars in wasted spending?

The last 4 1/2 years of "prosperity" might have been an illusion. If that's the case, we're in for some hard times indeed.

If the Dow drops below 9500 and begins to head for the 7500-8000 area, it could portend catastrophe, not only for the stock market but for the US and possibly all other economies.

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Retracing the missteps of the Great Depression, government was found either powerless or ineffective in stopping natural economic forces from occurring. We may be seeing a similar scenario today. Despite three rate cuts by the Federal Reserve amounting to a total of 1%, stocks still lost considerable value.

Now, world reaction to the US government's plan has been met with skepticism if not outright disapproval. Since investors and economists are generally better-equipped than government bureaucrats and politicians to read the "tea leaves" correctly, the instinctive selling by the cognoscente may have already begun. As usual, the really smart money has gotten out of the way earliest.

We may be in the earliest stages of a cataclysmic economic event. Remember, during the Great Depression we had the relative security of the gold standard. Such a limiting mechanism no longer exists in the leveraged world of floating currencies.

If we are indeed going to hell in a handbasket, the signs should be easy to discern and some have already appeared: inept politicians, secrecy and distrust within the banking community, a continuing decline in stocks with only brief respites, falling prices, falling currencies, disruptions in trade and commerce, business failures, bankruptcies, municipal budget pressures, massive real estate foreclosures from delinquencies on mortgages or taxes or both.

Inflation may turn out to be the least of our worries. The temporary advance in prices may turn out to be chimeric as the real devastation of slack demand takes hold in coming months. Inflation can be beaten back. A cyclical deflationary spiral is a demon for which nobody is prepared to confront, but we're fortunately not there yet.

A couple of months ago, I mentioned that some people might consider cashing out their IRA or retirement funds, even if it meant losing 20% of the portfolio's value as a penalty. Today, that almost looks like sound advice, especially if you're invested in an indexed fund. Since August or October, you may already be down close to that 20%. Wouldn't you rather have whatever's left in your control, rather than that of a fund manager who is likely to be chasing profits where none exist?

I am not a pessimist. I am a realist and I only present the views as a cautionary tale. If the worst is yet to come and the economic reality is more severe than most of us wish to imagine, it's far better to be forewarned than caught in the snare of an economy biting the dust.

Is sure hope my father reads this. Despite my constant warnings, he continues to play the market long and loses. I fear for his economic fate, but more for the welfare of those under 18 who don't already have a place at the table, but will be picking up the scraps.

Leading Indicators Down; Why Rebates Won't Work

The stock market got the bump it so richly deserved after dropping 600 points on the Dow over the last three days, but it was very short-lived. Shortly after
the Conference Board's Index of Leading Economic Indicators fell another 0.2 in December, the markets retreated from their highs of the day and continued to slide into the red. By 11:30 am all of the major indices were in negative territory, where they would stay for the remainder of the session.

The markets got a boost from IBM, which raised its outlook for 2008, and General Electric (GE), which reported earnings 3 cents better than expectations. The pair of blue chippers were a few of the rare bright spots.

Dow 12,099.30 -59.91; Nasdaq 2,340.02 -6.88; S&P 500 1,325.19 -8.06; NYSE Composite 8,794.86 -24.09

President Bush made a brief appearance just prior to noon, outlining his proposals for tax rebates to middle and lower class Americans. The basic idea is for the government to issue checks of roughly $800 for individuals and $1600 for families to spend as they see fit.

Wall Street responded to the president's sketchy plan by selling off further, as the street believes relief for companies, not individuals, would be more appropriate. One can understand the position of the investment crowd, though everyone would surely be thankful for an extra paycheck or two this Spring.

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The problem with handouts is that they are one-time, short-term quick fixes and will do little to alleviate the core problems facing American business, which are lack of competitiveness, innovation and job creation. Certainly, more long-term good would come from either a jobs program, capital investment incentives, or, better yet, a combination of the two. But the president and congress are hell-bent on a quick fix prior to the elections. Too bad that this plan will fall flat on its face. It's like slapping a band-aid on a gunshot wound.

Also, there's nothing in what the president has proposed that gives a break to small business, which employs nearly 75% of the nation's workforce. Tax credits for new hires or capital spending would easily be more preferable to a one-time check that many people will simply waste on DVDs, plasma TVs or other consumables.

The plan, with which congress is in general agreement falls well short on creativeness and lasting effect. In total, even $140 billion worth of direct checks to Americans is not going to solve anything. Just in case anyone in Washington, DC is paying attention, something should be done about our aging infrastructure, too.

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Consumer-based capital boosting is about as politically-inspired as the numbskulls in DC can get. And you can bet your bottom dollar that it will be self-praised as being a non-partisan effort. It's an election year and everybody on Capitol Hill wants to take credit for something.

As the trading wound through the afternoon, stocks remained solidly in the red, with every small rally immediately expunged by a fresh round of selling, as has been the case since Christmas.

Internals were predominantly tilted to the downside. Decliners clobbered advancing issues, 4064-2343. New lows expanded again and widened the gap over new highs to 1190-48. Those numbers are correct. Only 48 new 52-week highs and about 1 in 5 stocks hit a new low. And some people are still asking what stocks are good buys. Amazing.

For the week, the indices were crushed:
Dow: -506
S&P 500: -76
NASDAQ: -100
NYSE Comp: -552

Only repeated money-pumping from the PPT kept the markets from complete collapse.

Good thing Monday is a holiday and markets are closed. It will give the manipulators more time to devise strategies to delay the inevitable total market meltdown.

Oil was up 44 cents to $90.57; gold priced up 60 cents to $880.50. Silver was higher by 19 cents at $16. 09.

Volume on the NYSE was the highest of the new year.

NYSE Volume 5,924,962,000
Nasdaq Volume 2,937,191,750

Merrill Lynch Wasn't Speaking, Listening or Paying Attention

Thursday's activity on Wall Street more resembled a mad scramble for the exits than an orderly trading session. After a brief excursion into the forbidden land of UP, the major averages all fell into negative territory at 10:00 and remained there for the rest of the day.

The main driver was once again a beleaguered banking and investment outfit, this time the veritable Merrill Lynch (MER). The company ads from years bygone used to tout, "When Merrill Lynch speaks, people listen." Well, Merrill certainly got lynched today, and good, as the company posted a colossal loss of $12.01 per share, the worst in the firm's 94-year history. In actual dollar terms, the total was $9.91 billion. Additionally, Merrill wrote down $14.6 billion in bad debt, mostly mortgage-related.

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Wall Streeters took notice, slamming the stock down to $49.45 (-5.64), a 10% haircut.

During the morning affairs, Fed Chairman Ben Bernanke spoke to Congress about the condition of the economy, wryly stating the obviously false: that the Fed thought the economy would not fall into recession, rather that growth would be slow.

On the other hand, the chairman urged congress to swiftly propose and pass "stimulus" legislation, and those remarks obviously rattled traders as stocks began to tumble as he spoke.

Also contributing to the steep declines, the Philadelphia Fed regional manufacturing survey came in at -20.9, its lowest number since October 2001, and far below the consensus estimate of -1.5. Any negative number reflects a contraction in manufacturing in the region, and this number was serious.

Dow 12,159.21 -306.95; NASDAQ 2,346.90 -47.69; S&P 500 1,333.25 -39.95; NYSE Composite 8,818.95 -254.48

The extent of the carnage was obvious, even to the most casual observer. All of the major indices fell to levels not seen since last March, and, in the case of the S&P 500, the close was the worst since October, 2006.

Certainly, the worst is not nearly over for the US economy nor for stocks. While in November of last year, there were those doubting that we were looking squarely at a market correction, we find today these same types doubting the existence of a bear market.

Let's get one thing clear, right here, right now: We are in the beginning of the second stage of a serious bear market. The second stage (the one we are currenlty in) is where the steepest losses occur.

The next 6-9 months will be extremely challenging to anyone who is either holding or buying stocks for gains.

Only nimble traders playing bounces or astute market adherents going short or playing puts in the options markets will come out of this period unscathed.

On the day, declining issues trampled advancers, 5189-1195. This is not yet at the preferred washout level of a 5-1 or better ratio, so the indication is still heavily biased toward continued losses. New lows, which have held sway consistently over new highs every day save two since October 31, 2007, expanded again. There were 848 new lows to 78 new highs.

In the commodities market, oil eased again, losing 89 cents to $90.13. Gold lost -2.60 to $877.30, while silver dropped 9 cents per ounce to $15.81

With most of the severe investment bank earnings losses now out of the way, the market may be able to take a bit of a breather on Friday, but don't bet the bank on it. This is the worst environment for investors to chase gains and any upward movements will be met with waves of concerted selling.

NYSE Volume 5,536,065,500
NASDAQ Volume 2,836,430,000

No Respite Supplied by Powerless PPT

Traders wore their fingers to the bone on Wednesday in a wickedly volatile session.

The major indices see-sawed their way from losses to gains, but eventually fell prey to the relentless bears stalking Wall Street.

During the session, the Plunge Protection Team (PPT) swung into action on at least two separate occasions, though their presence was evident in the severe swings heading into the close.

On the day, the Dow was both up and down more than 110 points, while the NASDAQ - which spent the majority of the day in the red - swung from a loss of 56 points to a gain of 12, before sellers finished off the techs into the close.

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While the Dow's blue chips were the least affected on a percentage basis, the last half hour was particularly vicious to, as the Dow sold off 115 points heading into the 4:00 pm close.

Dow 12,466.16 -34.95; NASDAQ 2,394.59 -23.00; S&P 500 1,373.20 -7.75; NYSE Composite 9,073.43 -98.74

What investors are trading are all of the ominous signs of recession. Corporate earnings estimates have been slashed - not only in the financial sector, but in consumer discretionary (retail) and technology as well - inflation roared back in 2007 at a pace not seen since 1991 and there seems to be no end to the troubles in the housing and credit markets.

Amidst the chaos, the PPT and the Federal Reserve fight valiantly against the natural forces at play. The economy has either slowed, is frozen or retreating, and all of the money the Fed prints and sends to its agents in the markets does no good. Every rush of buying is followed by vigorous selling.

Most of the carnage was done in the broader markets, with the NASDAQ and the NYSE Composite losing 0.95% and 1.08%, respectively.

Advancing issues actually surpassed decliners, 3324-3070, though new lows maintained their wide gap over new highs, 737-90. All indications suggest the bear is just beginning to show its teeth and a losing bias should be the norm at least until the Fed meeting on the 30th.

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Anyone looking for a bounce after weeks of ravaging is engaged in just so much wishful thinking. The only hope for any kind of positive trend will come on January 30 when the Fed is expected to trim the federal funds rate 50 or 75 basis points.

However, the Fed, like the PPT, is nearly powerless to prevent a full-blown market meltdown as investors shed stocks like worn our shoes. Volume was extremely heavy, nearly matching January 9 as the highest volume session of the year thus far.

Tomorrow could prove to be the bloodiest day yet, as Merrill Lynch (MER) will announce an expected loss of $4.57 per share for the 4th quarter of 2007 prior to the market open. Should Merrill's losses exceed the already ghastly expectations, a 150-point gap lower at the open could occur. Additionally, with options expiration on Friday, volatility should be equal or more erratic than today.

NYSE Volume 5,336,274,000
NASDAQ Volume 3,391,137,750

Stocks Slammed; CitiGroup Loss Worst Ever

The destruction of corporate America continued unabated on Tuesday fueled by a nearly $10 billion 4th quarter loss at Citigroup (C), the worst quarterly loss in the company's 196-year history.

The far-flung financial services empire took write-downs of $18 billion on bad paper, mostly mortgage-related, and cut its dividend nearly in half. All of the bad news was reported in the company's 4th quarter earnings statement, released prior to the market's opening bell. The company lost $1.99 per share in the quarter.

Citigroup closed down 2.12 (7.3%) at 26.94 as it announced plans to raise $14 billion from government-owned investment trusts in Kuwait, Singapore and the state of New Jersey, and cut an additional 4,200 jobs. The dividend was cut from 54 cents to 32 cents and Standard & Poor's cut the bank's credit rating.

Aghast at the numbers, Wall Street trembled, and sold off throughout the session.

Dow 12,501.11 -277.04; NASDAQ 2,417.59 -60.71; S&P 500 1,380.95 -35.30; NYSE Composite 9,172.17 -267.17

But Wall Street's woes do not end at CitiGroup's doors. More financial firms, including Merrill Lynch (MER), Washington Mutual (WM), Wells Fargo (WFC) and J.P. Morgan (JPM) on Wednesday and Thursday of this week. Adding to the downbeat tone was the reported -0.4% retail sales for December. It was the worst holiday season for retailers in recent memory and the worst showing for retailers in six months.

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After the bell, Intel (INTC) reported profits of $2.27 billion, or 38 cents per share, up from a profit of $1.5 billion, or 26 cents per share, in the same period a year ago - a gain of 51%. But the chipmaker missed its own sales forecast and investors took the opportunity to punish shares by 14% in after-hours trading.

In the broader market gauges, declining issues held sway over advancers to the tune of 4799-1556, a better than 3-1 ratio. New lows once again expanded, to 796. There were only 79 stocks posting new highs.

The Dow bounced off the key 12,500 level just after 3:00 pm, rallied over 100 points, but gave it all back in the final half hour.

Certain that stocks are headed still lower and the economy is either already in recession or headed for one soon, there was little buying save for short-covering.

From a technical standpoint, the Dow has made a triple bottom breakdown, with no visible support until the 12, 100 level. The Dow has lost over 1000 points since Christmas 2007 with no end in sight.

What can be expected in the near future is a pattern of stocks being sold off regardless of their earnings reports. While companies showing poorly will surely be beaten down worse than their competitors, even positive results are going to be met with disdain and vicious selling.

In the longer term, a 33% retracement from the highs in October would bring the Dow to about 9550, the NASDAQ to 1875 and the S&P to 1050. While those numbers are probably not going to be exact, they should be kept in mind as guideposts to the ravages of the current bear market.

The actual time and date of the bottom cannot be fathomed, a time-frame somewhere between August and November would seem reasonable, though the bear market could easily extend well into 2009. The failing economy should propel voters to repudiate the Republican administration and sweep Democrats into power. The emotional response may take some time to actually reveal itself in stocks, as will bona fide changes in government to begin making substantive changes.

There is no doubt that stocks and investors are headed for hard times, but it is exactly during these times that bargains can be found and fortunes made as well as lost. The best advice is to stay out of the market or maintain short positions until there is an actual reversal of the primary trend. That will be reported right here on this blog. No other source should be trusted, except that of the Dow Theory Letters, published by Richard Russell, the preeminent market analyst of our day.

Oil closed down $2.30 to $91.90. Gold and silver recorded marginal losses.

NYSE Volume 4,561,016,500
NASDAQ Volume 2,440,952,250

Bump for Stocks Short-Lived ?

Monday's reaction rebound was delivered courtesy of IBM, which announced earnings that beat street estimates prior to the market opening. Stocks bounded clear of the break-even line at the opening bell and remained in positive territory throughout the session.

There is some doubt concerning the strength of today's rally, due to persistently disturbing underlying factors and the absence of volume, which was markedly lower in the wake of Friday's sell-off.

Dow 12,778.15 +171.85; NASDAQ 2,478.30 +38.36; S&P 500 1,416.25 +15.23; NYSE Composite 9,439.31 Up 91.84

While Monday was mirthful, Tuesday promises to be a challenging day, with a series of economic reports - Retail Sales, PPI, NY Empire State Index for January and Business Inventories for November - all to crash the market party by 10:00 am.

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Corporate earnings will also add to the intrigue. Genentech, Inc. (DNA) reports after the bell on Monday, and CitiGroup (C) reports prior to the open and Intel (INTC) takes its turn after the close.

While Genentech has long been the leader of biotech stocks, shares are still down 22% from a year ago. Anticipation for Citigroup is high, as is anxiety. The company is reported to be writing down somewhere in the neighborhood of $12 billion in nasty subprime debt, but the real numbers will offer more clarity to the depth of the crisis - not only for CitiGroup, but for the economy as a whole.

Intel is expected to return 40 cents per share, a 60% improvement over last year's 4th quarter. The chipmaker's stock was up nearly 5% (+1.00, 23.05) after being under severe price pressure last week.

Wednesday through Friday will focus more on earnings as more companies begin to report. Wells Fargo (WFC) and J.P. Morgan (JPM) on Wednesday, Merrill Lynch (MER) and Washington Mutual (WM) on Thursday will hoard attention until General Electric (GE) finishes the week with their quarterly on Friday.

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Advancing issues held a solid advantage over decliners, 4076-1301, but new lows continued to dominate new highs, 407-123.

Commodities continued ascendant. Oil for February delivery was up $1.51 to $94.20 per barrel. Gold reached and exceeded the $900 benchmark, rising $5.70 to $903.40. Silver added 6 cents to $16.43.

NYSE Volume 3,570,775,000
NASDAQ Volume 2,108,366,500

Wall Street Imploding over Credit Concerns

Wall Street was in retreat mode from the opening to closing bells on Friday as investors sold stocks amid an ongoing credit and banking crisis.

Today's headliners were American Express (AXP) and Merrill Lynch (MER), both of which were seen suffering the consequences of an eroding US economy.

American Express was down more than 10% as the company warned that it would miss first quarter analyst estimates due to having to bolster reserves for delinquent credit card users. Stocks of other credit card companies such as Discover, MasterCard and CapitalOne also suffered losses on Friday as panic selling took hold of virtually anything even rumored to be close to a financial, banking or credit company.

Merrill Lynch joined a growing number of banking/brokerages that are having to write off billions of dollars worth of near-worthless credit-backed paper, due to the unwinding of subprime mortgages and a gnawing mortgage meltdown which is showing no signs of abating. The company reportedly will have to write down as much as $15 billion in the most recent quarter alone. More losses may be forthcoming for Merrill and other banking/finance concerns.

There was no doubt about the direction of stocks on Friday, as the selling began at the opening bell and did not relent all day long. Investors are finally awakening to the depth and seriousness of the credit crisis engulfing the entire world economy.

Dow 12,606.30 -246.79; NASDAQ 2,439.94 -48.58; S&P 500 1,401.02 -19.31; NYSE Composite 9,347.47 -143.29

While Fed head Ben Bernanke has pretty much promised more interest rate cuts, it's becoming increasingly apparent that the Fed and

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other central banks can do little to prevent consumers from falling behind on everything from mortgage payments to credit card bills as the most basic of necessities, food and energy, continue to rise in price and eat away at family budgets. Easy credit, from 2000 though 2006, is the culprit and easing interest rates to make money even more affordable is clearly not the answer.

In the most obvious indicators that are tracked here, declining stocks beat back advancers by 4344-2020. New lows, which have consistently led new highs since November 1, 2006, expanded the bulge once again, 516-96.

From a technical standpoint, all the major indices closed at or near new lows for the new year, all within the closing bottoms put in on Tuesday of this week. The late-day Wednesday PPT-led closing rally and Thursday's Bernanke bounce were nearly completely repudiated on Friday.

Although 2007 will go down as a positive-return year for US stocks, those gains have all but been eviscerated in the first 8 trading days of 2008, and the worst may yet be forthcoming. According to the steadfast January Barometer, which is 85% accurate, the direction of stocks in January carries a strong correlation to the direction for the remainder of the year. 2008 currently looks like an iron-clad lock to be a negative one for investors, though Bernanke and Co. will have the final say when they will almost surely announce a rate cut of somewhere between 50 and 100 basis points on January 30.

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All of this has somewhat of a snowball effect. As homeowners default and banks and mortgagors suffer losses, equity investors also take a hit. When homeowners and consumers are squeezed, they liquidate assets, including stock portfolios, in order to pay for necessities. Outflows from funds accelerate and there's less money to go into stocks. A declining market is inevitable as is recession.

What's worse, our uninspired leaders in government and finance show little wherewithal in extracting us from this morass. Taking a cue from the political debate, if there ever was a time for change - and we're talking about major changes in policy and implementation - now is the time.

NYSE Volume 4,438,587,500
NASDAQ Volume 2,355,680,750

Bernanke Engineers Bullish Bolstering

After yesterday's "surprise" rally off the 12,500 mark on the Dow, today's action was a little more predictable, as apparently the fate of the US economy hangs on every word uttered by Federal Reserve Chairman Ben Bernanke.

At 1:00 today, Bernanke gave a speech at the Women in Housing and Finance and Exchequer Club Joint Luncheon in Washington, D.C. The full text of the speech was posted to the Federal Reserve web site, here.

The key points, in my view, can be boiled down to the following italicized phrases with my comments following in plain text:

More-expensive and less-available credit seems likely to impose a measure of financial restraint on economic growth.

Banks aren't being so loose with lending. Expanding a business or buying a new house? Unless you have perfect credit, forget it.

...notwithstanding the effects of multi-billion dollar write-downs on the earnings and share prices of some large institutions, the banking system remains sound.

Thanks to our friends in Aub-Dhabi, Singapore, China and Dubai, Citibank, Merrill Lynch, Bank of American and other big national banks have avoided shutting down completely.

Thus far, inflation expectations appear to have remained reasonably well anchored...

There's no inflation unless you buy gas, home heating oil or food.

...we stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks.

Are we going to cut interest rates and destroy the dollar? You bet we are.

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So there you have it. According to Chairman Ben, the Fed will cut, inflate and keep Wall Street happy until the 2008 elections. Then when we select another Republican president, we can allow everything to go to hell in a hand basket because we'll have four years to fix it, lie about it, blame it on Congress, etc. If you are a middle class wage earner. you lose. Rich investors will win. Good night.

The reaction on Wall Street wasn't exactly as the Fed had planned, though the volume was extraordinarily strong. After yesterday turned in the highest volume of the new year, today's was the best in terms of shares traded since November 8, when the Dow went on a 462-point round-trip journey.

Stocks actually struggled before, during and after Bernanke's speech, so the PPT apparently was called to action about 2:15, engineering a 200-point spike over the next hour. After that, things settled down, closing about 73 points below the day's high.

At around 2:30 news emerged that Bank of America (BAC) was in talks to buy troubled mortgage lender Countrywide Financial (CFC). Stocks took off on a tear at that point. Well, timing is everything.

Dow 12,853.09 +117.78; NASDAQ 2,488.52 +13.97; S&P 500 1,420.33 +11.20; NYSE Composite 9,490.76 Up 66.07

So, the Dow is up 350 points in just one day and two hours of trading. That's perfectly normal, but hardly indicative of either a bottom or a turn around. It's a bounce and a fairly technical one at that, though in a completely unrestricted market, the downside would have been greater and the upside less abrupt and smaller.

On Thursday, advancers took the lead from declining issues, 4060-2294. New lows contracted considerably from yesterday, though still besting new highs, 531-111.

Oil was down again, suggesting that futures traders are responding to expected slack demand in months ahead, losing $1.96 to close at $93.71. Gold, however, exploded to another new high, gaining $11.90 per ounce to $893.60. Silver went along for the ride, rising 44 cents to $16.48. Fed head Ben can downplay inflation all he likes, but don't tell that to the gold bugs. They're in the midst of a major bull run.

The next policy meeting of the FOMC is January 29/30, so expect another bounce when they decide to cut rates by at least 25 basis points, possibly 50. Until then, prepare for some serious choppiness, with a downward bias. Corporate earnings reports will be heaviest from the 16th to the 25th, and they're expected to manifest the overall sluggishness in the economy. In other words, they're not going to inspire much buying of stocks.

NYSE Volume 5,132,203,000
NASDAQ Volume 2,640,165,500

Plunge Protection Team Rescues Stocks

Take a good look at the chart on the right because you're sure to see similar examples in the near future. It is a classic example of sad, clueless, old Republican money attempting to rescue the stock market from a certain death. These are largely the same people who stole the presidency in 200 and 2004 and just last night stole the New Hampshire primary for Hillary Clinton (yes, the Clintons are nothing but brutal, slow, decadent Republicans wearing Democrat's clothes, and Hillary is far easier to defeat than a black man named Obama).

This is what happens when fascism takes hold in a country, in a stock market, in a people. The patterns become unmistakable, yet no one but the truly enlightened dare to even question. And then they are characterized as bizarre, weird, strange, deranged.

With any luck, the Dow Jones Industrials would have closed below 12,500 on Wednesday, but luck had little to do with the outcome of the day's trading. Old money, Fed money, your money was spent to make it appear that all is well, that the economy is just chugging along quite well, thank you.

Dow 12,735.31 +146.24; NASDAQ 2,474.55 +34.04; S&P 500 1,409.13 +18.94; NYSE Composite 9,424.69 +98.61

The opposite is closer to the truth. More voices, including that of Goldman Sachs senior economist Jan Hatzius, are beginning to sing in the chorus that the US may already be in a recession. Today, he joined the crowd, which already includes voices from Merrill Lynch, Morgan Stanley, Earnings Whispers, and former Bush administration economist (and one of the authors of the Bush tax cuts) Martin Feldstein, who thinks the economy may still be able to avoid a full-blown recession.

Compare and contrast that sentiment with that of St. Louis Fed President William Poole, who said that 2008 looked to be a year of rising growth and that low inflation expectations give the Fed "breathing room.

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Poole may actually be mouthing some truth, as he failed to mention any specifics. Certainly, if the 4th quarter of 2007 shows negative growth of say, -1% and the 1st quarter of 2008 is another negative -2%, if the economy actually grows by 1% in each of the succeeding quarters, then he's technically right, though Q4 '07 and Q1 '08 would still qualify as a recession.

As for "low inflation", it's apparent that Mr. Poole neither does the family grocery shopping nor fills up the family car with gas. In other words, he's nothing short of a liar.

I'm not just whistling in the dark about the Plunge Protection Team (PPT), less known as the President's Working Group on Financial Markets. This group, which includes the Chairman of the Federal Reserve, the Treasury Secretary and other top administration officials, uses real money (printed on government printing presses), channeled through brokerages such as Goldman Sachs, Merrill Lynch and others, to pump index futures when stocks are poised to collapse, such as happened today.

To get a better understanding of how dire the situation as at 2:30 pm today, declining issues were leading advancers by a 2-1 margin, but after the pumping, finished with a slight edge for the advancers, 3458-2957. The real story was in the new highs/new lows measure, where new lows expanded to an alarming 1384, to just 97 new highs. In other words, about 1 in 4 stocks recorded a new 52-week low today.

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The price of crude eased a bit today, shedding 66 cents to $95.67, while gold and silver recorded marginal gains. The close of $881.70/ounce was another record for gold.

The stakes are high in the perception game and the powers that be will stop at nothing to obfuscate the all-too-obvious truths about the general welfare of the economy. Pumping billions of dollars into markets to avoid orderly selling is only one of their weapons. There will be more jawboning from the Fed, mushy statistics, rate cuts and maybe, if they become desperate enough, a terrorist attack or war with Iran to divert attention away from the failing economy.

Eventually, however, even central bankers cannot stop the forces of the global economy and the markets will either erode slowly and quietly or in a massive, sudden catastrophic collapse. For now, it seems, the manipulators in the government prefer the latter.

NYSE Volume 5,351,031,000
NASDAQ Volume 2,894,973,500

Bear Market Confirmation (Again)

Well, if November's market collapse wasn't enough to convince you, today's massive sell-off is unmistakable.

We are officially in a bear market. And we're either already in a recession or close to being in one. In any case, the Dow Jones dropping another 238.42 points (much of it in the last hour) and closing at 12,589.07, is proof positive that the grizzlies are in complete control and we are in phase two of a major trend bear market.

Here's why:
On August 16 the Dow closed at 12,845.78.
On November 26 the Dow closed at 12,743.44.
On January 8, 2008, the Dow closed at 12,589.07.

The fact that the Dow recovered to set an all-time high (14,164.53) between the August and November lows is immaterial, because, though the index rallied in December, the high was well below the October record and now the new low is well below the November bottom.

Dow 12,589.07 -238.42; NASDAQ 2,440.51 -58.95; S&P 500 1,390.19 -25.99; NYSE Composite 9,326.08 Down 136.16

So, you can slice it any way you like, but it certainly looks like the bear market began in August, confirmed itself in November and now has reconfirmed. We are six months in and the questions now become, how low will we go and when will it end?

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Bear markets generally last 18 to 30 months, and this one is likely to be a little on the deep side. Expect the Dow and other averages to shed 34-50% of their value. A 34% decline on the Dow puts the bottom at around 9,350. It's perfectly possible, especially considering that the Dow was the least affected of all the major indices during the last bear market, which ran from March 2000 until March 2003 (36 months).

The saving grace for this bear is that while it may be deep and steep, it may not last long, though much of that is sheer luck of timing. With the presidential and congressional elections 10 months off, Americans may finally get rid of the people who caused the imbalances in the economy in the first place (the Bush administration and a compliant Republican congress) and replace them with people who may restore some fiscal and monetary sanity.

By mid to late-2009, we may be bouncing off the bottom of the abyss.

Just in case you're keeping score (and who isn't?), the Dow has lost 962 points in just the last 8 sessions and is off just more than 5% for the year. Unless there's a technical rally, or the Fed decides on emergency rate cuts soon, or corporate earnings come in better than expected, the January barometer is going to forecast 2008 as an ugly year, profit-wise.

The internals were expectedly sad. While declining issues pounded advancers, 4279-2074, the ratio was only a little more than 2-1. New lows continued to expand the disparity over new highs, 961-124. The advance-decline line was not more pronounced due to the nature of the news driving stocks down, as it was focused on the financials once again.

Bloomberg reported that Countrywide Financial (CFC), poster child for the sub-prime meltdown, was about to file bankruptcy, though the rumor was once again dispelled by the company. Still, investors took the battered mortgage bank to task, dropping it by more than 2 points to a multi-year low of 5.57.

Moody's downgraded a bunch of Bear Stearn's (BSC) CDOs and Morgan Stanley slashed its bond insurers profit outlook. MBIA (MBI) dropped 22% and Ambac (ABK) lost 17%. This was just more of financial sector eating its own, a recurring and troubling pattern.

In response to the wicked selling on Wall Street, commodities took up the slack. Oil rose $1.24 to $96.33 a barrel. Gold closed at a record, up a whopping $18.30 to $880.30. Silver also priced higher, up 53 cents to $15.83.

Amid all the pain of the last six months, a caveat and some silver lining: We are only in the beginning of this downturn and may just be entering a recession now; the good news is that fortunes will be lost while others will be made. There are certain to be incredible opportunities in both beaten down and unnecessarily-punished stocks.

NYSE Volume 4,638,535,000
NASDAQ Volume 2,563,689,500

Plunge Protection Team (PPT) Saves Stocks

The markets bounced around the even line all day, with the Dow crossing no change a minimum of 12 times, but eventually, the market manipulators won out, pumping the Dow 100 points in the final 20 minutes, magically turning a losing session into a winning one.

These kinds of moves have been seen before and are somewhat old hat. They indicate the desperate straits the markets have been in since the sub-prime crisis was uncovered back in August '07.

Since that time, the indices have bounded up and down, jostled by the conflicting forces of poor economic news and massive capital injections (over $500 billion) by the Fed and the EU central bank plus a couple of remedial interest rate cuts. Still, stocks are struggling near seasonal lows with important 4th quarter earnings on tap.

Dow 12,827.49 +27.31; NASDAQ 2,499.46 -5.19; S&P 500 1,416.18 +4.55; NYSE Composite 9,462.25 Up 30.22

This is a frightened market with little to no upside potential. The Fed tried again today to jawbone about further rate cuts, but talk of a looming recession (if not already in one) continues to dominate market and economic predictions. Interest rate cuts can only do so much, and while they may encourage lending and spending by corporations, they are seen as inflationary and damaging to the already weakened US dollar.

Monday's market ups and downs were reflected in the advance-decline line, with higher issues eking out a win over decliners, 3289-3076. The persistence of new lows dominating new highs, however, remained in place and shows no sign of a turnaround soon. There were 799 new lows and an even 100 new highs.

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While stocks were see-sawing all day, commodities traders took a breather. Crude oil for February delivery fell $2.82 to $95.09. Gold was off $3.70 to $862.00, while silver sliced off 17 cents to $15.29. The metals may have gotten a little ahead of themselves, while oil prices are responding to unusually warm weather in the Northeast, which will tamper down demand for at least this week.

While the headline on the news wires and nightly newscasts will recognize the split decision at the close, few true market watchers will doubt that more down days are in the immediate future. At some point, technicians will point out the triple bottom being put in and when traders finally capitulate - ostensibly, later this month - the second leg of this young bear market will be apparent to all.

NYSE Volume 4,136,662,250
NASDAQ Volume 2,505,137,500

Jobs Data Slams Stocks

As posted here yesterday, only a very positive Labor Department report would keep investors from continuing the selling spree that began on December 27.

The stage was set an hour prior to the market open when the December Non-Farms Payroll report on the employment situation came in far below expectations. Jobs created in the month were pegged at 18,000, and the unemployment rate was ratcheted upwards to 5% from 4.7% in November.

The expectations were for creation of 78,000 jobs, a relatively benign number, but conditions in the US, particularly in construction, manufacturing and retail, worsened during the holiday rush.

Stocks sold off dramatically at the opening bell and stayed submerged throughout the session. All major indices suffered major losses, with the NASDAQ down nearly 4%.

Dow 12,800.18 -256.54; NASDAQ 2,504.65 -98.03; S&P 500 1,411.63 -35.53; NYSE Composite 9,432.03 -223.97

To put today's losses into some kind of perspective, since the December 26 close:

• The Dow Jones Industrials are down 751 points


• The NASDAQ is down 220 points


• The S&P 500 is down 86 points


• The NYSE Composite is down 462 points

Happy New Year indeed! Looking ahead, profit statements for the 4th quarter and full year are due to begin reporting next week, with Alcoa (AA) set to kick off the festivities on Tuesday, January 8. According to most anecdotal reports, the majority of companies are expected to meet or exceed lowered expectations, with profitability in the range of high-single digits to low teens overall.

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We are on the cusp of a major market meltdown. If we are not already in a recession, we will be soon. The impact from the collapse of the housing segment, the ongoing credit convulsions in the banking and financial area and overall slack consumer spending are hitting the US economy with the force of a category 5 hurricane.

Add to that mess a lame-duck president who continues to veto anything constructive sent by Congress, eight straight years of federal deficits, nearly a trillion dollars wasted on the wars in Iraq and Afghanistan, the stubbornly persistent trade deficit, and you have the makings of a long, deep and painful recession.

Worse yet, if the federal government is allowed to follow the policies in place, we're most likely to face a nation-crushing depression with no conceivable end in sight. Thankfully, we're in a major election year and, if the USA can continue to exist until January 20, 2009, we may make it through without suffering a national disaster.

Make no doubt, the policies of two men - President George W. Bush and former Fed Chairman Alan Greenspan - have placed the United States in one of the more perilous situations of the nation's brief history. Change in leadership will come, but probably not in time to prevent huge losses on Wall Street and a good dealing of economic suffering by the general populace.

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The carnage on Friday was widespread, sparing no particular sector or industry group. Declining issues outpaced advancers by a nearly 5-1 margin, 5127-1301. The gap between the new lows and new highs widened even more, with 1035 new lows to a mere 84 new highs, a disparity not seen since the double bottom collapses in August and November of last year.

In an odd response to the massive selling on Wall Street, the major commodities also lost some ground. Oil closed down $1.27 to $97.91. Gold fell $3.40 to $865.70, while silver dropped 4 cents to $15.46.

With earnings reports beginning next week, investors should be advised that the initial three days of trading for 2008 are likely only a prelude to further declines in a year that will have many twists and turns but almost certainly ends badly.

NYSE Volume 4,139,319,750
NASDAQ Volume 2,516,319,500