Labor News Gloomy; Stocks Lose Value

The word best fit to describe the current US labor situation is "grim."

Nonfarm payrolls fell by 63,000 in February, the worst monthly decline since March 2003 and well below the expected creation of 25-35,000 jobs. Further, January's payroll decline of 17,000 was revised lower to 22,000.

Meanwhile, the geniuses at the Federal Reserve, those brainy masters of all things economic, have no clue how to stem the rising tide of foreclosures, credit strangulation and runaway inflation. Instead, they're content to "milk" their way out of a serious liquidity and confidence crisis that has only worsened since August of last year. The Fed is increasing the amount of securities it will acquire from banks – via its Term Auction Facility (TAF) – to $100 billion this month vs. the previously announced $60 billion.

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Since December, the Fed has loaned $160 billion to banks via the TAF and the results thus far have been nil, excepting, of course, the fact that certain financial institutions have been precluded from sheer liquidation by borrowing more money.

The Fed's actions can be viewed as somewhat futile considering the depth and scope of the overall economic condition in the US. Americans have saved nothing for 20+ years, the banks went on borrowing and lending - often to individuals and corporate entities that hadn't a shred of good credit standing - and now the defaults are piling upward and onward.

All the Fed is doing is extending the time the banks have until they themselves admit their wrongdoings, take their losses and - for some - close up shop. The short list of major banks on the brink of failure include Wells Fargo, Citibank, Bank of America, JP Morgan Chase, Wachovia and Merrill Lynch. Smaller, regional banks may begin failing sooner as their access to credit markets continues to be impaired. Within 3-6 months, bank failures will be making daily headlines.

Here's a handy list of the 150 largest US banks which will serve as a scorecard later this year.

The early reaction by investors to the labor report ensconced in a shroud of other bad economic news, was, in a word, implausible.

After the expected opening dive, the indices all turned positive by 10:00 am and less than an hour later were sporting healthy gains. The NASDAQ was up a full percentage point and the Dow had tacked on more than 50 points.

Naturally, the artificial euphoria couldn't and didn't last, and by 11:00 am nearly everything was heading lower, the averages continuing their journey of the down slope.

Dow 11,893.69 -146.70; NASDAQ 2,212.49 -8.01; S&P 500 1,293.37 -10.97; NYSE Composite 8,676.24 -89.17

Considering the depth of the labor report, the losses were somewhat contained by the usual late-day upticks, which boosted the Dow more than 100 points off the intraday low. Still, the Dow recorded its lowest close of the year, and the worst since October 12, 2006.

These kinds of comparisons to the past are useful for a little bit of perspective, since life in the USA was a little bit better in 2006. At least gasoline and food prices were lower, the economy was creating new jobs (albeit not good ones, but jobs nonetheless) and home prices were still rising.

Of course, that last caveat is what caused most of the disaster we face today, so the perspective is useful for market trackers, but the conditions are vastly different. Stocks were rising in 2006, as they generally did since the Spring of 2003.

The next support area to be tested on the Dow is a range between 11,635 and 11,670, the near-term intraday low and a top from May 11, 2006, respectively. After that, there's an area of congestion between 10,250 and 10,750, which will likely be where the Dow settles in for the summer of '08.

During that period, we will surely hear plenty of calls for a bottom, though it's unlikely that the bear market will be played out in just 10-12 months. Expect a short term respite during the middle of the year with a resumption along a major decline line following the release of third quarter earnings in October. By that point, comparisons will be easier to make, a change in the presidency and in Congress may offer some relief, and by the end of '08 there may be some reasonably encouraging news. It's unlikely that we'll be out of the woods as a nation and in the stock markets before the first or second quarter of '09 - and that prediction may be overly optimistic.

How soon the economy is righted depends largely on a wide swath of factors, but the most important are the Fed, the fall elections and how quickly America purges both the corrupt practices in the government and on Wall Street and the gargantuan losses incurred by the decrepit banking system.

On the day, declining issues trounced gainers, 3959-2307. New lows widened their edge over new highs, 844-62. Since the number of advancing issues was still somewhat respectable, the obvious direction is lower still. Not until stocks are completely hammered down, when advancing issues only account for 10% of all shares traded will we begin to comprehend how severe the recession (the one we're either already in or about to enter) will be. Until then, investors, economists and analysts remain largely in denial.

Oil backed off 32 cents to close at 105.15. Gold finished down $2.90 at $974.20. Silver gained 3 cents to $20.25. Pre-1965 quarters (90% silver) are now worth roughly $18.00. The smaller, lighter quarters jangling around in your pocket are still worth 25¢, but that value is dropping fast.

It wasn't a good week to own stocks. The Dow, for instance, lost 372 points, but investors can take heart in the knowledge that some weeks ahead will probably be worse.

Peace. Out.

NYSE Volume 4,216,124,500
NASDAQ Volume 2,332,342,000