Market Dips Disguising Systemic Woes

For the second straight day, US equity markets mostly erased earlier losses and avoided facing the reality everyone owning stocks already knows: we're doomed.

High oil and gas prices continue to fuel unrelenting inflationary pressure which is putting pricing pressure on all manner of finished goods. From flooring to pastries, everything produced requires energy and transportation, and costs are spiraling out of control.

At the root of the dilemma is a stubborn Federal Reserve, which adamantly refuses to hold the line on interest rates in the face of screaming, double-digit inflation, instead focusing on "restoring growth" or "preventing recession" as its main objective.

Speaking before a banking group in Florida today, the Chairman expressed a need for banks to do more to prevent foreclosures. "Reducing the rate of preventable foreclosures would promote economic stability for households, neighborhoods and the nation as a whole," he said.

Bernanke went on to provide a solution that would be seemingly unpalatable to bankers in particular, saying, "Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure.''

In other words, Bernanke is asking the banks to forgive a portion (principal) of loans made to shaky buyers in the first place. Considering the sheer naivete of making such a remark to an audience of bankers, it's amazing that the chairman wasn't laughed out of the room.

One would imagine the normal response from any banker worth his salt would fall somewhere between "fat chance" and uncontrollable laughter.

On the other side of the ledger are responsible Americans who view such a bailout for delinquent homeowners a reward for bad behavior.

Underscoring the Chairman's remarks is the growing understanding that the housing predicament is not going to resolve itself and that it remains a considerable drain on the economy.

Meanwhile, the dollar continues to sink against other currencies, and especially against the price of oil, which oil ministers say is not their fault, but due more to the shaky US economy. It's a viscous cycle, and the evidence suggests Bernanke - and his henchman at Treasury, Hank Paulson - has no viable solution.

Dow 12,213.80 -45.10; NASDAQ 2,260.28 +1.68; S&P 500 1,326.75 -4.59; NYSE Composite 8,891.45 -78.94

Stocks sank on the news, then miraculously regained 3/4 of their losses by day's end. The continuing cycle of trimming losses late in the session has just about run its course. Not even the most adroit trader can fight the headwinds blowing against US stocks right now. Another significant downturn is currently more certain than ever.

While the headline closing prices may not be startling at all, the internals are eroding at a quickening pace. Declining issues thumped advancers again, 4058-2227. New lows New lows expanded the gap over new highs, 592-79.

Commodity traders took profits, sending oil lower by $2.93 to $99.52. Gold dropped $17.90 to $966.30. Silver shed 34 cents to $19.84.

The Dow, down more than 200 points at 2:00 pm, touched an intraday low of 12,032, its lowest point since January 23, another sign that capitulation is not far removed from the minds of burdened investors.

Those same investors will have plenty of data from which to extract any fragment of hope. ADP Employment, revised 4th quarter productivity numbers, factory orders, ISM Services Index and crude inventories are all on Wednesday's economic calendar. At 2:00 pm, the Fed's Beige Book, with minutes from the February meeting, is released.

And the week isn't even half over!

Hint: Friday prior to market open is the release of the monthly US labor report.

NYSE Volume 4,757,187,000
NASDAQ Volume 2,692,600,500