Crash Part Two: Retest Lows and Go Lower

Stocks continued their decline on Wednesday, a pattern that is retracing the meteoric rise from October 27 to November 4, which saw the Dow rise by 1450 points in just six sessions. At the close today, the Dow has erased all but 107 points of that gain - all in just another six sessions.

Volatility, anyone?

What's occurring in the markets is simply the readjustment that comes after decades of credit creation and now, the resulting collapse of the economic forces that find the increased money flows to be unsustainable.

Over the past 20 years, the US, and to a larger part, the world, economy was blown out of proportion by easy money via various central banking maneuvers. Now, those same central bankers are scrambling to keep the level of money flow intact (impossible) and the conditional economies on a growth path (also impossible).

The natural development of a monetary implosion which we are now witnessing is probably something to be very afraid of, if you are on a career path, have a high-income job (or any kind of job for that matter), or have investments in stocks that were earmarked for retirement, college or some future planned event.

Your money is quickly evaporating before your eyes while central bankers continue to create money out of thin air which is also predestined to evaporate. We are now in the second phase of an historic market crash - in slow motion - where investors re-evaluate all positions and asset values continue to decline. And they will continue to decline for some time, until world governments discontinue their meddling in what used to be free markets.

If, on the other hand, you are poor, but without any severe debt or health issues, you will be comparatively better off if only because everything - from gas to clothes to cars to food to housing - will continue to become more and more affordable, assuming, of course, that your pittance of a salary or income remains the same.

Dow 8,282.66 -411.30; NASDAQ 1,499.21 -81.69; S&P 500 852.30 -46.65; NYSE Composite 5,320.70 -313.67

Call it what you will, this recession, depression, adjustment is going to last longer than anyone - including myself - had planned. Some otherwise sensible economists are calling for improvement by the second half of 2009, or, in other words, a year from now. That's being overly optimistic, in my view. The extent of the damage from fast money - both in its easy credit form and now the rapid disappearing of same - is likely to be more severe than almost anybody can imagine.

On the day, stocks were hammered across the board. Declining issues beat out advancers by the widest margin of the week (and Monday and Tuesday were fairly large gaps), 5754-735, an 8-1 ratio. New lows expanded the distance between themselves and new highs to 1120-11. All this data is telling us that the retest of the October 27 lows are on pace and continuing.

Volume increased slightly, for the second straight day, setting up for more declines on higher volume as the week winds down.

NYSE Volume 1,455,420,000
NASDAQ Volume 2,184,735,000

Commodities took another turn for the worse, as they should, keeping in line with the general theme of declining asset values. Crude oil for December delivery fell another 5%, by $3.17, to a two-year low of $56.16. Gold lost $14.50, to $718.30 and silver dropped 33 cents to $9.48.

Outgoing Treasury Secretary Paulson made some statements today which confirmed that he has had and continues to have no clue of what he is doing or has already done.

This statement, ""And to adequately reform our system, we must make sure we fully understand the nature of the problem which will not be possible until we are confident it is behind us," says it all.

That $750 billion bailout, or TARP, as those on Capitol Hill like to call it, is a complete and utter failure thus far. As many already understand, throwing more money at failing or already failed institutions or businesses just exacerbates the problem by rewarding bad behavior.

Free markets require free thinking and the freedom of markets to destroy businesses which are no longer necessary, competitive or otherwise functional. Government meddling will only make matters worse, which we're about to find out, again.