Rally Takes a Breather; Congress Claws Back at AIG

Talk about choppy trading!

Today's action was a back-and-forth between the bulls and the bears, just one day removed from options expiration on a triple witching day. Stocks opened higher, but quickly fell into the red and stayed down the rest of the session, trading in tight ranges, with neither buyers not sellers gaining much of an upper hand.

With the Dow being defended at support right around the 7400 mark, the day finally belonged to the bears, which clawed the indices back near their lows of the day at the close. Considering that the close was right at the Maginot line of support, tomorrow could easily be a day for another bull run as investors take profits and stake out new positions.

The big news of the day was once again down in the Capitol, where the house voted overwhelmingly to tax the bonuses paid out to AIG employees - about $145 million of such - at a 90% tax rate, clearly crossing a constitutional line (which hasn't seemed to matter much in Washington for about 10 years now) which expressly forbids retroactive laws. In other words, with the passage of this tax, what's to prevent congress from saying anyone or everyone owes more in taxes from last year? Or the past three years?

Washington's shamefully inept management of the financial crisis is equalled only by the hubris of Wall Street executives and their business practices. In a separate hearing, it was discovered that 13 of 23 firms which received bailout money owed back taxes. Whether it matters or not, the point is that Washington seems perfectly at home with the concept of awarding not only failure at every turn, but outright tax avoidance. That's not surprising, since Treasury Secretary Tim Geithner was confirmed by the Senate with full knowledge that he had tax issues over multiple years.

Dow 7,400.80, -85.78 (1.15%)
NASDAQ 1,483.48, -7.74 (0.52%)
S&P 500 784.04, -10.31 (1.30%)
NYSE Composite 4,937.22, -38.08 (0.77%)

For the session, declining issues took back the momentum from advancers, 3281-3084. New lows remained ahead of new highs, though the margin has shrunk to a point at which it could roll over any day. There were 67 new lows and just 16 new highs.

Volume was very strong once again, with trading at a hectic pace throughout the session.

NYSE Volume 1,951,789,000
NASDAQ Volume 2,354,656,000

While investors were dithering over nickels and dimes in stocks, commodities staged a bull run of their own. Crude oil reached another high for the year, gaining $3.47, to $51.61. The precious metals had a memorable day (actually begun yesterday afternoon, following the Fed announcement that it would be buying Treasuries) with gold ahead an outlandish $69.70, to close at $958.80, and silver ahead by $1.59, to $13.52, a 13% gain. Obviously, gold bugs view all of the bailout money being thrown around as highly inflationary, and, of course, they are correct. It could take two years for the effects of the mountains of credit and cash created in the past six months - with more to come - but surely there will be an aftereffect which will send the cost of goods to the moon.

It hardly seems worthwhile to make investments at this juncture. The stock markets are stuck in a bear-edged range for the short term and have nowhere to go but down in the long run. It's a trader's market, which apparently pleases Wall Streeters and the Washington enablers just fine.