Friday, May 29, 2009

Bad Is Good, Less is More, Failure is Success

My Orwellian title for today's post stems from a belief that our national economy has gone fully bust, bankrupted by policies which favored financial manipulation and "wealth creation" over actual financial profit in a more traditional sense: by labor, production and industry.

The US economy is on its death bed. Actually, it has been lying there on life support for nearly two years now, since the initial failure of two obscure Bear Stearns hedge funds sent shock waves through the world financial system. (I should note, without any pleasure, that the US financial system is locked into the larger, global system to some degree, though far less than 100%, so that when the US fails, other countries will also take a hit, some more than others.)

Since that time in July of 2007, when Bears' High-Grade Structured Credit Strategies Enhanced Leverage Fund and High-Grade Structured Credit Strategies Fund imploded, leaving investors with nothing and freezing credit markets worldwide, the US economy has suffered its worst decline since the Great Depression of the 1930s.

Rescue efforts by former Treasury Secretary Hank Paulson, current Secretary Tim Geithner and Fed Chairman Ben Bernanke have succeeded only in stopping the bleeding temporarily. These doctors of finance have yet to address the real cause of the malady: the toxic assets in collateralized debt obligations (CDOs), credit default swaps (CDS) without sufficient capital to underwrite them and various frauds in commercial banking from the "miracle" fractional reserves" to interest rate manipulation.

Worse yet, these government pretenders have been completely bought off by the criminal syndicate at the root of the financial crisis: the largest banks and brokerages populating the canyons of Wall Street, headed by Goldman Sachs, JP Morgan Chase, Bank of America, Citigroup, Wells Fargo and, of course, AIG.

These companies are essentially insolvent and bankrupt, brought down by the very derivative trading by which they enriched themselves for many years. The same securitization markets which underpinned - and eventually undercut - the US financial system remains in place, and, in an odd bit of alchemy, the surgeons are attempting to revive the patient by administering an unhealthy dose of the same medicine while felled it: more debt, more credit, more exotic, intractable, indiscernible financial instruments. With this kind of financial witchcraft at hand, the actual death of the US financial system will come in due course, most likely within the next two to three years, if not by the end of this one.

It was reported yesterday that 12% of all mortgages nationally were in some stage of trouble in the first quarter, either in foreclosure or past due by at least one payment, a record high. Unemployment is largely cited at 9%, though the real figure is likely closer to 12 or 15% when people who have exhausted their unemployment insurance are included in the calculations.

These numbers point out that the economy - despite mainstream media's contentions - is continuing to contract, decline, or, to put it into realistically stark terms: fail. Look up and down your street and there's probably one or more homes in which the occupants either have recently lost their job or have fallen behind on mortgage payments. And those numbers are more likely going to increase over the next 6, 12, 18 months. At some point - and remember, these people are also not going to be paying income and property taxes any time soon - you have to face reality. Am I going to be the only person on this block paying my mortgage and taxes? And why should I when the government is bailing out those who cannot meet their obligations with borrowed tax dollars?

Which brings us to the Orwellian part of this discussion: the sooner everybody defaults on either mortgage or tax obligations, the sooner the corrupt bankers and politicians can be uprooted, disposed of, dethroned, defrocked and demolished and a new economy can supplant the bad one. We are getting closer to that reality daily. When unemployment reaches beyond 20% and foreclosures are running at a rate similar, we'll be on our way to destruction, resolution and resurrection.

Regular people outnumber politicians and bankers in this country by a level of probably 1000-1. Surely we can muster the will to put an end to their borrow-tax-spend-lend tyranny? Or can we? Bad, defaulting on your mortgage, is good. Less, as in debt, is more, as in freedom. Failure of the financial system as currently structured will result in Success of the American experience.

The stock market today did what the economy has been doing for the past year: nothing... at least until 3:30, that is. Now, the fraud and deceit of such blatant manipulation can be seen first-hand. Stocks vacillated along the unchanged mark all day long until the final half hour of trading. Did everyone suddenly find reason to buy stocks with both hands shortly before the weekend commenced? Or did insiders decide it would be practical to end the week on a high note, knowing that the insipid media would carry only the final numbers and ignore the fact that ALL OF THE GAINS WERE IN THE FINAL HALF HOUR OF TRADING? The major dealers who did all this buying will no doubt be unloading the very same shares early next week to unsuspecting, sheep-like, retail investors.

You be the judge. Our economy is dying, if not already dead. Wall Street is an absolute Ponzi scheme on steroids, boosted by the bankers and winked at by government regulators and politicians. Until these scoundrels are unearthed, tried and imprisoned, we are their slaves.

Dow 8,500.33, +96.53 (1.15%)
NASDAQ 1,774.33, +22.54 (1.29%)
S&P 500 919.14, +12.31 (1.36%)
NYSE Composite 6,004.07, +87.01 (1.47%)

On the day, advancers beat decliners by an obvious margin, 3652-1837, though new lows maintained their advantage over new highs, 84-77. As close as that margin has gotten this week, it has yet to roll over, and, unless there is some kind of miracle cure for the economy - as GM heads to bankruptcy - it won't. Volume was slightly higher than the depressed levels which predominated the week, though that alone is without meaning.

NYSE Volume 1,854,219,000
NASDAQ Volume 2,524,330,000

The commodity rally continued apace, with oil shooting up another $1.23, to $66.31; gold rising $17.10, to $980.30, and silver gaining 45 cents, to $15.61.

Everything's going up, which really shouldn't happen in a balanced economy, but it is. George Orwell, wherever he is finally resting, is having a good laugh at our expense.

Thursday, May 28, 2009

Stocks Gain, but Clouds Are Forming for Rally's End

In another lackluster session, stocks gained widely on Thursday amid mixed economic news. Prior to the market opening, newly-released unemployment figures showed new claims at 623,000, slightly below last week's revised 636,000, though continuing claims reached another record - 6.788 million - for the 17th straight week.

Data on new home sales for April from the Commerce Department offered little in the way of excitement in either direction, rising 0.3%, an annual pace of 352,000, still well below historical norms.

What really captured investor attention was the $26 billion auction of 7-year Treasury notes, which was better-received than anticipated. After bond prices had fallen precipitously over the past few weeks due to concern of oversupply of government debt, the 10-year note actually rose, dropping yields to more palatable levels... for now. There is still worry that the enormous amount of borrowing the US government will be engaged in over the coming 12-16 months will cause yields to rise, crowding out private investment and making bonds an attractive alternative to stocks.

As explained in yesterday's post, the result of higher interest rates would not only stunt any recovery efforts, but would also be largely inflationary. It's nearly a foregone conclusion that interest rates will rise and inflation will follow, the only unanswered questions are how high and when these events will occur and how severely they will affect the economy. For today, at least, the answers remain mysteries, though the sentiment appears positive. Expect more of this kind of choppy day-to-day activity in the markets for the time being.

Eventually, however, stocks are doomed in the near term, as p/e ratios on the S&P 500 have reached extreme highs and dividends have reached extreme low rates of return. It will take some time for the Wall St. sharpies to unload their recent purchases onto the unsuspecting public, but another round of market shock is surely in store for the average 401k investor.

Dow 8,403.80, +103.78 (1.25%)
NASDAQ 1,751.79, +20.71 (1.20%)
S&P 500 906.83, +13.77 (1.54%)
NYSE Composite 5,917.06, +93.50 (1.61%)

Advancing issues decisively took back control from decliners, 3988-2463, though new lows continued their domination over new highs, 66-47. Volume was only slightly better than the first two sessions of this shortened trading week, an insignificant reading for now.

NYSE Volume 1,368,613,000
NASDAQ Volume 2,237,013,000

In the commodities markets, oil continued its seemingly unstoppable ascent, gaining another $1.63, to a multi-month high of $65.08. with the price of oil rising as dramatically as it has over the past four-five months (more than $25 per barrel) the question of just how much strain it puts on the general economy has to be asked. Every additional dollar spent on gas for regular transportation is another dollar taken out of circulation in the consumer-led economy. Eventually, high gas prices will do more damage to any recovery - if one ever does occur - than high interest rates or bad tax policy. It's absurd to think that Americans can survive 9%-and-growing unemployment and high gas prices. Oddly enough, gas (and in a more general sense, all energy) prices are the sacred cow neither the administration nor the congress will address properly. Tighter control on energy prices would be a major step toward getting the economy out of recession and the lack of oversight is proof that the federal government is not really serious about future growth, only about their future electability.

As the government diddles along without any general direction, the precious metals have been staging another powerful rally since late March. Gold gained again, up $8.00, to $963.20, as was silver, up 30 cents, to $15.16. The rally in metals and higher bond yields are screaming that the equities rally has stalled and is about to roll over. Stocks cannot remain at these unrealistic levels much longer, especially with slower summer months dead ahead.

Wednesday, May 27, 2009

Bottom Falls Out As Bond Yields Surge, GM Bankruptcy Looms

There's a problem with the government borrowing trillions of dollars to finance its various bailouts, stimuli, military and domestic operations. All that money has to come from somewhere and somebody, and the buyers will undeniably demand higher yields.

That became evident today as the government auctioned off $35 billion worth of 5-year notes. Stocks traded in a narrow range, with the Dow consistently below the unchanged mark and the NASDAQ trading marginally in the green, up anywhere from 5 to 12 points in the morning and early afternoon. At 1:30 pm, however, the bid fell off on all exchanges as the Treasury auction wrapped up. While the Wednesday auction was well-received, speculation was widespread that an oversupply of US government debt would have deleterious effects on any kind of recovery. Treasury is selling $26 billion of 7-year notes on Thursday.

The Dow dropped more than 150 points from 1:30 pm to the close of the session.

Dow 8,300.02, -173.47 (2.05%)
NASDAQ 1,731.08, -19.35 (1.11%)
S&P 500 893.06, -17.27 (1.90%)
NYSE Composite 5,823.56, -113.02 (1.90%)

As bond prices fall, yields rise, making bonds a more attractive alternative than stocks. The other effect of rising yields is that of making loans more expensive, especially for mortgages and autos. Higher interest rates threaten any recovery, whether one is in the cards for later this year or not. They are also by nature inflationary, adding cost at the producer of the supply chain.

In the short run, higher interest rates and inflation is exactly what the Federal Reserve and Treasury are after. Deathly afraid of the long-run effects of deflation, all of the various deficit-spending plans and aid to business and state governments have been designed to keep the bubble from bursting, to reflate the economy with massive infusions of currency and debt.

The problem for the best and brightest in Washington is that they can't have it both ways. The natural process of business failure, austerity and reallocation of assets - though inherently deflationary in the short turn - would have been painful, but swift and healthy long-term. The actions taken by the Fed and Treasury, designed to rescue failing institutions and keep government spending at current growth levels, have proven to only prolong the recession and threaten any incipient recovery with now-evident, profoundly inflationary aspects.

Another specter of massive government borrowing is the crowding out of private investment. Monied interests are likely to trend toward the safety of Treasuries rather than taking riskier positions on corporate issues. That also is an impediment to private sector growth, from which any recovery must spring.

Clearly, it is time to re-examine the efforts of the Fed and the Obama Administration. It's been four months since the inauguration, and, despite widely-reported "green shoots" and "positive signs" of the recession slowing, there is still no hard evidence that the economy will be in a recovery position later this year. All along, the American public has been told that the recession would be over by the third or fourth quarter of 2009, but, with those dates fast approaching there has been no job creation, no meaningful middle class tax break, and no stopping the continuing decline in home prices nor stemming the wave of foreclosures that has now become mainstream.

Government intervention in the economy has produced nothing except a temporary reprieve for insolvent banks and for the banking system as a whole, while adding mountains of debt to the already unserviceable load in place before the crisis. The federal government will eventually end up owning most of the largest banks, the auto companies and various other "too big to fail" industries. All of this is predicated on the notion of keeping the economy on a firm footing, meaning keeping hundreds of thousands of overpaid autoworkers at make-work jobs while nobody is buying autos, and bankers counting their billions without lending any to suffering small businesses.

The Federal Reserve has already bought up more than $160 billion of Treasury issuance. They've committed to buying a total of $300 billion, but there's no doubt that they'll have to pony up much more than that in order to keep the economy adrift. At some point, the wisdom of piling up even more massive debt has to be brought into question. That point may come sooner than anyone expects. Bond auctions in the UK and Germany have already failed, with a paucity of buyers for government debt instruments. The same could have already occurred in the US, had the Fed not engaged in its policy of quantitative easing. that is, buying up the debt with money created out of thin air.

It's a policy doomed to failure, as has been the case forever and ever, so be prepared for massive disconnects in the market, an absence of valuation rigor, inflation and deflation at the same time in different areas, and an overall failed economy which will finally bottom out sometime in 2011 or 2012, and not a moment sooner.

NYSE Volume 1,335,881,000
NASDAQ Volume 2,166,732,000

On the day, declining issues overwhelmed advancers, 4246-2227, wiping out most of Tuesday's illusory gains, and new lows maintained their long-standing edge over new highs, 68-62. Volume was only slightly better than yesterday's subdued level.

Oil gained $1.00, to $63.45. Gold gained a dime, to close at $955.20, while silver recorded the best showing of the metals, up 27 cents, to $14.87, an eight-month high.

General Motors executives announced that the offer to bondholders - to swap debt for common stock - met with an undue amount of resistance. This should have come as no surprise, since the company was offering bond-holders a mere 10% stake in the company, when the financiers were seeking an equity ownership position of between 50 and 60%. Instead, GM is likely to head down the same road as Chrysler, into bankruptcy, with the government ending up owning 60-70% of the company and the union picking up 15-17% of ownership. The government of Canada is expected to pick up less than 5% ownership.

in the end, the deal for GM is poorly designed, the goal only to keep from sending more than 200,000 UAW workers into the unemployment roles. There is no genuine plan to produce better autos, shave costs or limit benefits in an effort to become more competitive. General Motors will go down in history as the nation's largest bankruptcy, and the legacy will be that the US taxpayer will subsidize the jobs of hundreds of thousands of workers, in addition to paying lifetime health and pension benefits to millions more.

Existing home sales showed an increase for April, but the price of homes purchased was lower, affected by the thousands of foreclosed homes on the market. The stock of available housing continued to increase as well, another drag on home prices, which have fallen every month for the past two years running.

New home sales figures for April will be released on Thursday, along with continuing and new unemployment claims. The result of the $26 billion Treasury auction of 7-year notes will be closely monitored as well.

Today's sharp sell-off is the best evidence yet that the rally is over and stocks are set to fall and eventually retest March lows. The entire process could take as long as 6-9 months - or sooner - but the stage has been clearly set.

Tuesday, May 26, 2009

Consumer Confidence Soars, Stocks Follow Along

The Conference Board's consumer confidence index recorded its largest gain since 2003, spurring investors to bid up stocks on the first day back from a long holiday weekend.

The index rose to 54.9, up from 40.8 a month earlier. Perhaps the surge in stocks, alongside the government and media effort to talk up "signs of recovery" have Americans feeling a little better about the future. Convincing the millions out of work and those losing their homes in foreclosure actions might be a tougher task. Signs of a rebound in the US economy are hard to come by, though nobody can dispute that the pace of decline is slowing.

Therein lies the big issue. A slower decline is not the same as a rebound, but that didn't seem to matter on Wall Street, as stocks surged close to their highest levels of the past two weeks. The markets are at an interesting inflection point, approaching the interim high between the previous two lows, or a "neckline" spot on the S&P and the Dow. That interim high of 934.70 on the S&P compares to 9034.69 on the Dow, both achieved on January 6 of this year. Breaching that point would signal to Dow theorists a new bull market, though nobody is counting on that just yet. There are still too many issues facing the US economy, not the least among them falling home prices and continuing employment woes, for stocks to stage a continuing rally from this point.

On the housing front, the S&P/Case-Shiller Home Price Index appeared before the opening of the market, sparking an initial downturn on news that the nation's largest 20 metropolitan areas has suffered price declines of 18.7% in March, nearly matching February and just short of the record 19% decline against year-ago numbers in January.

Simple math tells us that unless recovery begins soon - measured by creation of 150,000 jobs per month as opposed to losing 500,000 - home foreclosures will continue to accelerate as more individuals lose their jobs and become unable to meet basic obligations. This is a far cry from the sub-prime issues of 2007-08. Rather, these are prime loans which are going to the courthouse steps in default actions.

Those looking for improvement in the employment section should note that there is no evidence of an improving employment picture and that hiring conditions today are vastly different from recessions of the 70s, 80s and 90s. So, to put matters into perspective, the usually well-off-the-mark general public envisions improvement, but the real data says that is just so much wishful thinking. By the end of this week, when GM either comes up with a viable plan to continue its business or heads to bankruptcy court, the real picture should become much more clear.

Dow 8,473.49, +196.17 (2.37%)
NASDAQ 1,750.43, +58.42 (3.45%)
S&P 500 910.33, +23.33 (2.63%)
NYSE Composite 5,936.58, +146.96 (2.54%)

Today's smashing gains were offset by low volume, suggesting that the broad advance may not have much real support. Advancers led decliners, 5135-1375, but new lows again beat back new highs, 66-57. Volume was moderate. Clearly, the major indices are headed for a critical trading spot. Another surge higher would defy most conventional logic, though this current 11-week-long rally - in which stocks have gained every week save two since mid-March - has already confounded many of the Street's most expert analysts.

NYSE Volume 1,377,798,000
NASDAQ Volume 2,079,289,000

Commodities traded in reaction to the outsize stock gains. oil edged 78 cents higher, to $62.45 per barrel for July delivery, though gas prices, recently surging past the $2.50 mark, are approaching the point at which Americans begin to conserve and tamp down demand. Gold fell $5.60, to $953.30, and silver traded 10 cents lower, at $14.60 per ounce, both of the metals taking a slight breather from their recent rallies.

Up next for the markets are existing home sales for April on Wednesday and new home sales for the same period on Thursday, along with the government's Durable Goods Orders for last month. Those figures are due out at 10:00 am on Thursday.

Friday, May 22, 2009

Stocks Stall, Silver and Gold Gain

Friday's session was one of the slowest of the year, as investors and traders mostly went through the motions of squaring positions and getting out of town ahead of the long Memorial Day holiday weekend.

Only the NYSE Composite was higher on the final day of the week, with the other major indices falling apart late in the day. Stocks traded on the positive side of the ledger for most of the day, but only with marginal gains. Volume was the lowest in at least five months.

Dow 8,277.32, -14.81 (0.18%)
NASDAQ 1,692.01, -3.24 (0.19%)
S&P 500 887.00, -1.33 (0.15%)
NYSE Composite 5,789.62, +9.08 (0.16%)

It was a near-dead heat in the A-D line, with advancing issues edging decliners, 3195-3159. New lows again held sway over new lows, 55-42. While the relatively strong number of new highs is encouraging to the bulls, the bears can rest well in the knowledge that the bear market is still firmly in place, as the high-low indicator has yet to roll over and probably won't. The question remains: how long will it take stocks to retest the March 9 lows? Bets are down that it could be as long as six months as the market struggles to find any good news on which to rebuild a rally. The chances for further upside through the summer are nil.

NYSE Volume 1,058,107,000
NASDAQ Volume 1,628,006,000

The volume recorded today indicates just how controlled and manipulated the markets are currently. Many of the big players went to the sidelines, plotting their exit strategies as we head into the long, sluggish summer months.

Meanwhile, commodities were hopping. Oil, still overpriced, rose 62 cents to $61.67. The price of crude has risen only because the major oil companies need to stick it to unsuspecting consumers. Obviously, the Obama administration and the clueless congress has no interest in making life easier for the average consumer of gasoline, or they would be railing against the world's greatest cartel, led by Royal Dutch Shell, ExxonMobil, Chevron, British Petroleum and Conoco-Phillips. The so-called "five sisters" have a stranglehold on world supply and can manipulate the price, via futures, any time they please. The annual excuse that "Americans drive more in the summer" is their rationale for the current boost.

As for real investors, concerned with protecting wealth, the precious metals have been on a tear of late. On Friday, gold shot up another $7.70, to $958.90, within hailing distance of the magic $1000 mark. Once that level is breached, it's off to the races. Gold could find itself above $1200 by year's end. Silver is also gaining on a nearly daily basis. It was up another 25 cents on Friday, reaching $14.70 per ounce. Silver's gains have actually outpaced - on a percentage basis - those of gold over the past few weeks as the correction in the gold-silver ratio ensues. When gold reaches $1200, silver will be at or above $22 per ounce.

As mentioned here on numerous occasions, silver may prove to be the trade of 2009-2012. Some are already predicting its price at upwards of $60 before the bull run is over. That's basically a four-bagger from here, so it's not too late to get in on the bonanza. It is recommended to buy physical silver, in coins or bars, as it may become useful as a medium of exchange for those of us not able to afford the pricier yellow stuff. The lid has come off the precious metals trade and there's much more demand than supply right now. As conditions worsen, that demand will only increase.

Buy gold or silver and put it away in a safe place. The metals are investments which will not easily decline in value and have intrinsic worth, unlike stocks and bonds. There's no risk of default on actual, physical metal, as opposed to paper, and that includes currency. In the final crushing defeat of the fiat currencies, holders of gold and silver will be winners and holders of the greatest wealth.

Ponder that, and remember our veterans this Memorial Day weekend.

Thursday, May 21, 2009

Something Is Amiss In the UK, USA

What happened to stocks today was truly unusual. Despite the Conference Board's Leading Indicators Index rising by 1.0% - the first gain in ten months - investors were not in the mood to continue the 9-week-long rally any further. This is what happens when markets are rigged, when large institutions control the government, the media and the majority of the trading. Stocks will not do what people think they will. It's why the rally came off the lows in March like an uncaged lion, never pulled back at any point and now is so completely overbought that there is no opportunity for buying anymore.

The lone indicator which remained constant throughout - new highs to new lows - got even on Tuesday and backed into the red - favoring new lows - Wednesday, and dipped further Thursday. It clearly has been the most accurate predictor of stock movements, having favored the new highs every day for the last 19 months except on 5 or 6 occasions. Clearly, stocks are headed lower, interest rates higher, and the US economy into the abyss.

The decline was broad and could have been more pronounced, but that is a story for another day, when there is actual news to send the market reeling and investors seeking safe havens (in bonds and gold). No, this decline, back to the March lows some 1800 points on the Dow down below, is going to be a long, slow grind which may take as long as 6 to 9 months to complete. Along the way will be fits and starts, but the end game gets closer and closer, somewhere around the summer of 2010 or spring of 2011. The US economy is dead, killed by the bankers, the Fed and the government morons who were supposed to be in charge but rather deserve nothing short of a hangman's noose.

Dow 8,292.13, -129.91 (1.54%)
NASDAQ 1,695.25, -32.59 (1.89%)
S&P 500 888.33, -15.14 (1.68%)
NYSE Composite 5,780.54, -89.85 (1.53%)

Declining issues overtook advancers, 4656-1778. New lows outpaced new highs, 59-33. Expect that gap to grow steadily over time. Volume was typical of the slower summer months.

NYSE Volume 1,437,849,000
NASDAQ Volume 2,252,413,000

Meanwhile, commodities showed their true colors. Oil fell 99 cents, to $61.05 per barrel. It is still overpriced by at least $10 per barrel. Gold gained $13.80, to $951.20 per ounce. It is headed back above $1000, probably by the middle of June, if not sooner. Silver gained again, up 17 cents, to $14.45 per ounce. Silver may be the very best investment of 2009. It could hit $30 by year's end.

Bonds were hammered, pushing yields higher, as the US dollar was knocked down in vicious trading on the Forex markets. The beginning of the end of the greenback as the world's reserve currency is at hand. Within the next two years at least a dozen municipalities will default on their debt and three or more states - New York, California, New Jersey and maybe more - will default for failure to make necessary cuts in spending and staffing.

The world has noticed that the US is full of crap, financially, politically, socially and morally. And the world is not going to take it lying down. Revenge, by the countries the US has abused, misused, bombed, threatened, and tortured, will be complete within years. If you are one of the people out there keeping your government job, hoping for the best, or, worse, not even thinking about the state of our nation, you will be caught by surprise.

Preparing for the end of the short reign of the USA as the world's superpower is serious business. And most of us are unprepared, unable to see the light, see the obvious signs and take action. Our government has been off the rails for most of the past decade, the corruption rampant and moral turpitude complete. It's not a matter of left or right, Democrat or Republican. It's all of them, together, who have misused their positions, abrogated their authority and ignored or disobeyed the laws of the land. We, the people, have allowed it, and we, the people, will pay a heavy price for allowing our government to run amok and afoul of the constitution.

The end is coming. There is little time to prepare.

Wednesday, May 20, 2009

Banks Raise Cash... Probably From Each Other

Even before the release of last month's Fed meeting minutes, stocks had been stumbling off earlier highs, but the word from the Fed did little to assuage fears that recovery may not be so swift or as robust as some had predicted.

After the 2:00 pm release of the Fed minutes, stocks vacillated before finally giving way in the final hour. Whether the decline has any meaning in the larger scheme of things remains to be seen. It was, however, the second straight losing day for the Dow, with Wednesday's loss larger than Tuesday's.

Two days do not make a trend, but there is evidence enough that stocks have reached at least a temporary apex, though that sentiment has been expressed - incorrectly - plenty of times during the course of this rally. Stocks could go anywhere, so long as the corrupted banksters are in charge. Having taken control of the federal government from the elected pols, the mighty of Goldman Sachs, JP Morgan Chase, et. al., have engineered the recent rally and have enough power to direct the stock market in any direction they choose.

The economy is a vastly different beast, controlled by real people in real cities and towns with real money, not the phony, borrowed, decrepit electronic dollars that populate the Wall Street world. That is why there has been such a dramatic disconnect between the stock market and the real economy. Wall Street has rallied 30% in recent months, while the economy continued to decline, or, at best, slowly deteriorate.

Stocks got something of a boost from news that Bank of America had raised some $13.5 billion over the past two weeks via sales of common stock. Naturally, selling 1.25 billion shares is going to be dilutive, so shares of BofA (BAC) have fallen from just over $15 per share to roughly $11.50 today. That part makes enough sense, but one really has to wonder just who it is buying all these shares. As with the TARP, TALF, and other government inspirations, word of self-dealing has never been raised, for obvious reasons. If Citi, BofA, Goldman, Morgan Stanley and JP Morgan all need to raise capital, what's preventing them from buying each other's stocks? Nothing, exactly, nothing, and in this environment, one has to assume that's what's occurring. Time will tell.

Dow 8,422.04, -52.81 (0.62%)
NASDAQ 1,727.84, -6.70 (0.39%)
S&P 500 903.47, -4.66 (0.51%)
NYSE Composite 5,870.39, -1.83 (0.03%)

On the day, advancing issues beat decliners, 3296-3179. New lows beat new highs, 76-68. Volume was once again muted.

NYSE Volume 1,651,344,000
NASDAQ Volume 2,308,490,000

Oil jumped another $1.94, to $62.04. Gold gained $10.70, to $937.40. Silver was up 16 cents to $14.28. The commodity rally may be underway, but it also may be a bit premature. In the case of oil, that's more than likely a manipulated price, since the market is so heavily controlled by the five major oil companies.

Tuesday, May 19, 2009

Wilting Green Shoots: Housing Starts at Record Low

You are being led like sheep to the slaughter.

Every day, financial information is released, most of it bad, and every day, without fail, the financial press warps the news with unfounded optimism and wraps it in a garland of rosy future predictions.

Take, for instance, how couches the low record-setting level of housing starts and construction permits in positive spin:
News that housing starts and building permits recently fell below expectations jostled participants in the early going and undermined what was a positive bias ahead of the opening bell. Housing starts during April came in at an annualized rate of 458,000, while building permits for April hit a rate of 494,000. Both marked record lows.

However, there is a silver lining to the report. Fewer housing starts and building permits means there will be fewer homes on the market, which should help clear the glut of existing homes and improve pricing.

Even Bloomberg plays the bad-news-is-good-news game. First, the Bloomberg story says, "Housing starts unexpectedly slid 13 percent..." and later offers the wisdom of Wachovia economist Adam York, who opines, “This continues to support the story that new construction probably bottoms by early summer...”

Let's take a look at these stories. First, in the spin, they point out that the bad news on housing upset the market's positive bias and "jostled" participants. Their "silver lining" reference is pure hokum: It's akin to saying that not selling out a performance of a play was good because it meant more leg and arm room for those few in attendance.

As for Bloomberg, they begin with the "unexpected" line. This is a ploy used constantly by the media. Apparently, nobody in the world expects anything bad to occur. It's not true. A daily read of my blog and a perusal of writings of people like Nouriel Robini, Jim Willie CB, Rob Kirby, Pam Martens, James Quinn, J. R. Nyquist, Paul Nolte. Mike Whitney and many others who aren't pushing an agenda reveals that there is no consensus on recovery and no gilt-lined packaging on economic data. Those who see and believe the trends and figures for what they are - signs of further deterioration - base their opinions in reality, not the fantasy that has become so popular on Wall Street, CNBC and the mainstream media.

The truth - if you can handle it - is that the economy is busted, broken, defunct, defaulted and despoiled. Sure, there will be a bottom, but probably not until mid-2010 at the earliest, and, even then, any recovery is likely to be weak. As I've been saying for some time, the Us economy is in a long-term downtrend that will last anywhere from 6 to 12 years. Standards of living will continue to decline, or, at best, not improve. This is not to say that everyone will be devastated, though many will. Americans have to make adjustments in their expectations for everything, especially their finances. Sadly, the mainstream media, Wall St., and the federal government isn't preparing the populace for the inevitability of a long, sustained depression.

Dow 8,474.85, -29.23 (0.34%)
Nasdaq 1,734.54, +2.18 (0.13%)
S&P 500 908.13, -1.58 (0.17%)
NYSE Composite 5,872.22, +6.35 (0.11%)

Advancing issues outdid decliners, 3682-2760. New highs finally caught new lows, at 61 apiece, for only the sixth time in the past daily readings in 19 months. Volume was moderate. The rollover of new high-new lows is expected to be short-lived. The markets can only remain at these elevated levels for a short period before insider selling takes stocks back down to near March lows, and then, lower. While I don't possess a crystal ball, I do know that the new highs-lows has been a consistently reliable indicator and any push to the other side - with more new highs than new lows - for a prolonged period, would signal the beginning of a new bull market. Obviously, this is not the case, so the conclusion to be drawn is that this is a signal of the end of the 2 1/2-month rally, shortly.

NYSE Volume 6,693,324,500
Nasdaq Volume 2,128,807,750

Oil gained again, up 62 cents, to $59.65. Gold rebounded $5.00 higher, to $926.70, while silver added 30 cents, to $14.13.

You best investment choices continue to be undervalued real estate, especially foreclosures and raw, arable land, gold and, of course, silver, which is likely to at least double over the coming two years and appreciate further after that.

Monday, May 18, 2009

Who's Buying Bank Stocks?

Apparently, the very same banks that were bailed out by the TAXPAYERS over the last six months are now the hottest properties on the stock market. For those of you out there buying these broken-down businesses stuffed with toxic debt and run by managers who are part of a criminal syndicate, all the best.

To the rest of the investing crowd, there aren't a lot of good investments out there right now, since stocks have already made a 30% move off the lows experienced in March. So, how much higher can these pricey investments go? Remember, price-earnings ratios of 15-20 are for high-fliers, not run-of-the-mill companies, many of which are actually showing signs of slowing, rather than improving.

Today's big move was based on less than nothing. There were no revelations of fresh health for the US economy, which continues to sink further into a black hole of debt and job destruction. When a market watcher as astute as Bob Brinker, host of radio show "Money Talk," says that the US economy is a "fiscal train wreck" one can only assume that more trouble is dead ahead. The light at the end of the tunnel is not a sign of hope, but the oncoming engine of destruction known as quantitative easing and inflation.

Dow 8,504.08, +235.44 (2.85%)
NASDAQ 1,732.36, +52.22 (3.11%)
S&P 500 909.71, +26.83 (3.04%)
NYSE Composite 5,865.87. +202.98 (3.58%)

Advancing issues buried decliners, 5465-1096, a better than 5-1 ratio. Today was abnormal for many reasons, but surely one has to the the extreme disparity in the A-D line. Stocks were already near a recent peak, but this activity is just more piling on to a rally that should have run out of steam long ago. The market is being played higher by big money presently. As soon as enough small investors jump in, the money flow will reverse. New highs nearly surpassed new lows today, marking the closest margin between the two in many, many months. New lows continued to hold their advantage, as they have for 19 months, 68-57. Today's volume was rather squeamish, putting a somewhat questionable tone on the big advance. Were there an actual reason for stocks to be bid higher, volume would have been more pronounced.

NYSE Volume 1,423,339,000
NASDAQ Volume 2,002,612,000

Oil gained $2.69, to $59.03. Gold was lower by $3.20, to $918.50. Silver finished down 7 cents, to $13.76.

There's still a crowd talking about the economy "bottoming out" which has provided much of the fuel of recent sentiment. Actual evidence that the economy is improving is still rather difficult to find. There haven't been this many bulls roaming Wall Street since the area was a pasture. Beware you don't get trampled as they rush out at the next reality check.

Friday, May 15, 2009

Slow Death Torture for Investors

Another down day for stocks on Friday ends just the the first negative week in the last 10, but it's the beginning of a trend which investors would be prescient to note. Stocks, in the past 10 weeks, went from falling off a cliff to overvalued. They are reverting to something resembling fair value in an orderly fashion, though nobody really has a grip on what "fair value" really means today.

In more sensible times, fair value may have been something along the lines of a stock which returns a 4-5% dividend, a price-earnings ratio of anywhere from 6-12 and a reasonably good chance at appreciating in value over time. These, however, are anything but sensible times. The US economy is on its deathbed, being kept on life support by fresh injections of capital, government entitlements (welfare, social security, disability benefits, government and military pensions, unemployment insurance, etc.) and a steady infusion of fresh capital from the Federal Reserve.

There is very little left of the private sector, and even less opportunity for new business ventures. Taxes and regulations have crowded out innovation, and that condition will only worsen as the current crop of legislators in Washington work to codify everything from health care to working conditions in every business with more than five employees. More than half of the country's GDP is a product of government spending, much of it on borrowed money. And the money being borrowed is probably not going to be paid back.

As for the social programs - Social Security and Medicare - if you are under 50 years of age, you might as well kiss that money you contribute every week goodbye, because there is absolutely no way on earth that the government will be able to fulfill those obligations. As the economy shrinks, less tax revenue will be collected and these programs will be cut back severely. America is being purposely devolved into a third-world nation, complete with unpayable debts, widespread poverty and a gap between rich and poor wider than the Grand Canyon.

For those of you still investing in corporate America via stocks or mutual funds, we wish you only the best of luck. You would be better served playing the horses or betting on sporting events. At least there you have a fighting chance. Once the summer is over and it becomes clear that the economy is mired in a semi-permanent state of stagnation, the stock market will fall like dandruff from a bum's locks. After the slow decline back to the 6500 level on the Dow, the plunge to below 5000 will be swift and fatal.

Some companies will survive, but a wave of bankruptcies will make the current hilarity of GM and Chrysler look like a summertime picnic.

Dow 8,268.64, -62.68 (0.75%)
NASDAQ 1,680.14, -9.07 (0.54%)
S&P 500 882.88, -10.19 (1.14%)
NYSE Composite 5,662.89, -70.56 (1.23%)

On Friday, declining issues outnumbered advancing ones, 5017-2392. New lows: 65; New highs: 16. Volume was poor. Everybody wants to hold here, though some are taking profits. Faith in the markets is a very dangerous virtue.

NYSE Volume 1,480,708,000
NASDAQ Volume 2,214,244,000

Finally, the market is beginning to reawaken to the new reality of slack demand. Oil fell $2.28, to $56.34, which is still probably $10-20 higher than what the real price should be. Gold advanced again, gaining $2.90, to $931.30. Silver slipped a bit, down 3 cents, to $14.01. Most other energy and food commodities were lower on the day.

The feds offered more bailout money to a variety of insurance companies, though a few say they don't want the money. Still, how many more companies involved in the dirty money dealing is the government going to give taxpayer funds? The bill is already too high, but the feds seem to know no limit to America's largess. The absurdity continues to amaze fundamentalist economists.

To get a grip on where we're heading, one need look no further than April's CPI numbers, which fell by 0.7% year-over-year, the largest decline since the mid-50s. The deflationary spiral which began at least 18 months ago (don't believe the government numbers) is now gathering momentum. Pricing power for companies is kaput. Deflation, hated by the Fed, may be the only true salvation for the nation.

A sign of the times comes from the Buffalo News, in a story about billionaire Tom Golisano, who made his fortune by founding and running Rochester-based Paychex, Inc. (PAYX). Golisano, long a critic of NY politics and unions, announced that he was leaving the state and moving to Florida, saying he will save $13,000 a day in taxes. That amounts to a revenue loss of $4,745,000 over a year's time.

Golisano is not alone. Radio talk show host Rush Limbaugh has already stated that he too would leave the state. Truth of the matter for Mr. Limbaugh is that he spends little time in the state, but has various businesses registered there. With the exodus of rich folks from the state, one might as well throw budget estimates out the window.

Enjoy the Preakness tomorrow. That filly is a good one.

Thursday, May 14, 2009

A Bounce for Good Luck

If you're scoring at home - or even if you're alone - stocks spent the entire session trading in a narrow range to the positive side of the ledger. In the longer outlook, today's trading meant absolutely nothing. In the short term, it may have meant even less. After hearing that unemployment claims were "unexpectedly" higher - by a good amount - the crooked traders who control probably half the volume on a daily basis made sure to keep the indices from falling again, as would have been the normal reaction.

The usual suspects expected fresh unemployment claims to come in at around 580,000, which would have been the lowest in months. Instead, the Labor Dept. reported 637,000 new filings, putting to rest all the cheerleading about an early recovery, at least for the day. PPI also showed a slight increase - up 0.3%, which, supposedly, was hailed as good news. In the upside-down world that is Wall Street, any inflationary pressure is considered "healthy," when in fact, deflation has set upon US markets like a swarm of angry bees.

Dow 8,331.32, +46.43 (0.56%)
NASDAQ 1,689.21, +25.02 (1.50%)
S&P 500 893.07, +9.15 (1.04%)
NYSE Composite 5,733.45, +66.98 (1.18%)

One can hardly blame the criminal syndicate banksters for having to control everything from money supply to the ups and downs in the markets; they are, for the most part, broke, and holding onto $ trillions in near-worthless assets, hiding them from public view with the assistance from the corrupt and morally-bankrupt Obama administration (yes, I voted for the man, and, yes, I am severely disappointed up to this point).

Advancing issues kicked past decliners, 4510-1914. New lows showed better than new highs, 71-17. Volume was somewhat sluggish, yet another indication of the scared mood which has befallen the formerly great and glorious brokerages.

NYSE Volume 1,525,371,000
NASDAQ Volume 2,205,699,000

With stocks barely budging, commodity trading nearly ground to a halt. Oil was up a mere 2 cents, to $58.68; gold gained $2.50, to $928.40; silver also upped the ante 2 cents, to $14.04.

In related news, Chrysler told bankruptcy officers that they plan to close 789 dealerships across the country, which should result in the loss of jobs for about 14,000 employees nationwide. Chrysler plans to close more dealerships as it wades through its bankruptcy filing. With that news, GM's restructuring plan faces a deadline in just 16 more days, or it too will be forced into a similar situation.

Might as well face facts, Americans. The only stable US car manufacturer left standing is going to be Ford, and they're not doing a bang-up business themselves. Just keep following the lead of the Obama administration to certain economic destruction. It's coming to a mall, car dealership or municipal government near you, soon.

Wednesday, May 13, 2009

'Green Shoots' Shot Down

For weeks we've been hearing about how the economy is improving, though the data released hardly supported the theory.

Many economic numbers were slightly better than anticipated, and earnings for many companies beat watered-down expectations, but overall, evidence that the economy was actually on the mend was scant.

Today's release of retail sales figures for April sent investors scurrying to take profits and close down option positions en masse. Retail sales were off 0.4%, when expectations were a decline of just 0.2%. March figures were also revised lower. As those numbers hit the street prior to the market's opening, selling commenced right from the opening bell and didn't ease up much all day.

Separately, a report from Realty-Trac showed foreclosures hitting yet another record in April.

Dow 8,284.89, -184.22 (2.18%)
NASDAQ 1,664.19, -51.73 (3.01%)
S&P 500 883.92. -24.43 (2.69%)
NYSE Composite 5,666.47, -192.67 (3.29%)

The broad-based decline was confirmed by market internals. Decliners were handily ahead of advancing issues, 5602-936. The 6-1 ratio was the worst since the markets were bottoming out in early March. The steadfast new lows - new highs ratio remained stubbornly tilted downward, with 76 new lows to a mere 16 new highs, also a low number of new highs not evidenced since March. Volume was not fantastic, but solid and mostly on the sell side.

NYSE Volume 1,766,071,000
NASDAQ Volume 2,404,441,000

Crude oil fell 23 cents, to close at $57.79. Gold fluctuated, eventually finishing $2.00 higher, at $925.90. Silver took a breather after a more than $1.00 week-long run up, losing 20 cents, to $14.02.

The S&P fell for the third straight session, the longest such streak since a five-day losing skein February 24 - March 3. The consecutive declines are a strong signal of general weakness, as investors and working people struggle for clarity.

Just a week after the much-ballyhooed bank "stress tests" the markets seem to have soured, as rosy predictions of a quick turnaround have given way to more disciplined and rigorous outlooks that see the USA struggling for years to come. Government efforts to conceal bank losses have not be lost on average Americans, who feel short-changed, cheated and lied to by bankers and the political elite.

Investing over the past two months time has been an effort in near-total delusion. The US economy cannot be seen as improving when the Federal Reserve is monetizing Treasury debt as the federal government piles up mountains of unpayable notes overwhelming the public. Foreign investors have seriously curtailed Treasury purchases, especially China.

To make matters worse, the Obama administration seems hell-bent on socializing industry and demolishing what little is left of American entrepreneurism with odious taxes, regulations and heavy-handed wealth redistribution measures. Without a clear reversal of policy - from tax and spend to fiscal austerity - from government at all levels, the American public will continue to lose faith in government's promise to repair the private sector. Further Keynesian tinkering by the Fed and Treasury will only result in a deeper and longer lasting depression.

Make no doubt about it. We entered dangerous waters in 2007 and conditions have only worsened since. Government efforts to revive the economy with the magic bullet of increasing money supply and handouts have thus far only made the situation worse. Beware the summer months, but be even more attuned to the period between August and October. If real progress has not been made by then, expect living conditions in many US cities to deteriorate to near-third world status.

Tuesday, May 12, 2009

No Stopping the Industrial Giants

The stock markets are rigged. There, I said it. somebody mentioned that Goldman Sachs handles 20% of all the trades on the NYSE and NASDAQ exchanges. I tend to believe that, especially considering how one-sided the markets have become over the past two months.

It's a one-way bet, just like it was during the post-9/11 era, or, actually, as soon as the Iraq war began. Everything just keeps going up.

Now, I have nothing against profitable trading, I just think profits should be made by investing in companies with good fundamentals, growing earnings, dividends, things like that. The biggest leaders of the recent climb have been banks, many of which were on the brink of failure just a few months back, and were saved by infusions of cash from taxpayers.

That's not what I call sustainable or sound business. Eventually, I will be found to have been right all along. It will become apparent that Citigroup and Bank of America are insolvent. That JP Morgan has too much derivative exposure that they don't like to talk about, and that Goldman Sachs does manipulate the market at the behest of the Federal Reserve, itself a chimera of an organization, one which creates currency out of thin air. How can that be a viable business?

Others agree with me that the "dead cat bounce" has been overdone. Here's one.

Then there's talk of Social Security and Medicare going belly-up before they're supposed to. Well, even the idea that they are going to go broke should be cause enough to reform or dispose of these awful entitlements which are bankrupting the country, turning productive people and resources into wards of the state and, though they provide capital into the system, are nothing more than the manifestation of the worst form of the welfare state.

Dow 8,469.11, +50.34 (0.60%)
NASDAQ 1,715.92, -15.32 (0.88%)
S&P 500 908.35, -0.89 (0.10%)
NYSE Composite 5,859.14, +9.84 (0.17%)

Yesterday, I was reporting how the NASDAQ stocks fared much better than their counterpart indices. Today the opposite is the case, with Dow stocks leading the way. So, which is it? Old, stodgy industrials or new-age tech companies at which we should be throwing our money? Neither is likely the case. Gold or silver will outperform them both, as they have for the past five years.

Just to confuse matters further on one of the more confounding sessions of late, declining issues dominated advancers, 3885-2650. New lows: 73; New highs: 38. Volume was light.

NYSE Volume 1,611,161,000
NASDAQ Volume 2,529,090,000

The government continues to borrow and spend at a record-shattering pace. Americans will be paying through their eyeteeth until their dying breath just for the money being wasted trying to prevent the economy falling into an orderly and well-deserved depression. All they're doing is delaying the inevitable and making matters worse. The luckiest people on the planet today are those who know they don't have long to live. They won't be around to witness or deal with the devastation.

Crude oil was up another 35 cents, to $58.69, but gold gained more, rising $10.40, to $923.90. Silver shot up another 31 cents, to $14.22. They're probably all overpriced, but especially oil. When PPI and CPI figures are released later this week, there's likely to be some pull-back in all commodity prices. The economy is still just puttering along at a snail's pace. Growth is more than 9 months away.

Bonds were unmoved and the dollar was descending last we noticed.

Monday, May 11, 2009

Profit Taking or Overdue Correction?

Stocks took a bit of a hit on Monday, though on closer inspection, sellers held onto most of their tech stocks. The Dow, S&P and NYSE Composite each took sizable hits, but the tech-laden NASDAQ was barely touched.

Dow 8,418.77, -155.88 (1.82%)
NASDAQ 1,731.24, -7.76 (0.45%)
S&P 500 909.24, -19.99 (2.15%)
NYSE Composite 5,849.30, -151.09 (2.52%)

There wasn't much in the way of economic news and 1st quarter earnings were scant as well, so investors had little on which to focus except the incredible rise in the indices over the past 9 weeks. Sensing that May and June will offer little in the way of a catalyst to move stocks even higher, profit-taking ruled the day. Many are already saying that this is now a stock-pickers market, and it will be best to focus on individual companies, or, at worst, sectors.

Obviously, the most beaten down are home builders and retailers, with financial stocks a close third, though the banks have had a nice run of late. Tech seems to be the favored place to be, as many smaller - and larger - tech companies are debt-free, a critical condition in the current environment.

The bigger question is whether investors will remain confident as economic figures trickle through the system. If the banks are allowed to continue their charades with mark-to-model (in other words, fantasy) valuations of the toxic MBSs, CDOs and credit derivatives still on their books, the markets could hold up fairly well, though everybody knows that further shocks to the financial system could be devastating. Unemployment numbers and various gauges such as the CPI, capacity utilization and home sales will be crucial going forward.

It also would be wise to keep an eye on the bond and Treasury markets. Bond prices have been hammered down of late, causing yields to rise, nearing a point of attractiveness to investors. 10-year notes recently popped above the 3% mark, along with longer-maturities (30-year) nudging past 4%. If the Fed is unable to keep rates from rising - which will take some doing - all bets on a recovery this year are off.

Also worth noting is how much Treasury debt the Fed has to purchase over coming months. Failure to attract foreign investors to Treasury auctions could prove devastating. The federal government has a record amount of debt to offer this year and the Fed has committed to buying up $300 billion of it. That number may not be enough, and if it isn't, look out for a devaluation of the dollar down the road. There are rumors already afoot that dollar devaluation may be unavoidable. Only time and the markets will tell.

On the day, declining issues overwhelmed advancers, 4318-2203. New lows continued their edge over new highs, 77-50. In recent weeks, the gap has narrowed, but never rolled over to favor new highs. If that occurs, it would signal another leg up in the markets. It's an indicator worth keeping on tab. Volume was down a bit from last week, and it seems like options players are already out of May long positions and looking to go further out, so average daily volume could slow down, as it usually does in warmer weather.

NYSE Volume 1,490,315,000
NASDAQ Volume 2,517,213,000

Commodities spent most of the day treading water in directionless trade. Oil lost 13 cents, to $58.50. Gold was off $1.40, to $913.50. Silver fell 5 cents to $13.91. There's nary a trend in commodities, though most seem to be consolidating after recent gains. The next move up or down will depend largely on supply issues and sentiment and both of those are in a state of flux.

There is a good deal of economic reports coming out this week, including CPI, PPI, inventories, retail sales, capacity utilization and industrial production. some stabilization in each of these indicators is expected, which should serve as good news for markets. However, since stocks have already seen an historic run, any further gains will be hard-earned.

Friday, May 8, 2009

Phony Monetized Rally Rocks On

With the Fed monetizing the nation's debt and expanding its balance sheet faster than a Keynesian can say "Zimbabwe", the big bear rally from hell continued through its 9th week and there's no sign of it slowing down.

From what were the worst economic conditions in the first quarter of 2009, the latter part of March thereon has been nothing but a mindless joyride, or a joyless mind-ride, depending on your predisposition. Straight up from 12-year lows has been the order of the many days since March 9, so, with another week coming to an end, it's time to take account and see just how far the indices have advanced.

Following are the closing figures from the four main food groups, er, indices tracked here, with closing numbers from March 9 and May 8, with point and percentage gains:

Dow Jones Industrials: 6,547.05, 8,574.88, +2027.83, +31%
S&P 500: 676.53, 929.23, +252.70, +37%
NASDAQ: 1268.64, 1739.00, +470.36, +37%
NYSE Composite: 4226.31, 6000.39, +1774.08, +42%

WOW! I need say no more, but, due to the vastness of open space on the internet, I shall.

Stocks, of course, are prone to fluctuations. They are also prone to sentiment, manipulation and propaganda, such as has been devised by the Wall Street syndicate and government technocrats and tossed, chum-like, to the zombified public by the slavish mainstream and financial media, that we've turned a corner, the recession has bottomed out, etc., sounding so much like the Bush administration's assessments of progress in the Iraq war circa 2004-2008 that it's uncanny, even eerie.

Dow 8,574.65, +164.80 (1.96%)
NASDAQ 1,739.00, +22.76 (1.33%)
S&P 500 929.23, +21.84 (2.41%)
NYSE Composite 6,000.39, +200.30 (3.45%)

Advancing issues overwhelmed decliners, 5246-1335, though new lows outweighed new highs, 97-58. Volume was very high, just about the same as yesterday's level.

NYSE Volume 1,895,686,000
NASDAQ Volume 3,200,076,000

Oil went up another $1.92, to $58.56, a six-month high. Gold fell back 60 cents, to $914.90, as Central banks have begun paying agents to dump the yellow metal, as noted by negative real lease rates. Silver responded in sympathy, falling 8 cents to $13.96.

The official unemployment figure was boosted to 8.9%, while the real, unofficial unemployment figure - which includes people who have given up and those unwillingly working part-time - stands at 18%.

But, never mind those stats. Free money, dudes! Step up and make some dough!

That's all I've got this fine Friday afternoon. C YA!

Thursday, May 7, 2009

Ponzi Would Be Proud On Stress Test Results

First, let's not confuse Charles Ponzi (that's him on the left) with Arthur Herbert Fonzarelli (otherwise known as actor Henry Winkler in the role of "Fonzie" or "the Fonz" on 70s hit TV show "Happy Days" - shown at right). Sure, the names sound familiar, but that's where such familiarity ends.

Charles Ponzi was a swindler extraordinaire, who paid investors outlandish profits by continually bringing in fresh capital from other investors (or "suckers" as the case may be). Ponzi never actually invested any money in anything; he simply churned what seemed to be - at the time - a never-ending supply of money from pigeons to keep the appearance of a grand investment going. Thus, the term "Ponzi scheme" became popularized for this kind of endeavor, also known as a pyramid or airplane scheme.

Alfred Fonzarelli was a fictional character who exuded the hip and cool of a 50's greaser. His trademark leather jacket and slicked-back hair were elements of his persona. But Fonzie was honest, though arguably crude. Ponzi, a real person, was a cheat, and a great one. Some believe Bernie Madoff is the present-day embodiment of Charles Ponzi.

Now that we have the introductions out of the way, let's get to the core issue: that of the government's bank stress tests, which results are finally going to be released to the public, today, at 5:00 pm EDT. After months of nail-biting anticipation, it appears that 10 or 11 of the nation's largest 19 financial institutions are actually not in very good health. Here is a nice capsule of the results. Here is a NY Times article offering some rather scathing reviews on the entire stress test process from some very well-respected economic heavyweights.

Finally, here is a story and video from Yahoo! Tech Ticker which explains how Bank of America needs $34 billion of additional capital, and how they plan to get that by converting the TARP funds ostensibly "loaned" from the government (taxpayers) from preferred stock into common stock, resulting in a surplus of $11 billion with which they can then begin paying back the TARP funds. Yes, you read that right, BofA will use TARP funds to pay back TARP funds.

Only in America can bankers and politicians steal in such plain view from taxpayers. Certainly Charles Ponzi would be proud. Fonzie, for his part, might say, "Heeey, that's no way to treat people." Naturally, the truth-loving Fonzie is right. The US taxpayers are being taken to the cleaners on this one.

Maybe there's a silver lining in all of this hanky panky. Stocks were pounded down pretty well for most of today's session, on relatively strong volume. Could it be that some of the fund managers and top investors are seeing this for what it is - outright fraud - and calling an end to Wall Street's wild rally? Could be, but, considering the length and size of said recent rally, it's going to take more than a day or two of declines to straighten out the newest mess, that of stocks being wildly overvalued again.

As I've been saying all along (and I have plenty of company in my opinions, too), the banks aer not in good health. The stress tests were just a smoke screen, the PPIP is a bad joke at best, almost none of the various illiquid assets held by these banks have been disposed of, rather, they have been revalued using mark-to-model rather then the more accurate (and honest) mark-to-mark accounting, the Fed is now monetizing the national debt in addition to taking on all sorts of toxic waste, and, to top it all off, Thursday's Treasury auction of 30-year notes was a resounding failure, poorly received, with 30-year bond yields hitting 4.309%.

It's a mess of even more gigantic proportions that before the government began its meddling nearly eight months ago. Now, stocks will have to compete with higher bond yields, as will mortgage rates, which the government hoped to keep low, while the banks try to raise a cumulative $65 billion from private sources, in direct competition with the enormous Treasury sales to finance the burgeoning US debt, which will cost more and more to service if yields continue to climb.

So, a good number of investors took today's sloppy news flow and decided it was time to take some of their quick profits off the table. Not such a bad idea, despite the growing consensus that the economy is on the upswing (maybe, but probably not) with the Labor Dept. due to release nonfarm payroll data for April on Friday - tomorrow.

While the estimate is for job losses to total only 490-590,000, certainly less than March's 663,000, it's hardly cause for celebration, in light of the fact that the US economy needs to create 150,000 jobs per month just to keep pace with population increases and new entrants into the labor force. The calculations of the Labor Dept. also do not account for the 54,000 Chrysler employees being furloughed for 30 to 60 days, nor the 200,000 GM employees who will be idled for as many as 9 weeks this summer. Nor does the government count workers who have exhausted their unemployment insurance, those who are working part time instead of full time in their estimate of the unemployment rate of 8.9%. Others, including economists at the University of Maryland, put the figure at closer to 17%.

Add to the malaise that LA Dodger Manny Ramirez has been suspended by MLB for 50 games for violating their banned substance policy. He will not be paid roughly a third of his $25 million salary. So there's another $8.5 million not being spent into the economy right there! Yikes!

So, maybe today was a good time to get out of stocks. After all the major indices have risen by more than 30% over the past 8-9 weeks.

Dow 8,409.85, -102.43 (1.20%)
NASDAQ 1,716.24, -42.86 (2.44%)
S&P 500 907.39, -12.14 (1.32%)
NYSE Composite 5,800.15, -90.40 (1.53%)

Declining issues took the advantage over advancers, 4255-2281; new lows surpassed new highs once more, 95-52, and volume was stupendous, higher even than yesterday's. There certainly is no lack of trading going on as the economic wheels turn, or, grind, whichever case you prefer.

NYSE Volume 1,969,476,000
NASDAQ Volume 3,274,508,000

Commodities were bounced around by conflicting data, but oil managed a gain of 37 cents, to $56.39. Gold rose another $4.50, to $915.50, continuing the recent trend of gains, as did silver, which crossed the $13.80 threshold - the price at which melt value of US coins equals 10X their face value - with a rush, gaining 32 cents, to $14.03.

Most of the news flow for the week complete, investors will have until tomorrow morning's opening bell to weigh all the factors, including the nonfarm payroll figures, due out at 8:30 am. It's anyone's guess which way they'll turn, but one thing's for sure: the economy is not in as rosy shape as the news and pundits would have us believe. The recent bout of "green shoots" and "semi-positive" readings were more of the nature of falling at a less-pronounced pace than earlier this year or last fall. The US economy is still weakening, though not quite as quickly as before.

It's like saying a man clawed and chewed a lion only losing one arm and one leg is good news. He's still alive and he's got one of each type of limb left. Really, how many people would call that "good" news? Seriously, folks, it's not a matter of perception. The reality is not that the glass is half full or half empty, it's that the glass has a hole in the bottom.

Wednesday, May 6, 2009

Wall Street's No-Stress Party Continues

Stress? What stress? Whether banks need to raise more capital to remain solvent will be revealed tomorrow. Word leaked out today that Bank of America may need as much as $35 billion to meet a capital "shortfall" but that could not deter investors from bidding it and other stocks higher.

The Dow has dazzled many over the past few weeks and today got to within shouting distance of recording a 2000-point rise from the bottom reached on March 9. The "Industrials" need to reach 8547 to mark the rally at 2000 points.

Dow 8,512.28, +101.63 (1.21%)
Nasdaq 1,759.10, +4.98 (0.28%)
S&P 500 919.53, +15.73 (1.74%)
NYSE Composite 5,890.55, +119.79 (2.08%)

Some of the enthusiasm came from the April ADP Employment Report, which estimated that 491,000 jobs were eliminated from private payrolls during the month. That news reached the street prior to the open, and, as odd as this market has been when confronted with news, caused an immediate gap up and sell-off which pushed the Dow back to break-even shortly after 10:00 am.

Confronted with the prospect of stocks actually declining, the perma-bulls made sure to just keep buying at a torrid pace throughout the rest of the day, ensuring that the rally would continue for a 9th straight week.

Advancing issues decimated decliners, 4238-2283. New highs, however, failed once more to beat new lows, with the lows ahead for the day, 110-67. Volume was straight off the charts, with both the NASDAQ and NYSE recording one of the best trading days of the year.

NYSE Volume 1,876,341,000
Nasdaq Volume 3,016,188,000

Enthusiasm was a little more contained, though not by much in the commodity trading pits, where oil for June delivery was up $2.36 closing at its highest level in months, $56.38. Gold rose $6.70, to $911.00, while silver added 29 cents to finish at $13.71 per ounce.

Enjoy the bounce. Honestly, why fight prosperity? But don't let me hear a word about high prices and inflation. On that note, the dollar was down against all major currencies. That is the price we will all pay.

Tuesday, May 5, 2009

The Never-Ending Rally

Stocks took a bit of a breather on Tuesday, but, in the larger scheme of things, it amounted to nothing more than a rounding error.

Dow 8,410.65, -16.09 (0.19%)
NASDAQ 1,754.12, -9.44 (0.54%)
S&P 500 903.80, -3.44 (0.38%)
NYSE Composite 5,770.76, -29.46 (0.51%)

In an environment in which the Dow Jones Industrials have gained nearly 2000 points over the past two months, today's marginal loss was about as insignificant as normal intra-day noise. Not only was the decline hardly noticeable, but the range - less than 100 points on the Dow - indicates that all volatility has been wrung out of the market. The VIX, which measures market volatility, closed today at its lowest level since September of last year, prior to the Lehman Brothers failure and various market dislocations that touched off wave after wave of selling.

It's amusing, to say the least, that investor sentiment has quieted down so much, especially with Fed Chairman Ben Bernanke testifying on Capitol Hill and the results of the bank stress tests due out on Thursday. One can credit the mainstream media for selling the government line that the economy is "bottoming out" and recovery on the horizon. In fact, Bernanke actually made comments to the congress to that effect, saying that the economy should begin to turn upwards in the second half of 2009.

That Americans still believe in Bernanke and the general wisdom of congress and the president in dealing with the economy is alarming in itself. Remember that it was Ben Bernanke, along with Treasury Secretary Hank Paulson, who said that the subprime breakdown was "well contained" in 2007, and that financial institutions and the underlying economy was strong early in 2008. Are we now supposed to put faith in his prognosis that the economy will be in better shape later this year? Americans are easily duped. The billions of dollars stolen by Bernie Madoff is proof enough of that. Also playing into the equation is the oddly-American optimism in the face of certain doom which, in its simplest forms, merely reduces all negative arguments to sheer pessimism, regardless of the veracity of such doom-and-gloom claims.

Thomas E. Woods, author of various books on economics and the markets including "Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse," offers some insight, channeling Austrian school economists Henry Hazlitt and F.A. Hayek, in his article at the Daily Reckoning, "No, the Free market Did Not Cause the Financial Crisis."

Regardless of Woods' penchant for lengthy titles, his analysis mirrors what's been said on these pages many times, that the tinkering and intervention by the government and the Fed are more likely to make matters worse, rather than better, simply because they continue to prop up failed institutions and companies, casing good money to be continually thrown down a black hole to prop up insolvent banks and failed corporations.

And, though Woods does not address the condition, it is my belief that throwing money away shortly after it is created out of thin air won't readily induce inflation, because the money just gets wasted. How could anyone believe that printing dollars and then burning them would produce anything other than some flames and smoke? It is for that reason that I have resisted the alarms of runaway inflation. The Fed has created a good deal of money, however, almost none of it has gone into productive activities. Price inflation is caused by money chasing a dwindling volume of goods, and, at this time, there seems to be more of a glut of everything - from cheeseburgers to steel girders - than scarcity.

Maybe that's the case in other countries, but here in America, there's plenty of everything for everybody. The one troubling trend that has developed from "talking up" the economy and relentless government stimulation is that there is no downward pressure on prices, as would be the case under normal circumstances. The more "free money" being thrown around, the more difficult it is to create new businesses because the ones that are broken are being kept alive via government largess. For instance, dinner at Old Country Buffet, a marginal eatery at best, is $12, hardly cheap, and two Egg McMuffins at McDonald's go for over $5.00, another example of the lack of downward price pressure.

For instance, should Burger King go out of business due to lack of demand for their morning offerings, one would expect a similar scenario at McDonald's to develop. with less demand for eggs, cheese and ham, one would expect McDonald's to lower their prices to match market conditions. However, since Burger King isn't failing, and the flow of money is being kept constant with increases to unemployment, welfare and social security recipients, plus all the other bailout and stimulus measures, the natural consequences of a free-falling economy have failed to materialize.

The problem with this scenario is that it's completely and utterly doomed to failure. The moment the government closes off the spigot to free money at 0% interest is the moment business begins to deteriorate. The Federal Reserve and the federal government have painted themselves into a debt-driven corner: they have to keep supplying cheap money or else the economy goes back into the tank. Obviously, they cannot borrow and spend their way out of this mess, though that's exactly what they're trying to do. The natural result, no matter what they believe, is deflation, until prices and actual earned wages come back into equilibrium.

The government and the Fed can pump as much money as they like into the economy, but they will not be able to spark inflation, which is their desire. Most of the money is either being wasted, saved or used in paying down debt, none of which are particularly productive uses of capital. In the interim, the economy will look like it's improving, but it's a mirage. Corporations will be profitable, but they will not be able to maintain their margins once the government cuts off the easy money. This is why stocks have rallied and why people believe the economy is improving. It feels good, but the underlying economics are a complete fraud.

It's why Ben Bernanke has seemed less than fully confident of late. One the one hand, he wants to reassure the American public that the economy isn't dead, but he knows there are more potholes and pitfalls on the road to recovery. He is not certain that his policies have been the correct ones because he's tried to keep the economy afloat without pain, when it is the actual pain - business closings, shutdowns and bankruptcies - that is at the root of real recovery. He's also been less than candid about the condition of the banks, because he knows they are nearly just as leveraged and unregulated as before the crisis that hit last fall.

Here is an article outlining why stimulus money is going unspent, underscoring the concept that the stimulus is nothing more than a band-aid and won't spur recovery.

On the day, declining issues surpassed advancing ones, 3514-2985, and there were more new lows than new highs, 81-48. Volume was average.

NYSE Volume 1,534,299,000
NASDAQ Volume 2,562,924,000

Oil closed down 63 cents, at $54.09. Gold continued its climb, gaining $2.10, to $904.30. Silver galloped ahead of the pack, picking up 31 cents, to $13.42 per ounce, approaching the melt price at which American silver coins are worth 10 times their face value ($13.81).

Tomorrow, the market will face a little bit of reality, as ADP releases it's monthly private sector employment report. The firm's numbers come as a precursor to the government's monthly nonfarm payrolls report, which is released Friday. ADP's numbers are quite reliable and are likely to show that another 610,000 jobs were lost in April. Noting the massive number of job losses since October of last last year and the extensions of unemployment insurance real misery won't being until late this year, exactly when the government mouthpieces say the economy is due to turn around.

Irony. It just isn't funny anymore.

Monday, May 4, 2009

The Grand Deception Continues as Stocks Soar

Regular readers of this blog will note that I have been completely wrong about the current stock market rally for more than a month. I apologize for any disservice I may have done to otherwise level-headed investors, but my position remains the same. This is a bear market rally, and, as such, any gains are subject to being wiped out at a moment's notice.

That said, I have and will try my level best to temper my opinion with facts and the facts should be sufficiently clear by now that the economy is far from any real recovery. It is also my opinion that the bottom reached in March was not the absolute bottom and that there are further hurdles ahead for stocks and the general economy.

One of those hurdles was pushed back a bit further, for a second or third time. I am talking about the release of the government stress test results on 19 of the nation's largest banking institutions. The release of this information has been pushed back to Thursday of this week. They were originally to be made public today.

The government's continued coddling of the banks and closeness to them is disconcerting, not only to me, but to a good number of economists and especially to Senator Dick Durbin, who last week announced that the banks "own the place," that place being the US congress.

So, just to be clear, I am mistrustful of Wall Street's ways and will continue to proclaim this rally as false. For more interesting reading on how corrupt the government and the banks have become, check out Rob Kirby's Market Observation from April 20, called "The Big Lie" in which he points out that foreign investors have already stopped buying US Treasuries and that the Federal Reserve likely has been engaged in more buying of Treasuries than the American public is being told.

With that information in hand, we may be witnessing the beginning of a great reflation of the economy. with stocks going up, commodities, and then, everything else (except wages, of course) will rise in price. Such a scenario - which the Fed is actively promoting - will signal the death knell of America as we once knew it. You will need to own more stocks at higher and higher prices just to keep up with the gallop of inflation. It is the worst of my fears. I would much rather see deflation take firm hold because at least it keeps food, fuel and other necessities of day-to-day living affordable.

Stocks were sent soaring on Monday after data showed construction spending and home sales both higher from the previous month.

While the pair of data sets were encouraging to many on Wall Street, closer inspection of the construction spending data showed that most of the increases were in commercial and government spending, not residential. The increase was likely the result of the nearly $1 Trillion federal stimulus bill, passed in February and now hitting the mainstream and Main Street. Despite the rise, construction spending - up a whopping 0.3% in March - is still 11.1% below 2008 levels.

And while more people may be buying existing homes, they are buying them for lower prices, with investors scooping up foreclosed properties as investments.

Nonetheless, investors looked the other way on any bad news, as they have for the past 8 weeks and sent stocks soaring to 4 month highs. Of the major indices, the NASDAQ and S&P 500 are now in positive territory for the year, though the dow is getting closer, having closed at 8776.39 on December 31, 2008.

Dow 8,426.74, +214.33 (2.61%)
NASDAQ 1,763.56, +44.36 (2.58%)
S&P 500 907.24, +29.72 (3.39%)
NYSE Compos 5,800.22, +231.46 (4.16%)

For the session, advancing issues far exceeded decliners, 5333-1261. New lows retained their edge over new highs, however, 101-66. Volume ticked up somewhat from last week's subdued levels, and it remains to be seen if investor interest will remain strong at such lofty levels. The odd characteristic of this rally is that there has been no significant pull-back at any juncture, somewhat difficult to believe in the current economic environment.

NYSE Volume 1,714,092,000
NASDAQ Volume 2,554,642,000

Commodities plowed ahead as well, with oil gaining $1.27, to $54.52. Gold rose $14.00, to $902.20, with silver adding 61 cents to settle at $13.11. Foodstuffs were mixed, but all energy-related commodities shot higher.

So, Wall Street has sounded the "all clear" once again and investors have responded like sheep instead of thinking, rational beings.

Here's Art Cashin on CNBC, talking about low volume rallies in bear markets and whether or not the markets are about to "roll over."

Friday, May 1, 2009

Despite Conditions, Stocks Continue to Gain

May came in with a whimper, but investors continued to bid stocks higher, despite continuing evidence that the financial underpinnings of the US economy is nowhere near any condition even remotely resembling healthy.

Economic reports were hardly encouraging. Factory orders for March fell more than expected, off 0.9%, when the anticipation was for a modest decline of 0.4. Additionally, the February figures were revised lower, from a gain of 1.8% to just 0.7% higher. Auto sales continued to slump. The major manufacturers reported another poor month, with overall sales down 30-40% from a year ago. Chrysler led the decline, with sales off by 48% in April. Ford and GM reported sales down 33% for the month.

Also, after the close, the FDIC shut down two banks, one in Georgia and one in New Jersey, bringing the number of bank closures this year to 31. 25 banks were shut down by government regulators in 2008.

Dow 8,212.41, +44.29 (0.54%)
NASDAQ 1,719.20, +1.90 (0.11%)
S&P 500 877.52, +4.71 (0.54%)
NYSE Composite 5,568.76, +55.40 (1.00%)

Still, investors insisted on keeping the rally going for the 8th week out of 9 for the Dow and S&P, and 9 straight for the NASDAQ. Advancing issues beat decliners, 3739-2721, but there were more new lows than highs, 77-32. Volume was dull, especially for a Friday.

NYSE Volume 1,335,943,500
NASDAQ Volume 2,152,036,000

The price of crude oil shot up $2.08, to $53.20, as is customary this time of year, though demand does not in any way warrant consumers paying more than $2.00 per gallon at the pump, which has been the case for some time. While the argument - that people drive more in warmer weather - is traditionally correct, current oversupply conditions indicate a lower price would be customary, though in the world of rigged markets, such as the consortium of five major oil companies controlling the price of gasoline worldwide, prices have remained at elevated levels, though certainly not those seen last summer.

Gold fell $3.00, to $888.20, and silver gained 18 cents, to close at $12.50 the ounce.

With another week of stock market gains in the books, one must realistically question the wisdom of buying stocks at this point. Stocks generally lag during the summer months and the major indices are up anywhere from 25-30% off their March lows. If economic recovery is at hand, then these prices and gains may be justified. However, most of the reportage of late has been very one-sided, nearly assuming that the recession/depression will be over and done with by the end of summer or early autumn.

That is quite a bit of wishful thinking, and the views of the cheerleaders in the financial media - whose job it is to promote investment in Wall Street stocks - can hardly be seen as unbiased. Realistic assumptions about the economy and its effect on publicly-traded companies should be made without the requisite commentary. In that regard, one cannot honestly suggest that economic conditions have improved to such a significant degree as to proclaim "recovery at hand," as many commentators have done during the course of this bear market rally.

Only time, and stock prices will tell whether investors were making wise bets during the past two months. It is usually understood that stocks climb a "wall of worry" even in the best of times. This current rally seems to have been built upon much misplaced hope and enthusiasm. It has been quick, abrupt and powerful, not what one would expect after such a precipitous decline.

The coming weeks and months will be interesting, indeed. The fireworks begin in earnest on Monday, when the government releases the results of their bank "stress tests." The weight of Chrysler's bankruptcy - and the fate of GM, soon to be determined - will also play a larger role in the direction of stocks.