Thursday, September 30, 2010

Should American Homeowners Stop Paying Mortgages?

Since Wall Street is essentially lined with Zombie traders trading Zombie stocks, there are more interesting developments on the financial landscape that deserve attention.

We'll get to the title of this post in a moment, but first, here's how the day went for those six or seven individual investors still trading stocks.

Initial claims came in better than expected, at 453,000, after last week's upwardly-revised 467,000. Everyone cheered. Stocks started the day on a positive note. At 9:45, the Chicago PMI came out, showing a dramatic ramp-up, to 60.4, after an August reading of 56.7, and far better than the expectation of 55.0. More cheering. CNBC's Mark Haines nearly wet himself, giddy that the Dow was closing in on 11,000, though that's expected from such an utter moron cheerleader.

The Fed executed another POMO, which was not accompanied by cheers, but rather jeers, worth only $2.2 billion. Stocks soured on the news. The Dow, which had been up more than 110 points, dropped to a 90-point loss shortly after noon, with the other indices registering similar declines.

The rest of the day was spent trying to ignore bad news and prop up stocks. The insiders did a fair job, bringing the indices back to show only marginal declines.

Dow 10,788.05, -47.23 (0.44%)
NASDAQ 2,368.62, -7.94 (0.33%)
S&P 500 1,141.20, -3.53 (0.31%)
NYSE Composite 7,281.07, -18.24 (0.25%)
NASDAQ Volume 2,198,369,250
NYSE Volume 4,673,228,500

Declining issues nosed out advancers, 2878-2812. New Highs beat New Lows, 478-36. Volume was at its normal, reduced pace.

Crude oil gained $2.11, to $79.97. Gold fell $1.20, to $1308.70. Silver also lost ground, down 15 cents, to $21.75.

Now, on to the question of whether or not American homeowners should stop paying their mortgages. This question became relevant a few years ago, when many subprime lenders defaulted on what have come to be known as liar loans, no doc loans and NINJA (No Income, No Job and no Assets) loans. The subprime catastrophe began in 2007, and some of the borrowers are probably still living in their homes without making either mortgage or tax payments.

Even more homeowners defaulted during the recession of 2008-2009, cratering the housing markets in Nevada, California, Florida and Michigan primarily, but spreading nationwide as foreclosures soared and millions were kicked out of their homes and onto the street.

Recently, however, the sad saga of the residential housing collapse took an even more severe turn, when it was discovered that thousands of affidavits used by banks in foreclosures were invalid. The signers of the affidavits were employees of Ally Bank, formerly GMAC, whohad neither read the contents of the affidavits nor had any knowledge of the events described therein.

Ally Bank responded by halting all foreclosures, evictions and repossessions in 23 states.

Also, implicated was JP Morgan Chase, one of the largest holders of mortgage paper. The bank responded by halting 56,000 foreclosures in their respective tracks. With an average value of $200,000 (probably worth something closer to $125,000 today), that's more than $11 billion in mortgage loans facing foreclosure that are just going to have to sit and wait while the bank and the courts sort all of this out.

In response, today, the Attorney General of Ohio, Richard Cordray, has referred the GMAC foreclosure fiasco to the Justice Department as a possible criminal matter.

And, not to be left out, late Wednesday, Ambac Assurance sued Bank of America for $16.7 billion, saying the bank's Countrywide unit fraudulently induced Ambac to insure bonds backed by improperly made loans.

On top of all of that, savvy homeowners with underwater loans have been strategically defaulting in droves, choosing to fight the banks rather than spend hard-earned money on a home which may never be worth what they paid for it. That only adds to the hundreds of thousands of strapped homeowners who defaulted due to job loss or other personal calamity.

With word out now that the bank paperwork may be in tatters, with titles clouded on homes across America, the banks - who started the whole mess by making mortgage loans to anybody with a pulse during the mid-2000s - are looking more and more like the eventual fall guys in all of this.

For background, this interview on King World with Institutional Risk Analytics Co-Founder Chris Whalen gives a very concise and scary view of where the banks stand and what may come next.

In essence, the banks have reams of paperwork on mortgages all over the country, though nobody is really certain which parts are real, which are forgeries and how this is all going to play out in the courts. What is known is that the banks face extremely expensive litigation for years to come, courts are overwhelmed with foreclosure cases and meanwhile, many non-paying homeowners are living in the houses rent-and-mortgage-free, most not paying property taxes either.

Banks may choose to "walk away" rather than litigate on many mortgage loans, especially those with known defects (so-called "putbacks") that have been returned by the GSEs (Fannie and Freddie) or the trusts of MBS.

With scads of homeowners living the good life, those stuck with mortgage payments may get the idea that they too might like to take their mortgage payment and sock it away or spend it rather than give it to the bank, who may or may not have legal title and thus the right to foreclose in the first place.

It's a calculated risk, depending upon the state in which you live and the pertinent laws. Most states are judicial foreclosure states, in which the only way for the bank to repossess is through the courts, while others are non-judicial. Even in those states, faulty paperwork would prevent foreclosure, should the homeowner hire a capable attorney or handle the proceedings on one's own.

With the outlook for the economy generally glum over the coming five to ten years, there are for certain more than a few people considering the strategic default route, foregoing the mortgage payment, and thus risking being kicked out of your home, and weighing the risk with the distinct possibility that the litigation could take anywhere from nine months to three years and that the bank may not have the proper paperwork, anyway.

In such a case, the homeowner may receive a windfall in the form of a free house, though he or she may not be able to ever sell it, due to defects in the title. The scenario is cloudy for most people, but still worth consideration.

One thing is for sure. The more people who openly default, the more the idea gains traction and at some point the flood of defaults could reach critical mass, wherein the banks and the courts are so completely overwhelmed - and the economy suffers severely as a result - that it makes complete sense NOT to pay.

That condition almost certainly already exists in Detroit, Las Vegas, Miami and parts of California and Arizona, the epicenters of mortgage default. The municipal authorities have to be under severe pressure in these cities, as property tax revenues have likely fallen to depression levels. When the government begins to take significant hits because of the calamity in home-ownership, squatting and vandalism become rampant. This is already the case in the aforementioned areas. The question is whether or not it is coming to your town or city and whether or not your local mayor or supervisor has enough vision - and money - to keep the municipality operational.

And that's the ultimate fear: anarchy, as debt becomes the brunt of jokes, homes are lived in without regard to legal ownership and the government cracks under fiscal pressure. If the onslaught of defaults isn't handled properly and quickly enough, America's cities could turn into seething, decaying cesspools of debt, default and doubt, with the suburbs soon to follow suit.

In such a scenario, guns and metal doors may serve occupants better than clear title and paying off a mortgage would move to the bottom of the list after safety, security, food, water and utilities.

So, the next time you're about to write that check for the monthly mortgage payment, consider that moral hazard has already been slain by the actions of the banks and the government and your next move could be the most critical, life-changing action you'll ever undertake.

Borrowing a line from Clint Eastwood's "Dirty Harry", you have to ask yourself, "do you feel lucky?"

Wednesday, September 29, 2010

No POMO Today; Stocks Down

The Fed didn't pass along any free money to the primary dealers, so trading was slow, nobody buying much of anything, stocks fell.

I told you my ob was going to get easier thanks to POMO and the Fed, didn't I?

There's a POMO scheduled for Thursday, so stocks will be up.

Here's today's scoreboard, as if anyone actually cares:

Dow 10,835.28, -22.86 (0.21%)
NASDAQ 2,376.56, -3.03 (0.13%)
S&P 500 1,144.73, -2.97 (0.26%)
NYSE Composite 7,299.31, -11.01 (0.15%)
NASDAQ Volume 2,116,638,250
NYSE Volume 4,256,400,000

Yes, that's the gist of it. Advancing issued did outnumber decliners, 3076-2607. There were 421 new highs and just 27 new lows. The economy must be absolutely booming! Volume? Don't ask.

Oil gained $1.68, to $77.86, but it probably can't go much higher as $80 has been upside resistance for the last year and a half.

Gold, last bid was $1309.90. Silver was up another 16 cents, to $21.90.

Jobless claims tomorrow at 8:30 am. Place your bets!

Tuesday, September 28, 2010

POMO Commences; Currency Wars Underway

Get used to hearing and seeing the acronym "POMO" because it will become a substantial part of the financial lexicon over the coming years. In some circles it is already standard parlance.

POMO stands for Permanent Open Market Operations and is a tool used by the Federal Reserve to supply liquidity (cash) to markets. The Fed announces these POMOs in advance, so nobody is surprised by them, though the general public has little to no idea of their existence. On Wall Street, however, they are greeted like manna from heaven, because, in a way, that's what they are.

Technically, the Fed sells Treasuries to Primary Dealers (PDs), such as Goldman Sachs, morgan Stanley and all the rest of the Too Big to Fail (TBTF) crowd, then buys them back via the POMOs to replenish the brokerages with fresh infusions of cash. These primary dealers then do what every red-blooded crooked bankster does with free money - they invest it in stocks. It's all very tidy and well-organized and though there's no explicit instruction from the Fed that the PDs should or must buy stocks, it's pretty much an implied contract.

So, just in case you're wondering why stocks begin to nose-dive - like today, down more than 80 points on the Dow at 10:00 am - and then suddenly recover and turn positive, it's thanks to the Fed and the Primary Dealers and the POMO. It's all one big happy family down there in lower Manhattan, keeping the indices moving ever higher, no matter the real conditions in the economy.

On top of the Fed and the banksters keeping the world safe from true price discovery (rigging the markets), there's more going on out there in the wild world of high finance that most people don't know about nor understand at all, especially in the FOREX markets where dollars are exchanged for Yen, Euros for Francs and all manner of currency changes hands constantly.

The latest craze among Central Bankers - those devious minions of high muckety-mucks, like our own dear Federal Reserve - is called "race to the bottom," in which each nation tries to see who can devalue its own currency faster than the other guys. The reasoning is that a cheap currency will cause exports from that country to sell more quickly, thus boosting profits for the most-favored corporations.

If it all sounds very socialistic, maybe even fascist and totalitarian, that's because, as a policy, it is. Nothing causes countries to become extinct better than debasement of the currency, but, since the central bankers don't want to disturb the TBTF private banks with real accounting standards and true remedies to bad loans, bad trades, bad debts (the reason the global financial system nearly fell apart in 2008 and also why no banks went bankrupt), the race to the bottom strategy is most favored these days.

Over the past couple of weeks, the Japanese have tried their hand at it to little avail, but also Switzerland, South Korea, Brazil and even Peru have been out selling their own currencies and snatching up others in planned attempts to cheapen their own money. Strangely enough, this kind of monetary protectionism is the same kind of thing that exacerbated, broadened and lengthened the Great Depression, although back then it was mostly done by slapping tariffs on foreign goods. Today's method is so much cleaner, simpler and effective. At least that's what the brainiacs at the Fed and other central banks would like you to believe.

The problem with racing to the bottom is that when everybody does it, the net effect is bad for everyone, but mostly the working or middle class of the participating nations because the workers get paid in dollars or yen or yuan or euros that were worth more yesterday than today, and the process continues until somebody eventually defaults, bringing that nation to quicker ruin than the other players.

Rest assured, even though America likes to be first in everything, this is one game we're probably not going to win, though our Fed Chairman, Ben Bernanke, is trying as hard as he can, announcing that the Fed will just print up an additional $100 billion per month in order to assure that the US dollar will be wanted by nobody. So far, we're winning, but the Eurozone nations and the Japanese will probably beat us down the abyss of financial ruin and become the first to create some other exchange, like barter or shells or whatever they think people will readily use.

The entire concept of currency debasement is not new. It has been around for years. It's just that now, with economic stress manifold, it's become popular. These central bankers know that time is not on their side. They realize that the days of floating currencies are coming to an end and that eventually some kind of asset-backed currency will have to replace the fiat (paper) money, and that asset is likely to be gold, silver, oil or a combination of all of them.

In the meantime, stocks will be moving at the whims of the primary dealers and not along the lines of fundamental valuations. It's almost a certainty that stock markets will rally and crash, making boom and bust the normal cycle rather than something to be avoided. In fact, we're already there. The 2008-2009 crash was just the first taste. There are many more crashes and mini-rallies to come. That's how the PDs make their money after all, trading, and being on the right side of more trades than the other guy.

Because of all this manipulation, my job just got easier. Now, all I have to do is announce the size of the POMO, when it's going to be completed and report how high stocks rose. Simple, easy and clean. Unfortunately, not a real market and nowhere for individual investors to play. Here's a hint: buy gold and silver from a dealer and take physical delivery. It's just about the only way to protect yourself from the currency manipulators who would steal all your wealth.

Dow 10,858.14, +46.10 (0.43%)
NASDAQ 2,379.59, +9.82 (0.41%)
S&P 500 1,147.70, +5.54 (0.49%)
NYSE Composite 7,310.32, +46.95 (0.65%)
NASDAQ Volume 2,140,495,250
NYSE Volume 4,189,045,750

Advancing issues pounded decliners, 3956-1766. New highs: 397; new lows: 35. Volume was in the toilet. Apparently the computers didn't find the POMO all that interesting.

November crude fell 34 cents, to $76.18. Gold made another new high, up $9.90, to $1,306.60. Silver reached another 30-year high, gaining 23 cents, to $21.69. Don't think the precious metals traders are going to take a break here. As long as the developed nations of the world insist on devaluing their currencies, gold and silver will price higher. They are, after all, not only the most-trusted store of value, they're going to be used as money again, real soon.

Monday, September 27, 2010

Preparing for 12% Unemployment and $45 Silver

Had a conversation with an otherwise intelligent fellow the other day who opined that "a little inflation is good."

Before leaping out of my skin amid thoughts of years of savings being wiped away and 14% mortgages as were the norm in the late 70s, I calmly asked how much "a little inflation" was.

There was no answer in absolute numerical terms, only the assertion that enough to keep people working and businesses growing would be "enough."

So, I pondered the relative absurdity of a targeted 2-3 per cent inflation rate, as the Fed has suggested and the greater stupidity of quantitative easing as a way to inflate out of recessions, depressions or other worse scenario.

A little inflation, which we have had, courtesy of the Federal Reserve Bank, has caused the value of the dollar to decline by over 90% since 1913, the year the Fed was formed, and that takes into account the decade-plus of the Great Depression when prices for many consumer goods declined in order to meet the diminished demand of the day. A little deflation turned out to be not such a good thing either, it appears.

One would not be so concerned with inflation if it were a uniform, mathematical construct which took wages higher along with the cost of food, clothing, housing and other mundane necessities, but, alas, that is not the case. The generally abusive inflation of which people most usually speak affects prices of goods only, while wages remain stagnant, as they have over the course of much of the last thirty-five years.

Of course, even in the utopian condition of wage and price inflation, savings would still be eroded. That thousand dollars you put away in 1985 would only be worth about $500 in today's goods. And since the purpose of money saved is to eventually pay for something, without investing at a decent rate of return (and holding it there steadily for 25 years or more - a near-impossibility) the process of saving anything at all seems a fool's game.

And so it was during the boom of the past few decades. Nobody saved much at all, as inflation turned a country of savers into spenders and a net positive trade balance turned negative. So, since inflation makes saving more an exercise in financial self-flagellation than anything prudent and wise, it does emboss the value of investing in cold money, that being gold and silver coins and bars.

Silver has quadrupled in ten short years, as has gold. The current trend, should it continue at its present pace, would bring the price of an ounce of silver to $45 in just three years, possibly sooner, as the precious metals are "heating up" amid widespread acceptance of a number of inescapable monetary facts, those being that the level of government debt being piled upon the already reeking, stinking heap will double before the end of the next decade and will never be repaid, the debt will be well over 100% of current (or future) GDP, as it already is, and the Fed's plan to revive the economy consists of running the printing presses at full bore and adding on a few units to produce more and more federal Reserve Notes.

The Fed's aim is to debase the economy without end, keeping interest rates at ZERO for eternity or longer and completely destroy any remnants of the once proud United States of America and the rule of law. When the Fed finally accomplishes their dastardly deed, we wonder two things: 1> will George Bush be around to announce, "Mission Accomplished", and what currency will replace the tired, worn FRNs?

The simple answers are Yes, and silver, and to some degree, gold. Since the complete destruction of the world's reserve currency should be complete within fifteen years at the outside, George Bush should still be alive and kicking enough to make proclamations. And as a replacement for currency, most people will only accept something that has value. Gold is already too high-priced to be considered currency, except for very expensive items. In 2020, a couple ounces of gold may be enough to buy a new car, so there could not be any coin small enough for everyday purchases.

Enter silver, specifically, silver quarters minted prior to 1965, which contain 90% silver and currently command a value of nearly $4.00. With silver at $21 and change, those same silver quarters will be worth upwards of $8, small enough for reasonable purchase of food, lodging, movie tickets and the such. Often called "poor man's gold", silver will likely take on the moniker of "middle class gold," for obvious reasons.

Larger sums of silver, at $45 and up, may be beneficial as collateral, no matter what fiat or paper currency is currently in vogue, thus making it not only money and a store of value, but also possessive of status as a fractional reserve.

It should be lovely living in a future with plenty of silver on hand.

Morgan Stanley today announced a hiring freeze due to low participation levels in the market. Trading volumes have been at historic lows for months and a continuation of that trend will result in weakened earnings from the major brokerages. Stanley assures us that should the condition persist or worsen, that "hiring freeze" will magically morph into layoffs, heralding in the second leg of the depression, wherein government-measured unemployment increases from the current 9.6% to somewhere North of 12%, in the coming year.

Of course, government measurements are inherently inaccurate, as current "real" unemployment stands today at 16-18%. By the end of next year that number should grow to 20-22%.

Today's markets could not carry though on Friday's rally, culminating in a dizzying dive in the final hour of trading.

Dow 10,812.04, -48.22 (0.44%)
NASDAQ 2,369.77, -11.45 (0.48%)
S&P 500 1,142.16, -6.51 (0.57%)
NYSE Composite 7,263.37. -37.67 (0.52%)

Declining issues overwhelmed advancers, 3400-2330. New highs retained their edge over new lows, 389-26, on dismal volume. More of the same.

NASDAQ Volume 1,888,585,625
NYSE Volume 3,759,252,750

Oil gained three cents, to $76.52. Gold was up 70 cents, to $1,296.70. Silver gained 7 cents per ounce, to $21.46.

There's still plenty of room to run for both gold and silver, as neither have been shown to be in any kind of speculative bubble.

Friday, September 24, 2010

Stocks Surge on No News, High Hopes

Sure enough, no sooner do I call a near-term top and tell the world to shun stocks and buy gold and silver, than the market participants decide to push the indices close to 2010 highs.

Notice I said close, not at 2010 highs. The major indices are anywhere from 4 to 8 per cent below the levels reached in late April, with the Dow being the closest of the three. What is propelling stocks higher is nothing in particular, but gobs of free money, courtesy of the Fed, in aggregate.

This is actually the way it's going to play out, with stocks advancing on nothing but momentum or speculation, while gold and silver may take a bit of a breather, only to resume rising as money evaporates along with all investments measured in it, except, or course, the precious metals, an asset class unto themselves, doubling as a safety-net, de facto currency.

Dow 10,860.26, +197.84 (1.86%)
NASDAQ 2,381.22, +54.14 (2.33%)
S&P 500 1,148.67, +23.84 (2.12%)
NYSE Composite 7,301.04, +159.53 (2.23%)

Advancing issues were back in their groove, dancing all over decliners, 4645-1065. New highs totaled 420, to just 29 fresh lows. Volume was subdued, once again.

NASDAQ Volume 2,014,145,250
NYSE Volume 4,326,041,500

Gold finished nearly unchanged at $1297.70 per ounce; silver was shining, at $21.42. Crude oil finished $1.31 ahead, at $76.49.

Thursday, September 23, 2010

Beginning of the End for Stocks; Gold and Silver Set to Soar

It's all so simple. Once one can take a deep breath, review all that's come before and all the promises made and not kept - like the current Republican phony Pledge to America - one can truly see that the future of life in America is going to be difficult for many over the ensuing twenty to thirty years.

If you are one of the millions who expect to be alive and living in the good, old, USA from 2010 to 2030 and maybe beyond, you've got to see through all the phoniness of politicians, the corruption and collusion of the banks and major corporations, the concentration of wealth at the very, very top (not just the top 5%, but especially the top 1%) and on the other side the welfare state of outright welfare recipients, people on disability, veteran's benefits, social security and other similar entitlements and begin to believe that it's all going to end badly and the end is getting closer and closer every day.

The politicians and the fed and the completely corrupt, elite banksters will probably be able to keep the status quo for another six months or a year or maybe even two, but conditions are likely to deteriorate further. All attempts to sell "recovery" to the populace has failed. There's still some hope left in the people, but it's growing tired, especially since the "change" part of the equation promised by Mr. Obama and his Democratic party friends has failed to materialize in any meaningful way.

Upcoming are the mid-term elections, with Republicans blaring on about how the Democrats have failed and the Democrats attempting to vie for more time or alternatively scaring the voting public about what a Republican Tea Party takeover of congress will do to the country, not for the country. The worst part of it all is that the Republicans are likely to pick up some seats in the House and a few in Congress, but not enough to enable a majority large enough to overcome a presidential veto, while the Democrats will face the same kind of obstructionism that's been prevalent for the past four years.

In other words, the congress will be balkanized, stalemated and incapable of agreement on anything. It will be even worse in makeup than it is today, inept, powerless, clueless and incompetent, a recipe for economic disaster as sure as the sun rising in the East.

Today's action in stocks is significant, since the Democrats are making statements to the effect that they will not consider any kind of legislation concerning either the expiration or extension of the Bush-era tax cuts before the election, which was literally a sell signal to Wall Street, because getting a deal done after the election and before the tax cuts expire (December 31, 2010), will be next-to-impossible.

That's the main reason stocks ended today as they did, down for a second day in a row and this day's decline larger than yesterday's. Also, unlike recent days of gains, these last two declines were orderly, with each of the indices in somewhat of a lock-step with the others.

Stocks made a major near-term top on Tuesday, directly after the Fed announcement, and are aligned to head lower into the upcoming elections, just six weeks away. Prior to the elections, third quarter earnings report for most major publicly-traded firms are due out, which could provide some short term relief, but the direction is overall to the downside from here. After election day, who knows? With the Fed hell-bent on keeping the status quo, effectively debasing the currency with QE2, prospects for the remainder of 2010 are dicey at best.

Meanwhile, gold and silver have never looked better. Upon the release of the FOMC statement, both precious metals priced higher and have held or exceeded their new tops. Silver is at a 30-year high. Gold close to an all-time high, the record being set just yesterday.

Gold and silver will survive and prosper. They have been the best investments of the past 10 years and may have only begun an historic bull market. Precious metals prices could double, triple or go well beyond those levels within the next three to five years. Their charts show steady appreciation and interest in them is growing daily. All of this leads to the unmistakable conclusion that they are the only true store of value worth investing in today.

Advancing issues took a back seat to decliners on the day, 3897-1812. New highs continued to erode, but stayed well ahead of new lows, 249-57. Volume was not even worth mentioning, it was so shabby.

Latest gold bid: $1292.30; silver: $21.14 per ounce. Crude for November delivery rose 47 cents, to $75.18.

For more, read the latest musings of the Golden Jackass.

Dow10,662.42Down 76.89 (0.72%)
NASDAQ2,327.08Down 7.47 (0.32%)
S&P 5001,124.83Down 9.45 (0.83%)
NYSE Compos7,141.51Down 69.34 (0.96%)
NASDAQ Volume1,951,539,875.00
NYSE Volume3,999,012,250.00

Wednesday, September 22, 2010

Markets Are in a Seriously Confused State

First, a bit of a correction, or, an explanation, at least.

When I posted the losses in gold and silver in yesterday's post, I was taking the quotes from CNN/Money, where I usually get the information. Looking at a chart from, I see that the price level I quoted was just about the low of the day, quoted just at 2:15 pm, right as the Fed made their announcement. Ditto for silver.

Immediately, gold and silver shot through the roof, and the NY Globex close was 1286.80. Being that Kitco gives the close at 5:30 in the afternoon, and I usually write this about 4:00-4:45 pm, I cannot guarantee the accuracy of the gold and silver quotes, though I will endeavor to do so from here on out.

Now, on to today's events...

After a positive open, stocks were down most of the remainder of the day as the true ramifications of the fed's overt hinting at QE2 and fresh numbers on housing reached the Street about 10:00 am. The FHFA House Price Index [PDF], a gauge of residential housing prices in America, came in with a 0.5% decline for July, off a revised 1.2% drop in June. That's a 1.7% drop in residential housing in just two months, or a full year run-rate of 10.2%. The news was not received very well.

The Index is a government gauge, meaning it is subject to tweaks and revisions and is probably a more conservative approach than most would use. The Index tracks conforming, conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac. It also excludes, multi-family units and condos, among others, so it is likely to be a more conservative estimate than say, NAR data. To get an idea of just how conservative the measure is, consider that the index is only 13.7% below the April, 2007 peak.

Dow 10,739.31, -21.72 (0.20%)
NASDAQ 2,334.55, -14.80 (0.63%)
S&P 500 1,134.28, -5.50 (0.48%)
NYSE Composite 7,210.85, -35.10 (0.48%)

Once again, the markets took on small losses, but decliners submerged advancing issues in a big way, 3712-2027. New highs continued to dominate new lows, 313-52. Volume was at about the same levels as yesterday, still well off traditional readings.

NASDAQ Volume 2,193,723,500
NYSE Volume 4,082,509,750

Crude oil for october delivery fell 26 cents, to $74.71. The latest reading on gold was $1291.50, officially a new record. The spot silver bid was $21.15.

As there are numerous schools of thought now that the Fed has made it abundantly clear that they will proceed with dollar debasement in hopes of reviving inflation (a soundly stupid idea), there are many more questions than answers about where this is all leading. The best guesses - and they're all just guesses at this point - are for sustained inflation in food and energy prices, courtesy our friendly, evil central banking cartel, which seems hell-bent on salvaging the defunct credit structures of the past 40 years and keeping the insolvent mega-banks open for business, regardless of whether or not they have to starve half the global population to do so.

If the current economic scenario seems like some dysfunctional Orwellian nightmare, it's probably because it is. Keynesianism has burst upon the system in all its glory and is slowly eroding the value of all fiat currencies, one by one and often in unison. Eventually, it will end badly for those in power: the Fed, the president, congress, princes and kings of Euroland and probably the Chinese and Indians as well.

Welcome to the financial world of the future, where you don't know the value of anything.

Tuesday, September 21, 2010

When The Boom Really Goes Bang, Bang, Bang!

Pensions become Ponzi, Recess becomes recession and eventually depresses into depression. There's a natural progression to these things and trying to stop them is like throwing water back over a broken dam. There's some temporary relief, a feeling that it may all work out for the best, but eventually, the dam bursts, flooding everything and drowning most. This is the situation in which most of the world's economies - but mainly the United States - currently find themselves. Patches have been applied to the broken dam, but, even though all the experts know that it will eventually burst, they will not, either from some misguided confidence or fear of what may occur should they reveal the truth.

Either way, they'll look bad when it does, but they'll probably be long gone, either dead or expatriated.

Since there's nothing worthwhile happening in the equity markets other than the usual churn associated with the Fed's POMOs (Permanent Open market Operations), today we offer some background, which only took a little bit of searching on the internet. (Apparently, there are quite a few skeptics on the loose these days.)

First, though, let's make sure we know what really happened today.

Any and all trading centered around the FOMC statement at 2:15 pm, in which the Fed neither raised nor lowered rates (Actually, they can't lower them below ZERO, where they currently sit.), but they did change some of the wording in their release.

The salient points were, "the pace of recovery in output and employment has slowed in recent months.", "Housing starts are at a depressed level. Bank lending has continued to contract, but at a reduced rate in recent months." and "The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate."

That final quote is a mouthful, though most have interpreted it to mean that the Fed is ready to engage in further quantitative easing (i.e., printing money), to keep the economy from falling off a cliff. Ouch! Ohh!

The market reaction was odd. Stocks first went straight up, as in "Happy days! More free money!" and then did an about face when moron buyers realized they had been taken and that the reason the Fed is printing more money is because the economy sucks. There, it's been said. The economy sucks, and the Fed writ that large today.

Dow 10,761.03, +7.41 (0.07%)
NASDAQ 2,349.35, -6.48 (0.28%)
S&P 500 1,139.78, -2.93 (0.26%)
NYSE Composite 7,245.95, -20.07 (0.28%)

Once again, the markets delivered a split decision, with the Dow up and everything else down. In contrast to the soft headline numbers, declining issues far outpaced advancers, 3612-2095. New highs ramped past new lows, 428-38 and volume was actually a bit on the strong side (poor timing).

Commodities took a hit, too, though they were trending lower prior to the Fed statement. Crude oil slipped $1.34, to $73.52. Gold fell $6.60, to $1,272.40 and silver dropped 16 cents, to $20.62, all of which makes perfect sense if we are actually going to slide quietly into a deflationary depression. Shhh! Don't tell anybody.

NASDAQ Volume 2,148,134,500
NYSE Volume 4,403,680,500

Please note, this following little piece is someone else's work. It is not my intent to plagiarize.

Here's a step-by-step look at the banks and bailouts.

1) All the global banks were up to their eye-balls in toxic assets. All the AAA mortgage-backed securities etc. were in fact JUNK. But in the balance sheets of the banks and their special purpose vehicles (SPVs), they were stated to be worth US$ TRILLIONS.

2) The collapse of Lehman Bros and AIG exposed this ugly truth. All the global banks had liabilities in the US$ Trillions. They were all INSOLVENT. The central banks the world over conspired and agreed not to reveal the total liabilities of the global banks as that would cause a run on these banks, as happened in the case of Northern Rock in the U.K.

3) A devious scheme was devised by the FED, led by Bernanke to assist the global banks to unload systematically and in tranches the toxic assets so as to allow the banks to comply with RESERVE REQUIREMENTS under the fractional reserve banking system, and to continue their banking business. This is the essence of the bailout of the global banks by central bankers.

4) This devious scheme was effected by the FED’s quantitative easing (QE) – the purchase of toxic assets from the banks. The FED created “money out of thin air” and used that “money” to buy the toxic assets at face or book value from the banks, notwithstanding they were all junks and at the most, worth maybe ten cents to the dollar. Now, the FED is “loaded” with toxic assets once owned by the global banks. But these banks cannot declare and or admit to this state of affairs. Hence, this financial charade.

5) If we are to follow simple logic, the exercise would result in the global banks flushed with cash to enable them to lend to desperate consumers and cash-starved businesses. But the money did not go out as loans. Where did the money go?

6) It went back to the FED as reserves, and since the FED bought US$ trillions worth of toxic wastes, the “money” (it was merely book entries in the Fed’s books) that these global banks had were treated as “Excess Reserves”. This is a misnomer because it gave the ILLUSION that the banks are cash-rich and under the fractional reserve system would be able to lend out trillions worth of loans. But they did not. Why?

7) Because the global banks still have US$ trillions worth of toxic wastes in their balance sheets. They are still insolvent under the fractional reserve banking laws. The public must not be aware of this as otherwise, it would trigger a massive run on all the global banks!

8) Bernanke, the US Treasury and the global central bankers were all praying and hoping that given time (their estimation was 12 to 18 months) the housing market would recover and asset prices would resume to the levels before the crisis. . Let me explain: A House was sold for say US$500,000. Borrower has a mortgage of US$450,000 or more. The house is now worth US$200,000 or less. Multiply this by the millions of houses sold between 2000 and 2008 and you will appreciate the extent of the financial black-hole. There is no way that any of the global banks can get out of this gigantic mess. And there is also no way that the FED and the global central bankers through QE can continue to buy such toxic wastes without showing their hands and exposing the lie that these banks are solvent. It is my estimation that they have to QE up to US$20 trillion at the minimum. The FED and no central banker would dare “create such an amount of money out of thin air” without arousing the suspicions and or panic of sovereign creditors, investors and depositors. It is as good as declaring officially that all the banks are BANKRUPT.

9) But there is no other solution in the short and middle term except another bout of quantitative easing, QE II. Given the above caveat, QE II cannot exceed the amount of the previous QE without opening the proverbial Pandora Box.

10) But it is also a given that the FED will embark on QE II, as under the fractional reserve banking system, if the FED does not purchase additional toxic wastes, the global banks (faced with mounting foreclosures, etc.) will fall short of their reserve requirements.

11) You will also recall that the FED at the height of the crisis announced that interest will be paid on the so-called “excess reserves” of the global banks, thus enabling these banks to “earn” interest. So what we have is a merry-go-round of monies moving from the right pocket to the left pocket at the click of the computer mouse. The FED creates money, uses it to buy toxic assets, and the same money is then returned to the FED by the global banks to earn interest. By this fiction of QE, banks are flushed with cash which enable them to earn interest. Is it any wonder that these banks have declared record profits?

12) The global banks get rid of some of their toxic wastes at full value and at no costs, and get paid for unloading the toxic wastes via interest payments. Additionally, some of the “monies” are used by these banks to purchase US Treasuries (which also pay interests) which in turn allows the US Treasury to continue its deficit spending. THIS IS THE BAILOUT RIP OFF of the century.

The rest is all original, and mine.

Ah, well, that's not even the worst of it. In order to stave off imminent implosion of the entire global banking system, some believe the Fed will have to print (and waste) some $30 TRILLION. Now, that happens to be just an round estimate, but it does amount to twice the annual GDP or twice the existing debt (choose your poison). Since the Fed is already in somewhere between $2 and $11 Trillion, depending on your level of pessimism and how you choose to crunch the numbers, we are only, at best, one third of the way down the path of complete, utter and final desolation.

If this first third of the way took three years (2007-2010), then we should finally be soup by 2016, though anybody with the uncanny ability to think that far ahead would probably be living in Brazil, China or Belize by then. The rest of us will just have to "suck it up" so to speak. The good/bad news is that you will be able to buy a traditional, three-bedroom home in a good suburb for about $30,000; a pound of tomatoes will be only $8.00, your utility bill will be 40-70% higher because usage will be very low and you have to take up the slack and your property taxes will be at least triple your mortgage payment (at least in the Northeast).

However, you won't be paying any taxes since there will be no jobs, but, for all you 50-and-60-somethings out there, that Social Security check you planned on receiving monthly will no longer be available. The overwhelming debt the nation has built up will see to it that almost all entitlements will have to be curtailed or, at a minimum, severely curtailed.

Soooooo, the lifestyles you've so carefully planned for yourselves and your children will go entirely up in the smoke of debt and default. The world will be a poorer place, you will be old and decrepit and the minions from nations to which we owe money we can never repay will be scouting the streets and byways of America for choice deals, to which they feel entitled!

The problem is that most Americans took it for granted that our government and our leaders were telling us the truth, not lying through their collective teeth in order to keep being re-elected. We - and I'm speaking mostly to the baby boomers - allowed them to tax us to the max, spend every last penny and then borrow more. we've brought it upon ourselves, you see.

And, just in case you're not convinced that we're well upon a path of self-destruction, in order to keep the public in the dark and at ease through our economic nightmare, the government is manipulating the stock market.

Monday, September 20, 2010

OK, So Now What?

Stocks just pushed higher through resistance on Monday as traders searched for clues that either the economy was improving or the Fed would change some wording in Tuesday's FOMC rate policy meeting.

Rates are expected to remain unchanged, at ZERO, which, if one were to look at it objectively, would consider it a glorious time to take on additional risk. After all, borrowing money without any interest - or marginal at best - is accommodative to speculation, just the kind of easy credit policy which has created all the other prior bubbles.

From certain perspectives, it makes perfect sense to invest in US equities. On the side of caution are those who believe the entire Fed operation is nothing more than a grand illusion, destined to fail. In the meantime, investors simply cannot refrain from buying stocks with cheap money. Buy, buy, buy was the message delivered today, loud and clear.

The major indices have rallied through their 200-day moving average and are testing the high end of the recent range. Whether this current rally has enough impetus to surpass the highs of Spring will be known in a number of days or weeks, though there seems to be nothing standing in the way of new highs heading into the elections, despite what cynics might be assuming about the political nature of the markets.

Dow 10,753.62, +145.77 (1.37%)
NASDAQ 2,355.83, +40.22 (1.74%)
S&P 500 1,142.71, +17.12 (1.52%)
NYSE Composite 7,266.02, +111.37 (1.56%)

Advancing issues buried decliners, 4693-1152. New highs soared past new lows, 531-45. Even volume was a little improved from the sluggish levels of the past six weeks.

NASDAQ Volume 2,027,424,375
NYSE Volume 4,064,069,750

Commodities participated in the overall euphoria. Oil gained $1.20, to $74.86. Gold closed up $3.40, to another new record, at $1,279.00. Silver slid just a penny, to $20.78. Today's rally - and the general rally of the past two weeks would be more believable if commodity prices were more contained. The gains in commodities are only proving that while stocks may be favored in the short run, there's no scarcity of skepticism among investors, who are buying the precious metals and oil as protection... against exactly what, nobody seems certain. But, whether it's inflation or deflation, commodities and bonds have been rallying right alongside the stock market.

All asset classes usually do not gain or fall at the same moments in time, but, with the massive amount of liquidity being suppled constantly by the Federal Reserve, anything is possible, including re-flation, inflation and even hyper-inflation. The Fed is swimming in some very dangerous water, indeed.

Sunday, September 19, 2010

Best spots for fishing in South East PA

Post contributed by Buford Downs

If you love fishing as much as I do then you always want to find a great spot to catch some fish. You also probably don't have tons of money to go rent a boat or travel long distances from your home to find an ideal fishing spot. It took me a long time before I found a spot locally that I could count on to always deliver a nice fish or two without costing me and arm and a leg.

The best spot that I have found is Valley Creek over near the Downingtown area. This is a very fun spot for bluegill and brown trout. I have a number of friends who also love this particular area and we will often spend an entire day there. I will usually leave at the crack of dawn after I set my house alarm system so that I don't have to worry. That way my friends and I can just relax and fish until late into the evening and share some beers and simple conversation. To me, there are few things in the world that help to relieve the stress of a hard week at work like having that casual time with my friends.

Friday, September 17, 2010

Quotes for a Friday Afternoon

Before getting to the important part of this posting, a quick recap of the day on Wall Street is the usual requisite, so...

Here's what happened:

Dow 10,607.85. +13.02 (0.12%)
NASDAQ 2,315.61, +12.36 (0.54%)
S&P 500 1,125.59, +0.93 (0.08%)
NYSE Composite 7,154.64, -14.84 (0.21%)
NASDAQ Volume 2,174,708,250
NYSE Volume 4,437,062,000

Not much, even for a quad-witching options day, which is supposed to be "volatile." US markets are, if anything, operating on borrowed money and borrowed time. The money's been borrowed from the Fed and the time is just a matter of when somebody with a large enough stake says, "good-bye." It's a game of chicken and nobody wants to be the last one in the room.

Note that the NYSE, the broadest measure of equities, was the only one down, and also the only index usually not quoted by the major news services.

Advancing issues beat decliners, 3321-2395, but it's mostly just churning. New highs maintained their daily edge over new lows, 413-58, another meaningless metric, due to the large, unannounced number of issues de-listed in the past six to nine months. Volume was higher than normal, but still not of any degree anyone would get excited about. Most of the additional trading was due to the aforementioned quadruple-witching in options.

There was probably more action at Belmont Park than on the floor of the NYSE, and it was certainly more fun to watch.

Oil was hammered down another 91 cents lower, to $73.66, but remains stuck in a trading range, emblematic of the global economic condition. Gold closed up $3.70, at $1,275.60, another all-time high. Silver gathered only a nickel higher, to $20.79.

Then there was word on the housing market, from a number of economists, including the widely-quoted Mark Zandi of Moody's, who's been proven wrong so many times that most people have stopped counting.

Zandi believes housing prices will drop another 5% by 2013, and then says, "After reaching bottom, prices will gain at the historic annual pace of 3 percent..." He's probably wrong on the magnitude by a measure of three or four times. Residential real estate likely has 15-20% more to decline. As to his predicted annual growth pace of 3%, it's already well-established that home prices normally rise by about one per cent, not triple that.

Somebody ought to hand Zandi a golden parachute and shove him off a skyscraper so he can stop deluding himself that he's making sense. After all, he does work for one of the rating agencies which said all that toxic, sub-prime, re-packaged, securitized mortgage garbage was AAA-rated. The guy ought to be in jail rather than on CNBC.

The upshot is that the banks have such a monster of a problem on their hands that they and the courts cannot handle it in a reasonably timely manner. The absolute implosion of the US housing market has left a crater in the economy the size of Rush Limbaugh's ego, and that's enormous. The basic paradigm for buying a house these days is to offer 30% below the asking price, and see how badly the owners - either a bank or a homeowner or a combination of both - want out of it.

Then try and get a mortgage. A million more laughs.

The glut of homes - unoccupied, unrented, in need of repair, under-water financially - is mammoth and everywhere. Count on a minimum of three and probably more like five more years of pain, price declines and associated nonsense about finding "the bottom," which will only be reached when the banks realize that it's not worth their time or expense to pursue further exposure and foreclosures and they become the party which "walks away." When the banks no longer want the properties, no longer feel there's any gain in bleeding consumers dry with fees and interest, and the property taxes, maintenance and insurance exceed what they can hope to recover on unsold inventory, there will be a bottom, and it's going to be one heck of a lot lower and a heck of a lot further out than most people anticipate.

Too many houses at prices too many people can't afford. Simple math.

Following are the promised quotes. Have a lovely weekend.

"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

-- Thomas Jefferson, (Attributed)
3rd president of US (1743 - 1826)

"Permit me to issue and control the money of a nation, and I care not who makes its laws."

-- Mayer Amschel Rothschild

"Income tax is nothing but wage slavery. If you have payroll deductions, you are a slave. Only way to fix it is for everyone to quit, or, as in Europe, the whole nation goes on strike. It won't happen here. Americans are too stupid and too frightened by their own government. I am not. I could care less. Let them come and take my house and my belongings. I will start over, stronger. I love this country, but I hate the people who run it."

-- Ed.

Thursday, September 16, 2010

Wheels Coming Off Global Economy

Today may have been a watershed day for the demise of the global economy. There were any number of troubling events - most of which were completely overlooked by the computers making trades on US markets - that signal a major event could decouple governments from their economies, people from their money, banks from credits, and on and on...

Take, for instance, the activity in the Forex markets, where the Bank of Japan decided to intervene for the first time in six years, to keep the Yen from appreciating. The intervention actually took place on Wednesday, but it's effects will be far-reaching and continual. All currencies are seeking levels at which they can find comfort in trade - cheap imports, value on exports - but, not everybody can have it their way, obviously. These kinds of things lead to crises, political, economic and sometimes military.

But that's probably not going to get too many people worked up. Maybe the thought of foreclosures on the rise might suffice. The banks are apparently trying to manage the foreclosure process, in other words, slowing it down so that they don't create a glut of homes on the market and cause prices to fall even further.

It's a gamble that isn't likely to work out, however. Prices do what they're supposed to do. Mismanaged properties sell for less. Homes which were overpriced to begin with will find their correct level. Despite what the bankers holding most of the mortgages (Bank of America) believe, Americans are smarter than they think, and with an economy suffering from 20% real unemployment, keeping prices suspended artificially is probably more wishful thinking than prudent planning.

The real estate market has gone through this before, as in the past two years the flood of foreclosures was partially stemmed by various government programs and tax bribes, modifications and work-outs. Home prices fell precipitously, nevertheless. So, as with anything having to do with banks these days, we offer a hearty, "good luck with that!"

How about thinking ahead a bit, like how much you'll be taking in every month when you're retired? The news there isn't very rosy either. Here's a report that offers the sobering conclusion that at the end of 2008 (hey, that was almost two years ago!), public pension funds were experiencing a shortfall of anywhere between $1 Trillion and $4.4 TRILLION! That's a lot of money that people are unlikely to be receiving in their "golden years."

But, that's just the start of it. Of the more than 1700 publicly-traded companies which operate pension plans for employees almost all of them are seriously underfunded. "The assets of corporate pensions relative to their deficits, known as the funded ratio, fell to 70.1% in August..." says a report by the Milliman 100 Pension Funding Index.

And that's without even looking at Social Security or Medicare, both systems hopelessly bankrupt and already bleeding red ink. When baby-boomers begin retiring in droves in the next two to five years, the systems will be beyond repair and likely need major modifications, such as no COLA, raised retirement ages and lower benefits. (Ed. Note: Being 56 myself, this doesn't make me necessarily happy, though my choice to not pay into any kind of pension plan and avoid SS tax at all costs now seems a prudent maneuver.)

OK, had enough? How about chewing on an arcane document of the American Monetary Institute from 2004, delivered by Director Stephen Zarlenga to the British House of Lords, which outlines, among other things, how government issuing money (not the Federal Reserve, a private bank), without the backing of gold or silver, has been the most fruitful.

This shoots major holes in the argument that "gold is money," and a true store of value and all the other clap-trap that have made gold the most speculative, over-priced commodity on the planet. As I and some non-gold-infused friends like to say, "you can't eat a gold bar and you can't buy a candy bar with it", or, "try buying a loaf of bread with a Kruggerand. Ypu've have better luck buying the whole bakery."

So much for the bad news. There was some good news, somewhere, but nobody seemed able to locate it. Nonetheless, the computers trading US stocks (You do know that 70% of all trades are executed without human involvement, don't you?) managed to issue forth another split decision, with the Dow and NASDAQ up, but the S&P and NYSE down, that, in itself, troubling. market divergence is almost always a telling sign that a correction isn't far off. Making matters more complex and compelling, trading volumes were down to absurdly low levels once again, running at a rate 30% below last year.

Dow 10,594.83, +22.10 (0.21%)
NASDAQ 2,303.25, +1.93 (0.08%)
S&P 500 1,124.66, -0.41 (0.04%)
NYSE Composite 7,169.48, -10.31 (0.14%)

In opposition to the benign headline numbers, declining issues pounded advancers, 3419-2260. The number of new highs to new lows remained static and statistically insignificant, at 308-48.

NASDAQ Volume 1,703,297,625
NYSE Volume 3,354,712,000

Crude oil futures were slammed down $1.45, to $74.57, but gold made another all-time high, at $1,271.90. up $5.20. Silver kept climbing in stride, up 20 cents, to $20.74.

Now, if there's anything we should have learned from first, the tech bubble of the late 90s and second, the housing bubble of the 2000s, that when the object of the bubble is advertised heavily on TV - remember How about 125% home equiy loans? - it's usually safe to say the asset is overpriced and due for a fall. It happened with tech stocks. It happened with houses, so it's probably going to happen with gold (and probably silver) because of the rampant number of ads telling us to buy gold, cash in our gold and get gold or cash in some manner. It's a mania, pure and simple. Gold and silver have increased in value by 400% or more over the past decade. When will it end? Nobody really knows, but buying at these nosebleed levels is the stuff of fools. Real estate looks much better, especially if you're assigned to the basic tenet of all investing, "buy low, sell high."

Wednesday, September 15, 2010

QE Working Marvelously for Wall Street

Hello, broken record department, how can I help you?

More quantitative easing, please.

Not a problem. Thank you.

Dow 10,572.73, +46.24 (0.44%)
NASDAQ 2,301.32, +11.55 (0.50%)
S&P 500 1,125.07, +3.97 (0.35%)
NYSE Composite 7,179.79, +17.71 (0.25%)

Advancing issues held sway over decliners, 3132-2554. New highs towered over new lows, 309-41. This should be regarded as entirely cosmetic. Even bad companies are good. Volume was higher than it's been in some time.

NASDAQ Volume 2,085,158,125
NYSE Volume 3,617,492,750

News flash: the world is afloat in oil due to slack demand. The current futures contracts sold off 78 cents today, to $76.02. Gold is beginning to feel pricey, down $3.00 today, to $1,266.70. Silver gained 14 cents, to $20.54, a bargain by comparison, though closing in on a 2 1/2 year high.

I played golf and didn't bother to keep score. It was fabulous. Playing alongside one of my very best friends surely didn't diminish the pleasures of the afternoon. Played 18 holes. Even parred one.

It's all a matter of perspective, expectation and liquidity, after all. Right now, liquidity seems to be the position most favored. Buyers markets are springing forth everywhere. When will the money come without strings?

Tuesday, September 14, 2010

Gold, Silver Spike Higher; Stocks Take Rare Hit

Ed. Note: Sometimes, like today, I think I should be writing as a satirist rather than as a junior economist.

Gold soared to record highs today for no particular reason. The yellow metal has been poised for a breakout since mid-summer. Today's move was in concert with another big jump in the price of silver, itself notching a 2 1/2-year high (the London fix was $20.92 on the 17th of March, 2008).

The move in the metals - especially silver - has probably been long overdue, a condition many assign to covert and overt manipulation of the precious metals markets by JP Morgan and other well-connected instruments of the fiat money cartel.

Whatever the reason, the precious metals have been consistently outperforming stocks. 2010 is no exception. Silver is up nearly 20% for the year. Gold is up a nifty 16% while the major stock indices are just barely positive for the year. Could it be that gold and silver are finally becoming more mainstream investment vehicles, regarded by many as not only a hedge against inflation but a true store of value in a world gone mad with hedges, derivatives, deficits, and all manner of opaque investments?

Should that turn out to be the case, expect this move to be only the beginning, as heightened awareness turns into heightened demand. Both have quadrupled in price over the past 10 years. The stock markets, meanwhile, have shown virtually no tangible return over the past decade.

While the metals were making clanging noises, stocks took their first decline (though the NASDAQ was higher at the close) since last Monday, breaking a four-day winning streak, even though the declines were minor.

Dow 10,526.49, -17.64 (0.17%)
NASDAQ 2,289.77, +4.06 (0.18%)
S&P 500 1,121.10, -0.80 (0.07%)
NYSE Composite 7,162.08, +5.90 (0.08%)

For the first time in the past five sessions, declining issues outpaced advancers, 3148-2517. New highs remained at elevated levels compared to new lows, 356-39. Volume was significantly higher on the NASDAQ, though the NYSE continued its regime of exceedingly low volume. Since stocks were mostly lower - especially after a lower open, bounce to multi-day highs and a late-day pullback - volume data could be considered a significant indicator and should be closely monitored near-term.

NASDAQ Volume 2,106,687,000.00
NYSE Volume 3,952,214,250

Crude oil took a back seat, losing 39 cents, to $76.80. Gold, as mentioned above, hit an all-time high of $1,269.70, up a whopping $24.60 (1.98%). Silver also was bid higher, finishing up 29 cents, to $20.40.

Monday, September 13, 2010

Fed-Led Rally Continues; Besides Big Five, Buyers Absent

Stocks just keep going up, up and away, as the Fed-induced liquidity rally lurched forward for the seventh day out of the last eight to the upside. This particular late-summer boost is courtesy of the Federal Reserve, remaining steadily along its path of QE (qualitative easing), today with a $3.4 billion POMO (Permanent Open Market Operation).

One could say the operation was a success, though the patient - US equity markets - are going to eventually become addicted to the easy money, if not already. With the Fed playing almost directly in the markets by purchasing and rolling over Treasuries from the Five Big Banks - JP Morgan, BofA, Citi, Morgan Stanley, Goldman Sachs - there's no good reason for stocks to do anything but go straight up, despite ridiculously low levels of trading volume.

Once the bands have the money in their grubby hands (all done electronically, so executing the movement of these massive amounts of money is both effortless and immediate), some of it surely finds its way into stocks, resulting in what most market viewers call a melt-up. With so much liquidity being provided at near-zero cost on a regular basis, stock indices could easily surpass the 2010 highs achieved in late April - early May.

There's still a way to go - about 600 points on the Dow - but the continuous flow of easy money virtually assures rising stocks and a falling dollar. It's really too bad the Fed and the banks had to resort to these tricks, but when you're broke and desperate, anything goes.

One has to question the policy of the Fed from the perspective of the political class. Republicans would like nothing better than a severe market crash prior to the elections, but the Fed seems to be working the wrong side of the aisle these days, so reports of the demise of the Democrats may be vastly overstated should this money-pumping activity proceed through to November.

As has been the case throughout the grand QE experiment in Keynesian economics, the only beneficiaries of this melt-up are the banks and some very savvy traders who have thrown fundamentals and caution to the wind. It's been a good trade for those involved. The Dow Jones Industrials are up 540 points since September began, with only one 107-point down day. The move will likely continue on course through the remainder of the week, as stock options expire this Friday, and boatloads of money are being made on the upside move.

For the rest of us, we sit back and watch the tableau unfold, secure in the fact that the gains are as artificial as a Vegas hooker's good looks. Banks are hedging as well, buying gold and recently, silver, along with oil and other rising commodities. Stocks, however, are the big kahuna for Wall Street, as the average Joe and Jane six-pack believe that a rising stock market equates to a burgeoning economy. It's truly not even close to being the case, and some data due out later this week may take issue with the "all good" theory circulating on the Street.

Dow 10,544.13, +81.36 (0.78%)
NASDAQ 2,285.71, +43.23 (1.93%)
S&P 500 1,121.90, +12.35 (1.11%)
NYSE Composite 7,156.18, +88.67 (1.25%)

Advancers danced all over declining issues, 4533-1261, and new highs bettered and battered new lows, 406-36, indicating that the rally has no stops in sight. Volume was better than normal on the NASDAQ, though once again in the doldrums on the NYSE. It's amusing to speculate, but once the volume ramps up, that's when a major correction has more probability, as fresh money generally gets trundled off to the big bank vaults.

NASDAQ Volume 1,966,425,500
NYSE Volume 3,893,587,000

Crude oil gained 74 cents, to $77.19. Gold managed a tiny 60 cent gain, to $1,245.10, while silver was up 31 cents, to $20.11, approaching its 2008 high.

Retail sales will be reported tomorrow prior to the opening bell, but the real highlights of the week will come Wednesday and Thursday, when capacity utilization, PPI and CPI are reported. Besides the numbers being purposely managed and massaged, there may be no highlights at all, which, if the Fed and the banks have their way, would be just fine and dandy.

Despite the reflection Wall Street is throwing off, the US economy is still dangerously close to implosion. Employment and housing are still in the throes of a depression, and the fiscal authority is being held together by string and scotch tape. If deflation doesn't take complete hold, runaway inflation will surely be the result, though for the near and middle-term, the outlook remains blush, that is, not quite rosy, but hardly pale.

Friday, September 10, 2010

Stocks Higher Six of Seven Days in September

Even though stocks seem to have shaken off the summer blahs, two issues continue to dog the market for equities.

First, the major averages are still stuck below their 200-day moving averages. Just today, the Dow reached that level, and a breakout above 10,500 could drag the other indices along with it. That's for next week, however, when a number of key economic reports are due out, including Capacity Utilization, Industrial Production, CPI, PPI, Retail Sales and the Michigan Consumer Sentiment gauge for September.

Seeing as how these data sets have been playing an increasingly larger role in the direction of stocks, next week's movement should be tied directly to those various readings.

The second - and probably more worrisome - facet of the current range-bound movement is the continuing saga of slack volume. Like seemingly everything else in the US economy, there's an overabundance of equities but a serious lack of demand. We have commented on the low volume data ad nauseam, but the issue keeps dogging the market like a bad rash.

Until there's some semblance of confidence in stocks from individual investors, no rally will be trusted, no quoted price believed.

On the topics of trust and confidence, the SEC investigation of the May "flash crash" surely isn't instilling any of either into the hearts and minds of investors. In typical bureaucratic fashion, the SEC has performed an admirable job of foot-dragging, jaw-boning and bush-beating around the actual causes of the sudden drop which sent the Dow plummeting more than 700 points and quickly recovering, all in the span of 20 minutes.

The agency has ruled out some causes, including quote stuffing (the process of flooding an exchange with orders, along the lines of an internet "denial of service" attack), which actually seem to be at the heart of what happened. The agency expects to issue a final report - which will, no doubt, come to no conclusion - by the end of September, a full four months after an event which took less than half an hour from start to finish.

Regardless, the flash crash and overwhelming suspicion that the market is rigged by insiders has kept investors away for months. Average daily volume is off by more than 30% from previous "normal" levels.

Still, investors seemed content to push prices a little higher each day this week after Monday's selloff, the net result having the indices closing marginally higher than last week's finish.

Dow 10,462.77, +47.53 (0.46%)
NASDAQ 2,242.48, +6.28 (0.28%)
S&P 500 1,109.55, +5.37 (0.49%)
NYSE Composite 7,067.51, +33.14 (0.47%)

For the third straight session, winners topped losers, though again by a diminishing margin, 3405-2232. New highs: 297; New lows: 55. Volume: Pathetic.

NASDAQ Volume 1,630,413,750
NYSE Volume 3,165,025,000

Oil got a significant boost on news of a Canadian pipeline leak, gaining $2.20, to $76.45. The metals continued to stall out, with gold losing $4.40, to $1,244.50, and silver off a penny, at $19.80

Switching Credit Cards May Prove Fruitful

Despite the downturn in the economy, most Americans are still using credit cards due to their versatility, worldwide acceptance, loyalty rewards and overall ease of use.

A handful of issuers have upped the ante on the competition, offering more competitive rates, better points systems or other inducements to get people to apply for a credit card. Balance transfers have also become important in deciding which card is the right choice.

Many people have turned to popular credit card ratings web sites to sort through the various offers, discounts and online availability. Some sites offer very basic advertisements, while others provide deeper detail, including the ability to search by FICO score, check application status and even calculate the amount of savings provided by a balance transfer.

Tools such as these can help consumers save hundreds, if not thousands of dollars over just a few years by finding the right card with the best interest rate to suit their needs.

While it's true that American consumers are paying down debt at a very rapid rate, it hasn't taken the issuers long to adjust to this shift in sentiment and respond with more competitive rates for serious savers. Naturally, one's credit score always plays a crucial role in acceptance, and lowering one's balance owed is now more important than ever. With finances in flux, however, now might be a very good time to consider switching cards or consolidating debt into one card at a lower rate.

The savings could be substantial.

Thursday, September 9, 2010

Small Gains in Nowhere Market

Stocks continue their September dance, going nowhere fast, admirably marking time between Labor Day and the mid-term elections. November 2 cannot get here quickly enough for most of the remaining participants in the market. There's no upside to either the market or the economy in sight and lingering fears of a stagnation or limited growth potential in the US have investors, traders and casual players on the sidelines.

The slow pace of the market is making for some dull reporting - this blog included - and the days of "everybody's an investor" seem to be officially and permanently gone. The ownership society has given way to a nation of savers, worriers and soon-to-be-retirees.

For the second straight day, stocks ramped up at the open and sold off throughout the day. Even though the major indices have recorded gains in five of the past six sessions, there's an unmistakable, unsustainable feeling to it all.

Dow 10,415.24, +28.23 (0.27%)
NASDAQ 2,236.20, +7.33 (0.33%)
S&P 500 1,104.19, +5.32 (0.48%)
NYSE Composite 7,034.17, +34.23 (0.49%)

Advancing issues led decliners again, though the margin has narrowed, 3331-2352. New highs remained well ahead of new lows, 378-59, and volume was, again, sub-par. It's gotten to the point that reporting on the lack of volume in the markets is not even news. It is really becoming the "new normal."

NASDAQ Volume 1,602,241,250
NYSE Volume 3,365,649,250

Oil fell 42 cents, settling at $74.25. The precious metals failed to sustain their elevated levels for a day, with gold down $6.70, to $1,248.90, and silver off by 16 cents, to $19.81. There seems to be a surplus of everything except new credit unless one is a major corporation with a AAA rating, from cash to oil to homes to stocks. There's even evidence of a worldwide oil glut developing.

The effects of cheaper oil - some say as low as $40-50 per barrel would certainly fit into the deflationist argument, though the Fed and European central bankers are doing everything they can to avoid such a scenario. If deflation becomes inevitable, while a boon to middle and lower classes, the effect on paper wealth - in stocks, bonds and derivatives - could be devastating.

Despite what experts are saying about inflation running rampant, it's still a difficult concept to embrace when unemployment remains at record levels, consumers are more concerned about paying down debt than buying new things and home prices may begin a second leg lower.

Oversupply is inherently deflationary, but the force of the central banking cartel continues to push against reality.

Wednesday, September 8, 2010

Revisiting the Inflation-Deflation Argument

Just as there are two sides to a coin is a misstatement (What about the edge? Isn't that a side?), the inflation vs. deflation argument is simply too large and too complex, complete with changing circumstances and misguided definitions, for most people to comprehend, much less care about.

For purposes of argument, let's just assume that for most people, the manifestation of inflation will be higher prices, and of deflation, lower prices. That cuts through the stringent definition of "increase/decrease in money supply, debt, etc."

Food prices have been going up. Energy prices have been relatively stable. Housing prices have been going down if you're buying, but stable if you're renting. As is readily shown, deflation and inflation have been coexisting quite amicably. The real question is when will the Federal Reserve demand more inflation in order to keep the government's cost of borrowing and printing more money at a minimum?

Currently, the Fed is in a very accommodative phase, meaning that interest rates are as low as they can make them, ZERO, which, in most times, would cause inflation. It actually is, which is the Fed's dirty little secret, but hardly enough to satisfy the politicians, who need to see inflation ramp up enough so that companies and individuals will spend, spend, spend, because they see the no value in holding a currency declining in value.

That day, week, month, year is coming, as soon as home prices stabilize and demand ramps up. Unfortunately for the Fed and our treasured politicians, that day is still far away, as home prices will continue to fall as long as banks keep foreclosing and adding to the already-bloated inventory. That's why the biggest banks are slowing down their foreclosure processes, because they don't want to ignite an all-out depression in home values. There needs to be some balance and at least a perception that home prices aren't falling off a cliff. That scenario would cause even more homeowners to default on purpose (strategic default), figuring that their home will never again be worth what they paid for it.

Since the cost of paying off a mortgage is much larger - for most folks - than what they typically spend on food and fuel and other basic necessities, lower home prices fuel deflation, but there are few who have that advantage because just as home prices fell, banks tightened lending standards, so the overall effect isn't felt across the economy because so few people are actually benefitting from lower mortgage costs.

Meanwhile, just about everything else - besides consumer electronics - is either experiencing price stability or inflation (food, mostly), making the overall effect one of moderate inflation, which is, in Fed terms, fine for now, but not for the future. The Fed needs to see more inflation, which is absurd from a consumer perspective, but perfectly in line with the "unstated" goals of the Federal Reserve. Increased inflation will make today's federal deficits easier to pay going forward. Of course, we'll never touch the debt, another matter altogether, nor will the USA ever be able to meet its obligations for Social Security and Medicare once the baby boomers begin retiring (and getting age-related ailments) in droves.

The end-game will be within 8-12 years, when the US must either significantly restructure those entitlements or default or print amounts of money so extreme as to debase the currency entirely. The Fed and its political friends are taking the slow, "kick the can down the road" approach, leaving it for others to fix. Anyone who believes Barack Obama or any current member of congress wishes to tamper with reforming Social Security should understand that they won't touch this "third rail" of government, only because it means re-election. Maybe, if Obama is elected to a second term, he might tinker with it sometime around 2015 - after the mid-terms and before the end of his second term, though that is wishful thinking.

Generally speaking, the deflationary pressures experienced during much of 2009 have ceased to exist and inflation has begun to creep back into everyday life. The only way to keep the deflationary lid on in one's personal life is either to spend less, save more, use less, or a combination of all of the aforementioned. Of course, doing so lowers one's standard of living somewhat, though not to extremes, which is, after all, the net end result of deflation, much preferable to having one's savings and income constantly eaten away by inflation, the scourge of all savers and the major threat in coming years.

By creating massive amounts of money, the Fed managed to stave off deflation, though not necessarily the nastier aspects of a depression. Absolutely unacceptable levels of unemployment still exist and have not been contained. The underclass of American society has grown larger in recent years as unemployment benefits are morphing into welfare checks. For those at the bottom, life is surely a nasty affair. The middle class is still being squeezed while the upper class continues to enjoy the benefits of very discretionary upper-income tax breaks.

While most of us struggle for solutions and seek answers to the deflation-inflation riddle, the upper class need not worry themselves with these minor details, as they have much more than they need in terms of money and security. The situation won't correct itself, and there seems to be nobody even remotely interested of doing what's right for the "better good."

With that, we see that stocks gained modestly on Wednesday. There was little to move them, as the rhetoric of sovereign default in the Eurozone diminished rapidly into the ether overnight.

Dow 10,387.01, +46.32 (0.45%)
NASDAQ 2,228.87, +19.98 (0.90%)
S&P 500 1,098.87, +7.03 (0.64%)
NYSE Composite 6,999.94, +40.00 (0.57%)

Advancing issues held sway over decliners on the day, 3859-1849. New highs remained well ahead of new lows, 345-54. Volume was not quite as pathetic as recently, though the general volume was and is still depressed by some 30-40% over what it was prior to the implosion of 2008, a fact of life that cannot be avoided.

NASDAQ Volume 1,892,425,500
NYSE Volume 3,431,570,500

Crude oil price gained 58 cents, to $74.67, close to the mean level of the past 18 months. Gold backed down a bit, slipping $1.70, to $1,255.60. Silver pushed past $20.00 during the day, but closed just below it, up 9 cents, to $19.98.

Generally, the market was awaiting some kind of catalyst, though none appeared. Stock indices continue to trade in a fairly well-defined range, initiating thoughts of prolonged stagflation in some.

That very well may be where all of this is heading. Higher prices in a stagnant economy, something of a bland state of despair. It's not very pretty, but about the best image one can conjure considering conditions.

Tuesday, September 7, 2010

Markets Slump on Abysmal Volume; Politics Plays the Market

Let's face it. The financial meltdown that occurred in the Fall of 2008 damaged Wall Street far beyond anyone's imagination. Whether the crisis was real, contrived or a true panic, the number of participants since then - and the fruitless bailouts that followed - have diminished greatly. While everyone wanted to believe that more players would show up after the Labor Day holiday, the expected rush of traders simply failed to materialize this Tuesday, a stark reminder of the lack of confidence spreading across US markets.

The continuing low-volume regime should surprise nobody. After shrinking from 4-6 per cent in August, the "marketeers" last week managed a roughly 4% rebound in just the first three days of September. Investors are not foolish people generally, and they can sense when something is not right. The consensus among individual investors is that the market is completely rigged in favor of the big brokerages, hedge funds and other not-so-visible participants and have thus departed, some for good.

There's also the question of overall liquidity which has affected the velocity or volume of trade. Smaller firms and individuals are strapped for cash, in addition to being wary of the market, and simply cannot play. This has been the resounding theme since mid-summer, and appears to be actually getting worse as the November elections near.

Indices and averages are being hoisted and levered down by the same parties in an attempt to lure in more suckers (investors), but nobody seems to want to play this game any more. It's pretty obvious that politics are going to play a huge role in the direction of stocks over the next few months, so, despite the market being an unsound place for money, there are two definite directional plays that could be made rather simply.

First, the powers that be are nearly certain to desire an end to the reign of Democrats. President Obama and his cohorts in congress haven't made many friends on Wall Street, so the big money is courting Republicans in the Fall. The first trade is to go short from now until the elections, with the best time to get out right at the end of October. After that, go long, presaging Republican victories in the House and maybe even taking a majority in the senate.

These moves have nothing to do with fundamentals, only with the perception Wall Street wishes to make. They and their Republican lackeys want the economy on its knees heading into November, showing the Democrats to be weak and ineffective, and they have the perfect vehicle with which to accomplish their goal, the thinly-traded, but highly-watched stock market. The Dow should fall below 9500 at some point in the next two months (should be there already), and then immediately after Republican wins on November 2, rally back above the magical 10,000 mark, probably going as high as 10,700 or thereabout.

Sad but probably true, the stock market is no longer a secure platform for trading stocks, but more a political vehicle of the controlling elite. Today's sorry volume figures - and all those of the past four weeks - give credence to this approach.

Stocks spent the entire day trading in a narrow range in the red, finishing at the lows of the day, indicating not only a lack of participation, but a lack of confidence. Not surprising, since the best the Obama administration can do these days to spur the economy is suggest another $50 billion be spent on roads, bridges and airport runways. While that's great for the concrete makers and construction workers, it has no meaning in the lives of average Americans who don't shovel, grind or gird.

Obama also outlined an estimated $200 billion in tax breaks for businesses that invest in new plants and equipment and a $100 billion extension of business tax credits for R&D and, as usual, absolutely nothing for small businesses, those with between one and ten employees, which are the backbone of the economy and entrepreneurship. The federal government would better serve the people by just handing out checks to everyone or doing nothing rather than trotting out the old "infrastructure" canard. It's been done and accomplished nothing already, so another crack at it is merely more grandstanding by a president and advisors without clues. Tax breaks for big business also won't serve to stimulate growth in the economy or create jobs.

Dow 10,340.69, -107.24 (1.03%)
NASDAQ 2,208.89, -24.86 (1.11%)
S&P 500 1,091.84, -12.67 (1.15%)
NYSE Composite 6,959.94, -95.09 (1.35%)

Declining issues took the measure of advancers, 4366-1388, though new highs remained to the high side of new lows, 259-50, though these figures are likely being influenced significantly to the upside by the number of stocks recently delisted (a big secret) and the usual pumping up of otherwise losing issues. As explained earlier, volume continued to be absurdly low, to a point that is increasingly difficult to describe.

NASDAQ Volume 1,566,149,625
NYSE Volume 3,036,956,000

Oil was down again, losing 51 cents, to $74.09. Gold traded in record territory, up $8.10, to $1,257.30 at the close, while silver slipped a little after an impressive weeks-long run, dropping just three cents, to $19.88.

Trading was so thin and reaction to Obama's new proposals so negative, it left many wondering just how long the economy can hold on without another significant decline in not only stocks, but in the overall quality of life. Being that we're only in the second or third inning of this particular baseball analogy, there are sure to be more foul balls than home runs in coming months and years. The market could spin out of control at any time, though the small number of players left on the field might prevent a real slide from happening with the ferocity witnessed in 2008 and 2009.