Tuesday, October 26, 2010

Shocking! Fed Does $2.5B POMO; Stocks Gain Fractions

Not only is this the dullest market in generations, it is also the phoniest ever.

To illustrated just how desperate the big money traders (the only traders remaining) are for the largesse of the Federal Reserve, without whose risk-free money the stock markets would have closed down roughly two years ago, a recap of the day's trading is in order.

In the final half hour of trading yesterday, the Dow fell about 55 points. At the open today, the same index lopped off another 65 points in the opening minutes of trading. That's when Ben Bernanke primed up the printing press and bought back $2.5 billion of Treasuries from the corrupt, greedy, insolvent banks that have ruined the US economy.

Immediately, the Dow was back to the unchanged mark for the day, wiping out the early losses. The rest of the session was spent with the computers trading pennies in a tight range of 50 Dow points. To say that the markets are drifting aimlessly would be to miss the point that the Fed is force-feeding liquidity into the system. Truly, without the Federal Reserve priming the pump, stocks would be as dead as doornails, which, to some degree, is already the case.

Of course, there are those among us who still believe that the stock market is fair and unbiased, that there's no manipulation and that the small investor can still do well. These people apparently believe that unicorns can fly and the Easter Bunny brings candy to kids.

One adage of the market is that there's no free lunch, though that probably doesn't include banksters and insiders. For the rest of us, a look at price-earnings ratios might be instructive.

In a normal market, a reasonable P/E would be around 12-15. In raging bull markets, a touch above that, but in bear markets single digits are the norm, and there's no doubt that we're still in a bear market despite the convoluted efforts of the market riggers to make us believe otherwise.

I looked at some of the more popular names that routinely are recommended by pundits, analysts and brokers. Here's what I found to be their price-earnings ratios, using trailing earnings (prior four quarters). Caterpillar (CAT), 25.53; IBM (IBM), 12.72; AT&T (T), 12.52; McDonald's (MCD), 17.58; Apple (AAPL), 19.87; Intel (INTC), Chevron (CVX), 10.24; Bank of America (BAC), 51.36.

There's just a small cross-section of US stocks, which, from the looks of it, seem to be at least fully valued, though one has to ask why Bank of America is carrying a P/E three to four times it's historic norm. Does anyone think it's a good buy at this price, that they'll begin earning $4 and $5 per annum any time soon? Pretty doubtful. There's a lot of money that's headed for a rat hole in BAC.

Dow 11,169.46, +5.41 (0.05%)
NASDAQ 2,497.29, +6.44 (0.26%)
S&P 500 1,185.64, +0.02 (0.00%)
NYSE Composite 7,530.80, -15.58 (0.21%)

Declining issues beat advancers, 3453-2978. New Highs: 376; New Lows: 48. Volume was putrid.

NASDAQ Volume 1,935,497,500
NYSE Volume 4,679,565,500

Commodities, other than silver, didn't move very much. Oil gained 3 cents, to $82.55. Gold fell 30 cents, to 1,338.60. Silver, on serious allegations of price manipulation by short-sellers (banks, mostly JP Morgan), gained 29 cents, to $23.83.

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