Tuesday, November 30, 2010

Dow Down 400+ Points Since QE2

Since the inception of the Fed's QE2 program, throwing billions of dollars at Primary Dealers in exchange for Treasuries - essentially monetizing the government's debt - stocks have suffered mightily, posting losses in 11 of the past 16 sessions and dropping a whopping 445 points since November 7.

Currently, the scapegoat is the dastardly Irish, who chose a most inopportune time for their banks to become wholly insolvent and in needs of rescue by the European Union. With debt contagion spreading across to the continent in rapid fashion, the Euro has declined against the greenback, taking the fun of a weak currency trade along with it. As the dollar has strengthened, US stocks have nose-dived, and the rout is clearly underway, whether Ben Bernanke wishes to admit it or not.

Action on the markets today was entirely below the 50-day moving average on the Dow, and ended, after a midday respite, to the downside for the third session in a row. Blaming the Irish may be good sport for Fed bankers, but problems in the Eurozone certainly don't bode well for the ailing US economy. The slow-motion train wreck of Western economies which began in 2007 with the sub--prime mortgage unwind, is, after a $20 trillion reprieve from 2008 to the present, set to gather momentum and careen off the tracks again.

What will eventually prove to be the US economic undoing is still debatable. An expose of Bank of America's immoral and despicable practices in the mortgage arena has been put on the table by Wikileaks' founder Julien Assange. Shares of the Charlotte, NC-based bank fell to a 2-year low, closing at 10.95, on fears of such an event.

Perhaps Ireland's Parliament will just say no to the bank bailout being shoved down their throats by the equally-corrupt European Union, which itself may be a forgotten relic of a failed experiment in a few year's time.

Closer to home, it appears that the lame-duck congress has its hands full in the dwindling time before they decide to do what they do best - go home and do nothing - tackling issues such as the Bush tax cuts and jobless benefits have seen little movement. Congress must also pass a continuing resolution to keep the government operating by December 4, which just happens to be this Friday.

Tomorrow, ADP releases its normal private sector employment report, this one for the month of November, as a precursor to the BLS non-farm payroll data on Friday, which could also sway markets. Consensus seems to be calling for the nation to have created 130-150,000 new jobs in the month. Any number less robust than that could set off investor alarms again.

For today, another $6 billion pumped from the Fed to Primary dealers did little to stem the tide of selling. Stocks rebounded off their morning lows, but suffered a setback in the final hour, all major indices finishing deep in red ink.

Dow 11,006.02, -46.47 (0.42%)
NASDAQ 2,498.23, -26.99 (1.07%)
S&P 500 1,180.55, -7.21 (0.61%)
NYSE Composite 7,430.94, -52.40 (0.70%)

Losses were widespread as losers outnumbered gainers, 4290-2137. New highs numbered 156, while new lows closed to gap, at 103. In an obvious sign of weakness, volume ramped up to numbers not seen since election day.

NASDAQ Volume 2,429,697,750
NYSE Volume 5,643,896,500

Oil took a solid hit, losing $1.62, to $84.11, though it remains at elevated levels. Gold was a star, shooting up $19.20, to $1,386.70 per ounce. Silver also posted a strong gain of 89 cents, to finish at $28.09 on the COMEX.

FUD (Fear, uncertainty and doubt) are on the rise again and the Fed seems powerless to do anything but print more money.

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