Fear Factor: Wall Street, Europe in Full Retreat; Dow Down Another 520 Points

Wall Street suffered one of its worst losses of all time and the third major loss in the last week.

Stocks were battered right from the opening bell, though selling accelerated in the final two hours of trading, just after stocks had reached their highs of the session.

The culprits - just in case anyone needs a good villain for the orderly destruction of capital - today were European banks such as France's Societe Generale, Germany's Duetsche Bank and Italy's Unicredit. European liquidity is being pinched again, just as it was during the global financial meltdown in 2008-09, though most of the players involved do not yet see the risk as severe.

The markets are telling different story, with stocks suffering deep declines for the third time in five days. Tuesday's enormous snap-back rally was completely overwhelmed by today's selling, and the end of the crisis seems well into the future.

To put matters into perspective as to how deep these recent losses are, consider:

• On July 27, the Dow closed at 12,724.41; today's close was 10,719.94, a drop of more than 2000 points in just 14 sessions.
• The NASDAQ topped out at 2858.83 on the 22nd of July; today's close of 2381.05 is a 17.7% drop.
• The Russell 2000, comprised primarily of small and mid-cap names, is already in bear territory, down more than 20% from recent highs
• The Dow Jones Transportation Index, which topped out at 5514.87, closed today at 4377.14, technically signaling a bear market as it is down 21%
• The S&P 500 lost 32 points last Tuesday, another 60 points last Thursday, 80 points on Monday and another 51 points today.
• The Dow Jones Industrials is just 500 points from making a 20% decline and resumption of the Bear market which was interrupted for 53 months by a stimulus and quantitative easing-induced rally that is now evaporating.

A pretty picture this is not. Additionally, there's nowhere to park money with any kind of real return. The 10-year note fell to an historic low of 2.09%, the 30-year bond dropped to 3.50% at the close, while a 2-year bill fetches a ridiculous 17/100ths of a percent in interest. Might as well stuff dollar bills into a mattress for the next few years as it's likely a safer place than the bond markets.

Even after yesterday's stunning announcement by the Federal Reserve that it would keep the federal funds rate at near zero for the next two years, markets were still unrelieved. What the Fed did, in effect, was broadcast deflation with about as big a bullhorn as they could, saying that unemployment was getting worse, the housing crisis has not been resolved and prospects for further deterioration in the economy outweighed the chances for meaningful recovery.

Meanwhile, most of congress is off on its annual month-long vacation, supposedly back in their various states and legislative districts, watching the mess from as far away as they can get. It would be interesting to see how many are out of the country, and, if this stock market malaise continues, how many of those come back to face the music.

Here's the sad story of the day in numbers:

Dow 10,719.94, -519.83 (4.62%)
NASDAQ 2,381.05, -101.47 (4.09%)
S&P 500 1,120.76, -51.77 (4.42%)
NYSE Composite 6,938.23, -319.81 (4.41%)

Losing issues belted advancers again, 5050-1691, though, by those figures, there was at least a smattering of selectivity in the sell-off. On the NASDAQ, six (6) new highs were offset by 232 new lows. Over on the NYSE, a mere three (3) stocks posted new highs, while 221 made new lows. The combined total of 9 new highs and 453 new lows is indicative of yesterday's smash-up, which set many stocks above their recent lows, though the feeling is that it's only a matter of a few more days before the new lows reach well beyond the 1000 mark.

Volume was robust again, in keeping with the current trend of being "all in."

NASDAQ Volume 3,437,055,500
NYSE Volume 9,282,671,000

Oil stopped skidding for a day, gaining $3.59, to $82.89. Gold briefly priced at over $1800, but fell back, to $1,784.30, a $41.30 gain on the day. Silver picked up finally, gaining $1.44, to $39.33. Both gold and silver are up as trading heads to Asian markets.

Tomorrow will begin with an 8:30 read of initial unemployment claims, which is still expected to be hovering around the 400,000 mark. It will likely be a non-market-moving number, as the macro condition is truly driving the declines.

Some are already saying that stocks are cheap, but many were saying that a few weeks ago, before the bottom began falling out.

Cheap is such a relative term. A particular asset may be "cheap" to some and pricey to others. Right now, stocks look like they're being sold as fast as they can, before they lose even more value.

Maybe the worst thing about this sudden crashing is that it's only Wednesday. There are still two more trading days to get through.