The trading desk at the NY Fed apparently bought everything, all day long.
That's not a joke. It's probably much closer to the truth than many would believe.
Since the Fed took steps to backstop every bond, loan, or financial obligation on the planet over the past two weeks, and the Congress and President passed a $2.2 trillion rescue relief bill last week, stocks have done nothing but shoot the moon higher as four of the past five trading sessions have been positive for the Dow, S&P and NYSE Composite, and three of five for the NASDAQ.
Amid a crisis condition across the country and around the globe, this kind of action - with similar moves in international markets as well - is completely devoid of any fundamental pricing structure. Simply throwing more good money after bad seems to be the only way the Fed operates, as if it were in a void zone and it's the worst kind of malinvestment, chasing away the demon of real price discovery by throwing more fake, phony, fiat currency at it.
At current levels, the major indices have achieved bear market territory and are about as likely to escape it as President Trump is to refrain from tweeting. With giant swaths of the economy shut down for the past two weeks and looking forward to another month of idleness, stocks should be going down, not up. Even down as much as 60% from their recent peak, many stocks are still overvalued and the main indices are settled in at or near levels that are 40-60% (NASDAQ) higher than prevailing levels in 2007 prior to the Great Financial Crisis (GFC), indicating that stocks, rather then stabilizing at current levels, hav emuch further to fall.
The degree of decline should be back to levels below the lows of 2008-09, since the issues which caused the crash then were never addressed in any meaningful manner, instead just kicked down the road. Banks and corporations have re-leveraged well beyond any reasonable price, using nearly-free money from the Fed to perform stock buybacks, boosting prices to extremes.
Initially, the cascading waterfall of falling stock prices as COVID-19 panic became evident was justifiable, more extreme than the beginning of any bear market including 1929, 2000, and 2008, ending nowhere near a bottom.
The Fed's bazooka-style blitzkrieg has blown up the markets, exacerbated by the rescue relief package. It won't last. Eventually, the near-term lows will be tested, re-tested, and finally exceeded as the long, slow grind of a second phase bear market assumes command. All the money in the world - and that's how much the Fed has at its disposal - cannot prevent another wave of selling, and another, and another, nor can it limit the size and scope of the global tragedy that will unfold in coming months and years.
In its latest attempt to curry favor from the masses, the CDC proposed a best-case prognosis of 200,000 deaths from COVID-19, but that number pales by comparison to the economic and social damage the policies of demand isolation, shuttering of businesses, and crushing unemployment will produce over the next 12-18 months.
Government policy promoting social distancing, travel restrictions, and business closures are misguided and harmful, will not contain the virus to satisfactory levels and are likely to foment a Greater Depression worse than 1929 in terms of unemployment, poverty, and malnourishment. Sadly, almost all other developed and developing nations have taken a similar approach, a groupthink solution that isn't a solution at all, but rather a quest for more control, more power, and more curtailment of civil liberties by the authorities currently in charge.
Other approaches are better suited to achieve better results, especially ones suggested in a brilliant essay by Percy Carlton for the Saker Blog, titled Covid-19 Derangement Syndrome: A World Gone Mad.
Carlton relies upon logic and science to achieve his solutions, rather then the over-emotional reaction of today's government incompetents. It is a must read for everyone, especially those who value freedom of choice, liberty, and thoughtful self-expression over government controls, socialized solutions, pharmacological mandates, pseudo-science, and pathological lies.
Laid bare before the American public and the world is the staggering incompetence and outrageous insolence of world "leaders." Beyond that lies an unpromising land of replete with shortages, monetary imbalances, fiscal irresponsibility, societal dislocation, rioting, looting, starvation, and death which could have been avoided.
Lack of advance planning and reliance on extreme measures adopted from China's experience with coronavirus, combined with political grandstanding and media obsession and obfuscation of facts have the world lumbering toward desperation. The longer the general public is subjected to the dictates of the administration the worse the condition will become.
Defeating the disease is the easy part. Putting back together the pieces of a broken global economy figures to be a more difficult task, one which sovereign governments and a central banking cartel are not well-suited to handle.
Meanwhile, the treasury curve flattens out, with the 10-year note yield slipping to 0.70% on Monday. Gold and silver remain difficult to obtain at prices well above the futures levels. Crude oil has fallen to 18-year lows with the price of gasoline falling in line.
The recent rally has nowhere to go under current conditions and should not have happened in the first place even under the best of circumstances, which are certainly not prevalent.
At the Close, Monday, March 30, 2020:
Dow Jones Industrial Average: 22,327.48, +690.70 (+3.19%)
NASDAQ: 7,774.15, +271.77 (+3.62%)
S&P 500: 2,626.65, +85.18 (+3.35%)
NYSE: 10,434.75, +247.54 (+2.43%)
Showing posts with label 1929. Show all posts
Showing posts with label 1929. Show all posts
Tuesday, March 31, 2020
Tuesday, June 1, 2010
US Markets the World's Laughing Stock; Second Great Depression Still Looming
US equity markets must be the laughing stock of the entire planet. Whenever there's a risk of a serious downturn, especially on days in which Asian and European markets have already taken a hit, the globalists can count on a comedic interlude supplied by insider trading schemes run amok here in the cradle of free market economics and democracy.
Tuesday was just another shining example of how rigged and moronic US stock markets have become after years of manipulation by government operatives generally identified as the President's Working Group on Financial Markets, created in 1988 after the blowup of Long-Term Capital Management (LTCM), by then-president Ronald Reagan with Executive Order 13621, along with complicity by major banking and trading firms such as Goldman Sachs, JP Morgan Chase, Bank of America and Citigroup.
While the existence of the "Working Group" (or PWG, as it has evolved) is a matter of fact, some decry the operations of the group as clandestine market participants (formerly known as the Plunge Protection Team, or PPT), such as this blog entry by Barry Ritholtz, complete with an array of illuminating comments and links.
It's more than plain and obvious that government is working in collusion with major banks, though whether or not they are involved in significant "market pumping" is still an unresolved question. Market volatility has become a semi-permanent fixture in US equity (and other) markets for many years, and recent policy decisions mostly made by the Federal Reserve, to ensure liquidity, and the Senate, to bail out generally-insolvent banks and states suffering from enormous budget shortfalls, beg the question.
The Fed's official federal funds interest rate has been at it's lowest level in history for 18 months (since December 2008) and while equity markets have bounced off their March 2009 significantly, there's worry that the momentum cannot be maintained. The Fed is pretty much out of bullets, but underhanded trading schemes should be able to avert another major market collapse for the near term.
That's the general condition of US equity markets today: volatile, manipulated and operating on the adrenaline of fear while the talking heads on CNBC glad-hand the purveyors of the pump all day, every day, relentlessly trotting out this or that analyst or trader with positive spin, keeping the whole charade of "recovery, growth and prosperity" churning along.
Meanwhile, the major indices have fallen below their 50-day moving averages and a sitting upon their 200-day MAs for the most part. Like all other government work, whatever the PWG is doing to prop up markets, they're doing a pretty shabby job of it. The entire US - and, to a large extent, global - financial system resembles a creaking ship adrift at sea, burdened by an overload of bad debt, faulty rigging and deficits billowing out of its hold.
Intra-day market actions only help to keep the ship afloat, hoping it can reach shallow enough waters so that when it does sink, it won't be resting too far below the surface.
In sum, market manipulation always fails. One only has to bear witness to the magnificent drops in markets in 2000 and 2008 to verify that point. Government intervention only works in the near-term, pushing the longer-term, systemic issues further out into the future, for another generation or another government to handle. The game cannot continue for long without some major disruption. We've just been through the worst month of May on the markets since 1940, and while the "double-dipsters" have been effectively silenced by the media, the level of fear and apprehension is still palpable.
Pushing markets off their lows through whatever conception available still seems to be bad business and one that cannot eventually, effectively halt the onslaught of dreadful deflation in assets of all classes. Globalization began the deflation process; the banks and inept or corrupt government operators witlessly helped it along. With no way out of what has morphed into a global currency "race to the bottom," equities will eventually falter, flat line or die. The only question is how long it's going to take.
History, always a great guide and usually ignored, provides the best answer, with the operative time period being the Great Depression of 1929-1942. Taking Fall of 2008 as the starting point, we're at roughly the equivalent of September, 1930.
On August 3, 1929, the Dow closed at 381.17. Then came the crash in October and November, with the Dow falling from aournd 352.86 on the 10th of October to 198.69 on the 13th of November, a 44% drop in just over a month, which compares to the Fall of 2008 and Winter, 2009, quite favorably. On the 17th of April, 1930, the Dow rebounded and stood at 294.07, a 48% gain off the lows and a level it would not approach again for nearly 24 years.
Yes, you read that right, 24 years. After the crash of 1929, the market rebounded, just as it did in recent history, from its bottom of 6,547.05, on March 9, 2009, to a peak of 10,725.43 on January 19, 2010, a gain of nearly 64%, though still well short of its all-time high of 14,164.53 on October 9, 2007.
President Herbert Hoover and his Republican counterparts in the banking community and the congress could not revive the slumping US economy, however. On July 8, 1932, the Dow Jones Industrial Average fell to it's all-time low of 41.22, helping usher in FDR and his New Deal policies. Elected in November, 1932, Roosevelt worked quickly to keep Americans out of financial misery, but for many it was too late. The country survived, barely, through the 30s and into World War II, which had been raging in Europe for more than 5 years before the US formally became involved in 1942. It wasn't until February 26, 1954 that the Dow surpassed that 1930 high, closing on that date at 294.54.
Thus, contrary to widely-held beliefs, the crash of 1929 was just a prelude for more pain to come. From the peak in August, 1929, to the bottom in July of 1932, the Dow lost nearly 90% of its value. A similar slide in today's terms would wipe the Dow all the way down to 1450.00, a number not seen since late November 1985, about 9 months into Ronald Reagan's second term as president, in the full throes of the supply side financial revolution.
It's an interesting point in history. From November 1985 to October, 2007, a period of nearly 23 years, the Dow Jones Industrials increased in value some ten-fold. That kind of expansion is unprecedented in economic history and it was largely fueled by low tax rates on wealthy individuals, lax tax compliance by major corporations, and, notably, little advance in the overall wealth, prosperity or wages of the middle class. So, a major, dramatic fall, similar to that of 1930-1932, might still be ahead for those of us who still give a damn.
The timeline of history is not without flaws, to be certain, but, taking the case of a largely manipulated market which is the current, dominant theme in American finances, the overhang of burgeoning federal and state deficits, unresolved banking issues from 2008, it is not outside the realm of possibility that stock markets and the global economy could suffer a blow even more dreadful than the shock of 2008-09. In fact, we are looking at January, 2010 as comparable to April 1930, we have an eerily-similar timeline, with the worst yet to come.
Just as in the Spring of 1930, politicians and financial experts explain how we averted crisis and survived a major financial event. Back then, just as today, nobody knew what was ahead, though today's "experts" apparently have not done a detailed analysis of history, though the one man who may know more about the subject than anyone on the planet, Fed Chairman Ben Bernanke, hasn't exactly sounded the "all-clear" alert. In fact, Bernanke has been assiduously most cautious during this critical period. Though he has reassured the nation that the recession has ended, his remarks of late - few that they are - have been quite tempered and reasoned. Certainly, he reasons that more trouble may lie ahead and his actions - keeping rates low and maintaining full liquidity - speak volumes about his inner thinking.
Should the "recovery" stumble and the economy remain weak, stocks could face armageddon again, though this time, it will be long-lasting and severe, making the episode of 2008-09 look like a walk in the park by comparison.
I'm going to reiterate some of the things I've said repeatedly in various posts over the past three to four years, but they should be maintained within the context of the foregoing discussion. Jobs will continue to be scarce. Prices for everything from gold, to homes, to food, to shoes, will fall demonstrably. The goals of many will be survival, not prosperity. By the time the bulk of the baby boomer generation reaches retirement age - within the next 5-7 years, the Social Security system - already broke - will be running a deficit so large that it will break the will of the markets and the government completely. That event could come sooner, though by no means later than 2017, unless radical changes are made today, and, considering the dithering aspect of the current congress, that doesn't seem likely.
Mortgage interest rates will likely fall to below 3%. Some friends have already told me that their home equity lines are hovering around 2%. Most banks cannot make money with rates at 3-4% long term. More bank failures are a near certainty, possibly peaking in 2012, with the number in the thousands, rather than today's hundreds. Foreclosures and bankruptcies will overwhelm court systems which are already stressed beyond a level at which they can operate efficiently. Inner cities, many already slums of third world order, will become hell-holes of crime and depravity. Suburbs will become vacuous spaces for survivors of the crisis. Most people will cash out of their retirement plans if they can, because they need the cash. The next few years will be telling times indeed.
Now, back to our normally scheduled daily market recap:
The number of bank failures in 2010 reached 78 on Friday, with the FDIC closing down 5 more - three in Florida and one each in Nevada and California.
At the current pace, bank failures this year will easily surpass the total of 140 from 2009. Regulators will likely shut down between 180 and 200 banks this year as the real estate and banking bust widens and deepens.
When markets opened for trading following the three-day holiday, futures pointed to a lower open and that's exactly what occurred, with the Dow off by 80 points and the other major indices following suit... for about five minutes. That's when the usual/unusual pattern reappeared, buyers emerged and by 10:00 am - just 1/2 hour into the trading day - the indices were all either positive or close to it. With the Dow gaining steadily, then leveling off, finally reaching a peak of 10,218, some 84 points above the previous close, the chicanery was in full blossom.
But, by 1:30 in the afternoon, the bloom was off the rose, and stocks began to sell off, just as Asian and European markets had earlier in the day. Finally settling at the break even line about 3:30 pm, the Dow and other indices took on all of their losses in the final half hour of trading, closing at their lowest levels of the day. One can only wonder where stocks might have been had it not been for the underhanded intervention which has become commonplace and remarkably humorous.
Dow 10,024.02, -112.61 (1.11%)
NASDAQ 2,222.33, -34.71 (1.54%)
S&P 500 1,070.71, -18.70 (1.72%)
NYSE Composite 6,661.10, -130.47 (1.92%)
Declining issues eventually overcame advancers, 5170-1374, and the pattern of new lows surpassing new highs emerged once more, 121-98. Volume was very light, a feature that could endure the entire summer and possibly extend deeper into the year.
NYSE Volume 5,695,913,500.00
NASDAQ Volume 2,001,166,750.00
Commodities tried to play along, though there seems to be no saving grace for the price of oil, which fell again today, losing $1.39, to $72.58 on the July contract. Gold bugs were busy at work, snatching up hat they believe to be the "new" currency (and they may be right), boosting the price $12.60, to $1,224.80. Silver also sported a gain, of 13 cents, to $18.54. Prices for gold and silver should be stable to higher at worst, until deflation grabs hold of them and their ardent admirers as well.
With the action on our horribly-manipulated markets notwithstanding, the global economic crisis seems to have entered a new phase, with governments seriously looking at options from reflation to default and everything in between. It's becoming a something of a game of chicken as currencies take turns being beaten down to levels at which their products can compete in various foreign markets.
Here's a new feature:
Death Spiral Watch List:
I'm opening this one up with two companies which seem to be living on borrowed time. One is obvious, that being British Petroleum (BP), which lost another 15% today, down 6.43, to $36.52, as the federal government announced today that it was opening investigations into potential criminal and civil lawsuits (about time). TARGET=6.00
The second may not be such an apparent loser, but it is eBay (EBAY), formerly the world's online auction giant, which, through a series of ill-conceived management decisions launched by CEO John Donahoe, has effectively destroyed the trust of millions of small merchants globally. Ebay has embarked upon a path of dealing comfortably with larger concerns, offering them much lower fees than are afforded the average small business or occasional seller. It's a long, sad and sordid tale, but ebay has been turning the screws on small business with great force for the past two years, and sellers are actively seeking other platforms, tired of the endless game-changing and lack of responsible management. ebay closed down 0.45, to 20.96. Target=4.50
I call this the death spiral syndrome, recalling the demise of Countrywide Financial in 2007-08. The company was once the darling of Wall Street, at one time originating more than 50% of all mortgage loans nationally. Then came the sub-prime crisis and the company, and the rest, as they say, was history. Bank of America finally took over the company for $2/share, which makes one believe that maybe BofA might someday make this list itself. Time will tell.
The death spiral watch list tracks companies which I believe are headed for insolvency - a list that may grow to unprecedented levels should economic conditions continue to worsen.
An interesting point made today on Yahoo! Tech Ticker, which points to the uncertainty we all face:
Tuesday was just another shining example of how rigged and moronic US stock markets have become after years of manipulation by government operatives generally identified as the President's Working Group on Financial Markets, created in 1988 after the blowup of Long-Term Capital Management (LTCM), by then-president Ronald Reagan with Executive Order 13621, along with complicity by major banking and trading firms such as Goldman Sachs, JP Morgan Chase, Bank of America and Citigroup.
While the existence of the "Working Group" (or PWG, as it has evolved) is a matter of fact, some decry the operations of the group as clandestine market participants (formerly known as the Plunge Protection Team, or PPT), such as this blog entry by Barry Ritholtz, complete with an array of illuminating comments and links.
It's more than plain and obvious that government is working in collusion with major banks, though whether or not they are involved in significant "market pumping" is still an unresolved question. Market volatility has become a semi-permanent fixture in US equity (and other) markets for many years, and recent policy decisions mostly made by the Federal Reserve, to ensure liquidity, and the Senate, to bail out generally-insolvent banks and states suffering from enormous budget shortfalls, beg the question.
The Fed's official federal funds interest rate has been at it's lowest level in history for 18 months (since December 2008) and while equity markets have bounced off their March 2009 significantly, there's worry that the momentum cannot be maintained. The Fed is pretty much out of bullets, but underhanded trading schemes should be able to avert another major market collapse for the near term.
That's the general condition of US equity markets today: volatile, manipulated and operating on the adrenaline of fear while the talking heads on CNBC glad-hand the purveyors of the pump all day, every day, relentlessly trotting out this or that analyst or trader with positive spin, keeping the whole charade of "recovery, growth and prosperity" churning along.
Meanwhile, the major indices have fallen below their 50-day moving averages and a sitting upon their 200-day MAs for the most part. Like all other government work, whatever the PWG is doing to prop up markets, they're doing a pretty shabby job of it. The entire US - and, to a large extent, global - financial system resembles a creaking ship adrift at sea, burdened by an overload of bad debt, faulty rigging and deficits billowing out of its hold.
Intra-day market actions only help to keep the ship afloat, hoping it can reach shallow enough waters so that when it does sink, it won't be resting too far below the surface.
In sum, market manipulation always fails. One only has to bear witness to the magnificent drops in markets in 2000 and 2008 to verify that point. Government intervention only works in the near-term, pushing the longer-term, systemic issues further out into the future, for another generation or another government to handle. The game cannot continue for long without some major disruption. We've just been through the worst month of May on the markets since 1940, and while the "double-dipsters" have been effectively silenced by the media, the level of fear and apprehension is still palpable.
Pushing markets off their lows through whatever conception available still seems to be bad business and one that cannot eventually, effectively halt the onslaught of dreadful deflation in assets of all classes. Globalization began the deflation process; the banks and inept or corrupt government operators witlessly helped it along. With no way out of what has morphed into a global currency "race to the bottom," equities will eventually falter, flat line or die. The only question is how long it's going to take.
History, always a great guide and usually ignored, provides the best answer, with the operative time period being the Great Depression of 1929-1942. Taking Fall of 2008 as the starting point, we're at roughly the equivalent of September, 1930.
On August 3, 1929, the Dow closed at 381.17. Then came the crash in October and November, with the Dow falling from aournd 352.86 on the 10th of October to 198.69 on the 13th of November, a 44% drop in just over a month, which compares to the Fall of 2008 and Winter, 2009, quite favorably. On the 17th of April, 1930, the Dow rebounded and stood at 294.07, a 48% gain off the lows and a level it would not approach again for nearly 24 years.
Yes, you read that right, 24 years. After the crash of 1929, the market rebounded, just as it did in recent history, from its bottom of 6,547.05, on March 9, 2009, to a peak of 10,725.43 on January 19, 2010, a gain of nearly 64%, though still well short of its all-time high of 14,164.53 on October 9, 2007.
President Herbert Hoover and his Republican counterparts in the banking community and the congress could not revive the slumping US economy, however. On July 8, 1932, the Dow Jones Industrial Average fell to it's all-time low of 41.22, helping usher in FDR and his New Deal policies. Elected in November, 1932, Roosevelt worked quickly to keep Americans out of financial misery, but for many it was too late. The country survived, barely, through the 30s and into World War II, which had been raging in Europe for more than 5 years before the US formally became involved in 1942. It wasn't until February 26, 1954 that the Dow surpassed that 1930 high, closing on that date at 294.54.
Thus, contrary to widely-held beliefs, the crash of 1929 was just a prelude for more pain to come. From the peak in August, 1929, to the bottom in July of 1932, the Dow lost nearly 90% of its value. A similar slide in today's terms would wipe the Dow all the way down to 1450.00, a number not seen since late November 1985, about 9 months into Ronald Reagan's second term as president, in the full throes of the supply side financial revolution.
It's an interesting point in history. From November 1985 to October, 2007, a period of nearly 23 years, the Dow Jones Industrials increased in value some ten-fold. That kind of expansion is unprecedented in economic history and it was largely fueled by low tax rates on wealthy individuals, lax tax compliance by major corporations, and, notably, little advance in the overall wealth, prosperity or wages of the middle class. So, a major, dramatic fall, similar to that of 1930-1932, might still be ahead for those of us who still give a damn.
The timeline of history is not without flaws, to be certain, but, taking the case of a largely manipulated market which is the current, dominant theme in American finances, the overhang of burgeoning federal and state deficits, unresolved banking issues from 2008, it is not outside the realm of possibility that stock markets and the global economy could suffer a blow even more dreadful than the shock of 2008-09. In fact, we are looking at January, 2010 as comparable to April 1930, we have an eerily-similar timeline, with the worst yet to come.
Just as in the Spring of 1930, politicians and financial experts explain how we averted crisis and survived a major financial event. Back then, just as today, nobody knew what was ahead, though today's "experts" apparently have not done a detailed analysis of history, though the one man who may know more about the subject than anyone on the planet, Fed Chairman Ben Bernanke, hasn't exactly sounded the "all-clear" alert. In fact, Bernanke has been assiduously most cautious during this critical period. Though he has reassured the nation that the recession has ended, his remarks of late - few that they are - have been quite tempered and reasoned. Certainly, he reasons that more trouble may lie ahead and his actions - keeping rates low and maintaining full liquidity - speak volumes about his inner thinking.
Should the "recovery" stumble and the economy remain weak, stocks could face armageddon again, though this time, it will be long-lasting and severe, making the episode of 2008-09 look like a walk in the park by comparison.
I'm going to reiterate some of the things I've said repeatedly in various posts over the past three to four years, but they should be maintained within the context of the foregoing discussion. Jobs will continue to be scarce. Prices for everything from gold, to homes, to food, to shoes, will fall demonstrably. The goals of many will be survival, not prosperity. By the time the bulk of the baby boomer generation reaches retirement age - within the next 5-7 years, the Social Security system - already broke - will be running a deficit so large that it will break the will of the markets and the government completely. That event could come sooner, though by no means later than 2017, unless radical changes are made today, and, considering the dithering aspect of the current congress, that doesn't seem likely.
Mortgage interest rates will likely fall to below 3%. Some friends have already told me that their home equity lines are hovering around 2%. Most banks cannot make money with rates at 3-4% long term. More bank failures are a near certainty, possibly peaking in 2012, with the number in the thousands, rather than today's hundreds. Foreclosures and bankruptcies will overwhelm court systems which are already stressed beyond a level at which they can operate efficiently. Inner cities, many already slums of third world order, will become hell-holes of crime and depravity. Suburbs will become vacuous spaces for survivors of the crisis. Most people will cash out of their retirement plans if they can, because they need the cash. The next few years will be telling times indeed.
Now, back to our normally scheduled daily market recap:
The number of bank failures in 2010 reached 78 on Friday, with the FDIC closing down 5 more - three in Florida and one each in Nevada and California.
At the current pace, bank failures this year will easily surpass the total of 140 from 2009. Regulators will likely shut down between 180 and 200 banks this year as the real estate and banking bust widens and deepens.
When markets opened for trading following the three-day holiday, futures pointed to a lower open and that's exactly what occurred, with the Dow off by 80 points and the other major indices following suit... for about five minutes. That's when the usual/unusual pattern reappeared, buyers emerged and by 10:00 am - just 1/2 hour into the trading day - the indices were all either positive or close to it. With the Dow gaining steadily, then leveling off, finally reaching a peak of 10,218, some 84 points above the previous close, the chicanery was in full blossom.
But, by 1:30 in the afternoon, the bloom was off the rose, and stocks began to sell off, just as Asian and European markets had earlier in the day. Finally settling at the break even line about 3:30 pm, the Dow and other indices took on all of their losses in the final half hour of trading, closing at their lowest levels of the day. One can only wonder where stocks might have been had it not been for the underhanded intervention which has become commonplace and remarkably humorous.
Dow 10,024.02, -112.61 (1.11%)
NASDAQ 2,222.33, -34.71 (1.54%)
S&P 500 1,070.71, -18.70 (1.72%)
NYSE Composite 6,661.10, -130.47 (1.92%)
Declining issues eventually overcame advancers, 5170-1374, and the pattern of new lows surpassing new highs emerged once more, 121-98. Volume was very light, a feature that could endure the entire summer and possibly extend deeper into the year.
NYSE Volume 5,695,913,500.00
NASDAQ Volume 2,001,166,750.00
Commodities tried to play along, though there seems to be no saving grace for the price of oil, which fell again today, losing $1.39, to $72.58 on the July contract. Gold bugs were busy at work, snatching up hat they believe to be the "new" currency (and they may be right), boosting the price $12.60, to $1,224.80. Silver also sported a gain, of 13 cents, to $18.54. Prices for gold and silver should be stable to higher at worst, until deflation grabs hold of them and their ardent admirers as well.
With the action on our horribly-manipulated markets notwithstanding, the global economic crisis seems to have entered a new phase, with governments seriously looking at options from reflation to default and everything in between. It's becoming a something of a game of chicken as currencies take turns being beaten down to levels at which their products can compete in various foreign markets.
Here's a new feature:
Death Spiral Watch List:
I'm opening this one up with two companies which seem to be living on borrowed time. One is obvious, that being British Petroleum (BP), which lost another 15% today, down 6.43, to $36.52, as the federal government announced today that it was opening investigations into potential criminal and civil lawsuits (about time). TARGET=6.00
The second may not be such an apparent loser, but it is eBay (EBAY), formerly the world's online auction giant, which, through a series of ill-conceived management decisions launched by CEO John Donahoe, has effectively destroyed the trust of millions of small merchants globally. Ebay has embarked upon a path of dealing comfortably with larger concerns, offering them much lower fees than are afforded the average small business or occasional seller. It's a long, sad and sordid tale, but ebay has been turning the screws on small business with great force for the past two years, and sellers are actively seeking other platforms, tired of the endless game-changing and lack of responsible management. ebay closed down 0.45, to 20.96. Target=4.50
I call this the death spiral syndrome, recalling the demise of Countrywide Financial in 2007-08. The company was once the darling of Wall Street, at one time originating more than 50% of all mortgage loans nationally. Then came the sub-prime crisis and the company, and the rest, as they say, was history. Bank of America finally took over the company for $2/share, which makes one believe that maybe BofA might someday make this list itself. Time will tell.
The death spiral watch list tracks companies which I believe are headed for insolvency - a list that may grow to unprecedented levels should economic conditions continue to worsen.
An interesting point made today on Yahoo! Tech Ticker, which points to the uncertainty we all face:
Thursday, August 23, 2007
Acting like pirates
Ahoy, maties! It's time investors shed the wool that's been pulled over their collective eyes and now covers most of their bodies, put on an eye-patch and begin swinging swords at stocks.
Today's rescue of Countrywide Financial by Bank of America failed to ignite the rally hounds on Wall Street. While the stock of Countrywide - which faced a serious bank run last week (see story) - gained in after-hours and pre-market trading, the $2 billion injected by BofA is actually nothing more than a thinly-veiled takeover move.
The "loan", which is, in reality, convertible preferred securities priced at 7.5% which can be converted into common stock at $18 a share. If exercised, that would give BofA a 17% stake in the company, but the nation's largest bank would be unable to sell those shares for a period of 18 months.
So, is BofA really thinking "takeover" as opposed to "bailout"? And why was Countrywide so eager to accept money at 7.5% when the Fed just lowered the discount rate to 5.25% and extended the loan period for member banks to from 24 hours to 30 days.
Countrywide obviously cannot access that Fed money, but the 2.25% spread between what BofA is loaning them and the discount rate is the cost of doing business these days.
With a borrowing cost of 7.5%, Countrywide will have to either charge customers somewhere upwards of 9% to customers in order to remain even marginally profitable or sell off a chunk of the company to a "rival" at a discount. It's not a pretty world Countrywide is looking at these days.
In a few words, they're doomed. The larger banks will take the better loans, offering lower rates than Countrywide, who will be forced into a position of sick sister, having to deal with jumbos, home equities, and lenders of less-than-impeccable quality.
This comes at a time when the screws have been tightened considerably already and Moody's is still considering whether or not to lower Countrywide's bond rating to junk status.
By mid-day the markets had turned to mush. Countrywide, up as much as 2.50 early on, was ahead less than 1 point. By 2:00, the earlier gains had all but disappeared, with Countrywide trading as low as 21.98, only 16 cents better than its previous close. The stock closed up a mere 20 cents, at 22.02.
Dow 13,235.88 -0.25; NASDAQ 2,541.70 -11.10; S&P 500 1,462.50 -1.57; NYSE Composite 9,478.62 +1.49
Surely, savvy investors weren't buying the we're out of the woods story being circulated by the banks, the Fed and various shills in the financial press.
All of which brings me to the pirate analogy. Investors, or at least people with an eye on not getting killed in this market, should be looking at short-selling or buying puts on vulnerable companies. Obviously, those in the financial sector are ripe for plunder, though some have already been slashed to pieces.
Like good pirates, traders should look for shifts in opportunities as conditions on the financial seas change. Companies with high debt levels and shaky balance sheets will be prone to suffer some of the more dire circumstances.
As events warrant, I'll be posting some of the better-looking short stories and puts plays right here. For the time being, I'm keeping a close eye on Wells Fargo (WFC), which suffered a two-day computer "glitch" over the weekend which pretty much shut down online operations.
In the aftermath of the 1929 stock market crash, various states and eventually the United States government ordered banks closed due to a liquidity crisis. At the time, they used the innocuous terminology of bank "holidays" to lessen the impact on the American psyche. Might Wells Fargo's "glitch" auger more such technology-related failures as a cover for systemic financial failure? Time will tell, but it's almost certain that soon, cash will again be king.
On the day, declining issues held a 5-4 edge over advancers with the bulk of the losers on the NASDAQ. There were 128 new lows and 79 new highs on lower-than-average volume. So much for volatility. People are afraid to trade in this environment and the risk that hordes of investors might cash out far outweigh the potential for a meaningful recovery in stock values.
Oil crept up 57 cents to $69.83, while gold lost 30 cents and silver added 7 cents. If a credit and cash crunch is upon us, an implosion in commodity prices may be just a warning shot of what lies ahead.
Today's rescue of Countrywide Financial by Bank of America failed to ignite the rally hounds on Wall Street. While the stock of Countrywide - which faced a serious bank run last week (see story) - gained in after-hours and pre-market trading, the $2 billion injected by BofA is actually nothing more than a thinly-veiled takeover move.
The "loan", which is, in reality, convertible preferred securities priced at 7.5% which can be converted into common stock at $18 a share. If exercised, that would give BofA a 17% stake in the company, but the nation's largest bank would be unable to sell those shares for a period of 18 months.
So, is BofA really thinking "takeover" as opposed to "bailout"? And why was Countrywide so eager to accept money at 7.5% when the Fed just lowered the discount rate to 5.25% and extended the loan period for member banks to from 24 hours to 30 days.
Countrywide obviously cannot access that Fed money, but the 2.25% spread between what BofA is loaning them and the discount rate is the cost of doing business these days.
With a borrowing cost of 7.5%, Countrywide will have to either charge customers somewhere upwards of 9% to customers in order to remain even marginally profitable or sell off a chunk of the company to a "rival" at a discount. It's not a pretty world Countrywide is looking at these days.
In a few words, they're doomed. The larger banks will take the better loans, offering lower rates than Countrywide, who will be forced into a position of sick sister, having to deal with jumbos, home equities, and lenders of less-than-impeccable quality.
This comes at a time when the screws have been tightened considerably already and Moody's is still considering whether or not to lower Countrywide's bond rating to junk status.
By mid-day the markets had turned to mush. Countrywide, up as much as 2.50 early on, was ahead less than 1 point. By 2:00, the earlier gains had all but disappeared, with Countrywide trading as low as 21.98, only 16 cents better than its previous close. The stock closed up a mere 20 cents, at 22.02.
Dow 13,235.88 -0.25; NASDAQ 2,541.70 -11.10; S&P 500 1,462.50 -1.57; NYSE Composite 9,478.62 +1.49
Surely, savvy investors weren't buying the we're out of the woods story being circulated by the banks, the Fed and various shills in the financial press.
All of which brings me to the pirate analogy. Investors, or at least people with an eye on not getting killed in this market, should be looking at short-selling or buying puts on vulnerable companies. Obviously, those in the financial sector are ripe for plunder, though some have already been slashed to pieces.
Like good pirates, traders should look for shifts in opportunities as conditions on the financial seas change. Companies with high debt levels and shaky balance sheets will be prone to suffer some of the more dire circumstances.
As events warrant, I'll be posting some of the better-looking short stories and puts plays right here. For the time being, I'm keeping a close eye on Wells Fargo (WFC), which suffered a two-day computer "glitch" over the weekend which pretty much shut down online operations.
In the aftermath of the 1929 stock market crash, various states and eventually the United States government ordered banks closed due to a liquidity crisis. At the time, they used the innocuous terminology of bank "holidays" to lessen the impact on the American psyche. Might Wells Fargo's "glitch" auger more such technology-related failures as a cover for systemic financial failure? Time will tell, but it's almost certain that soon, cash will again be king.
On the day, declining issues held a 5-4 edge over advancers with the bulk of the losers on the NASDAQ. There were 128 new lows and 79 new highs on lower-than-average volume. So much for volatility. People are afraid to trade in this environment and the risk that hordes of investors might cash out far outweigh the potential for a meaningful recovery in stock values.
Oil crept up 57 cents to $69.83, while gold lost 30 cents and silver added 7 cents. If a credit and cash crunch is upon us, an implosion in commodity prices may be just a warning shot of what lies ahead.
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