Showing posts with label Euro. Show all posts
Showing posts with label Euro. Show all posts

Thursday, May 7, 2020

Deflation, Inflation, Hyperinflation, Signal to Noise Ratio, Gold, Silver, and the End of the Dollar

Everything that has happened so far was predictable.

The worldwide government response to the COVID-19 pandemic was as easy to see for cynics and skeptics as the eventual lying that would take place. First, back in January and early February, the federal government told the public that the threat to Americans from the coronavirus that was ravishing China was minimal. Gradually, that advice was replaced by travel restrictions to and from mainland China, then to and from Europe, until finally, infections and deaths from the virus began to multiply in America.

By mid-March and into the first days of Spring, the veil had been lifted and the virus was spreading rapidly across the United States, thanks to millions of international travelers on ships and airplanes that had been allowed to come and go as they pleased through the winter. Individual cases turned into clusters and clusters to severe outbreaks, especially in New York City, not surprisingly a hub for international travel.

By the time congress got around to passing emergency legislation, lockdowns and shelter-in-place recommendations were put into play by governors of the individual states. The legislation contained the usual: massive injections of currency into Wall Street (because we can't have a stock market crash), a pittance for the public, and payments to hospitals for treating patients infected with COVID-19: $13,000 for each patient admitted; $39,000 for each patient put on a ventilator.

Anybody who has been following government and Federal Reserve policy knew that the response would be to throw massive amounts of currency at the problem because that's all they know about how to handle crises.

And here we are. The government is now readying a fourth "stimulus" bill, chock full of more handouts, bailouts, and currency drops. This time, the public gets nothing. States and municipalities are going to get tons of currency to bail out their broken, drained public coffers and keep millions of teachers, cops, firemen, and paper-pushers on the job and their pensions partially funded because having the Fed backstop municipal bonds simply wasn't enough. Hospitals will get more currency. Small businesses will get another tranche of loans, pressing cynics to respond that cities get grants, while businesses have to pay it back.

All of this currency printing and government deficits won't amount to a hill of beans because the transmission mechanism for the velocity of money is broken. Cops, teachers, and firemen will get paid, but they'll be scared to take on new debt and will spend much of their money paying down credit card bills and overpriced mortgages. After another crash to lower levels, the stock market will stabilize.

The US will have deflation, widely, in big-ticket assets like stocks (market crash), bonds (rolling defaults), real estate (forbearance today leads to foreclosure tomorrow), trickling down to things like furniture (no interest for 5, 6, 7 years), cars (rebates, cash back, 0% financing), and appliances (oversupply). Food, especially meat, which is getting a bit pricey right now due to chinks in the supply chain, will not be affected much. Food was the one thing that didn't go up or down much during the Great Depression of the 1930s. It was cheap enough so that people didn't starve, though meats were generally considered close to being luxuries, so no worries there, until hyperinflation. Besides, even if you have a tiny back yard, you can grow some vegetables of your own to offset any price rises in meats. Why do you think your mother was always telling you to eat your vegetables? Sometimes there just isn't enough meat.

After six to 18 months of deflation, all the while the Fed printing dollars like maniacs and the government running massive deficits (probably over $8 trillion this fiscal year alone (through September 30), prices will seem to stabilize. By this time next year (2021), many will think the crisis has passed, mostly because that's what they'll be telling you on TV. But, it's just a lull. Inflation will return as all that currency begins to be spent into the economy. As the velocity of money ramps up, the Fed will respond by raising interest rates, but it won't matter. The game is on, with hyperinflation underway, the currency will continue losing value and eventually, there will be a massive default on dollar debt.

Forget, for for a few weeks or a few months what's happening on a day-to-day basis. It's mostly noise. The signal to noise ratio (SNR or S/N), a measure used in science and engineering that compares the level of a desired signal to the level of background noise, in today's economy, politics, and society, is very low, meaning the signal is barely transmitting the message as it is being drowned out by the noise.

In terms of decibels, to hear what's really happening in the world, the signal has to be about 60, the level of sound as conversational speech. If the noise is that of a rocket launch (180), the SNR is 0.33 and the noise drowns out the signal. When the SNR gets to above one (1), the signal can be heard. Putting that in perspective, a signal sound of a balloon popping is 125, a toilet flushing is 75, producing a SNR of 1.67. Those are appropriate today, as the balloon popping can metaphorically represent the debt bubble bursting and the toilet flushing the sound of US dollars losing value, going down the drain. That hasn't happened yet, but, as time progresses, the SNR will rise, pass 1.00 and the signal will eventually be loud and clear, one that everybody can hear. That's when inflation proceeds to hyperinflation, with prices rising faster than the Fed can print new currency.

It is at that point that you'll want to have gold, but especially, silver, because it will outperform the currency, just by standing still. Truth of the matter is that gold and silver don't really rise in price. An ounce of silver or a gram of gold is still an ounce or a gram. But the purchasing power of the currency is falling because there's more money circulating. Thus, in a very natural correspondence, gold and silver rise in value as the currency falls, which is why three 1964 dimes (90% silver) can buy more gas at the pump today, in 2020, than in 1964.

In the year 1964, the average retail price of gas in the U.S. was $0.30. So, back then, you could put a gallon of gas in your car with three 1964 (or earlier) dimes. Today, three dimes from 1964 or earlier are worth a silver melt value of about $1.10 each, so, with gas prices currently deflating to around $1.50 a gallon, you could buy more than two gallons of gas, even with silver (and gold) prices being suppressed. That's deflation. One could buy just one gallon and use the other roughly dime-and-a-half to help pay for the increased price of pork or beef. That's inflation. Inflation and deflation can and will occur - in different products or services - simultaneously.

Silver, even under the severe constraints imposed by the futures, central banks, the BIS, and other manipulators, has increased in value 1100% since 1964, an annual, non-compounded return of 16.67%. Try getting that from stocks or bonds. And silver is going higher. Much higher. The price of an ounce of silver in dollars is likely to double in the next few years, then double again, and again, as the dollar is gradually debased, losing all that's left of its purchasing power. Your 1964 dime will buy at least a gallon of gas or the equivalent in bread or beef or whatever items you wish to purchase. It will have value, as precious metals have for more than 5000 years. The dollar, and with it, the pound, yen, euro, yuan, and any other currency not backed by or tethered to a tangible asset (it doesn't have to be gold; it can be anything) will revert to its intrinsic value of ZERO, or close to it because every other country will be going through similar scenarios as the United States.

That's where this is all headed. Price deflation with currency inflation through Spring or Summer 2021, relative calm from 2021 to maybe the beginning of 2023, but likely before then, with inflation ramping up; then hyperinflation for two years before a complete monetary system reset is the only solution. It's not the length of time for these varying processes to occur that's importance, it's the sequence (deflation, calm (some inflation), inflation, hyperinflation) and the ability to spot the subtle changes that matters most.

Completely wrecking a global economy takes time. The Fed's been at it since 1913, and in 107 years have reduced the purchasing power of the dollar by about 97%. The last three percent - and the sopping up of all the malinvestment and toxic assets will take time... about three to four years.

Anything that has more upside than downside from random events (or certain shocks) is antifragile; the reverse is fragile.

We have been fragilizing the economy, our health, political life, education, almost everything… by suppressing randomness and volatility. Much of our modern, structured, world has been harming us with top-down policies and contraptions… which do precisely this: an insult to the antifragility of systems. This is the tragedy of modernity: As with neurotically overprotective parents, those trying to help are often hurting us the most.


-- Nasim Taleb

It would be nice if we started listening to the people who have been right rather than the people who have theories.

-- Mike Maloney, The Hidden Secrets of Money, Episode 7, Velocity & the Money Illusion

At the Close, Wednesday, May 6, 2020:
Dow: 23,664.64, -218.45 (-0.91%)
NASDAQ: 8,854.39, +45.27 (+0.51%)
S&P 500: 2,848.42, -20.02 (-0.70%)
NYSE: 10,999.99, -135.41 (-1.22%)

Thursday, September 12, 2019

Global Banker Duplicity: Draghi Cuts ECB Overnight Rate to -0.50%

At Thursday's announcement, the ECB's Chief Governing Council (sounds impressive, doesn't it?) cut the bank’s overnight deposit rate, trimmed by 10 basis points, to −0.50%, meaning that commercial banks must effectively pay just a little bit more to the ECB to hold their excess cash balances overnight.

There were other policy moves, such as a restart to the ECB's Asset Purchase Program, otherwise known as QE, with an unlimited timeline. The bank will purchase assets at a rate of 20 billion euros per month, until they see inflation begin to tick up, so, essentially, forever, or, until the currency is completely worthless or eviscerated by the continuous destruction of capital by negative interest rates.

It would be easy to say that the central bankers don't know what they're doing, because all of the stimulus applied to economies around the world for the past ten years hasn't produced anything close to a desired result, either increased inflation (which isn't good, by the way), or rising GDP in developed nations.

What the ECB and other central banks like the BoJ and the US Federal Reserve are doing is choking down the currency in desperate, disparate attempts to conceal the rot within the system, which essentially imploded in 2008.

Nothing has been done at the micro level to induce business formation. It's all been macro level stuff, aiding governments and big corporations, which have a stranglehold on the most profitable franchises worldwide.

This is apparently good for asset prices in risky segments, such as stocks, but also for gold and silver, which have popped on the news, but will no doubt retreat.

The end game is a global depression, which some claim we've been in since 2008, but that's splitting hairs. The final blow comes when currencies backed by nothing are thrown out with the bathwater by populations tired of being taxed to death and dragged roundly their ears and noses with shifting central bank tricksterism.

Negative interest rates, if they prevail, will destroy all fiat currency. It's just math.

At the Close, Wednesday, September 11, 2019:
Dow Jones Industrial Average: 27,137.04, +227.64 (+0.85%)
NASDAQ: 8,169.68, +85.52 (+1.06%)
S&P 500: 3,000.93, +21.54 (+0.72%)
NYSE Composite: 13,082.41, +88.41 (+0.68%)

Saturday, August 11, 2018

Weekend Wrap: Dow Slammed, Wiping Out August Gains

Against the backdrop of news that Turkey's lira was crashing against foreign currencies, stocks were hammered lower in nearly every market around the world Friday, the hardest hit regionally being Germany's DAX (-1.99%), Brazil's Ibovesta (-2.86%), and Japan's NIKKEI 255 (-1.33%).

The lira, Turkey's official currency fell 20% on Friday, a dramatic move seldom seen in FX markets.

The American bourses being the last to finish out the week, the results were expectably negative, though not nearly approaching the levels seen in Europe and Asia.

The decline was, however, significant enough to send three of the four major US indices to weekly losses. For the Dow, S&P, and NASDAQ Composite, this week ended a string of five consecutive winners. The NASDAQ posted its fourth gain in the past six weeks. Even though Friday's 52-point loss on the NAZ was harrowing, the tech-laden index still closed within 100 points of its all-time high.

The issue of Turkey's lira crashing is made all the more intriguing by its geographical location, at the nexus of Europe, Asia, and the Middle East. With a population of 80 million, the diverse ethnicity of its population has trended more toward Islam in recent years, troubling to the visionaries of the greater world's economies, especially since it is a NATO ally and member of the European Union, though it does not share the common euro currency.

Some European banks with heavy exposure may be at risk from the turmoil in the crossroads nation, though the financial concerns run side by side with political and military issues.

While stocks took a hit, the US dollar was bolstered, rising to 96.27, its highest level in over a year. That reaction translated to lower prices for crude oil. Gold and silver, along with other commodities, trended lower. Gold closed out the week at 1,219.20. Silver ended at 15.28, trending at levels not seen in two years.

In a general sense, the week served as a reminder to traders that despite optimistic sentiment, troubling, nettlesome issues are bubbling up just beneath the superficial veneer of global economies.

Dow Jones Industrial Average August Scorecard:

Date Close Gain/Loss Cum. G/L
8/1/18 25,333.82 -81.37 -81.37
8/2/18 25,326.16 -7.66 -89.03
8/3/18 25,462.58 +136.42 +55.05
8/6/18 25,502.18 +39.60 +94.65
8/7/18 25,628.91 +126.73 +221.38
8/8/18 25,583.75 -45.16 +176.22
8/9/18 25,509.23 -74.52 +101.70
8/10/18 25,313.14 -196.09 -94.39

At the Close, Friday, August 10, 2018:
Dow Jones Industrial Average: 25,313.14, -196.09 (-0.77%)
NASDAQ: 7,839.11, -52.67 (-0.67%)
S&P 500: 2,833.28, -20.30 (-0.71%)
NYSE Composite: 12,843.49, -113.17 (-0.87%)

For the Week:
Dow: -149.44 (-0.59%)
NASDAQ: +27.10 (+0.35%)
S&P 500: -7.07 (-0.25%)
NYSE Composite: -109.85 (-0.85%)

Tuesday, November 28, 2017

Fittingly, Bitcoin Nears $10,000 on Cyber Monday

Catching a ten-bagger is a noteworthy event in any trader's history, but believers in Bitcoin - the original and most prominent cryptocurrency on the planet - are enjoying their days in the sun as the currency heads for $10,000, currently trading for more than $9900 per digital coin.

Bitcoin ended 2016 at a mere $970.17, but it's gone completely bonkers in 2017 as more and more people adopt the digital currency as a hedge against the faults of fiat currencies of central bankers that are based on nothing but faith.

While bitcoin is similarly faith-based, it has properties that traditional currencies do not. It is anonymous, and also not subject to excessive printing of fresh fiat out of thin air. The number of bitcoins mined is capped at 21 million. There are only four million left to be mined. After that, there can be no more Bitcoins ever created, so the currency has an inflation governor that is rivaled only by gold, silver and other precious metals.

This advantage is not lost on holders and speculators in Bitcoin. As acceptance and adoption grows, the number of bitcoin holders naturally ratchets up the price. As of this writing, Bitcoin's market cap is higher than many major corporations, making the digital currency something that keeps central bankers on their toes.

Widespread acceptance of Bitcoin threatens the central bank stranglehold on global forex, currencies and commerce. While this speculative phase is phenomenal for early adopters (some who bought into the Bitcoin mania before it was even priced in triple digits), the long-term implications are other-worldly. If Bitcoin - or some other form of cryptocurrency continues to be established globally - it could conceivably rival currencies such as the US dollar, the euro, Japanese yen or China's yuan.

Just as gold and silver have been recognized as money, currency and stores of value for thousands of years, so too, Bitcoin has emerged as a potentially viable alternative for the 21st century.

At the Close, Monday, November 27, 2017:
Dow: 23,580.78, +22.79 (+0.10%)
NASDAQ: 6,878.52, -10.64 (-0.15%)
S&P 500: 2,601.42, -1.00 (-0.04%)
NYSE Composite: 12,390.78, -31.15 (-0.25%)

Wednesday, February 22, 2017

Fed Minutes Put March Rate Hike In Play

Editor's Note: With the luck of some extremely mild weather in Upstate New York (temps in the 60s today and expected the same for Thursday and Friday), the Money Daily team (Fearless Rick) has headed out to open up spring and summer camp a little early. That means the usual posting of Money Daily will not be the normal after the market close summary, but will be more sporadic for probably the next three to four weeks and may not be "daily" at all. Better weather brings on more responsibilities and a relaxed time frame.

Thanks,
Fearless Rick


Let's not beat around the bush. The Federal Reserve is intent on raising rates, which should surprise nobody, as the federal funds rate has been at or below one percent for the better part of 16 years.

Currently set at 0.50-0.75%, the key overnight rate has been largely responsible for a great deal of irresponsibility, not the least of which was the subprime disaster of 2008 and the resultant Great Financial Crisis which sent the global economy into one of the worst tailspins since the Great Depression of 1929-1938.

So, with the release today of the minutes from last month's FOMC meeting, it's compelling to think that a rate increase would be on the agenda at the next meeting, mid-March.

After all, the latest hike, in December of last year, hardly caused a ripple at all. Most experienced investors and money managers are aware of the need to "normalize" policy by the Fed and have preparing for such an event (or series of hikes, which is completely probable) since December of 2015.

With President Trump promising a fiscal stimulus plan, the Fed's belief that inflation will be the end result is a bit of a cockeyed argument, but, as always, the hyper-politicized Federal Reserve Board of Governors will say anything to get to their desired result. If the hikes come too quickly - they promised four this year - they can lay the blame on everybody's favorite political punching bag, Mr. Trump. Should things work out, the Fed will claim all the credit for "saving the financial system as we know it."

Either way, the Fed will come out smelling like the proverbial rose, even though they come closer to the stench of burning paper currency than that of a pretty flower.

March is now a "live" month for the Fed, though it should not go unnoticed that the Fed has and will likely continue to do not what they say, as in the case of last year's promise of three rate hikes, when in fact they actually performed just one (December).

With the stock indices hitting all-time highs on just about a daily basis, March would be as good a time as any to get rates another notch closer to one percent. In fact, a 50 basis point hike, to 1.00-1.25% wouldn't be such a bad idea. The stock markets are about to go belly up, despite being wildly overvalued.

Wall Street suffers from the absolute worst form of normalcy bias and that alone should prevent even a correction. Financial markets are in as weird a place as they've ever been, but expect the next crashing sounds to come from overseas, either to the West, as in Japan (or even China), or looking East at the failed experiment that is the European Union and the coming parity of the euro to the US dollar.

Wednesday, May 18, 2016

Fed Jawboning Flattens Stocks, Boosts Dollar, Sends Treasury Yields Soaring

Hearing all this Fed-speak, one might pine for the days of old, when central bankers were seen and not heard, when their meetings were the stuff of secrets and rituals and transparency was reserved for a type of adhesive tape.

The current roster of the federal reserve is a lineup of chattering old men and women more suited for a Sunday festival than the stuff of high finance.

Regardless of one's opinion of the federal reserve, one thing is certain: they have Wall Street on edge. With the release of the minutes from April's FOMC fiasco, the dollar surged - in the main against the yen and euro - stocks tanked back to break-even for the day and the 10-year note yield shot up like a rocket, ending the day at 1.88%, a move of nearly seven percent.

Oil and PMs fell, as planned. It's ridiculous.


S&P 500: 2,047.63, +0.42 (0.02%)
Dow: 17,526.62, -3.36 (0.02%)
NASDAQ: 4,739.12, +23.39 (0.50%)

Crude Oil 48.40 -1.20% Gold 1,259.50 -1.36% EUR/USD 1.1217 -0.84% 10-Yr Bond 1.88 +6.88% Corn 399.50 +0.63% Copper 2.06 -1.17% Silver 16.92 -1.88% Natural Gas 2.01 -2.05% Russell 2000 1,102.95 +0.48% VIX 15.95 +2.44% BATS 1000 20,677.17 0.00% GBP/USD 1.4597 +0.94% USD/JPY 110.1950 +0.96%

Friday, May 13, 2016

Friday The 13th Sell-Off Nearly Breaks Through Downside Range On Dow Industrials

Yesterday, Money Daily extolled the virtues of ignoring intra-day movement on the major indices and pointed out that the last time the Dow Jones Industrial Average (DJIA) closed below the magic mark at 17,500, was nearly two months ago, on March 18 (17,481.89).

The waterfall decline on Dow stocks Friday put an exclamation mark on that post, as stocks fell to within a whisper of the bottom end of the tight range with 18,000 as the top and 17,500 as the bottom.

Friday's trading also assured that US indices would end the week in the red for the third straight week and fourth time in the past seven, suggesting the five closes above 18,000 in mid-April were aberrations rather than normative market behavior.

Thus, despite a completely phony report from the US Census that saw sales by U.S. retailers leap 1.3% in April, marking the biggest month-over-month gain in a year, the exodus from stocks continued unabated. While the indices have regained all of their losses from January and early February, institutional money has been selling all along, leaving the market largely in the hands of small investors and... please be seated, because this is a shocker... central banks.

It's widely understood that the Bank of Japan, that country's central bank, is heavily invested in its own stock market, propping up prices on the Nikkei, apparently to no avail, since the benchmark index is down sharply this year, and, unlike its counterpart in the US, has not rallied back to glory.

The Nikkei made a triple top last summer with peak closes in the 20,860 range. On Friday, the Nikkei closed at 16,412.21 and is down sharply on the year (it closed out 2015 at 19,033). Make no mistake, off its highs from June through August of last year, the Nikkei has fallen into bear market territory, even though the Bank of Japan has been furiously buying shares in the largest companies, as explained in this article by none other than the Wall Street Journal.

It was reported just the other day that the Swiss National Bank was wisely using some of its money to buy shares of Apple (AAPL) as Carl Icahn was liquidating his holdings in the company and the stock was slumping to two-year lows.

Is there any wonder that people have little faith in their governments and are rapidly losing faith in other institutions, especially those which conjure money out of thin air. When central banks are actively bidding in markets of all sorts - from precious metals to oil to stocks and bonds - how can there be any rational approach to investing or any kind of reasonable price discovery. Everything is subject to the inane whims of people in ivory towers who think they know more than anybody else about how the world should operate. In truth, they are destroying the system that spewed out their jobs and paychecks.

When people finally awaken to the massive misallocation of capital and enormous malinvestments by the issuers of paper money it's going to be too late. Central banks cannot - at least not in a rational world - buy up shares of everything in order to keep the global economy humming along while at the same time issuing critical mountains of debt in the form of digital deposits and bonds (which they are, in effect, also buying from themselves).

There will be a crash, a day of reckoning, probably multiple ones, when the cnetral bank global ponzi scheme is finally exposed, and that could happen at any time.

If the stock markets begin breaking down, it should be seen as a sign that the final chapter of extraordinary central bank policy which began with the financial crisis in 2008, is underway. The endgame is likely to resemble 50-70% declines in major stock indices, 10-year interest rates at zero of less (already there in some countries) and massive disruptions of businesses, bank closures, or worse, outright confiscation of deposits by the banks holding trillions of dollars, yen, yuan, euros and pounds.

This is not fiction, but the reality of the past eight years of nightmare economics spawned by the Federal Reserve and their brethren central bankers.

But, as it has been since the collapse of the global economy in 2008, when central banks have endless supplies of fictional fiat to spend, crashes like Friday's can be aborted, as was this one, right at 3:00 pm, with just an hour left in the trading day. Agents of the Fed stepped in at the most dangerous moment to hold the line at 17,500.

André Maginot would be impressed.

The only problem is that this kind of madness cannot go on forever without incredibly dangerous distortions and serious, lasting repercussions.

For the week:
DOW: -205.31 (-1.16%)
S&P 500: -10.53 (-0.51%)
NASDAQ: -18.48 (-0.39)

Friday's Fall:
S&P 500: 2,046.61, -17.50 (0.85%)
Dow: 17,535.32, -185.18 (1.05%)
NASDAQ: 4,717.68, -19.66 (0.41%)

Crude Oil 46.32 -0.81% Gold 1,274.80 +0.28% EUR/USD 1.1308 -0.58% 10-Yr Bond 1.70 -2.96% Corn 390.50 +0.39% Copper 2.08 +0.14% Silver 17.16 +0.30% Natural Gas 2.10 -2.55% Russell 2000 1,102.44 -0.56% VIX 15.04 +4.37% BATS 1000 20,677.17 0.00% GBP/USD 1.4359 -0.61% USD/JPY 108.6400 -0.40%

Tuesday, April 19, 2016

Silver Pops Above $17/oz.; Intel Slashes 11,000 Jobs; Markets Steady

...and the beat goes on.

How long will it take before the majority of traders realize they've been fed a pack of lies in non-GAAP earnings reports, loaded with non-recurring, one-time charges, which oddly keep cropping up every other quarter, and profits that are the result of stock buybacks (fewer shares equals higher EPS)?

For most, the answer is "too long." Since Wall Street can only make money if stocks appear to be good investments - and that concept is quickly fleeing the coop - and have the confidence of investors, the con game of lowered expectations and "beats" will keep the dancers dancing well past midnight and into the wee hours of the morning.

When the party does finally end, there are going to be a lot of long faces, hung-over losers and poor explanations for why the market simply didn't keep going up forever and ever and ever. Central bankers the world over will be falling over each other before that happens, though, because where goes Wall Street, so goes central bank - and thus, fiat money - credibility, and that must be maintained at all costs, which just might include printing trillions and trillions more dollars, euros and yen before the money finds its justifiable price, that being the cost of ink on paper, or, essentially, nothing.

So, when pensioners find their nest eggs shattered and barren, and are being told that the paper promises are not going to be honored, it will be too late for the masses.

Only those free of debt, with some reasonable amount of hard assets - land, building, machinery, tools, art, gemstones, silver, and gold - will be whole and beholding to nobody. The rest will have to fend for themselves and their families as best as they can.

It is against this backdrop that the recent rise in the value of silver becomes important. Gold's little brother has risen from an even $14/ounce to close today just under 17 dollars an ounce, making it the best-performing asset of the year, passing by gold in the process.

There are numerous reasons that silver has been set afire in recent days. Less than a week ago, Deustche Bank agreed to settle lawsuits claiming the bank had engaged in price manipulation of silver as well as gold. This admission really put the afterburners to an already hopped-up commodity. Gold has been slower to respond, likely because silver had been manipulated much lower for much longer.

Traditionally, silver had been valued in relation to gold at anywhere from 16 to 20 ounces of silver to one ounce of gold. Earlier this year, the gold:silver ratio screamed above 80, signifying that silver was likely undervalued by a magnitude of four. In other words, the true value of silver must come back to historical norms, either by the price of gold falling dramatically, or the price of silver rising astronomically (i.e., silver, at a 16:1 ratio to gold, would be selling for $78/ounce, with gold at $1250, where it currently resides).

What is a more plausible outcome is that - and this process could take several years, maybe as many as ten - both gold and silver will rise, though silver will rise at a much faster pace, eventually coming in line at 20:1 per ounce of gold. Both precious metals will see enormous advances in coming years as currencies depreciate and eventually die, paramount among them the Japanese Yen, the Euro, and the US Dollar, since the currencies of the most developed nations are also the most at risk, due to many factors, not the least of which being the excessive levels of debt held by the general public and government.

The Fed, the ECB and the BOJ will print to infinity, eventually bankrupting their counties and their currencies. Holders of gold and silver will be rewarded for both their vision and their patience.

The process has begun, but only those willing to hold an asset that offers no interest or rate of return, but also does not carry any counter-party risk, will prosper. Dollars, Yen and Euro will eventually devalue and finally default.

In the words of James Pierpont (J.P.) Morgan, spoken in 1912, a year before he helped launch the Federal Reserve:

Gold is Money. Everything Else is Credit.

Today's closing figures:
S&P 500: 2,100.80, +6.46 (0.31%)
Dow: 18,053.60, +49.44 (0.27%)
NASDAQ: 4,940.33, -19.69 (0.40%)

Crude Oil 42.46 +3.08% Gold 1,251.80 +1.36% EUR/USD 1.1359 +0.41% 10-Yr Bond 1.78 +0.56% Corn 383.50 +0.66% Copper 2.23 +2.84% Silver 16.96 +4.35% Natural Gas 2.09 +7.63% Russell 2000 1,140.23 +0.08% VIX 13.24 -0.82% BATS 1000 20,682.61 0.00% GBP/USD 1.4394 +0.82% USD/JPY 109.1975 +0.33%

Friday, March 13, 2015

Week Ends Poorly for Stocks, as PPI Indicates Deflation, Euro Falls, Dollar Rallies

Since stocks are close to all-time highs, there isn't much in the way of analysis to explain marginal moves in one direction or another, except along the lines of anticipatory buying/selling in the face of a potential Fed rate hike in June... or September... or never.

That's why it was a little surprising to see stocks fall on news that the PPI registered an outsize negative number this morning, indicative of outright deflation, the one thing of which the Fed and the government are deathly afraid.

PPI had dropped 0.8 percent in January. In the 12 months through February, producer prices fell 0.6 percent, the first decline since the series was revamped in 2009. February PPI, measured on a month-t-month basis, fell 0.5 percent.

Falling prices mean less spending, and less spending begets lower prices in a competitive environment (according to economics 101) and lower prices, as part of the spiral, means lower wages, or, at least no raises in wages, but it's what has been occurring, more or less, since the last financial crisis in 2008-09. One need only know where to look for deals and bargains; they are out there.

But, lower prices cause all kinds of problems for the Fed, already at the zero-bound on rates, because the have no tools to fight deflation, since the entire banking regimen depends on at least some inflation, all the time and everywhere.

Lower oil prices were just the first symptom of the deflation problem, or, maybe the second, following stagnant wages and a lack of job growth (forget the unemployment figures - they're a sham) and now the decline in the price around which everything else revolves has gotten the vicious cycle working overtime. The dollar rising is another ancillary symptom of a moribund economy, one which is about to keel over and die for good, something it should have done in 2009. The other shoe is dropping, and the Fed isn't going to be able to catch this one before it hits the floor with an awful thud. Imports are becoming cheaper, due to just about all our trading partners desperately devaluing their currencies.

The Dollar Index shot up over 100 today, closing at 99.41, a twelve-year high. The euro dipped below 1.05 again. It is rapidly approaching parity with the dollar, and will likely be worth less than a greenback within mere months.

Without inflation, people save instead of spend, pay down debt instead of incurring more, and generally speaking, life gets better for the average Joe or Jane consumer. The honest truth is that banks - at the heart of our global economic malaise - don't want people out of debt, they want them deeper and deeper in debt.

And, if wages stagnate or decline, and people get laid off, the government collects less in taxes and - boo-hoo - they can't service the debt (they can't anyhow, that's proven by our $18 trillion national debt, but that's another story) or provide needed (or unneeded) services.

So, rock, meet hard place. And that's why even if a stinking bad economy keeps Wall Street flush with fresh money from the Fed printing press, it's still a bad economy that is, in the end, unsustainable.

That is about the best guess as to why stocks sold off today, even on BAD news, which was supposed to be GOOD.

Stocks were also down for the week. The Dow fell 107.47 (-0.60%); the S&P shed 17.86 (-0.86%) and the NASDAQ led the downside move, losing 55.61 (-1.13%). It was the second straight weekly loss for the NASDAQ and the Dow, the third in a row for the S&P.

Closing Prices (3/13):
Dow Jones 17,749.31, -145.91 (-0.82%)
S&P 500 2,053.40, -12.55 (-0.61%)
NASDAQ 4,871.76, -21.53 (-0.44%)

Monday, June 11, 2012

Spanish Bank Bailout Has Bad Odor; Week Ahead Looks Fascinating

Following last week's magnificent vapor rally on the lightest volume of the year, the new week started off gangbusters with news of a $125 billion (100 billion euros) bailout of insolvent Spanish banks sending US equity futures up on a sugar high prior to the opening bell.

Asia rallied strongly on the same news, followed by significant upside on the European exchanges. However, once Wall Street got a whiff of the real stench coming from Europe (Spain's bailout is hardly anything to cheer about; the loans from either the ESM or EFSF are uncertain and have not been approved by the German parliament, which is a must; Greece's elections loom on Saturday), it didn't take long for the best minds, algos and short sellers on Wall Street to sell the rally and start taking profits from last week's big run.

The Dow was up 96 points in a flash, but by 10:00 am EDT was already under the unchanged line, dragging down the other major indices with it. Stocks took a breather during the middle of the session, but, after 2:00 pm, it was pretty much all downhill, as investors went scurrying for cover in defensive stocks and treasuries.

Fear of the impending and eventual full retard global financial collapse were once again front and center, and, with good reason.

Whatever the euphoria over endless money printing out of thin air, be it by the US Federal Reserve, the ECB, China or any other nation, it appears that most people with sense have come to ignore it, at least, and abhor it, at worst. This same story has been playing since the fall of 2008 - throwing more debt at bad debt - and, since the Spanish banks were about the only suckers buying the debt of the Spanish government, recapitalizing them was just another in a long, futile line of can-kicking efforts, far from a real solution to the global crisis caused by long-term issuance of excessive debt.

The centrally-planned, central bank model of piling more bad debt upon already bad debt is coming to a furious conclusion and there seems to be nothing to prevent a complete reset of the world's capital structure. Hard line Keynesians continue to pretend that there's a way to avoid a catastrophic global meltdown, but the reality is that very little has been done thus far, and it's probably now too late to change tactics.

What has passed muster in the past now seems old hat, the results already known, that more bailouts and printing of money will not suffice; old, tried and true methods such as default, bankruptcy, selling off of remaining assets and new management of failed institutions - be they financial or governmental in nature - are the only prescriptions that will cure the ailing patient that is the global financial system.

There is already a great deal of talk circulating about subordination, of soured notes and bonds taking a back seat to newer issues. Spain's stock market, up nearly 6% early on, ended the day in the red and in tatters, the Spanish benchmark 10-year note yielding above 6.5%, a danger area. Greece's 10-year has already achieved escape velocity, with a yield of more than 28%, probably not even ample considering the risk. The Euro finished below 1.25 to the dollar, which is still 20-30% too high, crude was pounded down to eight-month lows, and a quadruple-witching day awaits markets on Friday.

It's either ironic or appropriate that rich and poor dads alike will have one more day in the sun on Father's Day, June 17, upon which day Greeks vote once again to try to form a government in an ungovernable situation. By this time next Monday, there may well have been a 500-point decline on the Dow, with Europe slitting apart at the seams, US and other developed nations exhibiting no growth and Italy waiting in the wings to be the next major casualty.

This week promises to be one of the most interesting - from a macro perspective - though, with more than $800 billion being pulled out of equities in the two years following the May 2010 "flash crash," there may not be anyone left around the trading floor to turn off the lights.

The entire mess has been the product of government gone fiscally wild and banks more than willing to take on excessive, often foolish risk over the years and into today. There comes a reckoning, and that day will arrive eventually, without fanfare or pretense. Then the planet will tremble as great swaths of wealth are obliterated by the same system that made the unrealistic promise of endless growth on a finite planet.

Volume was once again horrifyingly absent, breadth was extremely negative and new lows crept up on new highs after a brief reversal last week.

Dow 12,411.23, -142.97 (1.14%)
NASDAQ 2,809.73, -48.69 (1.70%)
S&P 500 1,308.93, -16.73 (1.26%)
NYSE Composite 7,459.29, -94.49 (1.25%)
NASDAQ Volume 1,477,944,250
NYSE Volume 3,383,333,500
Combined NYSE & NASDAQ Advance - Decline: 1206-4401
Combined NYSE & NASDAQ New highs - New lows: 144-94
WTI crude oil: 82.70, -1.40
Gold: 1,596.80, +5.40
Silver: 28.62, +0.15

Wednesday, May 16, 2012

Volume Up, Stocks Down As Malaise in May Exhibits the Results of Bad Karma

With higher and higher volumes showing up on individual stocks as well as the major averages virtually every passing day, the idea that there's something basically wrong with the markets and the global economy is beginning to build into a self-defeating, repeating, cyclical tailspin.

The major indices did another midday about-face, in classic bear market fashion, even though economic data in the US was relatively positive.

Housing starts were up - at an annualized rate of 717K on expectations of 675K, though building permits were lower than anticipated. That stocks, especially those of home builders, would rally on such news was not unexpected, though just because somebody puts a shovel in the ground does not necessarily imply that these newly-constructed homes will eventually be bought, much less completed.

However, two more broad measures of the economy were also positive. Industrial production grew at a rate of 1.1% in April, while capacity utilization for the month printed at 79.2%, a very strong and encouraging number.

Investors simply cannot shake the co-mingled issues of Europe, especially Greece, the falling Euro and rising dollar, all of which contributes to what could be a tough state of affairs for many of the US markets' global entities, which ship and sell around the world. Exports from the US will be especially damaged as the weaker foreign currencies and stronger US dollar make for pricier goods in faraway markets where demand has been slowing.

Following along the same logic, commodity prices are trending lower as well, which would help companies' bottom line cost structures and help keep them competitive, though traders are not confident there will be strong enough demand to produce meaningful pricing power and sustainable profit margins.

Underlying all these concerns are three major issues: Greece and the Euro, the upcoming presidential and congressional elections, and, political implications of US policy: the expiration of tax cuts at the end of 2012 along with uncertainty regarding President Obama's health care bill (now in the hands of the US Supreme Court) and a closetful of unwritten regulations, many of them centered on the financial industry through the Dodd-Frank legislation.

Further below the surface lies the uncertainty regarding the Fed's next move, as Operation Twist, aka QE3, expires at the end of June. Thus far, Fed chair Ben Bernanke nor any of the Fed's governors have hinted whether further easing would be forthcoming, and, at the end of the day, that is simply a nightmare scenario for the general economy and the banks, because without easy money, the fears are that global commerce will grind to a halt.

Markets hate uncertainty, and there's an abundance of that commodity in the flow right now, so there's no reason to believe that stocks will do anything but decline as profits are taken and few new positions are being staked out until there is resolution on some of these issues.

In the meantime, consumers are enjoying a bit of relief at the pump, as oil has fallen in just the past two weeks to its lowest level since December of last year and show no signs of bottoming. At the same time, housing prices keep declining and therein lies the conundrum of deflation. Everything costs less, but nobody is willing to pay now, because prices will likely be lower in a few days, weeks or months.

Obviously, there's no quick fix to any of this and behind closed doors, the leaders of the world's great nations and their central bankers are scared stiff.

The bad karma that's been spread worldwide by the political and monetary leaders is coming full circle it seems.

Dow 12,598.55, -33.45 (0.26%)
NASDAQ 2,874.04, -19.72 (0.68%)
S&P 500 1,324.80, -5.86 (0.44%)
NYSE Composite 7,592.80, -43.01 (0.56%)
NASDAQ Volume 1,842,974,250
NYSE Volume 4,254,574,000
Combined NYSE & NASDAQ Advance - Decline: 1843-3756
Combined NYSE & NASDAQ New highs - New lows: 76-255
WTI crude oil: 92.81, -1.17
Gold: 1,536.60, -20.50
Silver: 27.20, -0.88

Tuesday, May 8, 2012

Equities Continue Retreat on Greece, Euro Breakup Fears

Sooner or later, the deniers will realize that the global economy is coming apart at the seams and that holding any kind of asset that isn't tangible, liquid or immediately tradable may not be worth the risk.

Almost daily, there are signs that the euro experiment is imploding, with Greece and France now at the forefront, but Italy, Spain and Portugal not far behind in terms of insolvency, anarchy and chaos.

The issues are the same: governments promised too much, spent too much and now don't have the funds to continue operating as they were during boom times. The specific trouble for nations using the Euro as currency is that they cannot print their way out of their messes, a la the United States, and must rely on the continued support of their neighboring nations and the ECB and IMF to fund their operations.

In Greece, the leader of Greece's Left Coalition party, Alexis Tsipras, began to start forming a coalition government, calling for repudiation of the bailout measures forced upon the nation and an investigation into whether the bailouts were even legal.

As Greece moved closer and closer to anarchy, chaos, and the eventual default upon its debts, it is becoming more clear that Greece will not long remain a member of the Eurozone, it's fate sealed by decades of underfunding pensions, loose tax policies and general corruption at high levels of the government.

France's new president, Francois Hollande, has promised voters to curtail the austerity measures that have cut jobs and pensions and has crippled the nation's economy.

European stocks were, by and large, down on the day, while in the US, the major indices suffered heavy losses early on, but rallied in the afternoon on nothing but vapors and in defiance of the reality offered by a collapsing European Union and general sluggishness in the global economy.

The Dow was down as many as 198 points before the afternoon rally cut those losses in half. The same was true on the NASDAQ and S&P, the latter down 22 points before shaving them to a marginal decline.

Despite the completely bogus and likely foolhardy buying into the dip mentality that is pervasive in these day-traded, momentum markets, the smartest of the smart money has probably already headed for the hills, seeking safe havens in treasuries or other hard assets, though one could not tell that from the action in gold, which, along with silver, was battered down and did not experience relief.

Central banks have been buying gold with both hands recently, all the better for them is their ability to dictate price to the market, swooping in to buy at bargain prices. However, today's activity was reminiscent of early 2008, before the great collapse that took all assets lower, though gold and silver began rebounding months before equities. Today's trade was more than likely the result of margin calls on stocks, being paid off by selling gold and silver, another foolhardy strategy.

While the utter collapse of the Euro and the global economy is by no means a certainty, signs of slowing and antecedent deflation are emerging, the real question being how far the US Federal Reserve, the ECB and other central banks will go with more policy easing and money printing before the game engulfs them completely.

The late-day rally on wall Street may have eased some nerves and cooled some of the fear, but the trend is surely in place, as stocks have fallen in four of the past five sessions (five for five for the Dow).

Also notable was the heavy volume, another sign that investors who want out are getting out, albeit not at the prices they may have wanted. Additionally, new highs - new lows has been negative for three consecutive sessions.

Dow 12,932.09, -76.44 (0.59%)
NASDAQ 2,946.27, -11.49 (0.39%)
S&P 500 1,363.72, -5.86 (0.43%)
NYSE Composite 7,887.26, -61.50 (0.77%)
NASDAQ Volume 2,169,278,000
NYSE Volume 4,215,958,500
Combined NYSE & NASDAQ Advance - Decline: 2403-3181
Combined NYSE & NASDAQ New highs - New lows: 110-178
WTI crude oil: 97.01, -0.93
Gold: 1,604.50, -34.60
Silver: 29.46, -0.66

Thursday, February 23, 2012

Is the Crisis Deepening?; Meg Whitman, Prototypical CEO Failure

Well, the PPT must have gotten up early today, because no sooner did the Dow dip 50 points off the open than it was boosted to a 50 mark to the positive.

Was there a reason, a rationale? Sure. Stocks must go up to bolster the perception that all is well in the good old US of A.

Naturally, once the market was back on a solid we're-going-to-13,000 footing once again, the HFT momo-chasers went to work, keeping the abhorrent, clumsy, no-volume rally going for the remainder of the lackluster session.

With stocks just screaming higher and higher virtually every day, some elements on the general tenor of the stock market rally vis-a-vis the real world economy need to be scrutinized.

Oil continues to rocket higher, up over $108 per barrel in electronic trading late today. The Euro/Dollar trade continues to be the creepiest, most cynical lie to the world. How does the Euro, with most of Europe already in a recession and the rest of it teetering on one, continue to ramp higher against the US dollar? Aren't we supposed to be in better shape than the various countries making up the Eurozone? Apparently not, because the EUR/USD hit another high today, closing above 1.33. It simply makes no sense, except if you have significant positions (like Goldman Sachs does) long the Euro and the stock market.

Last we checked, GDP was still growing at less than 3% in the US, though in Europe, minus signs and fractions of one percent dot the landscape. America still has more than 14 million unemployed people, wages have been stagnant to lower for more than a decade and the real estate market is officially in depression-like throes.

Something is definitely not right, when the Euro is up while most of the continent is in recession, oil is ramping to record levels for this time of year despite all manner of data showing rampant demand destruction, gold and silver are ripping, yet the stock market continues to rise and rise and rise without so much as a 3% pull-back. The Dow Jones Industrials are up a wicked, unbelievable 2339 points since October 1, an incredible gain of 21.95% in less than five months. Yep, the rich are getting richer... again.

Watch retail analyst Howard Davidowitz rip apart the notion of "growth" in the video below:

Hundreds of stores closing from a handful of retailers; the rest, Davidowitz calls "train wrecks."

A couple of lines gleans from Hewlett-Packard's (HPQ) newly-minted CEO, Meg Whitman, aptly demonstrate what's wrong with corporate and political America. First, Ms. Whitman, who, after a stint as the CEO of eBay, launched an unsuccessful bid for the governorship of California. Out of luck and out of a job, Meg was pegged to lead HPQ out of the abyss.

Good luck with that, you clueless board members. Whitman is uniquely suited to drive Hewlett Packard even deeper into an already well-dug hole. Her "success" at eBay can more or less be summed up in one line: A trained monkey could have done as well, and probably without alienating as many people, buyers and sellers alike.

Ebay was one of the few dotcom companies that fit the new paradigm of the internet perfectly, allowing small businesses and individuals to buy and sell just about anything under the sun. Ms. Whitman had, in reality, little to do with making the company a household name. It was all about eBay's near-monopolistic position in the online retail space that made the company a success. It would have actually been more of a surprise had she not succeeded. Meg Whitman didn't start the company. She got in when the getting was good.

In any case, here's some of the cliche claptrap that Whitman spewed on her CNBC interview this morning:
  • On the timing of HPQ's turnaround: "Fundamental change... will take some time."
  • On the challenges facing the company: "There are three 'buckets' of challenge: 1) basic execution, 2) each business has it's own unique challenges, 3) there have been changes in our business."
  • On HPQ's structure: "We have to zero-base the bureaucracy..."
  • "We have to save so we can invest and compete more effectively."
  • "We're not where we want to be in China." (Meg should know. Ebay shuttered its China operations under Whitman after years of abject failure and lack of traction.)
  • On when HPQ's metrics will show some change: "We'll know a lot by the end of 2012. Revenue acceleration in 2013."

It's a shame Ms. Whitman's on-the-job training as CEO of a real company didn't include lessons in humility, because the market provided some for her after the company beat (lowered) expectations narrowly this quarter, but was short on revenue and even shorter on guidance. Traders punished HPQ to the tune of a 6.5% decline upon the occasion of the release of its most recent quarter's numbers. That's a pretty impressive drop, considering the company had already lost a two-fifths of its value in just the past year. Meg Whitman is your gal, especially if you ascribe to the Peter Principle.

There isn't a day of reckoning coming. There will be many days of many reckonings over the coming years because the entire global financial and commercial system is being kept afloat on dreams, lies, cronyism and hype.

Dow 12,984.69, +46.02 (0.36%)
NASDAQ 2,956.98, +23.81 (0.81%)
S&P 500 1,363.46, +5.80 (0.43%)
NYSE Composite 8,135.98, +41.60 (0.51%)
NASDAQ Volume 1,723,876,625
NYSE Volume 3,726,037,500
Combined NYSE & NASDAQ Advance - Decline: 4040-1606
Combined NYSE & NASDAQ New highs - New lows: 243-24 (Wowser! Only one new low on the NYSE.)
WTI crude oil: 107.83, +1.55 (up 10% in February)
Gold: 1,786.30, +15.00 (closing in on all-time highs)
Silver: 35.56, +1.30 (about to break out)

Friday, February 17, 2012

Freaky Friday: $6 Trillion In Fake Bonds, Euro-Greek Bond Swap; March 23rd Looking Grim

For a Friday, the news flow certainly was heavy.

The morning began with a report out of Italy, that $6 trillion worth of allegedly "fake" US Treasury bonds were seized by Italian police and the US Secret Service along with eight men involved in the counterfeiting and money laundering scam. Authorities said that the individuals arrested were planning to purchase plutonium from Nigeria, a story that has a familiar ring, last used as part of the pretense for going to war with Iraq after 9/11.

This story has all the markings of either a false flag event or wild conspiracy. Details are sketchy, though the assembled mainstream news media has already accepted the idea that the bonds are fakes. Don't expect to hear or see much more about this after today, except from bloggers and investigators outside the mainstream.

The European Central Bank (ECB) swapped its Greek bonds for new ones to ensure it isn’t forced to take losses in a debt restructuring. This story also greeted the morning in New York, without much fanfare, except for the press mimicking the officials at the ECB that Greece is moving closer to a resolution of its debt issues before the fateful date of March 20 arrives.

ZeroHedge has a pretty good take on the implications and possible illegalities of the move, which will apparently trigger the collective action clauses (CAC) and also Credit Default Swaps, as it would be a default event. Ooopsie. Could be a cascade coming.

Related, but unconfirmed, is a report that some banks already have documents detailing a March 23 default by Greece in which Greek banks will be closed, accounts frozen and Euro-denominated currency will become worthless in the land of Plato and Aristotle.

March 23 happens to be a Friday, which makes sense, since the report says the major credit agencies will declare Greece in default, and late Friday afternoons, after US markets have closed, seems to be the preferred time for any nasty news from the credit raters.

Late in the day, our normally-inept congress managed to PURPOSELY UNDERFUND THE SOCIAL SECURITY TRUST FUND by passing a bill to extend the roughly-30% cut to employees for the rest of the year and keep unemployment benefits flowing to the millions of Americans who just can't seem to find a good job.

Amid all of this, the stock market looked like a side show, with stocks limping along to yet another positive close - except for the NASDAQ, mostly because Apple finished down 0.09 - on horrifyingly-low volume.

It's tough to make this stuff up, but somebody must be, because financial markets are acting as if they're from another dimension or distant galaxy. The only reasonable correlation that can be assumed these days is that if the Euro is up, so will be US stocks. Oh, and any mention of Iran or the Strait of Hormuz is good for at least another 40-cent move higher in the price of crude, which has retail gasoline now priced at US record levels for February.

Hey, it's a three-day weekend. We can worry about Greece on Tuesday. But, don't drive too much. Could just wreck your budget.

Dow 12,950.10, +46.02 (0.36%)
NASDAQ 2,951.78, -8.07 (0.27%)
S&P 500 1,361.23, +3.19 (0.23%)
NYSE Composite 8,114.51, +22.32 (0.28%)
NASDAQ Volume 1,972,077,750
NYSE Volume 3,675,412,000
Combined NYSE & NASDAQ Advance - Decline: 3082-2535
Combined NYSE & NASDAQ New highs - New lows: 303-12 (0 new lows on NYSE. WOW!)
WTI crude oil: 103.24, +0.93
Gold: 1,725.90, -2.50
Silver: 33.22, -0.15

Tuesday, February 14, 2012

Greek Drama Causes Wild Swings in US Stocks

Leave it to those wild, crazy, dancing Greeks to make a mockery of equity markets.

The information coming out of Athens, then Brussels, then back to Athens caused US stock indices to dive at the open, hit their lows of the day just a half hour before the close and then rally back to the flat line at the close.

It was Greek tragicomedy at its very best.

The day opened to word from Athens that the leader of Greece's conservative party, the outspoken Antonis Samaras, would not sign a letter committing to the austerity package approved by the Greek parliament on Sunday and added that if he were to become Greece's Prime Minister in the April elections, he would seek to re-negotiate the terms of that deal.

With that information in hand, EU finance ministers cancelled a scheduled Wednesday meeting that was intended to finalize the Greek agreement, paving the way for another round of bailout money before the country goes belly up on March 20.

That news sent markets into a choppy downside drift through the bulk of the session, with stocks hitting their lows right around 3:30 pm New York time.

But then, Samaras apparently had a change of heart - conveniently just before the close in New York - saying that he would sign the commitment letter, which sent stocks soaring in the final half hour of trading. The S&P - which still finished in the red bounced 10 points during that time, with the Dow picking up about 80 points and the NASDAQ good for an 18-point burst.

At the end of the day, it all worked out to not much ado about something, though nobody is sure just what's going to occur next in quickly-failing country of Greece.

The Euro dropped below 1.31 to the US dollar during the session, but rallied back above that benchmark late in the day. The Dollar Index, which was positive all day, took a bit of a trim, but still ended positive.

Volume was once more anemic, suggesting that there are only a few humans still playing in the news-and-computer-driven trading markets. In the most general terms, it's simply too risky to venture in and out of the markets no matter how often CNBC reminds us that stocks are up for the year or that corporate profits are solid.

There's an end-game out there, and it is currently hovering over the Parthenon. Ironic as it may be, the nation which brought democracy into the mainstream centuries ago has become the test site for centrally-planned financial suicide.

Dow 12,878.28, +4.24 (0.03%)
NASDAQ 2,931.83, +0.44 (0.02%)
S&P 500 1,350.50, -1.27 (0.09%)
NYSE Composite 8,029.61, -26.62 (0.33%)
NASDAQ Volume 1,879,330,000
NYSE Volume 3,839,528,250
Combined NYSE & NASDAQ Advance - Decline: 2094-3532
Combined NYSE & NASDAQ New highs - New lows: 174-14
WTI crude oil: 100.74, -0.17
Gold: 1,717.70, -7.20
Silver: 33.35, -0.37

Friday, January 13, 2012

Friday the 13th Unlucky for JP Morgan, Europe Sovereigns as Debt Ratings Are Slashed

Friday the 13th was unlucky for most investors as stocks slipped over concerns of "imminent" credit downgrades in Europe and JP Morgan Chase's (JPM) quarterly results disappointed on revenue.

JP Morgan released 4th quarter and annual results prior to the opening bell sending related financial stocks into a tailspin.

JPM's earnings excluding items met expectations of 90 cents per share, a decrease from $1.12 per share in the year-earlier period, but full-year net income was $19 billion, down from $26.72 billion a year ago and well below analyst expectations of $23 billion. Quarterly net income was $3.72billion, down from $4.83 billion a year earlier.

JP Morgan was down 93 cents at the close, to 35.92, a loss of 2.52%.

It wasn't long after trading commenced in New York that news began leaking out, via Reuters, that many European nation's credit ratings were about to be downgraded by Standard & Poor's, which had put all 17 Eurozone nations on credit watch negative on December 5th.

The persistent rumors haunted european bourses, which fell dramatically on the news. Finally, after US markets closed in advance of a three-day weekend, S&P confirmed, dropping the credit ratings of nine countries, leaving only Germany with the gold-standard, AAA rating.

The following list, courtesy of London's daily Telegraph details the action:

France CUT one notch to AA+
Austria CUT one notch to AA+
Italy CUT two notches to BBB+
Spain CUT two notches to A
Portugal CUT two notches to BB (junk)
Belgium AFFIRMED at AA (the country was cut in November)
Malta CUT one notch to A-
Cyprus CUT one notch to BB+ (junk)
Luxembourg AFFIRMED at AAA
Germany AFFIRMED at AAA
Slovenia CUT one notch to A+
Slovakia CUT one notch to A
Ireland AFFIRMED at BBB+
The Netherlands AFFIRMED at AAA
Estonia AFFIRMED at AA-

All outlooks remain negative, except for Germany and Slovakia.

US stocks were crushed in the early going, but rallied throughout the afternoon, limiting losses. The Dow Jones Industrials were off by as much as 160 points in early going.

The Euro fell to its lowest level in 16 months vs. the US Dollar, at $1.2667, which is actually good news for European exporters and generally bad for US companies doing business in Europe.

Volume in US markets was weak (same old story) as participation levels have fallen off dramatically since the 08-09 financial crisis, many individual investors pulling money out of equities via funds and/or personal accounts. The low trading levels is somewhat of a bell-weather for the economy, mirror low participation rates in the labor force as Americans seek alternatives to both investment and traditional working roles.

The losses today pretty much cut the week's gains for the major indices in half. Stocks have been grinding higher through the first two weeks of the year, but there seems to be little conviction from traders.

Next week will be chock-full of earnings reports, many of which will meet or beat expectations, though the number of pre-announcements has been running unusually high for the 4th quarter and investors are nervous, as action in the financials and JP Morgan, in particular, made quite clear.

Also, Greek talks with creditors have broken down, leaving open the possibility that the proposed 50% voluntary haircuts on Greek debt would become involuntary, triggering credit default swaps payouts as early as March, when Greece is scheduled to receive another round of funding from the IMF and ECB.

Dow 12,422.06, -48.96 (0.39%)
NASDAQ 2,710.67, -14.03 (0.51%)
S&P 500 1,289.09, -6.41 (0.49%)
NYSE Composite 7,632.03, -49.23 (0.64%)
NASDAQ Volume 1,686,001,750
NYSE Volume 3,692,377,750
Combined NYSE & NASDAQ Advance - Decline: 1874-3682
Combined NYSE & NASDAQ New highs - New lows: 142-50
WTI crude oil: 98.70, -0.40
Gold: 1,630.80, -16.90
Silver: 29.52, -0.60

Thursday, January 5, 2012

Correlation Trades Correlating, Kind of; Jobs Data Up Next

Remember those correlation trades that were discussed at length yesterday and how they weren't exactly correlating?

Well, today, they worked a little better, though they are still skewed against their traditional trading bias.

The Euro was flattened today, hitting a new 12-month low against the US Dollar, and, for a while, that seemed to be working as US stocks were down heavily in morning trading, but, as soon as Europe's equity markets closed at 11:30 am ET, stocks began drifting upwards, and the momentum stocks on the NASDAQ actually finished with healthy gains while the S&P and Dow (which had been down as much as 134 points earlier) finished basically flat.

With the Euro hitting below 1.28 to the dollar, the Dollar Index responded with a one percent gain (80.949, +0.818), reaching a one-year high. That sent oil prices lower, as it should, despite the continuing wagging of tongues by both the Iranians and the leaders of the EU. While the EU's move to embargo all shipments of oil from Iran to Europe, is a bit of a dodgy move (Iran's exports to Europe only account for 20% of their oil exports), so too is Iran's statement that they can and will shut down the shipping lanes through the Strait of Hormuz.

It looks like the classic Mexican standoff, with the US pointing its guns directly at the Iranians. The Europeans will likely go through with their threatened sanctions, but the Iranians will probably not want to evoke the ire of the United States, because that would produce something along the lines of World War III, even though that may be what Iran wants and the rest of the (un)civilized world needs.

Europe's woes continue non-stop, with the ultimate Ponzi scheme of the banks buying sovereign debt, and the ECB financing the banks. It's the most disingenuous way of dealing with a solvency crisis - by adding layers and layers of liquidity - and it eventually will either spark runaway inflation, riots, government overthrow or the breakup of the European Union, and it's possible that all of the above could occur.

As for gold and silver, they were back in tandem, though with the higher dollar, they both should have been lower, instead of up, which they were, supposedly on global tensions and safe-haven status.

The other news of the day involved US employment figures from ADP, which reported a gain of 325,000 private sector jobs in the US, seasonally adjusted. The number was so large, and so far removed from official predictions (guesses), that traders generally ignored them, opting to wait for the equally-well-massaged non-farm payroll report from the BLS tomorrow.

That report, which will be issued at 8:30 am ET, should be a market mover, especially if it aligns well with the ADP number, but skeptics abound, and the estimates are for the US to have added somewhere between 120-175,000 new jobs, which would indicate exactly what? The BLS numbers are guestimates at best, but traders will likely take their cue from whatever blather comes from the Labor Department.

Stay tuned. It's going to get more bizarre as the year progresses.

Dow 12,415.70, -2.72 (0.02%)
NASDAQ 2,669.86, +21.50 (0.81%)
S&P 500 1,281.06, +3.76 (0.29%)
NYSE Composite 7,599.97, -12.18 (0.16%)
NASDAQ Volume 1,859,210,875
NYSE Volume 4,264,649,000
Combined NYSE & NASDAQ Advance - Decline: 3391-2193
Combined NYSE & NASDAQ New highs - New lows: 140-37
WTI crude oil: 101.81, -1.41
Gold: 1,620.10, +7.40
Silver: 29.30, +0.20

Wednesday, January 4, 2012

Correlation Trades Breaking Down: Decoupling, Distress or Distribution?; Kodak Prepares for Bankruptcy

There have been, for many months, certainties in global markets from which investors and speculators could readily rely upon and profit from. The most obvious of these is the straightforward relationship of the Euro and US stocks.

Whenever the Euro was positive against the US Dollar, stocks would post gains as well. Euro down, stocks down. A simple trade for those speculators adroit enough to move money quickly in and out of currencies and stocks. It also created a very nice hedge for monied investors with a keen sense for geo-politics and the movement of money.

Another of these correlation trades has been in effect for years, even decades. when the Dollar Index (^DXY) moved higher, the price of a barrel of oil would go lower, since oil and almost all other major commodities are priced in dollars. A stronger dollar would thus buy more oil, or wheat, or soybeans, for instance.

Today, however, these two stalwarts of the inner, holistic trade deviated from their seemingly-predetermined paths. The Euro was off sharply, but stocks finished with modest gains or were flat, nonetheless. And the Dollar Index was up nicely, (80.097 +0.434 0.54%), but oil marched higher despite the obvious overpricing and general lack of demand over the past two weeks.

The oil moves could be partially blamed on the Iranians and Europeans. Europe has set the parameters for a complete embargo of Iranian oil. For its part, Iran says it doesn't need to sell oil to europe as it has many other trading partners, China being the largest. The Iranians also say they can effectively shut down shipments of oil from other countries by blocking the Strait of Hormuz, disrupting the free flow of energy from the region to Western nations.

While that's all well and not-so-good, it still doesn't explain the dislocation of the Dollars-for-oil trade and is entirely based upon speculation.

As for the Euro and US stocks, it wasn't a large move away from the direct correlation, but notable. Then there's silver and gold, the two precious metals that should always move in tandem, as they have for maybe thousands of years. Gold was up, silver down on the day, making silver, already a cheap cousin, even cheaper and wildly undervalued compared to gold, where the standard gold-silver ratio has traditionally been somewhere between 12:1 and 16:1, now stands at a stunning 55:1. It has been higher over recent years as gold shot up much faster than silver, but, if global tensions are accelerating, both metals should become good bets short term, though it stands to reason that silver would appreciate at a much faster rate, as it did in the first four months of 2011.

All of that implies that both the gold and silver (and not to mention stocks, commodities and currencies) markets aren't rigged, a condition that reams of evidence over many years say is so.

OK, then what's up with these markets if correlation trades, usually among the most reliable and steady, continue to break down? Is it decoupling for Europe, global distress or some technical distribution which the markets haven't anticipated from a zero interest rate policy and massive money printing (in shady but effective forms) by central banks around the globe? If oil goes up as the Dollar Index improves, so will stocks, and the precious metals will do whatever the manipulators deem necessary. It's not yet a trend, but bears watching, because decoupling often is a harbinger of even more fractured conditions in markets, which would make perfect sense in this mad world.

Something else bearing watching is the anticipated disappearance of the Kodak moment. The film maker has been on the ropes for years as the company failed to develop a strategy shifting from film cameras to digital photography, and the stock has suffered badly, losing almost all value over the past decade. A Wall Street Journal report today that the company was preparing to file a chapter 11 bankruptcy either this month or by early February should they not find buyers for their digital patents - valued, dubiously, at over $1 billion - sent shares plummeting.

Shares of Eastman Kodak (EK) finished the day down 0.18, to 0.47, a 28% decline. The company has also received a delisting notice from the NYSE, as the price of the stock has traded below $1 for more than a month, in violation of exchange rules.

That the company would eventually commit corporate hari-kari should come as no surprise. The stock traded as high as the low 80s in the late 1990s, and dropped permanently below 60 when the dotcom boom went bust in 2000-2001. Since then, the losses have mounted and the share price decline has been precipitous. This is a dead company without a product or strategy, which has wiped out its dividend, shareholders, and soon, pensioners, sure to be shuffled off to the Pension Benefit Guaranty Corporation, another backhanded bailout by the US taxpayer.

Dow 12,418.42, +21.04 (0.17%)
NASDAQ 2,648.36, -0.36 (0.01%)
S&P 500 1,277.30, +0.24 (0.02%)
NYSE Composite 7,612.15, -12.17 (0.16%)
NASDAQ Volume 1,654,986,250
NYSE Volume 3,553,585,250
Combined NYSE & NASDAQ Advance - Decline: 2475-3130
Combined NYSE & NASDAQ New highs - New lows: 102-34
WTI crude oil: 103.22, +0.26
Gold: 1,612.70, +12.20
Silver: 29.10, -0.48

Friday, December 9, 2011

European Crisis Summit Outlines Plans, Markets Reverse Course

After lengthy deliberations which reportedly lasted well into the evening, European leaders emerged with the outline of a fiscal union designed to maintain the current structure of the EU and the Euro-zone nations which use the Euro as currency.

Left out of the plan was Great Britain, which said it would not succumb to another layer of regulations from the Eu, especially since it still has the British Pound as its sovereign currency.

One highlight was the decision to cap the new permanent rescue fund at 500 billion euros.

Additionally, European central banks will lend 150 billion euros to the International Monetary Fund’s (IMF) general resources. Non-euro EU states will offer around 50 billion euros to the IMF. Having the central banks on board is a new development that was widely cheered by market participants as it should encourage sovereigns outside of europe to pitch in to an IMF fund as well.

Details of the complex plan and new treaty language are expected to be finalized by March, leaving plenty of time for intrigue and dissent in the interim.

Stocks in Europe were higher, with the French, German and UK markets scoring the largest gains. In the US, the effect of the summit was a reversal of the previous day's losses, resulting in a negligible net gain or loss over the two days market players had been anticipating with some anxiety.

So, after all the drama over Thursday's ECB policy meeting and the Friday's EU summit, the end result after two days of nail-biting was a 12-point loss for the Dow Industrials, about two points down on the NASDAQ and a six point loss on the S&P. Indeed, it was all much ado about nothing with the major averages ending the week with marginal gains.

Everyone on and off Wall Street can now get back to doing whatever they do until the next European crisis event, which, if recent history is any guide, should be some time next week.

Dow 12,184.26 186.56 (1.55%)
NASDAQ 2,646.85 50.47 (1.94%)
S&P 500 1,255.19 20.84 (1.69%)
NYSE Compos 7,502.88 133.36 (1.81%)
NASDAQ Volume 1,651,333,125.00
NYSE Volume 3,698,613,000
Combined NYSE & NASDAQ Advance - Decline: 4746-907
Combined NYSE & NASDAQ New highs - New lows: 141-67
WTI crude oil: 99.41, +1.07
Gold: 1,716.80, +3.40
Silver: 32.25, +0.72

Wednesday, December 7, 2011

US Markets Stalled Out, Waiting for Europe's Next Gambit

There's an old Wall Street adage that goes something like, "don't short a dull market," but, if this market goes any higher and gets any duller, the adage might as well be thrown out along with most long positions in stocks.

After Tuesday's snooze-fest, Wednesday's market was even sleepier, with participation at low ebb. Volume has nearly completely dried up, but the thin trading has reduced volatility somewhat. In fact, the VIX, which measures implied volatility in the S&P 500, hasn't pitched above 30 (an abnormally high level to begin with) since November 30, or one week ago.

What traders are most concerned with is once again Europe, but more specifically, the two days of meetings scheduled in Europe, one by the ECB, tomorrow, and the other a crisis summit of leaders of the Euro-zone nations on Friday that is hoped to pave the way toward an end of the two-year-old debt crisis that has gripped European markets and locked down US markets for the past two days.

As is the usual case with relying on Europe to fix our own stock market, it's probably a bad idea. Some leading economists of the region, particularly those from Germany, who have the best view of the situation, are saying that whatever solutions come out of this week's crisis summit, Europe's problems are likely to remain contentious for another eighteen months to two years.

Noting that, and understanding that debt issues which took decades to produce are not going to be solved at one meeting (it has been promised before and not been delivered), so one has to question both the positioning in US stocks, which have been essentially flat since the middle of August, and the reliability of ancient words of wisdom in an era that has been marked by unusual actions from the Fed and other central banks in developed countries.

If everybody's waiting on Europe, just what do they expect? A grand plan which all 17 countries that use the Euro as currency can agree to? Good luck with that. European leaders are now calling for majority consensus rather than unanimity. Meanwhile the ratings agencies, specifically Standard & Poor's, are scaring the daylights out of each and every one of them, threatening credit rating downgrades across the continent if there's no substantial progress come Friday.

What this telegraphed sucker punch from S&P is saying is more political than economic, essentially telling all of Europe to stop playing around the periphery and get to the core of the matter, which would entail some countries (think Spain, Portugal, Italy and Greece) having to give up some degree of sovereignty in order to remain in the good graces of the European Union and the ECB. And while fiscal unity, or, at least some semblance of fiscal responsibility would be a step in the right direction, the citizenry of those countries might not take lightly to having new masters above their own elected leaders somewhere in Germany, Brussels or France.

Since the crisis meeting isn't until Friday, that's probably when US markets might perk up, but, if the game plan remains the same in Europe - promise much, deliver little - they will be sending a message to markets around the world that the issues present are too large, too diverse and too complex for all 17 Euro-zone nations to reach agreement on any unifying principles laid down.

In that scenario, we may just get another two days of slumber on the street as even more participants make a premature exit from stocks in 2011, fleeing to cash or bonds until the dust settles after the holidays.

And what about that Santa Claus rally that usually commences over the final two weeks of the year? There may be one, but it won't have much gusto on low volume and it's not likely to last long. Stocks are already creeping back toward their late July - early August levels and there's just not enough economic "juice" in the system for which a rally can be sustained. The major US indices have flirted recently with the flat line for the year and that's probably where they're going to remain.

Meanwhile, all one can do is hold one's breath waiting for Europe's next move. Everyone is waiting to exhale.

Dow 12,196.37, +46.24 (0.38%)
NASDAQ 2,649.21, -0.35 (0.01%)
S&P 500 1,261.01, +2.54 (0.20%)
NYSE Composite 7,559.71, +20.39 (0.27%)
NASDAQ Volume 1,654,001,000
NYSE Volume 4,158,213,000
Combined NYSE & NASDAQ Advance - Decline: 2804-2747
Combined NYSE & NASDAQ New highs - New lows: 119-63
WTI crude oil: 100.49, -0.79
Gold: 1,744.80, +13.00
Silver: 32.63, -0.12