Waiting On The Fed Futility Amid Repo Crisis

Back in mid-September, as many will no doubt recall, the Fed had to step into the REPO market and provide liquidity via collateral auctions, mainly in the form of treasury bills and notes, and mortgage-backed securities (yes, the deadly MBS), which are still out there, floating around, handled like hot potatoes.

Since that time, the Fed has kept up appearances by continuing to provide POMO and TOMO (Permanent (P) and Temporary (T) Open Market Operations) to the tune of anywhere from $30 billion to $60 billion per day. That's right, PER DAY, and it's often been more. That's how big the overnight lending business is. Huge. The REPO market is also what triggered the Great Financial Crisis of 2008, when first, Bear Stearns, then, Lehman Brothers, were forced into bankruptcy by being unable to borrow from the overnight REPO market.

The problem with both Bear and Lehman was that their collateral consisted of highly toxic, dodgy MBS, or as is commonly referenced, sub-prime packaged loans. Lenders on the other side of the ledger were hesitant to lend to either, fearing that not only was the collateral of a suspect nature, the firms - Bear and Lehman - were buying more of them as an integral part of their business structure.

In 2008, this all blew up, the Fed stepped in, flooded the world with liquidity (buying up all the toxic MBS it could) and the collapse of the global financial system was averted.

Note that the collapse was averted, not solved, not cured, not by a long shot. The Fed's been busy keeping markets in some degree of stability ever since.

On Wednesday (today), the Fed's FOMC will likely announce no change n the federal funds rate, but that, besides being a foregone conclusion, isn't the real story. For that, in the interest of time and space, Money Daily bids adieu to this commentary, and offers a couple of links that may or may not render the REPO markets as something understandable to the reader.

First, this excellent video with Paddy Hirsh explaining just how the REPO market operates (about 8 minutes of time well spent):


Then, just to make matters a little more interesting, this ZeroHedge story featuring Zoltan Pozsar claiming that the REPO market is about to explode again, and that a stock market crash is imminent.

Take that ZeroHedge article with as many grains of salt or sugar your risk appetite will absorb, but bear in mind that Mr. Pozsar was, as ZeroHedge purports,...

instrumental during his tenure at both the US Treasury and the New York Fed in laying the foundations of the modern repo market, orchestrating the response to the global financial crisis and the ensuing policy debate (as virtually nobody at the Fed knew more about repo at the time than Pozsar), serving as point person on market developments for Fed, Treasury and White House officials throughout the crisis (yes, Kashkari was just the figurehead); playing the key role in building the TALF to backstop the ABS market, and advising the former head of the Fed's Markets Desk, Brian Sack, on just how the NY Fed should implement its various market interventions without disrupting and breaking the most important market of all: the multi-trillion repo market.

The Fed's FOMC policy meeting concludes at 2:00 pm ET on Wednesday, with the release of their statement followed by a press conference headed by Fed Chairman, Jay Powell, who will try his best to avoid answering direct questions dealing with the REPO market, for obvious reasons.

Party on!

At the Close, Tuesday, October 10, 2019:
Dow Jones Industrial Average: 27,881.72, -27.88 (-0.10%)
NASDAQ: 8,616.18, -5.64 (-0.07%)
S&P 500: 3,132.52, -3.44 (-0.11%)
NYSE Composite: 13,545.31, -9.77 (-0.07%)

Fed Signals More Rate Increases; Market Dynamics Favor Investment Diversity

In what can be characterized as more of a sigh than a panicked scream, stocks sold off Thursday afternoon when the Fed wrapped up its November FOMC meeting, announcing that they had no intention of changing plans for a fourth federal funds rate increase this year and at least three more in 2019.

Of the four major insides, only the Dow managed to post a gain, though it was minuscule, at a mere 10 points.

Fears that the Fed might put some kind of kibosh on the Trump expansion have been stocked by the president himself, who would prefer lower interest rates in order to keep the punch bowl of cheap money full. It's unlikely President Trump will get his wish, because the Fed plan has been in place for years, is currently being executed and seems - despite pullbacks in stocks in February and again in October - to be working as well as can be expected.

The US economy has roared back to life over the past year, thanks in part to Trump's individual and corporate tax cuts, repatriation of foreign funds by companies, and still fairly easy policy by the Fed.

While the stock market does not provide complete portfolio of the US economy, it does act as a kind of proxy. Stocks generally gain when the economy is doing well, and falls when recessions hit or external events cause disruptions to the usual flow of funds into equities.

Buybacks have been providing an inordinate amount of upside for the general markets. 2018 is on pace to set a record for corporate stock buybacks, which has an immediate effect on valuations by reducing the number of shares outstanding. To the general public, stock buybacks look like regular buying, as they operate in the background and the actual buyers are not disclosed. It's assumed that as companies buy their own stock rather than reinvest in equipment, facilities, workers, or expansion of their businesses, the sellers are funds and/or large stakeholders, reaping profits and moving on to the next apple ripe for picking.

Generally seen as good practice, stock buybacks don't actually add value, though in terms of shareholder value, they do return more profits in higher share price and, often, increased dividends. It's a great panacea for stockholders, who merely have to hold shares and profit. This scenario has been unprecedented, but has lasted since the Great Financial Crisis of 2008-09 and continues to provide a backstop to stocks. When the buybacks stop, so will the easy money for shareholders, but, the practice still appears to have more to run, though the pace has slowed over the past three to six months.

All of this has created a very dynamic and fluid market, in which all manner of investment strategies can produce solid results. With wild swings on nearly a daily basis, individual stocks or sectors (via ETFs) can be either held, sold short or bought. The current environment is likely a major boon to brokers such as Merrill Lynch, Schwab, eTrade and others in the game, who undoubtably will be seeing increased trading in an active, unbridled market.

Thus, the answer to the age-old question, "Buy, sell, or hold?" might today be answered correctly by responding, "all of the above."

Dow Jones Industrial Average November Scorecard:

Date	Close	Gain/Loss	Cum. G/L
11/1/18	25,380.74	+264.98	+264.98
11/2/18	25,270.83	-109.91	+155.07
11/5/18	25,461.70	+190.87	+345.94
11/6/18	25,635.01	+173.31	+519.25
11/7/18	26,180.30	+545.29	+1064.54
11/8/18	26,191.22	+10.92	+1075.46

At the Close, Thursday, November 8, 2018:
Dow Jones Industrial Average: 26,191.22, +10.92 (+0.04%)
NASDAQ: 7,530.88, -39.87 (-0.53%)
S&P 500: 2,806.83, -7.06 (-0.25%)
NYSE Composite: 12,622.04, -57.06 (-0.45%)

Fed Tapers Bond Purchases, Loosens Policy Guidance; Markets Love It

In a masterstroke of monetary legerdemain, outgoing Federal Reserve chairman Ben Bernanke delivered a final, resonant chord to his easy money policy of the past five years, announcing a reduction in the level of MBS and treasury bond purchases while simultaneously changing the guidance for rate policy going forward.

What the Fed has decided to do was to strike a delicate balance between the two policy initiatives currently employed. Bond purchases will henceforth be reduced from $85 billion to $75 Billion per month, shaving $5 billion from MBS and $5 billion from treasury purchases.

In its policy statement, however, the Fed took a different direction, emphasizing that the federal funds rate would remain at zero to 0.25% beyond the time at which unemployment falls below 6.5%. In other words, the Fed, as is their usual mode of operation, changed the game or moved the goal posts in terms of policy in order to accommodate a lower amount of bond purchases, in effect, maintaining equilibrium.

What the Fed is saying, somewhat tongue in cheek, is that their bond purchasing program (QE) has not quite brought about the desired results. The economy is not improving as rapidly as they anticipated, if at all, but, in order to not upset capital and equity markets with their bond purchase "tapering," they decided to loosen the language surrounding any future decision to raise interest rates.

It was quite the nifty move by the hands at the Fed, and both bond and stock markets behaved well along the lines anticipated by the manipulators of the world's money supply.

Stocks rose gratuitously, with the Dow and S&P closing at all-time highs; bonds remained distinctly calm. It was the perfect end to a reign of easy money that Bernanke has overseen, and gave the next man up, Janet Yellen, direction in which to pursue the Fed's policy directives.

The long and short of all the hype and hoopla over this final Fed meeting of the year and the last press conference by Mr. Bernanke is that the status quo was maintained and will be maintained for the foreseeable future. During his presser, the Chairman spoke of low inflation through 2016, with unemployment coming down gradually over a similar time period.

While the inflation expectations are well below what the Fed desires (2-2 1/2%), the 6.5% unemployment threshold has essentially been removed from all future Fed calculus.

When the world completes a couple more trips around the sun, at this time two years from now, it's expected that the Fed will no longer be purchasing bonds to the excessive degree it is today, and that unemployment will be much closer to "normalcy" at or near five percent.

In the real world, should everything proceed as the Fed anticipates, the economy, with interest rates still moored at zero, with 5% unemployment, the economy would be growing at a ripping rate so rapid that inflation would once again become a real problem.

Would it be so. The chances of everything working in straight lines toward a normalized economy is nothing more than a Fed fantasy. There will be disruptions and distortions and quite possibly another recession. Additionally, believing that pressures and changes from other parts of the planet would not be disruptive, is the purest height of folly.

The Fed hasn't really changed much at all. Reducing bond purchases by $10 billion per month is nothing more than a rounding error in the larger scheme of things. The punchbowl of free fiat has been left at the Wall Street party. Nothing has changed other than possibly, perception, and the person sitting in the Fed chair will be different.

The monetary can just got kicked down the road quite a stretch further. The new normal gets extended until something breaks.

DOW 16,167.97, +292.71 (+1.84%)
NASDAQ 4,070.06, +46.38 (+1.15%)
S&P 1,810.65, +29.65 (+1.66%)
10-Yr Note 98.78, -0.29 (-0.29%) Yield: 2.89%
NASDAQ Volume 1.83 Bil
NYSE Volume 3.74 Bil
Combined NYSE & NASDAQ Advance - Decline: 4252-1467
Combined NYSE & NASDAQ New highs - New lows: 311-112
WTI crude oil: 97.80, +0.58
Gold: 1,235.00, +4.90
Silver: 20.06, +0.219
Corn: 425.00, -1.75

UPDATE: Stocks Near Record Highs as GDP Goes Negative

Editor's Note: We're back up and running with a new computer, after ten days of muddling through with three old Macs.

Wednesday was a pivotal day for US stocks as the government reluctantly reported that GDP shrank in the fourth quarter (remember, hurricane Sandy will be blamed for disappointing holiday retail sales) as defense spending fell by the largest amount in 40 years and inventory growth lagged.

The talking heads across the CNBC and Bloomberg networks blamed the "unexpected" decline of 0.1% mostly on the defense spending, a result of congress' inaction on the budget process and potential for sequester cuts to kick in shortly.

Federal Reserve officials, completing a two-day meeting, noted the economy had "paused" due to weather-related disruptions and other "transitory factors." Nothing like a Fed Open Market Committee that continues to furiously pump dollars into the coffers of the banks and keep interest rates artificially low calling climate change "disruptions" and employing the "transitory" verbiage to mask an incredibly weak nominal economy.

What is not so well hidden in the report is the lack of replenishment of inventories. Through the holiday season, retailers were adamant about reducing overhead, slashing prices and keeping costs to bare-bones levels, opting to wait until later to order new goods. The lack of confidence going forward exacerbates the slow "recovery" further, putting pressure on manufacturers (those few remaining on US shores) to cut prices and make concessions on delivery and payment dates and rates.

The setup is deflationary at worst, erratic at best, but continues to point up issues developing from the federal government's plan to kick the fiscal can down the road a bit further instead of tackling the nation's debt and deficit problems head-on.

As for stocks, they did an about-face after the Fed's afternoon announcement that they would change absolutely nothing, reiterating their intent to purchase $85 billion a month in MBS and Treasury issuance, the inflationary frontage against the winds of stagnation. The Fed also will keep rates artificially low, boosting home sales, but doing little for bank profits. Their attack on the monetary system continues to hamper business investment while inflating real estate through low interest rates. With no exit strategy in place, the only place the Federal Reserve and the government are kicking that can of deflation is directly into a brick wall of deflation and recession. The negative GDP print for the fourth quarter of 2012 is exactly what their policies will produce down the road, though the decline will be vastly greater.

It's important to note that with one quarter of negative GDP already on the books (though revisions will likely change that to a positive integer), another consecutive quarter in the red is the textbook definition of a recession. Regardless of whether the downturn is isolated in one or two areas, the overall picture remains clouded, manipulated and quietly desperate.

There's no good way out of a financial crisis, such as that which occurred in 2008, but the Keynesians in Washington have kept the plates spinning, frantically turning the sticks of quantitative easing and heavy-handed deficit spending. These policies have an end at some point, the question being whether the end will come by their own hands or be forced by the merciless invisible one of Mr. Market.

Optimists will point out - correctly so - that even though the economy is staggering along, it is still vibrant and productive. However, to think that corporate profits are a one-way street to the heavens is a folly on par with thinking the sub-prime housing bubble would never burst.

There's going to be a short-term pullback in both housing and stocks, both having been bid up too high, too fast, on artificial stimulus, a condition approaching that of 2005-07. While the near term cannot be characterized as horrifying, it is most certainly unstable and unsure, and profits will be taken at nose-bleed levels. The chances of a short duration correction are high, those of a cyclical turn to a bear market less likely, though the current bull is now entering its 48th month, worth noting that the turn in 2007, which led directly to a crash in the fall of 2008, was on the heels of a 53-week-long bull run.

Out in the fantasy land known as economic and stock market predictions, the sounds are of quiet groaning accompanied by squeamish forecasts of 2% growth in GDP for 2013 and an S&P ramping toward 1550. While the general public and regional economies twist in the wind under the thumb of higher taxes and tighter regulations, making business development a non-starter, Wall Street will continue to binge on the Fed's free money, the punch bowl that Chairman Bernanke will not take away, and the government debt will continue to be monetized by that same Fed.

Both of these conditions cannot continue indefinitely, but those in control continue to deny the possibility that anyone will feel any economic pain, no matter how slight.

Thus, it would not be at all surprising to see stocks continue to rise in the face of stagnant or deteriorating conditions in the real economy. Either the stock market wakes up to reality or the current bull trend will wind up being the longest in recorded history, all built on an inflationary bubble of the Fed's creation.

It is false to believe that these conditions can continue indefinitely. There is a price to be paid for every manipulation and falsehood presented to the markets and the fallacy of current policies suggests that the price will be enormous.

NASDAQ Slides in (Unfounded) Apple Anticipation Fears; FOMC Meeting Concludes Wednesday

US markets rebounded from Monday's sharp selloff, though the S&P and NASDAQ were weighed down on fears that Apple (AAPL) would not deliver the usual stellar results after AT&T reported a decline in Apple iPhone activations in the first quarter.

The mercurial company founded and made famous by the recently-deceased Steve Jobs had been ramped up to become the most wealthy company on the planet earlier this year, though investors have been ravenously taking profits in recent weeks. Apple shares, which hit an all-time closing high of 636.23 on April 9th, has sold off viciously over the past two weeks, leading up to today's first quarter earnings announcement, after the closing bell.

Shares have fallen more than 15% to today's close at 560.28, the 10th day the stock has traded lower in the last 11.

After the bell, earnings were released, showing that Apple blew away estimates, as usual. Analysts were looking for earnings per share of $10.04 on revenue of $36.8 billion. Apple's first quarter results were $12.30 per share on $39.2 billion in revenue. Shares were up more than 40 points in after-hours trading, putting AAPL back above $600 per share.

Besides the interest in Apple, there were other issues on the minds of investors, primarily the ongoing FOMC meeting which concludes Wednesday afternoon, at which time the Fed governors are expected to keep interest rates where they have been for more than two years, approaching zero, though market analysts and Fed watchers will be poring over the text of the release and dissecting Fed chairman Ben Bernanke's new conference following the policy statement for any hints that may indicate the Fed leaning toward more QE, without which US markets would likely contract in a big way.

Currently in the final weeks of "Operation Twist," which expires in June, investors are hungry for more free money from the Fed and a continuation of the policy of easy money which has supported stocks since the financial collapse of 2008.

They'll all have to wait until 2:15 pm on Wednesday and thereafter for the news conference, though most see a continuation of QE in some form as a distinct possibility, though the Fed has let some time go by after the first two rounds - QE1 and QE2 - before embarking on further easing.

Dow 13,001.56, +74.39 (0.58%)
NASDAQ 2,961.60, -8.85 (0.30%)
S&P 500 1,371.97, +5.03 (0.37%)
NYSE Composite 7,988.01, +47.28 (0.60%)
NASDAQ Volume 1,691,154,875
NYSE Volume 3,592,090,500
Combined NYSE & NASDAQ Advance - Decline: 2715-1920
Combined NYSE & NASDAQ New highs - New lows: 109-61
WTI crude oil: 103.55, +0.44
Gold: 1,643.80, +11.20
Silver: 30.75, +0.22

Markets Up on Greek Deal Hopes

Well, that headline is not a joke. Surely, nobody on Wall Street has ever heard the phrase, "beware Greeks bearing gifts," though by tomorrow, everyone will know whether the second bailout of Greece - with a third coming by the end of August, almost certainly - will be a bonus or a canard.

The issues facing the Greek government are the roll-over of some $10 billion in maturing debt, plus another $40 billion in August. Right now, the deal is on, if Greek prime minister, George Papandreou, receives a vote of confidence from the Greek parliament, in a vote scheduled at the stroke of midnight in Greece (5:00 pm EDT).

Papandreou looked to have enough votes to win the crucial vote of confidence in parliament which would pave the way to passage of the latest austerity measures next week, ensuring a $12 billion advance from the ECB and the IMF.

With time winding down on the vote, crowds were beginning to form in Syntagma Square, directly across from the Parliament building. A vote of no confidence would be seen as a victory for the Greek populace, and if Papandreou does get the needed votes, rioting and confrontation are a near-certainty, as much of the population would like to detach Greece from the EU, return to the drachma and move on. (We will post an update of the vote as soon as it is confirmed.)

Elsewhere, investors looked past more horrifying housing numbers, as existing home sales in May fell by 3.8% from April and are down 15.3% from the same time last year, according to the report released by the National Association of Realtors (NAR).

So, once again, Wall Street demonstrated just how far detached from Main Street it really is, a chasm that only seems to keep widening.

Dow 12,190.01, +109.63 (0.91%)
NASDAQ 2,687.26, +57.60 (2.19%)
S&P 500 1,295.52, +17.16 (1.34%)
NYSE Composite 8,156.27, +124.05 (1.54%)

Advancing issues defeated decliners, 5430-1205. On the NASDAQ, there were 55 new highs and 32 new lows. The NYSE registered 68 new highs and 25 new lows, effectively ending the 12-day stretch in which the lows held the advantage with the combined numbers at 123 new highs and 57 new lows. What a difference a Greek makes!

Volume on the day was marginally better than on Monday, which is saying very little.

NASDAQ Volume 1,825,893,375
NYSE Volume 3,913,965,750

WTI crude futures edged up 14 cents, to $93.40. Gold added $6.30, to $1546.80 and silver was up 37 cents to $36.43. The moves in precious metals reflected the uncertainty of global economic conditions.

Tomorrow the Federal Reverse Open Market Committee will issue another one of the periodic edicts, keeping interest rates at near ZERO, and, presumably, will include the words, "extended period" for how long they believe it will be before they actually raise rates one iota.

The Fed is stuck in no-man's land, with a stumbling, structurally-impaired domestic economy and the threat of inflation due to a falling dollar. Thus far, the Fed has taken the easy route of monetary stimulation, throwing trillions into a stagnant economy, and that's likely to be their choice for many months, if not years, to come.

In reality, Greece is a side-show.

Federal Reserve Throws Up White Flag, Surrenders Authority

Stocks ended mixed after the Federal Open Market Committee of the Federal Reserve issued the following statement at 2:15 pm EDT. I have decided to republish the entire release, interspersed with my notes in italics. It is also quite noteworthy that this is by far the most terse statement the Fed has released in many years. My feelings, essentially, are, that since they have little to do to stem the continuation of dour economic conditions within an essentially deflationary environment, they have little to say. For that, they deserve some small credit. For the rest, they deserve what currency manipulators always earn: ire and scorn.

Release Date: June 23, 2010

For immediate release

Information received since the Federal Open Market Committee met in April suggests that the economic recovery is proceeding and that the labor market is improving gradually.

This opening statement is an absolute lie. If anybody should know a thing or two about economic conditions and the labor market, it would be the Fed. Even as a casual observer, it is quite easy to refute the foregoing statement. Labor conditions continue to worsen and the economy is embarking upon another retraction.

Household spending is increasing but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.

I won't even bother to check. Maybe "official" government statistics show household spending increasing, but anyone who's worked for a living in the private sector knows that wages have been stagnant for at least the last 20 years. Any excess spending is likely coming from people who are not paying their mortgage or from government subsidies. So, the statement may be true, but look at their qualifiers, then, add mine.

Business spending on equipment and software has risen significantly; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls.

Business spending on infrastructure is probably increasing, but most businesses are also hoarding cash. The telling statement is "investment in nonresidential structures continues to be weak." Commercial real estate is in free-fall. Note that they mention unemployment again as an impediment to growth.

Housing starts remain at a depressed level.

Obviously.

Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad.

Read the first part of the sentence. The second part desires to shift blame to Europe. It's BS. We have enough of our own problems. Europe's only make them worse.

Bank lending has continued to contract in recent months.

Actually, I am somewhat surprised they would say this, as bank lending has been depressed since 2008.

Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be moderate for a time.

This statement is just a wish. There is no evidence that the economy will grow substantially in the near term. Watch what happens to the term, "resource utilization" in the remainder of the statement. Also, make note of their mention of price stability and inflation, never using the term, "deflation." The "D-word" scares them to death, because they, and all other Keynesian economists have no answers for the bottomless pit of deflation.

Prices of energy and other commodities have declined somewhat in recent months, and underlying inflation has trended lower.

Deflation.

With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

Deflation.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

In other words, they've thrown up the white flag of surrender here. They admit that they have no solutions except to keep lending money at ZERO percent. THEY cannot make money. They have failed. The US economy, from which, over the past nearly 100 years, the Federal Reserve has stolen almost all wealth from the nation, is bankrupt. There needs to be no more evidence than this statement to make the case that the Federal Reserve should be dissolved. Their policies, over the course of the past 96 years, has destroyed the capacity for the US economy to produce and grow. Ben Bernanke should step down and the governors of the Fed should declare bankruptcy and turn their assets over to the United States government for proper disposal.

Make particular note that they mention "low rates of resource utilization" when in the previous paragraph they said, "the Committee anticipates a gradual return to higher levels of resource utilization..." They are wishing. They are clueless. They have nothing. "Gradual" could mean six months just as easily as six years.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

They have no more policy tools to employ. They have no more gimmicks to steal more money from the Treasury. They have nothing. They are worthless and defunct. Ordinary Americans have more power to promote economic prosperity - by hiring a kid to mow a lawn - than the Federal Reserve and they openly admit it.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to a build-up of future imbalances and increase risks to longer-run macroeconomic and financial stability, while limiting the Committee’s flexibility to begin raising rates modestly.

This final piece was probably entered upon the insistence of Mr. Hoenig, who, for whatever purpose (maybe to avoid hanging) wishes to separate himself from the lying majority. His effort to save himself should be applauded, though the addition of this statement is more than likely the most damaging blow to the unity of the Federal Reserve board of governors since its inception.

------------------------- End of FOMC Statement ---------------------------------

OK, readers can agree with my assessment in whole or in part or disagree as they please. In a nutshell, I'd say that we, as a nation, are in for a world of hurt. As I've been saying for the better part of the last three years, maybe four, our current economic path is unsustainable, and here is a stab to the heart of the US economy. The Federal Reserve today serves our nation no useful purpose except to delay the inevitable, while their cronies and friends steal as much more wealth as possible before they flee the country.

As for our friendly criminal enterprise known as Wall Street, well, they couldn't just sell everything all at once, could they? Their response was measured and cynical. They realize that the Fed has failed and that the underground economy - the part of the nation that avoids taxes, regulations and government intervention - will flourish far beyond the prospects of the "measured" economy.

Expect unreported income to far outstrip the GDP over the next 3-5 years. Expect small businesses to alternately fail and prosper, depending on how well they are able to skirt the laws and taxation. Expect a renaissance of personal responsibility and resourcefulness and the utter destruction of governance.

Greed, corruption, theft and incompetence have their consequences. This is the second phase of the post-government era, in which individuals will take matters even more into their own hands. Millionaires will mysteriously appear from the dust of destroyed cities. The stock market will crash or be held afloat by the criminals who operate under the now-discredited idea that big business is at the heart of American prosperity.

Economic and social dislocation will occur on a daily, even momentary basis, as individuals seize monetary power from the dethroned "masters of the universe" embodied in the money center banks and publicly-owned firms in general.

Today's market data is meaningful only in the internals.

Dow 10,298.44, +4.92 (0.05%)
NASDAQ 2,254.23, -7.57 (0.33%)
S&P 500 1,092.04, -3.27 (0.30%)
NYSE Composite 6,850.05, -8.90 (0.13%)

NOTABLE: declining issues led advancers, 3441-2978. NOTABLE: new lows surpassed new highs, 116-73. NOTABLE: Volume was anemic. Fear has fully gripped the trading community.

NYSE Volume 5,294,169,500
NASDAQ Volume 1,895,673,875

One would have expected gold and silver to rise off the back of the Fed announcement. Since they are serially controlled and manipulated by central banks and money center banks, they did not. Gold dipped $5.40, to $1,234.10. Silver fell 44 cents, to $18.45. These price levels will not maintain. Either there will be massive liquidation shortly, due to another financial crisis, or the dye has already been cast, that fiat money is dead and a new gold standard is about to emerge, the eventuality of which is now without doubt. It may not be advisable to buy gold or silver at these prices, but by no means should anybody be selling any until the prevailing economic conditions are resolved and the global economies are at healthy status.

Prices may decline for some time, but they will surely rise, most likely well beyond these levels. Cash or land are now useful converters into gold. If you find somebody willing to exchange equities or bonds for gold or silver, by all means take their hard assets at whatever discount comforts you. Gold and silver will endure. Paper money and certificates will not.

Oil dropped $1.50, to $76.35. Expect this price to settle at its true level of $35/barrel within the next three years. Outside of absolute manipulation, oil will not see $80/barrel for at least another 15 years.

Had enough?

I'll be back tomorrow, and the next day and many more after that. The party is just getting interesting.

Fed Watchers Get what They Want; Disappoint Late

Stocks were up solidly early in the day, an exceptional note of optimism ahead of the 2:15 pm Fed rate policy decision. The Dow gained as much as 140 points in the early going, with the other indices tagging along with similar percentage gains of roughly 1-1.35%.

When the Fed finally released its statement, Bulls got exactly what they wanted, little to no change in the overall verbiage, with no change in rates. After the normal, brief zig-zagging, the indices stabilized roughly where they were before the announcement, though began to descend slightly between 2:45 and 3:15. With just 45 minutes left in the session, however, a vicious sell-off was undertaken, trimming about 100 points off the Dow's gains and sending the NASDAQ into the red.

As such, stocks finished mixed again, though this time the only index below the unchanged line was the unfortunate NASDAQ, which is a bit confounding, since tech and speculative stocks in the NASDAQ have been responsible for much of the rally over the past 8 months. Monday will mark the end of the 8th month of the rally which began in earnest on March 9, 2009.

Dow 9,802.14, +30.23 (0.31%)
NASDAQ 2,055.52, -1.80 (0.09%)
S&P 500 1,046.50, +1.09 (0.10%)
NYSE Composite 6,830.43, +17.73 (0.26%)

Advancing issues were barely beaten by decliners, 3238-3236, with the emphasis on the downside clearly in NASDAQ stocks. However, the subtle change in the high-low indicator augurs better days ahead and a possible end to the market funk of the past two weeks. New highs outpaced new lows, 142-74, the best showing in a week and easily the best so far this month.

Volume was low, another positive, especially considering the late-day sell-off, which, many suspect was nothing more than shrewd tape-painting by insiders seeking an edge for Thursday.

NYSE Volume 6,510,982,000
NASDAQ Volume 2,134,476,250

Commodities were all priced higher as the dollar was weaker throughout the day. Oil was up 80 cents, to $80.40. Gold reached new highs, closing up $2.10, at $1,087.00, though it traded as high as $1095.00. Silver added 22 cents to $17.40.

Prior to the market open, more economic data was released. the ADP Employment Report showed a loss of 203,000 private sector jobs in October, an improvement over September's revised reading of -227,000, but still on the high side. This also bodes well for the October Non-farm payroll report due out prior to Friday's opening bell. First, the ADP report from last month was -254,000 unrevised, and has been revised lower by 27,000. The September non-farm payroll figure was 263,000, just a bit higher than the ADP reading. If the government revises lower, as ADP did, and remains somewhat in line with forecasts, we could see the first reading below 200,000 in over a year on Friday, which would be a real boost to the market.

Some indication of improvement in the jobs picture came on Monday, in the ISM manufacturing index, which showed improvement in the employment outlook segment. The expectation is for a loss of 175-220,000 jobs in the month, though anything below 210,000 would be positive.

Retail sales figures for October will be released prior to the open and they are expected to be solid.

Cisco (CSCO) reported excellent figures for their fiscal 1st quarter after the bell - .36 per share on expectations of .31, and higher revenue than expected - with the stock moving 3-4% higher after hours, hovering around 24.00 per share.

Preparing For the Next Crash

One would have assumed that if 1st quarter GDP had come in worse than expected this morning - expectations were around -5%, the actual figure was -6.1% - that stocks would sell off.

One would have been wrong - very wrong - as the market merely shrugged off another indication that the recession was worsening and headed off to new heights. This makes trading stocks on fundamentals, or even economic conditions, not only difficult, but impossible. Every day there are new signs that the economy is mired in a negative-growth trench, yet stocks continue to rally, seemingly without end.

Today's activity was probably the most remarkable event of the past two months, noting the considerable obstacles to economic growth standing in the way, huge unemployment numbers, continued weakness in residential housing and now commercial real estate and the continuing saga of the spreading Swine Flu.

It was remarkable in that while stocks were poised to jump start at the open even before the 8:30 am release of 1st quarter GDP figures, but even more remarkable in that stock futures didn't even blink when it was revealed that actual GDP was falling at a faster rate than anticipated. One can only assume that insiders already knew the figures or had already decided the day's direction for stocks and would not be dissuaded regardless of reality. Had the actual NY stock exchange been blown to bits, traders would still have pushed stocks higher, such was the plan for the day.

It's a scam, a complete and total rigging by the controllers of the market and the country. In the end they will bankrupt all of us, but for now, they are in the business of pushing stock prices higher. It will not last. It cannot last. The fundamentals of the economy are entirely too weak to sustain stock valuations bordering on the absurd.

Making matters even more ridiculous, the Fed announced no change in interest rate policy - widely expected - but hinted that there were signs of "recovery" in the US economy. Though the press release announcing that the Federal Funds rate would remain between 0 and 0.25% (read: free money) was among the shortest on record, the following passage provided more insight than any other verbiage in the text:

"In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term."

Reading that sentence carefully, the Committee (FOMC: Federal Open Market Committee) is trying to avoid using the word "deflation," which is occurring across a wide swath of the economic landscape. They are also trying to rectify "inflation" and "price stability." In other words, the Fed isn't really promoting "price stability" as they are so chartered. They are hell-bent on inducing inflation, the very same inflation that has wrecked our economy for so many years, for as long as the Federal Reserve has operated as the nation's central bank there has been unstoppable, rampant inflation which has destroyed the value of the dollar and kept wages at poverty levels for a majority of the working population.

They simply cannot have inflation and price stability at the same time. The two are not polar opposites - inflation and deflation are - but price stability means equilibrium, a condition which spells death for the US economy, built on debt and tied inexorably to inflation and wealth destruction.

So, it is time to prepare for the next crash, which, in light of current economic policies of the Fed, is inevitable. The market's aberrant behavior is sending the strongest sell signal I've ever seen, violating all manner of resistance in charts and basic fundamental trading regimens.

It is time to unload all stocks, at once, because the retracement back to the March lows will commence shortly.

I wrote the above line at 3:03 pm EDT, after the Dow peaked at 8250 and was beginning to retreat. By the end of the day, the sell-off was in full bloom, just before last-minute buying punched stocks ahead right at the close (painting the tape).

Dow 8,185.73, +168.78 (2.11%)
NASDAQ 1,711.94, +38.13 (2.28%)
S&P 500 873.64, +18.48 (2.16%)
NYSE Composite 5,516.14, +146.29 (2.72%)

Just to illuminate my position that the recent advances in stock prices are unsustainable, below are some of the headlines for today, with links to the underlying articles:

CNN Money: Economy falls much more than expected
Associated Press: Jobless rates rise in all US metro areas in March
Reuters: U.S. to pay off mortgage investors

Do any of those headlines encourage you enough to go out and buy stocks? No? I didn't think so. The economy is sinking into a black hole, the United States is becoming even more of a welfare state than it already was and hope for lasting, robust recovery is nothing more than a fantasy. If you don't think so, I encourage you to read this exceptional article: Economic Obsolescence, by Andrew McKillop. Be forewarned. It is quite deep and lengthy, but filled with insights and observations you won't find on CNBC or any other fraudulent financial reporting service.

My message is simple. Wall Street, stocks, retirement plans, 401k plans and the like are a scam. You're better off investing in your own home, planting a garden, cutting your expenses and going back to a simpler lifestyle. However, depending upon where you live, you may need high walls and security devices to keep out intruders, because many of the people in the USA are going to face horrific economic conditions over the next 6-12 years. Six years of pain and no growth are in the cards at a minimum. Higher taxes, higher crime rates, rioting, corruption in government and an overwhelming debt burden on families and the government are inevitable. Bank failures have thus far been avoided only due to manipulation and intervention by the Fed and general obfuscation and outright lying by both the Treasury and the banksters (bank gangsters).

The longer we hand out money to the undeserving - be they banks or welfare recipients - the longer it will take and the harder it will be to restore any semblance of a functioning economy. Right now, the economy is on extended life support, but the patient, for all intents and purposes, is a vegetable, incapable of ever returning to a functional lifestyle. The government bailouts and stimulus plans, plus the heavy debt imposed by the upcoming federal budget, is tantamount to throwing money into a blazing bonfire. It will all go for naught, not for investment, and therefore will result in DEFLATION, not inflation, a point sorely missed by the ignorant morons at the Fed and at the top positions of government. Their actions are making the road to recovery longer and actually exacerbating the depth of the depression.

There is good news. The country formerly known as the land of the free and the home of the brave is now full of people living on government hand-outs, with steady incomes and no clue as to value. And don't believe that just welfare recipients - those with the plasma TVs, all the cable channels and usually a late-model car in the driveway - are alone in their status of money-takers. Add to it anybody on any government payroll anywhere: cops, teachers, mayors, social service workers; and retirees on military pensions, social security, what have you. There has never been a better time to screw people out of their money. The nation is full of dupes, dopes, pigeons and rubes, standing in line to be taken directly to the cleaners. That is the end result of the welfare state, where money is disrespected because it was not earned.

So, if you have an idea and some motivation, crooked or honest, you should do well. People just can't stop spending and the government is actually encouraging waste on a gigantic scale. The money is out there. You just need to go get it.

On the day, internals were mixed, though advancing issues outnumbered declining ones by a wide margin, 5233-1265. New highs came close to overtaking new lows, but failed with 93 new 52-week lows being reported to 55 new highs. Both numbers are elevated from previous readings but have not diverged significantly. They will - one way or the other - soon. A breakout or breakdown is overdue.

NYSE Volume 8,913,934,000
NASDAQ Volume 2,361,983,750

Commodities were mostly higher. Oil gained $1.05, to $50.80. Gold was up $6.90, to $900.50. Silver gained 35 cents, to $12.78. Pork bellies sold off, down $1.93, to $75.88 per pound, though live hog prices stabilized and were actually moderately higher.

Make no doubt about it. Today's late-day sell-off was just the opening salvo. Volume spiked incredibly after 2:30, when the Dow lost more than 100 points into the close. The selling will accelerate soon, maybe tomorrow, maybe Friday, maybe not even until next week, but it will come and it will be swift and severe. Count on it.

Keep an eye on the equally-bogus "swine flu pandemic" which will be blamed for the coming market downturn. More deaths will be caused by trying to prevent the disease - watch how Tamiflu and other medicines will be promoted - and the sure-to-come vaccine, than the disease itself, though the media will not report that fact.

Fed Makes January a Winner

S&P's 1.4% Move Gives January Barometer Watchers Hope

The Federal Open Market Committee (FOMC), met, deliberated and in the end, did nothing, which turned out to be highly favorable to investors. Keeping the key Fed funds rate at an historically-low 5.25, the Governors acted wisely while keeping a watchful eye on inflationary pressures.

Trading on the major indices following the release of the Fed report was nothing short of jubilant and moved the S&P 500 into healthy positive territory on the final day of the month. Since December 29, the final day of trading in 2006, the S&P 500 index has gained 20 points, good enough for a positive reading on the January Barometer of 1.4%.

Today's boost bodes well for stocks the remainder of the year. While the January Barometer is based on nothing more than hyperbole, it is still one of the most closely-watched indicators on Wall Street.

As reported here last week, the January Barometer has been accurate in predicting the full year 85% of the time since 1970. Whether or not it's a self-fulfilling prophecy (traders believe in it and act accordingly) is still an open question, but if you ask anyone in the business whether or not they'd like the market to be up in January, you'd likely get nearly unanimous consent.

The other big news of the day included the government's reading on the 4th quarter of 2006, saying that the economy grew at an annualized 3.5% (a rate of growth that's about as stable and non-inflationary as one could ask) and Google's (GOOG) quarterly report which was in line with analyst expectations, but sent the stock reeling in after-hours trading. After adding 7.18 during the regular session - pushing the price to an astounding 501.50 - the selling commenced with great vigor upon the in-line announcement.

Google admirers liken ordinary results to heresy, expecting nothing short of miracles from the #1 search company. As of 5:30, Google had given back all of the day's gains and then some, down 9.70. Expect Google to gap lower in the AM, though the valuation will still be expensive. The p/e ratio hovers around 60 at current price levels.

For the record, the Dow added 98 points, the NASDAQ was up 19, the S&P 500 gained 9.42.