Phantom GDP, Deflationary QE and Releasing the Consumer Kraken

Money Daily stopped being a daily post blog in March, 2014. While the name remains the same, the posts are now on an intermittent basis, as conditions warrant, though it is advised to read the archives (from 2006-2014) regularly, even daily, for insights and historical perspective.

OK, this is a little mind exercise for the new year.

Capital consists of money, labor, and resources (land, materials, machinery, buildings, infrastructure).

The Fed has control of just one of these three essential tenets of economy: money.

They make it out of nothing (to be more succinct, they create money from government debt - the Mandrake Mechanism, well-explained by G. Edward Griffin, in his expose of the Federal Reserve, The Creature from Jekyll Island - there are PDFs of this book available, or, buy it from Amazon or eBay, just go look.)

GDP growth is a canard, which the Fed and government can - and do - conspire to adjust according to their whims, wants, needs.

Unless somebody's building something that wasn't there beforehand, or there are more people building things (population growth, which is, after all, potential capital) or being more productive (technology), the only way to increase GDP is through money creation, i.e., inflation, which, in its most strict definition is an increase in the money supply, and, that is the essence of QE.

So, why hasn't there been inflation? In addition to the various reasons offered in this article, allow these meager observations:

• Money is moved off-shore
• Money is wasted
• Money goes into non-productive assets (stocks, especially stock buybacks, the most unproductive of all, actually deflationary)
• but, fewer people are working (unemployment)
• the amount of land in the US (and the world) is fixed
• a building burns, becomes dilapidated (impaired asset) or is vacant (lots of homes like that in the US thanks to the banks), becomes less-valued, non-productive, heading towards zero value, and that is deflation on a grand scale.

So, the people who want programs to improve the infrastructure in the US (roads, bridges, power grid, etc.) are correct in assuming that such programs would improve the economy. More jobs, more income, more velocity of money, and, most importantly, better, more efficient, more productive infrastructure, which leads to better manufacturing, agriculture, i.e., a virtuous cycle.

What we have today is a nearly closed-loop of money creation and destruction. Government issues bonds, Fed (or one of their many conduits, or other central banks) buys them with newly-created-out-of-thin-air money. That money goes to banks, which buy stocks or hoard as reserves, adding nothing to the general economy. GDP stagnates. Any little that may trickle out as loans to businesses or mortgages, is actually productive, but the banks, being the arbiters of money and controllers of credit, don't trust the public, and, additionally, have a hard time making a profit at 2, 3, or 4%. The problem for the Fed is the massive oversupply in everything from existing homes to corn to cheap junk from China, to now, oil and gas.

You want inflation, raise interest rates, because the pent-up demand will be filled by banks which can make money at 5, 6, or 7%.

My conclusion is that either the Fed doesn't understand this process (unlikely), or they actually want stagnation and/or disinflation or deflation (very likely). Remember, the dollar was getting weak up until 2009 and beyond, but look what's happened, the dollar is strengthening, and people want more of those dollars (the 10-year yield at 2.15% is magnitudes better than the German bund or the Bank of Japan's 10-year yield.). The Fed, as usual, has been lying through their teeth about everything from the virtues of quantitative easing (QE, i.e., free money) to the strength of the global economy (fact: it's weak.). There's a long history of the Fed saying one thing and knowing that the complete opposite - or nearly so - is actually true. That's how they get everyone to go along with their schemes of booms, busts, inflations, depressions, recessions... they and their crony, member banks, front-running everything.

The past few years have been good years for investing (ask anyone with a 401k or stocks), but it's not going to last. Maybe a few more years, because, once the banks start lending again in earnest, the inflation spigot will be wide open and the Fed knows this.

The Fed knows exactly what it is doing, and they're doing it slowly, as to avoid shocks. Anybody who hasn't been able to prosper (as in paying down debt, cutting expenditures, improving existing infrastructure - remodel your house, add solar panels, buy a better vehicle, increase acreage of productive land, learn new skills or improve existing ones) has missed the boat.

Point in fact: In 2005,6,7,8, I could not get a credit card with less than 22% interest. In 2009, I got a 4% home equity line of credit for roughly 50% of the value of my property (owned free and clear) from a local credit union (thank God for them). That one valued asset (my home) has, along with the meager line of credit, in five years time, allowed me to pay off all my existing credit card debt, buy inventory for my business, buy other assets (mostly silver) then get deals from various banks (yes, the very ones which caused the near-catastrophe of 2008), which now has me in this most unusual predicament: I have 0% credit - some of it guaranteed through June, 2016 - in an amount which far exceeds my original 4% home equity line, much of which I have already paid back.

My trick, if I can pull it off, will be to use the 0% credit as ready cash as part of a down payment on a better property for my home and business. With interest rates so low, it's almost foolish NOT to make this move.

The only risk, as far as I can tell, is if my income nosedives (not likely) and I'm unable to service my debt. In that case, I pay the mortgage (and taxes, the government always get theirs, don't they?) first, and let the banks figure out what to do with the defaulted CC debt. Long story short, I could then file for bankruptcy protection, and, even though the CC debt would not be fully discharged, I could get restructured and/or some forebearance/forgiveness and, keep my home, which, in the long run, is all that matters, the REAL, productive, improvable capital.

Seriously, I've been stacking silver, hoarding cash and business inventory for four years, and it's about time to unleash the Kraken!

Banksters beware! You've enabled your own worst nightmare. More adventures in high finance are sure to follow.

Today's advice: Pay attention and stay liquid. Interest rates keep going lower, meaning there's still another two years of embraceable low interest rates to be had.

Big Week for Stocks Ends on High Volume, 4.1% GDP

If stocks needed a little more of a boost after the Fed's taper-lite effort earlier in the week, the BLS gave it to them early Friday morning, when it announced the final revision to third quarter GDP at a whopping 4.1%, which turned out to be a solid increase over the already rosy 2.8% first estimate and 3.6% second estimate.

Thus, all the indices turned in a solid performance for the week, among the best of the year. The Dow had its third-best week of the year, and it has been a year of outsize gains overall and generally superior performance for equities when compared to all other asset classes.

Maybe the general economy is not exactly where everyone would like it to be, but it appears to be close enough for Wall Street, as trading winds down to just six trading days remaining in 2013.

For the week, the Dow was a moon-shot, gaining 465.78 points for a 2.96% rise; the NASDAQ tacked on 103.77 (2.59%); the S&P added 42.99 points (2.42%).

Record highs at the close on Friday were recorded for the Dow, S&P, Dow Transports and the Russell 2000.

Due to quadruple witching in options and futures, NASDAQ and S&P rebalancing, and a Fed-infused dose of holiday cheer, volume hit its best level of the year.

Bonds were well-behaved, with the benchmark 10-year note finishing at a modest 2.91% yield.

Everything looked so good, even gold and silver caught some bids.

The old song says, "Santa Claus is Coming to Town," though it appears the jolly fat man made Wall Street an early destination.

DOW 16,221.14, +42.06 (+0.26%)
NASDAQ 4,104.74, +46.61 (+1.15%)
S&P 1,818.31, +8.71 (+0.48%)
10-Yr Note 98.65, +0.50 (+0.51%) Yield: 2.91%
NASDAQ Volume 2.93 Bil
NYSE Volume 4.90 Bil
Combined NYSE & NASDAQ Advance - Decline: 4247-1527
Combined NYSE & NASDAQ New highs - New lows: 505-63
WTI crude oil: 99.32, +0.28
Gold: 1,203.70, +10.10
Silver: 19.45, +0.267
Corn: 433.25, +2.75

Dow, S&P Post Fifth Straight Losing Session; Fed Tapering Fears to Blame

Stcks took another turn lower on Thursday after the government reported its second estimate of GDP for the third quarter grew at a rate of 3.6%, far ahed of even the most bullish estimates and a dramatic revision from the first estimate of 2.8% growth.

Inside the numbers, more than half of the GDP push was due to inventory builds, the consumer spending portion of the calculation lower than previous quarters. Additionally, the govenment changed the way it calculates GD per the second quarter, so the adjusted figures include intangible assets (normally treated as liabilities on any corporate balance sheet, but as growth assets according to the infamous trick economists the government employs). All estimates of GDP from the second quarter of 2013 onward, and especially during the initial quarters through the second quarter of 2014, should be viewed as more mark-to-fantasy accounting by the government, designed to make the economy look better than it actually is.

The new calculus of GDP is a double-edged sword going forward, as higher GDP emotes thoughts of Fed tapering of bond purchases, currently the lifeblood of the stock markets. While it looks good on the surface, the net effect in stocks is negative, for now.

In some glorious, imagined future world, higher GDP, based on various faulty assumptions, will produce a happiness effect or contentment, which, along with the Fed's highly-dubious but nonetheless heavily-touted "wealth effect" will be hailed as the outcome of successful Fed policies or some other rubbish, and, which the lazy, out-of-touch politicians in congress and the White House can somehow claim credit.

Sadly, or perhaps happily, in this good-news-is-bad-news regime, the headline-munching algos controlling the stock market can't read between the lines and are programmed to sell on economic improvement, whether the data is flawed or pristine. The Wall Street herd (and it is nothing other than herd mentality dictating direction) is equally deficient by buying into flawed data, but those are the cards issued by the underhanded Fed bottom-card-dealing Fed. The choice to raise, hold or fold is entirely up to the traders, though at this juncture, they're collecting their profits and running from the gaming tables in advance of november non-farm payrolls, due out Friday at 8:30 am ET.

The other number issued today was courtesy of the BLS in weekly initial jobless claims, coming in at 298,000, a six-year low, the good news just adding more melancholy to traders who have brought the Dow and S&P indices lower for the fifth straight session.

Those paying attention to internals will note that the advance-decline line continues to erode, and that new lows finally overtook new highs today, for the first time since early October. Those two indicators will be supplying signals beyond the November non-farm payroll data tomorrow and should be viewed as the least-abused and most reliable signs for market direction.

Precius metals were hammered lower once again, though nary a gold or silver bug can be heard complaining, considering the lowered prices to be akin to a pre-Christmas sale on the metals.

DOW 15,821.51, -68.26 (-0.43%)
NASDAQ 4,033.16, -4.84 (-0.12%)
S&P 1,785.03, -7.78 (-0.43%)
10-Yr Note 99.08 0.00 (0.00%)
NASDAQ Volume 1.79 Bil
NYSE Volume 3.30 Bil
Combined NYSE & NASDAQ Advance - Decline: 2217-3433
Combined NYSE & NASDAQ New highs - New lows: 127-164
WTI crude oil: 97.38, -0.18
Gold: 1,231.90, -15.30
Silver: 19.57, -0.26
Corn: 433.50, -3.00

Stocks Higher Despite Slower Economy

Editor's Note: Due to a scheduling conflict, the normal posting of Money Daily will be delayed until about 8:30-9:00 pm EDT this evening.

Stocks are in the midst of a strong rally Wednesday afternoon, despite a sharp, downward revision to first quarter GDP - to 1.8% - from 2.4% reported a month ago by the Commerce Department.

That bit of discouraging news meant nothing to Wall Street stock pickers, who only see higher prices and speculative gains in the face of the downdraft from the past two weeks.

With the second quarter coming to a close this Friday and a new June employment report out next Friday, this appears to be a case of getting in while the getting is good. Gains may be short-lived, though the "bad news is good" crowd, who thinks that slower economic growth will forestall the slowing of asset purchases by Chairman Ben Bernanke and his merry gang of bond-buyers.

More to follow...

Update: Turned out to by a typical low-volume ramp with a huge gap at the open. Whether the fraudsters-in-chiefs can manufacture another 90 Dow points by Friday - to get that index back over the magic 15,000 mark - is still in doubt.

Anyone still bullish knows that chartists will take everyone to task if the market doesn't make new highs from here, so resolution on a primary trend should be played out within the next seven to ten trading days.

If this recent, minor downdraft turns out to be garden variety for the "Fed" era, it's up, up and away, but stocks will be valued for perfection. It is still difficult to see how the status quo can continue to maintain smug certainty about equity values in the long run.

Dow 14,910.14, +149.83 (1.02%)
NASDAQ 3,376.22, +28.34 (0.85%)
S&P 500 1,603.26, +15.23 (0.96%)
NYSE Composite 9,067.27, +78.00 (0.87%)
NASDAQ Volume 1,641,171,250
NYSE Volume 3,983,478,000
Combined NYSE & NASDAQ Advance - Decline: 4360-2148
Combined NYSE & NASDAQ New highs - New lows: 160-100
WTI crude oil: 95.50, +0.18
Gold: 1,229.80, -43.30
Silver: 18.59, -0.939

Stocks End Week on Flat Note after 1Q GDP Miss

Stocks were in a general state of dizziness following the release of first quarter GDP, expected to come in at three percent (dreamers), but instead posted a disappointing 2.5%, most of it (2.24%) fueled by personal consumption expenditures (of which the majority was food, energy and clothing). Imports and Government were drags, showing declines of 0.9% and 0.8% respectively.

Those were offset by PCE, exports (0.4%), inventories (1.03%) and fixed investment (0.58%).

Noting that last number, thank Obamacare and general economic malaise for the lack of CapEx spending, which continues to disappoint and without which the USA will never escape the dregs of this low-growth environment. For the past ten quarters, GDP has grown at an annual rate of 1.9%. With inflation somewhere between two and four percent and the US population growth rate just a touch under one percent, the US economy is operating at stall speed.

With those numbers in tow, it was surprising that stocks did not decline sharply, but, as we know all too well, Wall Street believes that Bernanke has their back, to the tune of $85 billion in freshly minted cash every month.

Enjoy the weekend, because sooner or later, all the BS money-printing is going to bite the economy hard. We're doomed.

Dow 14,712.55, +11.75 (0.08%)
NASDAQ 3,279.26, -10.73 (0.33%)
S&P 500 1,582.24, -2.92 (0.18%)
NYSE Composite 9,169.89, -18.96 (0.21%)
NASDAQ Volume 1,599,216,625
NYSE Volume 3,436,212,250
Combined NYSE & NASDAQ Advance - Decline: 2495-3867
Combined NYSE & NASDAQ New highs - New lows: 256-36
WTI crude oil: 93.00, -0.64
Gold: 1,453.60, -8.40
Silver: 23.76, -0.382

Fed Minutes Send Shock Waves, Stocks Plummet

Was today the day that the skeptics and shorts have been waiting for the four months? The day the market turned and rolled over, ending ridiculous speculation that the rally had more legs and major indices - S&P, Dow - would reach all-time highs?

Maybe. And to think that it would be the Fed, the very same Federal Reserve that continues relentlessly pumping money at a rate of $85 billion a month into the market, that would cause the turn is simply delicious in its irony.

Stocks were cruising along aimlessly most of the session, down slightly, until last month's Fed minutes were released at 2:00 pm ET. The initial reaction was muted, as most algos were turned off for the event, not being able to peer into the minutes from the FOMC meeting of January 29-30.

The minutes revealed extensive discussion over the current expansionary Fed policy of QE, focused around the purchase of Treasury and mortgage-backed bonds that has been in effect since September of 2012 and whether or not the Fed should continue the policy along the lines of its current stature - until unemployment targets of 6.5% are met - or modify the existing arrangement as market actions warrant.

The committee discussed its options at the January meeting, but voted in favor of keeping the current polify intact, though today's minutes show that fissures in Fed policy are beginning to appear, with not all members completely in line with Chairman Ben Bernanke's policy of unusually easy money.

Once enough wall Street experts were able to read and comprehend what the Fed was transmitting, the selling ensued and at times became quite raucous, especially in the more speculative issues on, mainly on the NASDAQ, which suffered its worst loss of the year.

The Dow lost over 100 points on the day and the S&P pulled back substantially as well. Whether or not the declines will last for more than one session is still up in the air, but what is certain is that officials at the Fed are now openly questioning policy decisions - some insisting that QE is necessary and that the economy is too fragile to change policy, others suggesting that the extraordinary measures are leading to a bubble in equity markets, a view that is beginning to gain traction.

There's little doubt anywhere that if the Fed were to substantially reduce its asset-buying-binge, the economy - and especially the equity markets - would not respond favorably and the economy could be thrust into another round of recession, a reality that is much closer than anyone wishes to believe, after last quarter's -0.1 GDP print.

At this juncture, it would appear that the Fed has tied its own hands, and that any change in policy would be damaging to markets, if not the greater economy. Mere mention of discussion about change caused a selloff, so actual change would no doubt engender more severe reactions.

Dovetailing into the government's do-nothing policy regarding the upcoming sequestration issue, Fed policy should not materially change for the next three to six months, unless the president and congress find a way toward compromise on spending cuts without raising taxes, an outcome seen as remote by most.

How the market responds tomorrow and Friday will set the stage for the final week of February, which is loaded with important economic data releases, not the least of which is the second estimate on fourth quarter GDP on the 28th. Since next Friday is the first of March, the usual non-farm payroll data will be delayed until the 8th, giving the BLS more time to analyze and massage the data.

This may or may not be a significant turn in the markets, but for certain, it's an important development heading into at least three weeks of important data and serious fiscal issues that the government has thus far been reluctant to address.

Collateral damage was done in the precious metals as gold and silver took sizable hits after the Fed minutes release.

Dow 13,927.54, -108.13 (0.77%)
NASDAQ 3,164.41, -49.18 (1.53%)
S&P 500 1,511.95, -18.99 (1.24%)
NYSE Composite 8,883.63, -120.75 (1.34%)
NASDAQ Volume 1,998,613,000
NYSE Volume 4,576,938,000
Combined NYSE & NASDAQ Advance - Decline: 1519-5016
Combined NYSE & NASDAQ New highs - New lows: 470-59
WTI crude oil: 94.46, -2.20
Gold: 1,562.40, -41.80
Silver: 28.51, -0.912

Red Alert: Markets Leak Lower Second Straight Session

The 0.1% decline in fourth quarter 2012 GDP appears to have been taken a bit more seriously than first expected, as stocks fell for the second consecutive session on Thursday. Adding to the dour sentiment on the US economy, initial unemployment claims spiked to 368,000 after last week's multi-year low of 330,000 was seen as initially buoyant but now looks to be more of an aberration than a harbinger of things to come.

Stocks were higher in the morning, but drifted through the day, eventually ending lower despite a furious, failed attempt to paint the tape in the final ten minutes of trading. Of the major indices, only the NASDAQ was close to the break even mark, closing down fractionally.

Chicago PMI for January was a major surprise, coming in at 55.6 on expectations of 50.0%, but even this was not enough to bolster the markets.

The real story came in terms of personal income, which sported a gain of 2.6% in December, a boon for the average consumer, a bane for business, but overall, likely a wash, as the reading was prior to government's decision to roll back the temporary cut in Social Security deductions. Wage earners are seeing less in their paychecks while oil, fuel and food are beginning to show signs of ramping up in price, a formula not apparently anticipated by by the Fed/government/business brian trust which wants to control everything from guns, to stock prices to health insurance premiums.

There's an eventuality about all of this control-orientation that reeks of collapse, anarchy and non-compliance from the general populace. If not for food stamps, rent subsidies and other socialist mechanisms polluting the formerly-free markets, the economy would have been dead and buried long ago.

As for the skimmers on Wall Street, their attempts to manage the markets lower amid weakening expectations are, for now, succeeding, though on this final day of trading in January - one of the best months ever for stocks - there was little in the way of window dressing, the usual ritual of fund managers seeking to impress clients.

With non-farm payroll data due out prior to Friday's opening bell, everything is on hold, though sentiment seems to be turning a bit more negative than usual. Estimates are for a net increase of 200,000 jobs created in December, after ADP reported a gain of 192,000 on Wednesday, counting only the private sector.

Washington's been eerily silent of late, supposedly getting down to work on immigration and possibly other pressing issues, but debate will soon liven over a budget, something congress and the president has failed to address for four years.

A big discrepancy in the Advance-Decline line - 3546-2897 - the opposite of what one would expected on a negative trading day, indicates that investors were busily unloading losers and scrambling for safety. Consumer stocks, in addition to energy, healthcare and transportation were the largest sector losers, with utilities and services the only sectors slightly positive.

Wall Street's tea leaves will tell more tomorrow, and if hiring was less than expected in December, downward pressure will remain in charge and perhaps be amplified.

Dow 13,860.58, -49.84 (0.36%)
NASDAQ 3,142.13, -0.18 (0.01%)
S&P 500 1,498.11, -3.85 (0.26%)
NYSE Composite 8,892.59, -11.73 (0.13%)
NASDAQ Volume 2,134,474,750
NYSE Volume 4,027,212,000
Combined NYSE & NASDAQ Advance - Decline: 3546-2897
Combined NYSE & NASDAQ New highs - New lows: 316-39
WTI crude oil: 97.10, -0.84
Gold: 1,663.80, -16.10
Silver: 31.42, -0.60

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.

May Finishes Badly; PMI Weakest in Over Three Years

Considering the crush of bad data that the markets encountered this morning, today's marginal negative close was something of a marvel. In fact, had stocks not taken an abrupt U-turn in the final 20 minutes of trading, one could have said that markets were ignoring the headlines.

As a whole, the month of May was about as dismal as has been seen since the aftermath of the '08 collapse. Both the S&P 500 and the Dow were down roughly 6%, wiping out most of the gains of the year. Energy, financials and materials were the three hardest hit sectors. Crude oil took more than a 17% haircut during the month, putting it technically in a bear market.

The five positive days on the Dow for the month was the worst for May since 1969 and the 17 down days bettered a May mark dating back to 1956.

Among the data releases from the morning that set the overall tone for the US markets were the announced job cuts in May, that jumped 67% from a year ago according to Challenger, Gray & Christmas, the 133K private sector jobs created in the month - 24,000 lower than the estimate - according to ADT, 383K initial unemployment claims, and a drop in the second estimate of first quarter GDP to 1.9% from the 2.2% previously supplied.

All of those releases were prior to the opening bell, but at 10:00 am EDT the hammer hit the market hard, as the Chicago PMI dropped from 56.2 in April to a current reading of 52.7, the worst showing since September 2009.

With that announcement, stocks did a face-plant, with all of the major indices falling quickly to the lows of the day. There was no sign of capitulation, that likely being saved for Friday's non-farm payroll report, which has all investors walking on eggs this week.

Taking the bad economic news in usual shrugging-off fashion, stocks climbed back to positive territory - except for the NASDAQ which was down all day - nearing the close, but fell apart at the end, finishing May with one of the worst performances on record, the major indices clinging to smallish gains for the year and the major averages resting just above their 200-day moving averages.

With prospects for a robust reading on jobs from the BLS not encouraging, Friday appears to be shaping up as a make or break session, notwithstanding issues ranging from Europe to bank downgrades on the horizon.

The 10-year bond fell to another historic low, closing with a yield of 1.57%, indicative of a flight to safety as investors worry about recession in Europe and how a slowdown there will affect US firms, many of which derive a significant portion of their revenues from the crumbling continent. Also under consideration are how the continued crisis in Europe will affect US banks, some of which have significant exposure to various countries in the Eurozone.

Crude oil continued its relentless slide, hitting its lowest price level in seven months and down 17% in May alone. Oil futures have entered a bear market, more than 20% off their highs, a condition drivers can only celebrate, as the national average price of retail gas at the pump is down to $3.62 per gallon according to AAA's fuel gauge report.

With May out of the way, tomorrow's 8:30 am EDT announcement on payrolls could be a make-or-break event for markets teetering on the brink.

Dow 12,393.45, -26.41 (0.21%)
NASDAQ 2,827.34, -10.02 (0.35%)
S&P 500 1,310.33, -2.99 (0.23%)
NYSE Composite 7,464.45, -6.95 (0.09%)
NASDAQ Volume 2,090,245,500
NYSE Volume 4,434,600,000
Combined NYSE & NASDAQ Advance - Decline: 2760-2984
Combined NYSE & NASDAQ New highs - New lows: 73-213
WTI crude oil: 86.53, -1.29
Gold: 1,562.60, -0.80
Silver: 27.76, -0.23

Markets Churn Higher on Absence of Data

There was little to move stocks in either direction today, but the algorithm-driven dynamic kept the same tone as it has pretty much since October and churned higher without any heed to downside risk.

Initial unemployment claims continued to be elevated, coming in at 388K after last week's revised 389K reading. The most positive news was pending home sales for March coming in 4.1% higher, a significant beat of expectations of a mere 0.5% gain.

Otherwise, there were a number of misses on corporate first quarter earnings reports, including UPS (UPS) and Dow Chemical (DD), but that didn't hold back stocks in the least as they started the day slowly and continued higher throughout the session, reaching the highs for the day shortly after 3:00 pm EDT.

There was a slight pullback into the close, but the final figures left the Dow Jones Industrials just 60 points from fresh four-year highs and the S&P 500 closing just two cents shy of 1400, a mark the index has not closed above since April 3rd.

Europe finished mixed, though the gains and losses of the particular exchanges were marginal. As has been the case over the past six to seven months, the absence of any kind of news out of Europe - which has been routinely bad - gives US markets a nudge higher, and such was the case on today's trading.

Analysts are hopeful that the week's gains can be sustained after Friday's first estimate of first quarter 2012 GDP, which will be announced prior to the market open. Market expectations are for somewhere between 2.5% and 3.0% growth, which would not be surprising, given a US economy that is being spoon-fed by government largesse, with more than 45 million Americans on food stamps and millions more receiving some form of government assistance while the Fed continues to dole out money hand over fist through its Operation Twist.

While all this stealth stimulus may be giving stocks a relatively easy time of it, at some point the government will have to deal with the monstrous deficits and the growing underfunding of the entitlement programs.

Being an election year, however, neither congress nor the president will go legislatively within earshot of those issues except in well-rehearsed campaign speeches, so, the current conditions will continue uninterrupted - barring some unforeseen event - until November. On the other hand, the Fed's current easing cycle will end in June, and it will be interesting to note how well the markets handle any lack of support.

Until further notice, it appears to be smooth sailing for stock hawkers, traders and investors. Somewhat counterintuitive, the precious metals had their best showing in weeks, though they remain range-bound.

Dow 13,204.62, +113.90 (0.87%)
NASDAQ 3,050.61, +20.98 (0.69%)
S&P 500 1,399.98, +9.29 (0.67%)
NYSE Composite 8,123.07, +52.29 (0.65%)
NASDAQ Volume 1,722,965,375
NYSE Volume 3,864,227,750
Combined NYSE & NASDAQ Advance - Decline: 3682-1910
Combined NYSE & NASDAQ New highs - New lows: 259-46
WTI crude oil: 104.55, +0.43
Gold: 1,660.50, +18.20
Silver: 31.21, +0.85

China's Slowing GDP a Symptom of Faltering Global Economy

Yesterday's rumor that China would report first quarter GDP of upwards of 9% growth - which fueled the ramp-up in stocks on Thursday - turned into today's reality that China's economy is slowing, and quickly.

When the news that China's economy grew less than expected - by 8.1%, the slowest rate of growth in the world's most populous country in nearly three years - traders in Europe and the US could not sell shares of selected equities quickly enough. By the time US markets opened, futures had cratered to their lowest levels of the morning and the selling continued throughout the lackluster session.

By he close, Thursday's gains were all but eviscerated, leaving investors to wonder what comes next in terms of the global economic condition.

Also, prior to the open, two major banks, JP Morgan Chase (JPM) and Wells-Fargo (WFC) announced first quarter earnings. Both beat estimates, but the stocks sold off on the reports, many analysts citing bookkeeping chicanery for the better-than-expected returns.

By the end of the day, JPM dropped 3.64%, while WFC lost 3.47%. Both stocks are near 52-week highs and are currently looking like serious short-sell candidates.

The Chinese data should not have come as a surprise. Since most of China's recent growth has been tied to exports - mainly to the US and Europe - slack demand has crimped output and China's nascent middle class is not yet robost enough to fill in the growth gap. Concerns over the debt condition of the Eurozone have not abated, and, in fact, may be exacerbated as Spain's situation worsens.

Sooner or later, principals are going to have to come to terms with the global condition of faltering sovereign nations, an excessive overhang of debt and limited solutions from fiscal and monetary authorities. The search for yield has many investors scrambling again into dividend-paying stocks or the marginal returns of US treasuries, which rallied once more, the ten-year dipping to 1.99% at the close of trading.

In such an environment, there is no safe harbor except for hard assets, though even oil, gold and silver were pounded lower on the news.

The major averages finished the week with losses of around two percent. The idea that stocks sporting solid gains for the first quarter have been selling off nevertheless, portends more downside for equity investors.

Deflation is a cruel environment, for which most in the financial arena are ill-prepared. The global economy is close to stall speed, which, for most ordinary people, is bliss, though the highly-leveraged worldwide financial system is surely strained at present.

Dow 12,849.67, -136.91 (1.05%)
NASDAQ 3,011.33, -44.22 (1.45%)
S&P 500 1,370.27, -17.30 (1.25%)
NYSE Composite 7,937.65, -102.31 (1.27%)
NASDAQ Volume 1,437,334,625
NYSE Volume 3,433,928,000
Combined NYSE & NASDAQ Advance - Decline: 1332-4234
Combined NYSE & NASDAQ New highs - New lows: 95-69
WTI crude oil: 102.83, -0.81
Gold: 1,660.20, -20.40
Silver: 31.39, -1.14

Thursday Turnaround Mostly Vapors and Short-Covering

Let's see if we can find the good news that took the Dow back from a morning loss of 94 points to a gain of nearly 20 points by day's end?

Initial employment claims came in at 359K on expectations of 350K and the prior week was revised higher, from 348K originally reported to 364K. Well, that can't be it.

The third and final estimate for fourth quarter 2011 GDP remained steady at 3.0%. Maybe.

Moody's downgraded five Portugese banks. Nope.

Gas at the pump is still hovering around the $3.90/gallon range, on average, across the United States. Hmmm, probably not.

Those were the major headlines and issues on this Turnaround Thursday, as all the major averages fell out of bed, then through the magic of computer-programmatic algorithms, found a suitable bottom and rose through the afternoon and into the close.

In days past, chartists would say that the market put in another, higher bottom, but this intra-day bottom happened to be the low for the week. In other words, the monster rally from Monday was all eaten up by greedy, high-powered day-traders who more or less control this thinly-traded market.

Now, volume was a bit more perky today, but that would be due likely to short covering and the fact that it takes more trades to move all the indices from a cratered loss to near the break-even point. All of it is rather meaningless, since only the major banks, brokerages, fund managers and some moribund hedge funds have actually been engaging in this casino-style market since the middle of 2010, right after the flash crash scared out the last remaining individual investors.

As mentioned in yesterday's post, this is all leading up to a big rally coming either Friday (1st quarter window dressing) or Monday (first trading day of the quarter), or both. Not that the end of a quarter or the beginning of one has anything to do with fundamentals, they're just when the big boys open and close their books, so it gives them something upon which to hang their hats.

The bull market that began in March of 2009 has been one of the best in history, with the major indices all up close to or more than 100% from the bottom. Doubling your money in three years is a trick only the magicians of Wall Street can perform, though they got plenty of help from the taxpayers and rich Uncle Ben Bernanke at the Federal Reserve.

In fact, uncle Ben is still pumping out scads of greenbacks to keep the rally going, because in case anyone cares to look at the Fed's policies of the past three to four years, the stock market gains are about the only positive result among them.

Sure, sure, everyone pats Bernanke on the back for "saving" the economy, but what he really saved was the banks, which had fallen over a solvency cliff. The government has been running record deficits ever since the '08 crash, the value of the dollar is on a gentle glide-path to zero, just like Ben's interest rates, inflation continues to ravage household budgets, while low interest rates on savings are killing seniors. Housing is still declining, another credit bubble - in the form of student loans, auto leases and credit cards - is forming rapidly and small business is too busy keeping up with Washington's rule changes and mountains of regulations to actually hire anyone or expand. Entrepreneurs have been completely scared off and looking to foreign shores for opportunity.

So, really, what did Ben Bernanke save besides his banking buddies and his own job? Oh, that's right, Europe. But, but, but, that's not his job, is it?

Dow 13,145.82, +19.61 (0.15%)
NASDAQ 3,095.36, -9.60 (0.31%)
S&P 500 1,403.28, -2.26 (0.16%)
NYSE Composite 8,166.37, -21.98 (0.27%)
NASDAQ Volume 1,755,819,875
NYSE Volume 3,772,621,250
Combined NYSE & NASDAQ Advance - Decline: 2268-3291
Combined NYSE & NASDAQ New highs - New lows: 108-61
WTI crude oil: 102.78, -2.63
Gold: 1,652.20, -5.70
Silver: 31.99, +0.16

Troubling Pattern Continues on Mixed Data

For some reason, stocks continue to take on the same daily trading pattern that has persisted for roughly four weeks now. All of the major indices will start sharply to the downside, only to gather momentum throughout the session.

How stocks go up, after being down early, is a matter for some conjecture. It could be simply a function of the HFT computers which account for 70% off all trading action, it could be an algo designed to take profits early in the day and reinvest later, or it could be something sinister, like market manipulation via the PPT (Plunge Protection Team), which, despite scary market conditions and a shaky economy, still wants to give the impression that the US is in the midst of a recovery.

Whatever the case, it's disturbing to see the same or similar patterns, day in and day out, but conclusions cannot be drawn on patterns alone. Suffice it to say that it's out there for everyone to see - like a zombie market rising from the dead - and until there's a positive catalyst or the wheels fall completely off this liquidity-fueled rally (now into its sixth month without even a five percent pullback), there's little anybody can do about it except confirm its existence.

There were plenty of reasons to sell off today, as China lowered its 2012 GDP estimate from 8% to 7.5% (we should be so fortunate). That half percent may be insignificant, though it is largely understandable, as global growth has pretty much stalled for the past two years and China has been the major exporter during that time. As the People's Republic turns its attention more to the domestic side of things, it should be a signal that the export boom that was largely fed by the US and Europe has come to an end.

European PMI fell to 49.3 in February from 50.4 in January, another sign that Europe is careening toward a recession, and that certainly cannot be good news for the US, either. Besides the absurdity of their dragged-out debt crisis, high prices for fuel and food, and the necessity for structural reform, Europe continues to appear as the proverbial straw that will break the back of the global economic camel. All bourses in Europe finished in the red on the day.

Here in the US, the ISM Services Index showed some resilience, gaining to 57.3 after a print of 56.8 in January, leading some commentators to suggest that strong data in the services sector should result in a lower unemployment rate for February when the BLS issues its non-farm payroll data set on Friday.

One of the more reliable indicators, however continues to display weakness. That would be the Dow Jones Transports, which has not followed the rally of late. After peaking on February 3rd, the index has lost close to 5% since, and any Dow Theory analyst worth his salt will tell you that if the Transports don't confirm a move in the blue chip, there's almost certainly trouble ahead.

And again today, trading volume was absolutely dismal.

Then again, the world didn't end in 2008, but the road back has been long and hard. Food for thought.

Dow 12,962.81, -14.76 (0.11%)
NASDAQ 2,950.48, -25.71 (0.86%)
S&P 500 1,364.33, -5.30 (0.39%)
NYSE Composite 8,091.28, -33.90 (0.42%)
NASDAQ Volume 1,677,286,125
NYSE Volume 3,402,625,250
Combined NYSE & NASDAQ Advance - Decline: 2383-3225
Combined NYSE & NASDAQ New highs - New lows: 132-49 (trending toward convergence)
WTI crude oil: 106.72, +0.02
Gold: 1,703.90, -5.90
Silver: 33.70, -0.83

4th Quarter GDP Up 2.8%; 1.9% from Inventory Build; Checklist for Peace and Prosperity

US markets opened the day with news that the first estimate of 4th quarter 2011 GDP came in at 2.8%, a tad shy of the 3.0% (and many higher) estimates from the punditry. That bit of reality got stocks off to a ragged start and the choppiness continued throughout the day with the NASDAQ the only positive index for the bulk of the session.

The saddest part of the GDP breakout was that 1.9% of the 2.8% gain came from inventory build, which, as experienced in years past, will be quickly pushed out the door in the first quarter of 2012 and not fully replaced. That sets up an extraordinary condition through the first quarter: that of teetering on the brink of GDP contraction. Everyone is aware of the situation, which is why trading volumes have been so weak and stocks now being used as short-term bets rather than investments.

Still, the always-bullish crowd on Wall Street still, according to the January Barometer, believes there are better days ahead. That is until the bad days come, which they surely will. The aforementioned barometer is an old adage that purports that market direction, as dictated by the change in the month of January, will remain the same throughout the year. Last year, January was strong, just as this year, but we ended the year flat, and, after April, and especially after July, it was mostly downhill, so, take the sage guidance of the January Barometer with as many grains of salt as your risk appetite will allow.

Full year 2011 GDP was a grand 1.575%. And that's probably a stretch.

Muddle, muddle, toil and trouble,

Huddle, huddle, masses under the bubble.

America's economy is not growing and that's a good thing, though only for selected groups, like those who have seen it coming all along, nascent Nihilists and, of course, those at the top of the food chain (damn bankers).

Finally, here's my checklist for peace and prosperity in one's life:

• Paid for (free and clear) house to live in
Nice stacks of Precious Metals Guns & ammo Food in storage Garden Plenty of cash for six months expenses Solid understanding of the situation Don't give a rat's behind about upcoming elections Severe, deep-seated hatred of banks and government A business that keeps churning cash Clear conscience

Options include, sex slave, big dog to scare potential intruders, smokes (all kinds), liquor (you'll need it), home-brewing, wine-making or still (best of all worlds, all three), neighbors who may not fully comprehend the situ, but still are not a-holes, working computer(s). A nice collection of good books is always recommended.

Note that anything I-related, phone, pad, whatever, are not even optional. They're just future junk.

Since anybody who reads this blog is probably a notch or four above the teeming masses, we, as a group, should be exceptionally pleased that the system hasn't gone full retard into the eventual collapse, yet. Gives us more time to prepare for Armageddon, should it come, though we will be best prepared to fight off the zombies.

My advice: stick to your plan and work it. Hard. Tell those who think you're nuts (98% of population) to F-off. Fight like a gladiator for every penny and never lose faith in your own unique human ability, which knows only the limits you put on it.

Life is good and getting better for those who are prepared. The heck with the rest of the idiots.

Finally, two ideas in just four short words to mull over the weekend: Ron Paul. Short Google.

Dow 12,660.46, -74.17 (0.58%)
NASDAQ 2,816.55, +11.27 (0.40%)
S&P 500 1,316.32, -2.11 (0.16%)
NYSE Composite 7,876.60, -7.30 (0.09%)
NASDAQ Volume 1,685,430,875
NYSE Volume 3,822,956,000
Combined NYSE & NASDAQ Advance - Decline: 3540-1981
Combined NYSE & NASDAQ New highs - New lows: 235-18 (still extreme, but stalling out)
WTI crude oil: 99.56, -0.14
Gold: 1,732.20, +5.50
Silver: 33.79, +0.05

Stocks lower as Europe Weighs Heavily on Risk Assets

Stocks simply stalled out today as the euphoria over a new year continued to wear thin and the realities of Europe took center place in the minds of investors, traders, cheaters, liars and assorted money moguls.

Ancillary to the dilemma on the Continent, US companies are weighing the potentialities of a pan-European recession, which the IMF clearly defined today in cutting their global growth estimate from 4% to 3.25% for 2012. In case anyone's interested, that 0.75% cut in growth amounts to a drop off of 18.75% in their estimate. Whether the IMF economists just throw darts at a wall in search of a politically correct "number" or actually have ferreted out the world's economy to the penny, the sense of this announcement is pretty clear. Europe is big enough to plunge the rest of the world into a prolonged recession or, at best, a slow growth regime for the next four to five years, which, on top of the past three years of uncertainty, confusion and doubt, doesn't bode well for the rest of 2012 and beyond.

The IMF also lowered their forecast for the 17 nations comprising the Eurozone, from 1.1% growth in September to -0.5% today. In ordinary terms, the IMF is calling for a mild recession in Europe, though anyone who's been following this tableau of financial terror, knows that a mere 0.5% falloff would be a rather welcome outcome.

The Peterson Institute for International Economics (PIIE) has released their January 2012 Policy Brief[PDF]. The 13-page report, authored by Peter Boone and Simon Johnson details most of the pressing issues facing Europe and the viability of the EU itself.

The authors cite five key measures towards the survivability of the Eurozone:

Five measures are needed to enable the euro area to survive: (1) an immediate program to deal with excessive sovereign debt, (2) far more aggressive plans to reduce budget deficits and make peripheral nations hypercompetitive” in the near future, (3) supportive monetary policy from the ECB, (4) the introduction of mechanisms that credibly achieve long-term fiscal sustainability, and (5) institutional change that reduces the scope for excessive leverage and consequent instability in the financial sector.

Let's dissect these five measures one by one.

1) an immediate program to deal with excessive sovereign debt. Like what, actually paying down debt rather than continually issuing more bonds to avoid reality?

2) far more aggressive plans to reduce budget deficits and make peripheral nations hypercompetitive” in the near future. What would Greece and Italy do to become "hypercompetitive?" Eat faster? Dance more wildly? This is ludicrous.

3) supportive monetary policy from the ECB. Somehow, that just doesn't exactly jibe with "excessive sovereign debt" outlined in #1.

4) the introduction of mechanisms that credibly achieve long-term fiscal sustainability. Can you say "gold standard" and "kill the Euro" in the same sentence?

5) institutional change that reduces the scope for excessive leverage and consequent instability in the financial sector. Banks, governments acting rationally? The authors have clearly headed into an alternate dimension.

The off-the-cuff remarks notwithstanding, Johnson and Boone come to the startling conclusion that Europe's problems are not going to be fixed either easily nor soon, saying, in their conclusion, "Europe’s economy remains, therefore, in a dangerous state."

Well, somebody tell the stock jocks that their portfolios are about to shrink.

Elsewhere, Greece talks to get private investors on board for a voluntary "haircut" have stalled out once again, as there continues to be no deal on restructuring Greece's largely unpayable debt, while on Wall Street volume dried up completely in advance of tomorrow's FOMC non-eventful rate policy announcement and subsequent (ZZZZZZZZZZZZ) press conference.

Yes, it was another bang-up session for US equities. Now might be a good time to escape, like the hordes of other individual investors already have, having absolutely no confidence in markets, the government, or the sustainability of our glorious "recovery."

After the bell, the legacy of Steve Jobs lived on just a little longer as Apple (AAPL) delivered bang-up 4th quarter results, while Yahoo (YHOO) missed revenue and earnings estimates for the umpteenth consecutive time. It's very telling that Yahoo hasn't been acquired by now. Apparently, any interested buyers are content to wait until it simply disappears from the internet.

Dow 12,675.75, -33.07 (0.26%)
NASDAQ 2,786.64, +2.47 (0.09%)
S&P 500 1,314.65, -1.35 (0.10%)
NYSE Composite 7,840.65, -14.87 (0.19%)
NASDAQ Volume 1,659,757,875
NYSE Volume 3,671,223,750
Combined NYSE & NASDAQ Advance - Decline: 3138-2409 (lots of UNCH today)
Combined NYSE & NASDAQ New highs - New lows: 141-24
WTI crude oil: 98.95, -0.63
Gold: 1,664.50, -13.80
Silver: 31.98, -0.30

Unemployment Claims Lower, Stocks Higher

Stocks advanced modestly today as news flow was about as light as the volume, which was back to mid-summer levels.

Seasonally adjusted initial unemployment claims came in lower than last week's, at 364K, not much of a big deal, since the figures are heavily massaged and almost certain to be revised higher, though, even on their face, the 364,000 people filing for unemployment, while more than 15 million are already out of work, is a bit of a canard. Consider the fact that the way the Labor Department keeps track of these numbers is merely an estimate, then adjusted to match their perception of reality. What's never mentioned is the lower participation rate in the labor force and the idea that there simply aren't that many jobs remaining from which employees can be disposed.

While Wall Street gobbles up phony, manipulated data without blinking an eye - because it suits their 1% agenda - various parts of the country are still suffering from very high unemployment, stagnant local economies and the general malaise stemming from too few jobs for too many people.

With that in mind, it shouldn't surprise anybody that the third and final estimate of 3rd quarter GDP came in at 1.8%, down from the 2.0% in the previous estimate. The big fall-off was in personal consumption, which economists will glibly label "de-leveraging," when the people actually counting their nickels and dimes refer to it as "broke." And that's what the consumer is this Christmas, broke, busted, in debt, with poor outlooks for the future. Those of you with young children should take particular note that your kids cannot achieve your standard of living if current economic conditions remain the way they've been for the past three years. And your standard of living deteriorates daily, thanks to overspending governments at all levels, a tight credit market (despite record low interest rates) and general theft of wealth via taxation, free reign of private utilities, inflation and globalization, to say nothing of the indentured servitude your kids will enter into when they decide to take out a college loan.

As far as Wall Street and our socialized government apparatus is concerned, that's all well and good. To the rest of us, it certainly is beginning to feel a lot like the Dark Ages and the era of feudalism.

Carry on. Christmas is just a few days off. The economic monstrosity the elitists have built will eventually come tumbling down. Unfortunately, most of the carnage will affect ordinary people, not those at the top of the food chain.

Happy Holidays, in advance. See you tomorrow for the anti-climactic end to the penultimate week of the year.

Dow 12,170.64, +62.90 (0.52%)
NASDAQ 2,599.45, +21.48 (0.83%)
S&P 500 1,254.07, +10.35 (0.83%)
NYSE Composite 7,457.31, +68.79 (0.93%)
NASDAQ Volume 1,474,976,375
NYSE Volume 3,398,761,750
Combined NYSE & NASDAQ Advance - Decline: 4005-1623
Combined NYSE & NASDAQ New highs - New lows: 234-63
WTI crude oil: 99.53, +0.86
Gold: 1,610.60, -3.00
Silver: 29.05, -0.20

Global Stocks in Love with European Rescue Plan

If yesterday's gains were the equivalent of irrational exuberance, then today's stock risings around the world must be something akin to unconditional love for all things European, Euro, Eurozone or Euro-centric.

In the pre-dawn hours of Thursday, the meeting of leaders from the 17 nations comprising the the Eurozone - the nations employing the Euro as official currency - within the 27-nation European Union, broke from their marathon meeting and outlined a bold, yet still unfinished plan to stave off the collapse of Greece, keep key European banks solvent and expand the European Financial Stability Facility (yes, we know, you were wondering what EFSF stood for) to Euro 1 trillion ($1.41 trillion).

Greek debt-issuers, denominated mostly by major European banks, would be required to write down bonds by 50% (a haircut, as it is known), a proposal that many of the prominent banks had wished to avoid - and still may fight - was pushed through by the Eurozone leaders as a necessary action to keep the government of Greece from default and insolvency. The total amount to be written down on Greek debt came roughly to Euro 100 billion ($141 billion), though analysts debated the actual figure, most arguing the the recapitalization of the banks must be a much higher number.

Despite the lack of clarity over the details of the plan, stock indices around the world exploded to the upside on the news. The Hang Seng gained 3.26%, with other markets in the region all positive, though it was the European bourses themselves which registered the largest gains by far.

In Germany, the DAX finished more than 5% higher, the French CAC-40 soared 6.28% and Austria's ATX surged 6.11%. Other european markets registered significant gains.

While the European markets were notching higher through their afternoon, US futures were indication an explosive open with Dow futures in the green to the tune of - at times - more than 300 points. When US markets opened, the response was quick and certain, with all of the major indices higher in the early going, the NASDAQ setting the pace all day and finishing with a phenomenal gain of nearly 88 points and the S&P outdoing it with a 3.43% hike by days' end.

That Europe's long-awaited plan will proceed without hitches is uncertain, though there are sure to be bumps along the road. For now, however, the global stock market reaction appears to be showing broad approval and unequivocal support.

Buoying the euphoric sentiment in the US was the initial reading of US 3rd quarter GDP, which came in as expected, showing a growth rate of 2.5%, when skeptics of the somewhat-dormant US recovery had predicted much lower numbers, some believing that America was heading back into recession. With the holiday season fast approaching, chances for a double-dip recession have by now been effectively squashed.

Not only were stocks radically higher, with the Dow piercing the 12,000 threshold for the first time since August 1, the index on pace for it's best October ever, but commodities were also up sharply across the board, with oil, gold, silver, corn, soybean and wheat futures all posting superlative gains.

At the end of the day, the markets put on a show of global confidence not seen in some time, registering some of the best gains since the 2008-09 US financial catastrophe. What remains to be seen is whether the European leaders can actually implement the plan and keep the global economy churning. For today, at least, the consensus seems to be primed for their best efforts.

Dow 12,208.55, +339.51 (2.86%)
NASDAQ 2,738.63, +87.96 (3.32%)
S&P 500 1,284.59, +42.59 (3.43%)
NYSE Composite 7,813.99, +307.84 (4.10%)
NASDAQ Volume 2,851,696,750
NYSE Volume 6,600,709,000
Combined NYSE & NASDAQ Advance - Decline: 4956-827
Combined NYSE & NASDAQ New highs - New lows: 282-31
WTI crude oil: 93.96, +3.76
Gold: 1,747.70, +24.20
Silver: 35.11, +1.80

Lack of Catalyst Encourages Buyers; Rally Fizzles at Close

Mark Haines

This post is dedicated to Mark Haines, CNBC Anchor, who died unexpectedly last night at his home. Mark, 65, was one of the pioneers of televised financial news reporting, a stalwart with CNC from the beginning. Godspeed, Mark, may your surviving assets be spent in splendor by your rightful heirs.

As far as bounce-back rallies are concerned, this one rates at best a D-minus, for any number of reasons. First, there could not have been a more friendly environment to buy into; second, volume was so light a junior trader could have engineered a better bounce; third, the rally fizzled into the close, just like yesterday's 3:30 and beyond slip-slide.

Today's action was more a re-positioning of assets rather than a rally. For perspective, consider that the Dow dropped 250 points in the prior three sessions. Today's gain of less than 40 points was not even a quarter of that. The NASDAQ was down 77 points over the prior three sessions. The gains today were not meaningful.

Besides the untimely death of CNBC's Mark Haines, there was little to trade off of today, and most of it was bad news. Greece continues to twist in the wind of proposed EU austerity packages, all unacceptable and leading eventually to Greek default on their debt. Durable goods orders for April nose-dived, down 3.6% for the month, after a 4.4% gain in March. Estimates were for a 2% decline, so that was a pretty substantial miss. Investors seemed not to notice that all economic data has been either bad or horrifying the past two weeks.

Dow 12,394.66, +38.45 (0.31%)
NASDAQ 2,761.38, +15.22 (0.55%)
S&P 500 1,320.47, +4.19 (0.32%)
NYSE Composite 8,295.34, +42.88 (0.52%)

Winners took the measure of losing issues, 4336-2215. On the NASDAQ, 46 new highs, but 73 new lows. The NYSE showed 61 new highs and 35 new lows, making the combined total (the one that matters most) 106 new highs and 108 new lows, the second in the past three sessions that there have been more cumulative new lows than new highs. We are plumb out of adjectives to describe the ridiculously low volume on the markets. Sorry.

NASDAQ Volume 1,845,890,875
NYSE Volume 4,024,320,500

A weaker US dollar boosted commodities. Crude oil was up $1.55, to $101.32. AAA reports the average price of a gallon of unleaded regular gas in the US at $3.81, about 14 cents lower than two weeks ago, offering a little bit of relief for over-burdened drivers.

Gold found some life, but was eventually blunted late in the day, losing 90 cents, to $1525.20. Silver had another good day, gaining $1.20, to $37.83 the ounce.

Thursday brings the usual scariness of initial and continuing unemployment claims, plus the added bonus of the second estimate on 1st quarter GDP. The initial estimate had the US economy growing at 1.8% and the consensus is for little change to that number.

And so we bump along, grinding lower in due time.

More Non-Stop Nonsense in No-Move Market

What a way to end the week. First the government announces 3rd quarter GDP coming in at 2.0%, above estimates of 1.7%. Then they have this phony terrorist package from Yemen BS and that's all anybody can talk about on CNBC.

The whole mess is just so much baloney, it's truly dispiriting. So much so, that I am just going to copy and paste a comment I left on another blog:

That dipshit CNBC bitch Trish Regan keeps droning on and on about how packages are never inspected. Get ready for major price increases on cross border small packages, already ridiculously high. Just another crack on the back of small business in the name of "security."

This government sucks. Best to just ignore them.

Please don't ever vote again. It does only encourage the ass-holes.

Watch what happens next. More security inside the US, allowing Postal Service to inspect all parcels. I never use UPS - too expensive - but I think you have to bring packages to their offices open so they can inspect them. At least that's how it was in the immediate aftermath of 9-11.

My best guess is that about 15 banks are going under later today and this is their way of hiding the fact that America is Land of the Glee and Home of the Knave, and that your bank will be closed on Monday.

Maybe, if we get really lucky, they'll use this ruse to cancel the elections. Ah, crap, that means we'll have at least another two weeks of those damn political ads.

Crap, crap, crap. Give me Liberty or give me shit. Guess we all are getting it now.

The markets were their usual moribund selves on Friday. Nothing seems to move them any more. For the week, here are the moves on the main indices:

DJIA: HIGH: 11266.30,LOW: 11033.87, TOTAL POINT MOVE (from 10/22 close): -14.07
S&P 500: HIGH: 1196.14, LOW: 1171.70, TOTAL POINT MOVE (from 10/22 close): +0.18
NASDAQ: HIGH: 2516.20, LOW: 2470.12, TOTAL POINT MOVE (from 10/22 close): +28.02 WINNER!
NYSE: HIGH: 7615.23, LOW: 7417.42, TOTAL POINT MOVE (from 10/22 close): -9.56

Obviously, this wasn't much of a week for anyone. If diversified correctly, you may have even lost a couple of dollars. How's that retirement thing working out for you?

If the stock market - once the wonder of the world for its efficiency and ability to fund companies and create wealth - gets any more boring, I may have to take up knitting over blogging. If it were not so sad, I'd laugh. I used to love the stock market when I was a kid. Big companies were the stuff of dreams, of American success and exceptionalism. And now... now the stock market only represents greed, manipulation and the rise of the globalist agenda.

Dow 11,118.49, +4.54 (0.04%)
NASDAQ 2,507.41, +0.04 (0.00%)
S&P 500 1,183.26, -0.52 (0.04%)
NYSE Composite 7,513.35, +8.50 (0.11%)

Despite the squeamish headline numbers, advancers were all over decliners, 3868-2608. New highs bettered new lows, 400-59. Volume remains stuck at disturbingly-low levels.

NASDAQ Volume 2,010,327,375
NYSE Volume 4,128,324,750

Oil dipped 75 cents, to $81.43, but the precious metals were the stars of the day. Gold gained $15.10, to $1,357.60, closing in on record highs. Silver continued its massive build, up 69 cents, to $24.56.

There's usually something behind the phony terrorist "alarm" that has now preoccupied the airwaves. Apparently, the mainstream news media hasn't picked up on the fact the the bulk of Americans don't care or aren't scared any more, unless, of course, new coverage interrupts a sporting event or - God forbid - American Idol.

On that note, go scare some kids this weekend. They deserve it. Boo!

Limited Market Reaction to 2Q GDP

Released an hour prior to the opening of the markets on Friday, the Bureau of Economic Analysis, U.S. Department of Commerce said second quarter GDP in the US was running at a 2.4% annual growth rate.

That was unsurprising. What did raise some eyeballs was the revision, by an entire percentage point, from +2.7% to +3.7%, of first quarter GDP. The large increase was likely due to the annual three-year revision the BEA undertakes each July. Since 2007, 2008 and 2009 were mostly revised downwardly, that made the first quarter of 2010 look better than it actually was, since the increase was based from lower overall figures.

It's a nice accounting trick, though in real terms, it means that the first half of the current year was hardly worthwhile. Real, unadjusted growth was likely negligible once one wades through the various modeling and statistical fudging done to the numbers.

Oddly enough, the whiz kids on Wall Street didn't quite know what to make of it all, settling instead to just churn stocks around the flat line after rebounding from a nearly 1% loss at the open. Being the final trading day of July, it was a little too neat to take seriously. The best that could be said is that nobody was in a mood to panic, at least not just yet.

Dow 10,465.94, -1.22 (0.01%)
NASDAQ 2,254.70, +3.01 (0.13%)
S&P 500 1,101.60, +0.07 (0.01%)
NYSE Composite 6,998.99, +4.42 (0.06%)

Market internal were a whole other matter, as advancers clocked past decliners, 3708-2708, and new highs were once again well ahead of new lows, 280-90. Volume was just a touch under average for mid-summer.

NASDAQ Volume 2,168,665,750
NYSE Volume 4,697,753,000

Oil finished another 59 cents higher, at $78.95, for the September contract. Gold added $12.20, to $1,183.40, and silver tacked on 38 cents to close at an even $18.00 in New York.

For all the emphasis put on the first GDP estimate for the second quarter, the resulting trade was anything but exciting. The Dow traded in a range of 160 points top to bottom, but mostly in a tight pattern which deviated less than 30 points in either direction off the previous close.

One can safely assume that markets will experience more volatility come Monday and in ensuing sessions, as current market conditions remain quite unsettled.