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

New Year Rally Continues, But Financial Stocks Fade

Another three-day weekend has passed, another European crisis barely averted and, lo and behold, another Tuesday rally fueled by speculation in pre-market futures. To say that US markets - and, by inference, global markets - are being propped up on false hope and denial of reality would be a gross understatement.

A little history suffices to show that last year, January was a positive one for the markets, with the S&P 500 gaining 29 points, pointing the way toward - according to the mighty January Barometer - a solid year, and we all know how that turned out, with the market's absolute top occurring in late April.

This is a replay of just about the same scenario with one big difference. Stocks are probably a little better than fairly valued, but corporate profits are not expected to set new records (after 2011's record earnings). Rather, competition and currency exchange concerns will likely limit what most of the big, multinational firms will make in 2012, to say nothing of the impending default of Greece and the recent downgrading of about half of the nations comprising the Eurozone.

Here in the US, focus will be on the presidential race, which looks exceedingly like it will come down to a very disturbing and divisive fight between the incumbent Democrat, Barack Obama and the Republican Mitt Romney, who looks quite a bit like what "occupy" movement supporters deride as a fat-cat, political and capitalist sociopath.

In essence and for the practical purposes of governing, Romney's not much different from Obama, leaving Americans with the usual unpalatable choice of the lesser of two evils. The press, for the fourth presidential election in a row, will hail this as "the most important election of your life," which, of course, it certainly is not, though the amount of money pumped into the campaigns by super-PACs will be the stuff of legend.

With any luck, the preponderance of political advertising will result in more Americans revisiting old habits and older friends, and tuning out the mainstream propaganda machine full time.

As for this current vapor-rally on minimal volume (a tell-tale sign of weakness), it may just come to an abrupt end with the expiration of options on Friday, or, being that the powers behind the Ponzi fiat money scheme need to keep up appearances, it could just saunter along for a few more months. Since the Republicans in congress wish to unseat Mr. Obama at almost all costs, expect gridlock in Washington for the rest of 2012, though geo-political events (think Europe, Iran and the Middle East) could certainly send stocks spiraling lower, just as they did in late 2007 and through much of 2008.

Some interesting macro-economic facts came to light over the Martin Luther King holiday weekend, such as ratings agency Standard & Poor's commencing to downgrade the EU's main liquidity funding mechanism, the ESFS, a notch, from AAA to AA+, putting even more stress on the Continent's debt issues.

As mentioned Friday, talks about restructuring private Greek debt have fallen apart and an outright default before March 20 appears to be all but certain.

Back in the US, the average age of vehicles on the road has reached a new high of 10.8 years as strapped consumers delay the purchase of new cars indefinitely. So much for the government's bailout of GM and Chrysler. Shares of General Motors are up about four points this year, reaching 24.20 as of today, but are still well below the IPO price of $35 per share.

Two of the nation's largest banks issued 4th quarter earnings reports prior to the opening bell. Wells-Fargo (WFC), now the largest bank in the US by market cap, met expectations, but Citigroup missed badly, with reported earnings of 38 cents a share, missing rosy estimates of 51 cents per share and well below last year's fourth quarter of 43 cents. Shares of Citigroup were bashed, losing 2.53, to 28.22, a loss of more than eight percent.

Today's market was punctuated within the first 20 minutes of trading, hitting the highs for the day, with the Dow up 161 points before the day-long selling commenced. Optimistic gapped-up opens followed by floundering into a weak close is a sure sign of an over-hyped market, though the Dow has sported gains in six of ten sessions this year.

Bull markets don't last forever, especially secular bulls, such as this one, which has persisted since the bottom in March of 2009. The mini corrections in the Spring and again in August haven't dampened investor sentiment much, though weak volume remains a persistent feature. Eventually, reality, such as Citi's poor showing today, will take hold of even the most stubborn bulls... and their money.

Dow 12,482.07, +60.01 (0.48%)
NASDAQ 2,728.08, +17.41 (0.64%)
S&P 500 1,293.67, +4.58 (0.36%)
NYSE Composite 7,670.47, +38.44 (0.50%)
NASDAQ Volume 1,819,276,375
NYSE Volume 3,883,768,500
Combined NYSE & NASDAQ Advance - Decline: 3262-2341
Combined NYSE & NASDAQ New highs - New lows: 217-46
WTI crude oil: 100.71, +2.01
Gold: 1,655.60, +24.80
Silver: 30.14, +0.61

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

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

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

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

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

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

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

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

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

All outlooks remain negative, except for Germany and Slovakia.

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

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

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

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

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

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

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

Stocks Ripped Lower Again; More Questions than Answers

Since US stock markets are so delightfully linked t the fates of Europe, the same old story keeps repeating itself over and over, such as today, as the Euro fell sharply (1.00 EUR = 1.30348 USD) against major currencies and the Dollar Index closed at an eleven-month high (DXY:IND 80.273 0.708 0.89%).

While those dual developments are intertwined, the parties involved - from European, US and Chinese exporters to American and European consumers - will feel the effects in dramatically different manners.

Naturally, for most of Europe, a collapsing Euro is bad for consumers, making everything imported more expensive, but great for exporters, whose goods are cheaper by comparison in importing nations.

The opposite is true for the US, which is why stocks are usually down when the Euro dips and the dollar strengthens. Americans should welcome a stronger dollar, especially at this time of year, because all those trinkets and holiday goodies - mostly from China - will be cheaper, though probably not right away.

As has been a repeatedly-held view in this space, the Euro is headed for catastrophe, and it's going to occur sooner than anyone thinks, probably before the middle of 2012. German people are sick and tired of bailing out the Southern countries, Greece has already defaulted on some debt, Italy, Spain, Portugal, Ireland and Belgium are holding on for dear life and the ECB is going to be quickly as tapped out of funds as its leaders are of ideas.

The idea of printing more money, as has been the case in the US, with dubious effect, will only make matters worse when inflation rages and dissatisfied citizens stop paying taxes in deference to feeding their families. The trouble is that sovereign debt, ridiculously rated at AAA or beyond, is about to be downgraded across the Euro-zone and beyond.

For those unfamiliar, sovereign debt is the money governments borrow to fund everything from pensions to schools to war machines (like here in the US). Most of Europe should be rated no better than A or A+, a move that is coming soon from either S&P, Moody's or Fitch, because nations have shown over time that while they may always repay on time, they are profligate spenders and tax revenues are dropping, not expanding. Balance sheets (those things nobody likes to look at) of most governments are ridiculous when compared to that of an average American or European family, who don't get the benefit of positive credit ratings, pay higher interest rates than silly governments, yet most manage to pay bills on time and keep their households in relative sanity.

With all of the monstrous debt of Europe and the US overshadowing just about all other economic realities, there are more questions than answers these days, a few of them being:

• Where's the money (over $1 billion) that MF Global took from investors?
• How soon will the ratings agencies lower the credit ratings of Italy, Spain, Portugal, France and the rest of the Euro-zone nations, and, how far down will they go?
• If US banks are borrowing at 0-0.25% from the Fed, why are credit card rates 8, 10, 15 and even 28% for US consumers who have solid track records of on-time payments?
• Can government statistics be trusted at all?
• Why would anyone under the age of 40 contribute to Social Security if not that it's automatically deducted from their paychecks?
• If the world is headed for global depression, won't all asset classes, including gold and silver, devalue?
• Why are government employees in the US paid 30-40% more than their private-industry counterparts and receive gold-plated health care and pensions, when the US population - who pays them - work for less, have fewer benefits and many have no guaranteed retirement plans?
• Why is the world's greatest criminal, Hank Paulson, still a free man?
• Where is Eric Holder, the Attorney General, and why hasn't he even investigated any of the banks or the prior administration?
• Why must Americans choose between Mitt Romney or Newt Gingrich as the Republican presidential nominee when Ron Paul and Michelle Bachmann have better positions and more consistent voting records?
• Why is President Obama opposed to the Keystone pipeline that would bring oil from Canada (our largest trading partner and a friendly one) and thousands of high-paying jobs?
• Why is 20% supposed to be a "fair" percentage one should pay in federal taxes when most people outside the middle class pay little to nothing?

Those are just teaser questions, without good answers from politicians, regulators, academics or economists. The tough ones await in the new year.

And, to those kids waiting for Santa Claus, you've got 11 days left to try being good. For the scoundrels on Wall Street, awaiting the famous, year-end Santa Claus Rally, you've been bad, so just coal (clean coal, for sure) for you, and, even if there is a rally, it will only get the indices back to where they were a week or a day or two ago, and 2011 will go down in the books as a year of near-zero (or less) returns. So much for owning stocks.

A couple of quick points on economic data. November retail sales figures were up 0.2%. There's one word to describe all the hoopla over Black Friday and the whole retail consumerism mantra. BULL---T.

The FOMC of the Fed had its last policy meeting of 2011 and did nothing. Thanks, for nothing.

Dow 11,954.94, -66.45 (0.55%)
NASDAQ 2,579.27, -32.99 (1.26%)
S&P 500 1,225.73, -10.74 (0.87%)
NYSE Composite 7,276.65, -86.84 (1.18%)
NASDAQ Volume 1,732,941,625
NYSE Volume 4,080,177,000
Combined NYSE & NASDAQ Advance - Decline: 1462-4165
Combined NYSE & NASDAQ New highs - New lows: 107-146 (more red)
WTI crude oil: 100.14, +2.37 (higher due to fears over Iran)
Gold: 1,663.10, -5.10
Silver: 31.26, +0.26

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

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

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

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

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

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

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

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

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

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

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

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

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

Rough Week for Stocks Ends Mixed; Markets Gripped by fear and Uncertainty

Despite some favorable economic news during the course of the week, market participants mostly shunned equities as Europe's ongoing crisis and the lack of a deal by the congressional super-committee kept money mostly on the sidelines or taking profits (and losses).

Since the US stock market has become more akin to a day-trading casino than an investment culture, traders now routinely react swiftly to breaking news and events, preferring to stay out of the way or grab quick profits as the tableau of international economic falderal unfolds. The week was marked by more speculation than actual news, as Italian and Spanish 10-year notes criss-crossed the 7% yield threshold and Germany continues to balk at being the savior of the Southern nations, even as Chancellor Angela Merkel admitted that her country was ready to cede some degree of sovereignty in order to salvage what's left of the European monetary union.

Germany holds the key to whether the decade-old European Union will survive, being the largest and strongest economy in the region. While Merkel has made pronouncements pleasing to her neighbors to the West and South, she is losing a degree of favor at home, as many Germans don't exactly share her views and dislike the role of Germany as the bailout nation for weaker economies.

Funding for Greece, Italy, Portugal and Spain has become an issue so delicate and abstract that one solution offered was for the ECB to loan money to the IMF, which would then fund the ailing nations, though that kind of Ponzi scheme would only work to relieve the ECB of their presumptive role of being the "lender of last resort" such as the US Federal Reserve was during the 2008 crisis.

It's a touchy situation in Europe, with new governments in Italy and Greece, both tottering on the brink of default, though Greece's predicament - with no new funding coming soon - is degrees more perilous.

Here in the USA, congressional members have not exactly been forthright in their effort to reach a compromise on the roughly $1.2 trillion in budget cuts which was the mandated approach after the August debt ceiling debacle.

With the US public debt officially exceeding $15 trillion on Thursday and the prospects for another $1 trillion-plus deficit in the coming fiscal year, one would think that congress and their "super-committee" would have found some resolution before their November 23rd deadline, but, as usual, congressional members are deadlocked, mostly along party lines, with Republicans steadfastly refusing to approve anything which even smells like a tax hike and Democrats seemingly all too happy to allow the blame to accrue to their across-the-aisle counterparts.

With the deadline looming just five days ahead, members of the committee are pondering letting the deadline pass, which would trigger automatic spending-cuts, otherwise known as sequestration, though that approach is also riddled with question marks as some members have openly suggested that even those automatic cuts could be ripped asunder, primarily because of opposition to cuts to the Department of Defense.

The comedy of errors which began last Spring with the threatened shutdown of the federal government over budget issues threatens the US credit rating, already taken down a notch in August by Standard and Poor's. Failure to reach agreement might not engender another rating cut, though scuttling the previously agreed-to automatic cuts just might cause S&P to downgrade the US again.

Against this backdrop of a do-nothing congress without political will or wherewithal, and a fractured Europe an landscape, one can hardly blame traders for seeking the safety of cash or Treasuries. Volume on the stock exchanges this week has been dismal, exacerbated by a missing $600 million in investor funds courtesy of the recently-bankrupt MF Global. The fund, run by former Goldman Sachs CEO and New Jersey Governor Jon Corzine, made heavy bets on European debt and found themselves in too deep. The current thinking is that MF Global used client funds to shore up losing positions before going belly-up, a practice that is wholly criminal.

However, since nobody ever goes to trial or jail for financial follies in the US, regulators are being very tight-lipped about the matter, even though reputations have already been badly tarnished and over half a billion dollars is either unavailable or lost.

For the week, the Dow Jones Industrials took it on the chin to the tune of a 357-point decline. The S&P 500 fell 50 points during the week, the NASDAQ down 106 points and the NYSE Composite off by 294 points, hardly a ringing endorsement during a week that ended with options expiration, normally the forebear of a rally.

Maybe, with all the hurt, pain, fear and uncertainty, the big money went short.

Dow 11,796.16, +25.43 (0.22%)
NASDAQ 2,572.50, -15.49 (0.60%)
S&P 500 1,215.65, -0.48 (0.04%)
NYSE Composite 7,282.47, +8.32 (0.11%)
NASDAQ Volume 1,754,685,000
NYSE Volume 3,679,453,750
Combined NYSE & NASDAQ Advance - Decline: 3011-2563
Combined NYSE & NASDAQ New highs - New lows: 40-128
WTI crude oil: 97.41, -1.41
Gold: 1,725.10, +4.90
Silver: 32.42, +0.92

Euro Leads Stocks Lower, Then Higher; Income Disparity Hits Young Hardest

There are plenty of correlation trades that make plenty of sense, but perhaps the only one worth watching - from a macro perspective - is the Euro-Dollar trade because of its unique correlation to the US stock market.

Today was a prime example of how that trade controls markets, from weak hands to strong, from dead to money to risk-be-damned, full speed ahead.

As trading opened for the week, the Euro was under a great deal of stress, not only from the continuing crisis, but by way of the dual southern European national plight being waged in Greece and Italy, where both leaders - George Papandreou of Greece and Silvio Berlusconi of Italy - were rumored to be ready to step down at the drop of a falafel or calzone, so precarious their countries' dilemmas.

While Papandreou finally agreed today to step down from his post as Prime Minister in an effort for the country to form a unity government (whatever that may mean in a nation on the brink of dissolution), Berlusconi seems locked into a similar fate, given the debt issues facing his country. Bond yields have risen dramatically on Italy's benchmark 10-year bonds over recent weeks and the spread between the Italian 10-year and the 10-year German Bund hit 490 basis points today.

Also weighing on the Euro was the nearly failed auction of Euro 3 billion in bonds by the EFSF, the entity created to save European banks from catastrophe. The auction was lightly subscribed and only 2.5 billion of the bonds were sold - at a price 171 basis points over the Bund - the rest going back to the issuers at a hefty premium. The EFSF does not have enough heft to buy Italy's bonds, putting Berlusconi and his government in a very precarious position.

As the Euro sagged in the morning so did stocks in the US, as every hedge fund manager worth his or her salt is short the US dollar, a trade that provides cheap dollar liquidity to US markets but is also inherently ruinous to the long-term survivability of the world's reserve currency. As the day wore on in Europe and issues began to straighten themselves out, especially in the case of Greece, the Euro began to rise, taking the dollar down and US stocks up. Simple, Easy. A piece of cake.

The real problem with this trade - as it has been all along - is that the US is probably in better shape than Europe, which has been on the brink of a currency collapse for months, making the premise for being short the US dollar somewhat specious, or perhaps totally false, a straw man trade designed only to make the impression that all's well in the USA and keeping stocks trending higher.

Therein lies the fatal deceit of the short dollar trade. If somehow the Euro must be kept propped up - when it's true value is somewhere closer to parity with the dollar than the current 1.38:1 ratio of dollars to Euros - then the inevitability of the failure of the Euro as a currency, the EU as a common trading bloc and a massive decline in US stocks must occur. This is, without a doubt, how tightly intertwined markets now are, dangerously so, and the heads of most US banking, trading and political entities are well aware of this situation.

When the Euro blows, which it almost certainly will, US stocks will follow, and isn't that a nice, pleasant note upon which to start off your week? Of course, it gets worse. Because when stocks drop, what the middle class is going to do will make the continuing "Occupy" protests look like a kindergarten cookies and milk party. Nothing riles up a people than having their wealth pulled out from under them, and, while the bankers and politicians have thus far succeeded in keeping complete collapse a fringe argument, Europe's failings could quickly become an American nightmare.

It was revealed today just how badly broken the American system has become. Pew Research Center reported that the wealth disparity between young and old has reached its highest level ever, with "Households headed by a person 65 or older have a median net worth 47 times greater than households headed by a person under 35."

Unarguable as that fact may be, it exposes the soft underbelly of American life, wherein the elderly, otherwise known as collectors of entitlements, such as Social Security are prospering at the expense of the young, who must work hard and pay bills, debt and support their elder countrymen. It's as unfair a situation as the top 1% holding 40% of the nation's wealth, and perhaps worth fixing, with means testing, rather than turning our nation into an armed camp of elderly versus youth.

In between are the Baby Boomer generation, the first post-WWII generation to begin reaching retirement age. Some have saved, others not so much, but, as a whole, the largest segment - those born between 1950 and 1960 - are still years away from collecting a Social Security check. If one were to take a bet on just how much a person 55 to 60 years old today should expect as a monthly stipend at age 65 or 67, it would probably be wise to cut that number down by 25-45% from current expectations.

If one is inclined to believe the situation is tough right now, imagine another 50 million expecting to receive Social Security checks in coming years. The math simply does not add up unless those paying into the system are going to be taxed at 80% of their wages. It's just the truth, we're headed for even harder times ahead.

Dow 12,068.39, +85.15 (0.71%)
NASDAQ 2,695.25, +9.10 (0.34%)
S&P 500 1,261.12, +7.89 (0.63%)
NYSE Composite 7,590.43, +38.20 (0.51%)
NASDAQ Volume 1,735,945,625.00
NYSE Volume 3,629,465,250
Combined NYSE & NASDAQ Advance - Decline: 2773-2795
Combined NYSE & NASDAQ New highs - New lows: 88-64
WTI crude oil: 95.52, +1.26
Gold: 1,791.10, +35.00
Silver: 34.83, +0.74

Markets Rebound as Fed Stands Pat; Greece in a Bind over Bailout

Dow 11,836.04, +178.08 (1.53%)
NASDAQ 2,639.98, +33.02 (1.27%)
S&P 500 1,237.90, +19.62 (1.61%)
NYSE Compos 7,461.10, +123.96 (1.69%)
NASDAQ Volume 1,942,050,875
NYSE Volume 4,062,845,250
Combined NYSE & NASDAQ Advance - Decline: 4528-1072
Combined NYSE & NASDAQ New highs - New lows: 47-45
WTI crude oil: 92.51, +0.32
Gold: 1,729.60, +17.80
Silver: 33.94, +1.21

Recapping the days events in no-frills fashion:

German Chancellor Angela Merkel and French President Nicolas Sarkozy met with the IMF and Greece's Prime Minister George Papandreou to discuss the Greek leader's abrupt call for a national referendum on whether or not to accept the Euro bailout and associated austerity measures. According to early, unconfirmed reports, Papandreou would not budge on a plebesite early next year, pushing the EU leaders to issue a freeze on Greece's $8 billion in bailout funds, a move which could send the whole European debt crisis into a new, more dangerous phase as the Greek government will surely run out of cash prior to the proposed referendum.

The Federal Reserve chose to take no policy action on the federal funds rate, keeping the effective rate between 0.25% and zero. The Fed added some language to its statement, highlighting more positive tones as the US economy gathered steam in the 3rd quarter.

The ADP private payroll survey estimated that US employers added 110,000 private sector jobs in the month of October, after a revised 116,000 job gains in September.

Stocks ended a two-day losing streak, though the Fed's announcement and subsequent news conference didn't move markets much in either direction.

Volatility remains quite high, with the S&P Volatility Index (^VIX) ending the day at 32.74.

All interest will turn to employment over the next two days, as unemployment claims are announced Thursday morning and the BLS' non-farm payroll data come out on Friday, both releases timed for prior to the markets' opening bell. Continuing news from Europe is also likely to be at the top of investor interest.

Greece, Italy Send Stocks Overboard Again

Doings on the Continent have been keeping traders on their toes for months, but today's antics bordered on the bizarre.

First Greek Prime Minister George Papandreou called for a public referendum on the latest bailout plan, just approved days ago in late-night negotiations by European leaders. Making matters even more confused, Papandreaou scheduled the referendum for some time early next year, which would hold global markets hostage for months while the Greeks decide their own fate.

A "NO" vote on the austerity plans tied to Greece receiving more funds from the EU and IMF, would scuttle months of planning and negotiations and would likely result in Greece being tossed from the European Union. Such an outcome would surely roil markets terribly, though the mere thought of waiting two to three months for what almost certainly would be a negative result sent shock waves through European bourses and US exchanges today.

Reacting to the news, German Chancellor Angela Merkel and French President Nicolas Sarkozy planned emergency talks with leaders of the EU and the IMF, though it was not clear whether Mr. Papandreou would be invited.

And, if Greece's gambit wasn't enough to turn investors away, there's a confidence vote set for Friday, in which Papandreou's Socialist Party could lose control of the government, which it holds by only two seats in the parliament. The situation in the Mediterranean nation have moved from bad to worse to bizarre over the past few months.

In Italy, despite the agreements worked out last week, bond yields continued to spike higher, with the 10-year Italian bond reaching upwards of 6.22%, a more than 400-basis point difference over the stable German Bund. The bond spread blowout added to fears that Italy might be in more danger than previously thought - which, in itself was already severe - as the Italian government has to roll over nearly $2 trillion in bonds over the next year, a hefty sum.

Under the leadership - if one can call it such - of Prime Minister Silvio Berlusconi, Italy has failed to act on measures set down by the EU in August and leaders of two main banking and business associations have called on the prime minister to act swiftly or step aside. For his part, Berlusconi has made promises to act quickly, though many doubt he has the emotional or political will to implement the harsh austerity measures called for by other European leaders. As can-kicking goes, Berlusconi is world class, a foot-dragger with a penchant for putting off the obvious, though most of the other leaders in the EU have displayed similar inability to act courageously or quickly.

Also nagging US markets was the early-in-the-day report on ISM Manufacturing Index, which showed a marked decline, from 51.6 in September to 50.8 in October, another sign that the US economy was in danger of falling into another recession.

Stocks were pounded right from the opening bell, though a late day rally was attempted and then scuttled as news from Greece suggested more of a guessing game than any kind of deliberate policy action.

Speaking of policy, the Federal Reserve is locked in meetings on rate policy, which will be announced at 12:30 pm Wednesday, a deviation from the usual 2:15 pm time. The policy decision will be followed by a press conference with Fed Chairman Ben Bernanke. While it is virtually assured that the Fed will not change the federal funds rate from levels approaching zero, some are betting that another round of QE will be announced in some form, though the effectiveness of such an undertaking - already tried twice since the 2008 financial crisis, without effect - is very much in doubt.

Prior to that, ADP will release its private payroll data for October, which serves as a proxy for the "official" non-farm payroll data release by the Labor Dept. on Friday.

Not surprisingly, some of the biggest losers on the day were the large banks, such as Wells-Fargo (WFC), Bank of America (BAC), JP Morgan Chase (JPM), Citigroup (C) and Goldman Sachs (GS), the usual culprits now caught between a sagging economy, exposure to Europe and the unwinding of MF Global, which filed for bankruptcy protection on Monday.

The silver lining for consumers came from a two-day rally in the dollar - mainly against the Yen and Euro - sending commodity prices lower across the entire complex.

Dow 11,657.96, -297.05 (2.48%)
NASDAQ 2,606.96, -77.45 (2.89%)
S&P 500 1,218.28, -35.02 (2.79%)
NYSE Composite 7,338.48, -226.55 (2.99%)
NASDAQ Volume 2,314,571,500
NYSE Volume 5,656,978,000
Combined NYSE & NASDAQ Advance - Decline: 859-4813
Combined NYSE & NASDAQ New highs - New lows: 24-89 (flipped)
WTI crude oil: 92.19, -1.00
Gold: 1,711.80, -13.40
Silver: 32.73, -1.62

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

Stocks in Panic Mode; Bankruptcy Lines Forming: High-Low Indicator at Extreme; Social Fabric Shredding

The Markets

Stocks began the fourth quarter the same way they ended the third, with waves of selling on fears of a Greek default and recession in the US and Europe.

After an initial lift from fair economic data, especially the ISM index posting a 51.6 number after a 50.6 reading in August and August construction spending showing a 1.4% gain, US stocks drifted lower throughout the day, with the final onslaught taking the S&P 500 to a close of 1099.21, the first time the widely-watched index closed below 1100 since September 8, 2010 (1098.87) and well below the recent low of 1120.76 (August 10). The S&P now stands (or slouches, as the case may be) less than nine points from official bear market territory, which would commence at 1090.89. The S&P is down 12.6% for the year.

The other major indices are also closing in on bear market territory. Another day like today would send the NASDAQ down more than 20% from its April 29 highs. The Dow Jones Industrials are faring best of the bad lot, though still just 375 points from marking a bear market.

Losses began overnight in Asian markets and cascaded through Europe and into the Americas. Most European bourses have been in bear markets for more than a few months.

News flows from Europe were not encouraging as the 17 countries which are backing Greek bailout funds met again on Monday but failed to come to an agreement on the second tranche of aid to the failing EU member.

That sent stocks into negative territory for the remainder of the session, closing at the lows of the day on very heavy volume in a broad decline. All 12 sectors were lower on the day, led by capital goods, financials and energy. WTI crude oil closed at its lowest price in over a year, fueling speculation that lower gas prices are on the way as weather cools and demand falls.

Dow 10,655.30, -258.08 (2.36%)
NASDAQ 2,335.83, -79.57 (3.29%)
S&P 500 1,099.23, -32.19 (2.85%)
NYSE Compos 6,571.45, -220.20 (3.24%)
NASDAQ Volume 2,523,549,250
NYSE Volume 6,714,723,500
Combined NYSE & NASDAQ Advance - Decline: 772-5877
Combined NYSE & NASDAQ New highs - New lows: 19-1405
WTI crude oil: 77.61, -1.59
Gold: 1654.40, +29.60
Silver: 30.33, +0.36


After the bankruptcy filing of Swedish automaker Saab last month signaled the coming onrush of large corporate bankruptcies, three companies have been making news on that front.

Eastman Kodak (EK), which has hired the law firm of Jones Day to explore "reorganization" possibilities, rallied back strongly after Friday's stock collapse. The company's shares are at a bargain-basement level of 1.34, a 77% gain on the day. Reports that creditors and investors are speaking to advisors have surfaced as the company continues to burn through $600-700 million annually off their broken business model, negatively impacted by the advent of digital photography.

Shares of American Airlines (AMR) were halted today amid rumors of bankruptcy filing. The oldest US legacy carrier lost 33% today, closing at 1.98.

The banking sector continues to be rocked by the continuing mortgage morass, new regulations and now, computer glitches. Bank of America's website and online banking functions were unavailable to millions of customers for a long time over the past few days, frustrating and infuriating its customer base just days after announcing that debit card users would face a five-dollar-per-month fee beginning in January for the privilege of spending their own money. Shares of the nation's largest bank closed down 59 cents, at 5.53, the lowest price since the depths of the financial crisis, when the stock closed at 3.12 on March 6, 2009.

Along with the S&P 500 breaking below 1100, the number of new lows today was a screaming signal to "get out of Dodge" as quickly as possible. Those 1405 new lows are at a level not seen since autumn of 2008, when the entire financial system was on its knees and needed a $700 billion "fiX" courtesy of a deal ripped from US taxpayers by then-Treasury Secretary (thief) Hank Paulson and Fed Chairman Ben Bernanke. No other indicator has been as reliable or accurate in picking crashes than the New high - New low indicator. According to the indication that has been flashing for weeks, a major down-leg is about to commence, especially with the NYSE, Dow, NASDAQ and S&P 500 all closing below support levels during the recent two-month slide.

This is a potentially world-shattering situation that has been developing for not just the past two months, but over the past three years. Stocks could free-fall as financial institutions in Europe, Asia and in the US face severe liquidity and solvency issues and sovereigns are unable to save them this time, concerned, rightfully so, with their own continued existence. The level of public distrust has risen to unprecedented levels. Over 700 people were arrested in New York, trapped on the Brooklyn Bridge (see video below) by New York City police funded by JP Morgan Chase.

This is only the tip of the news iceberg the mainstream media doesn't want the US public to see, hear or read. Peaceful protests in Boston, New York, St. Louis and Kansas City have taken on new life, resulted in mass arrests and are a threat to the ruling elite.

The entire human population of the planet is teetering on the brink of mass rioting and localized anarchy.

Rally Fades After Euro Rift is Exposed; Prepare for Third Quarter Earnings Bloodbath

US markets for equities and commodities have been held captive for the better part of the past three years - by high frequency traders, insiders with more knowledge (and money) than the general public, uninterrupted meddling by the PPT or other quasi-government agencies, but mostly, for the past nine to twelve months, by news from the Euro-zone.

It seems like every day there is a different story coming out of Europe concerning the debts of various nations and how the ECB, EIB, EFSF or any of a multitude of alphabet-soup acronyms react and intend to dispose of or attempt to solve the problem of the day. Today was no different as a late-session story from the Financial Times killed off a perfectly good short-covering, end of month window dressing rally inspired by absolutely nothing.

Stocks had been rolling along after a massive gap-up at the open, with the Dow ahead by as many as 325 points, but everything did an abrupt about-face when news erupted from Europe around 3:00 pm EDT over a rift between the nations aligned to bail out Greece - again.

According to the Wall Street Journal's story:

Stocks pared gains in the final trading hour after the Financial Times reported a split has opened in the eurozone over the terms of Greece's second bailout package. As many as seven of the bloc's 17 members are arguing for private creditors to swallow a bigger writedown on their Greek bond holdings, the FT said, citing senior European officials.

That was enough to finish off all the naked enthusiasm for the day and send stocks reeling into reverse. Though the averages finished the day with healthy gains, the froth at the top - and middle - were blown off by one story concerning something everybody already knows is a financial disaster, the continuing struggle over whether Greece should be allowed to fail or, by keeping it afloat, potentially take down the entire EU and maybe the rest of the global economy with it. The central banking powers and politicians around the globe are about at wit's end over the crisis in Europe, and are seemingly capable of saying or doing just about anything to stave off the eventual collapse of the Euro as a viable currency.

Sadly, for them and for the rest of us, eventualities do occur despite the best efforts of bright people to change the course of reality. It's so obvious to everyone now that Greece has to go, and soon, and they will take down untold numbers of European-based banks and spread the default contagion far and wide. Welcome to the 2008 redux.

For those who make a living trading, this environment is conducive to massive profits if one is nimble, smart and engaged, though at the end of the day all the swaps, hedges and protection aren't going to matter one whit when the financial tsunami crests upon first Greece's pristine shores and continues along the Mediterranean to Italy, Spain and Portugal. Once it races through the Straits of Gibraltar, all nations will be at risk, though the most isolated may be the best-insured. Countries out of the way, like Russia, India, Indonesia and Canada, may be spared the brunt of the blows, though general commerce will be affected globally.

It's coming. Everybody knows it. Most are in denial. That's how we get miracle rallies out of the blue and smashing declines on real news.

What to watch for are waves of large bankruptcies, like that of Saab, recently, sure to be followed by smaller suppliers and next by maybe a Chrysler or General Motors, which has traded below its IPO price for a solid six months after being bailout out by the US taxpayer. Nobody is buying new cars, and they're especially steering clear of GM (aka Government Motors) models. We are in the final stages of financial collapse, the first wave coming in 2008 and truncated by massive capital injections by the Federal Reserve, other central banks and governments from Paris to Beijing.

The financial paradigm of debt-issued money being created out of thin air, fractional reserve banking and crony capitalism has been broken and will soon find itself in complete and utter chaos. Events such as today's turnaround on Wall Street serve as apt reminders that the system is broken beyond human repair. It will take an act of God or an invasion from outer space to fix the mess and neither of those potentialities are on the horizon.

Adding insult to injury, analyst Meredith Whitney cut her third quarter earnings estimates on Goldman Sachs and Morgan Stanley late in the day. Whitney, a highly-respected banking analyst, cut Goldman Sachs (GS) from 3.39 per share to a mere 31 cents, a 90% haircut. Morgan Stanley (MS) was cut from 53 cents to 28, so it would be best to be prepared for a third quarter earnings bloodbath, not only for banking stocks, but for a host of other well-known names. Results from the previous quarter and year-ago will be hard to match for many firms, with the 4th quarter looking even more devilish.

Dow 11,190.69, +146.83 (1.33%)
NASDAQ 2,546.83, +30.14 (1.20%)
S&P 500 1,175.38, +12.43 (1.07%)
NYSE Composite 7,043.12, +102.31 (1.47%)
NASDAQ Volume 2,109,385,500
NYSE Volume 5,515,045,000
Combined NYSE & NASDAQ Advance - Decline: 5195-1451
Combined NYSE & NASDAQ New highs - New lows: 37-102
WTI crude oil: 84.45, +4.21
Gold: 1,652.50, +57.70
Silver: 31.54, +1.56

Market Crash Alert... Oops, Too Late, Dow Drops 391 Points

Editor's note: Switching over to first person singular tense for today, as it seems to work when I'm happy and the market is not. Some may be confused as to why I'd be happy over a market crash. That will be explained below.

The Markets

Today was another one of those doozies that come along... well, about once a week these days and I really wanted to issue a crash alert yesterday after the close, but didn't, even though I was alarmed over the number of new lows in relation to new highs. Anybody who reads this blog on a semi-regular basis (that's you, Dan K.) would know that the new lows - new highs is my favorite - and highly reliable - sentiment and direction indicator and it was flashing red at the end of the day on Wednesday.

Sure enough, Thursday turned into an all-out rout for equities on significantly higher volume, to say nothing of what happened to gold and silver (well, you can't have everything). Asian markets started the ball rolling downhill, with losses between 2 and 4%, then Europe kicked in with average losses of about 4.5% on the various exchanges.. The US declines were tempered by the usual late-day rally, in this case taking the Dow up about 130 points off the lows of the day, set at about 3:20 pm EDT.

The catalysts for the sell-off were various, but by no means, exclusive. Most market commentaries are blaming the Fed for their squeamish "Operation Twist" maneuver, which, upon further inspection, is a worse program than originally thought when we noticed this statement from yesterday's FOMC release:

To help support conditions in mortgage markets, the Committee will now reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities.

The Fed is becoming the buyer of last resort for toxic and other MBS, the Wall Street concoctions which started the whole financial contagion back in 2007. We wish them well with their purchases, especially since housing is about to embark on another 10-15% price decline over the next year to two years. The conditions for residential real estate have not changed much materially in three years, and, despite some cheerleading headlines, prices continue to slide and will until the entire mess is wiped from the books of our favorite zombie banks, which, if the Fed and the banks have their ways, will be never.

The more telling stories came out of China and Europe. China's PMI (Purchasing Managers Index) for the month was 49.4, down from 49.9 in August. In Europe, the PMI dropped to its weakest level since July 2009 with a reading of 50.8. Anything under 50 indicates contraction, so the Chinese are already moderately contracting (read: recession), while Europe is right on the cusp. Their PMI's are at levels very similar to those in the US.

Speaking of the banks, the biggest of them, the TBTF types, took more body blows on the day. Our personal favorite, Bank of America (BAC) sold down to 6.04 at the close, making Warren Buffett's $5 billion investment look pretty stupid, along with the warrants to buy to up 750,000 shares for $7.14. Mr. Buffett used to be one of the wisest investors of all time, but after investing $5 billion in Goldman Sachs - also with similar underwater warrants - and now BAC, he seems to have lost the Midas touch. Of course, Mr. Buffett normally makes better investments than the ones he has been forced into by President Obama.

So, stocks are down big again, and closing in on bear market territory, and the future looks pretty grim. Those of you still putting your money into a retirement fund or IRA, having not heeded my advice from August of 2007 (you can check) when I advised to cash out, take the penalty hit and move on, are probably looking at a 20% loss over the past two months. That is more than the usual early withdrawal penalty, so, sure, you made some dough in 2009 and 2010, but you're about to be giving it back now.

There seems to be little left for stocks to do but go down, so long as the following conditions exist (see if you can find a positive catalyst in this list):

• US banks have been recapitalized since the collapse of 2008, but are still not lending and still are holding scads of bad loans both on and off their books, plus some have significant exposure to Europe - notably Morgan Stanley (MS) which is set to implode on the first whiff of a Greek default.
• Unemployment is officially at 9.2% and heading higher, though the real number is somewhere North of 17% and there doesn't seem to be much of a rush in Congress to pass comprehensive tax reform or jobs program.
• Congress, the President and the leaders of most of the nations of the world are blithering idiots, a fact made worse by the level of inbreeding among the elite class of society.
• Foreclosures are on the rise again, and the glut of homes on the market remains at or near record high levels.
• There is oversupply in just about everything, from gas and oil to houses to computers to automobiles. Prices are being or will be forced down in nearly every consumer class.
• Banks are still reluctant to lend to anyone except the biggest and most secure individuals and companies, leaving little room for start-ups and small businesses, the real drivers of job growth.
• Europe has more problems than one can imagine. The Germans are upset over having to guarantee such a large portion of the Greek bailout, now on its second time to the trough, with Italy, Spain and Portugal waiting in the wings.
• The federal government will continue to run deficits of over a trillion dollars per year for at least two more years.
• State and local governments are just now catching up to the private sector, laying off thousands of employees a month.
• The US poverty rate is at an all time high.
• The number of people receiving food stamps is at an all time high and still rising.
• Did I mention the people in congress and the president are nitwits?

All of this sounds pretty gloomy, like a coming recession and a deflationary depression on the front burner, but there is hope, and that hope explains why I cheer when stocks look like they're about to crash (when they actually do crash, I really start to party!). The reason for this is pretty obvious from my perspective. I've been pretty much out of stocks since August of 2007, and completely out since the fall of 2009. There's too much risk involved for my simple tastes.

I'm also an independent businessman who fights red tape and higher prices constantly in order to keep the doors open. It's a struggle, but, as I say, it beats working for a living.

When the deflation and depression become full-blown, there's a very real possibility that the banksters and politicians will be eating each other's lunches, and I suspect there is some of that going on already. The public backlash against the kleptocracy of fractional reserve banking and ridiculous levels of taxation (like the 15% Social Security tax ponzi scheme) will be ferocious and many of the people in power will be knocked from their perches.

In a deflationary environment, cash and specialized skills will become more valuable. So too, gold and silver, we hope. Oil will - must - go lower, and along with it, gas, meaning more money in everyone's pocket to spend on other things than just basic transportation. Prices and wages will return to more manageable levels and business will eventually boom. It's all relative. If you're making $50,000 a year and you get cut down to $30,000, if prices have declined by 40% in general, it's a wash.

So, yes, I firmly believe that bank failures and a stock market crash will eventually result in a stronger, better-balanced economy, after a lot of pain and suffering, of course, but nothing good has ever come from anything earned without commensurate sacrifice.

(Oh, and I almost forgot, minus signs are easier to type than plus signs - no shift key required.)

Dow 10,733.83, -391.01 (3.51%)
NASDAQ 2,455.67, -82.52 (3.25%)
S&P 500 1,129.56, -37.20 (3.19%)
NYSE Composite 6,726.62, -254.71 (3.65%)
NASDAQ Volume 2,928,526,750
NYSE Volume 7,893,035,000
Combined NYSE & NASDAQ Advance - Decline: 928-5812
Combined NYSE & NASDAQ New highs - New Lows: 10-1385 (yes, you're reading that right)
WTI crude oil: 80.51, -5.41 (yippie!)
Gold: 1737.70, -45.20
Silver: 35.85, -3.84 (buying opportunity)

Quick note on silver. I believe it will go lower, possibly materially lower, as no true support for anything exists in a deflationary environment, of which we are clearly entering. Silver could crash all the way back to the mid-20s, depending on the severity of the overall global crash, so I would advise scaling in at this bargain point, and using dollar cost averaging to keep your basis reasonable. Eventually, silver should top out at well over $100, possibly even more, especially of much of the world finds the wisdom to return to real money.

The Rise and Fall of US Stocks All in One Day; Making a Budget and Sticking to It

The Markets

Stocks did an about-face midday on Tuesday, shaving away all of the morning gains as the afternoon wore on and word from Europe was mixed. The Dow Jones Industrials and S&P 500 each made a run at the lower end of their 50-day moving averages, hit resistance and failed, badly.

All of the averages made suspicious-looking early moves between 10 and 11 am EDT, hovered near the highs, made new highs around 2:00 pm and then fell remarkably into the close, with not even a hint of a closing bounce.

From a technical point of view, meeting resistance at the 50-day MA makes perfect sense and the indices will likely take another run at it in coming days, though it seems a hurdle too high to surpass, considering all of the significant headwinds facing companies (lowered earnings forecasts) and nations, especially those in the Eurozone - Greece, Italy, Portugal, Ireland - to say nothing about the current poor economic conditions in the USA.

Stocks have been mired in a basically directionless trading range for the better part of two months and that's making people even more nervous and keeping significant amounts of money out of stocks and into treasuries, corporate paper, cash and equivalents, gold and other tangible assets. The fear surrounding a default by Greece and the associated fallout to other European countries and banks has the market in a condition of near paralysis.

Until the sovereign debt issues are resolved one way or another, stocks will be unlikely to advance as investors are simply too afraid to stake out new, large positions.

On the data front, housing starts fell to a three-month low, from 601,000 annualized in July to 571,000 in August. With such a glut of cheap foreclosures and bank REO property on the market, in addition to the nearly 300,000 residential homes held by Fannie Mae, hope for a recovery by the end of this year are fading fast. With the onset of colder weather and the usual seasonal downturn, one could easily suggest that housing will dive even lower or bounce around the bottom until Spring of 2012 at the earliest. Of course, such numbers didn't faze Wall Street in the least. Optimists pointed out that building permits rose from 601K in July to 620K in August, though it's only a 3% move, barely more than a rounding error.

So, with Europe still a basket case and the US close behind, the markets are stuck in neutral, awaiting some kind of announcement from the FOMC, which began a two-day meeting today with a rate announcement due out tomorrow around 2:15 pm. The wording of the FOMC statement is unlikely to change dramatically, though many on the street believe the Fed will either outline some new policy such as "operation twist" in which they purchase longer-dated securities in order to drive long rates lower, or announce another round of quantitative easing, which would be dubbed QE3, though that concept, having already failed to goose the economy twice in the past two years, is unlikely to gather much traction within the Fed circle.

All should be expecting something from the Fed, even though many believe that they have exhausted nearly all of their policy tools.

Dow 11,408.66, +7.65 (0.07%)
NASDAQ 2,590.24, -22.59 (0.86%)
S&P 500 1,202.09, -2.00 (0.17%)
NYSE Composite 7,217.11, -17.52 (0.24%)
NASDAQ Volume 1,942,335,500
NYSE Volume 4,250,461,500
Combined NYSE & NASDAQ Advance - Decline: 2261-4207
Combined NYSE & NASDAQ New highs - New lows: 85-189
WTI crude oil: 86.89, +1.19
Gold: 1804.80, +26.30
Silver: 39.74, +0.09

Idea: Making and Sticking to a Budget

We've all heard forever that making a budget for household and/or business expenses and income is a smart and necessary step toward financial freedom and fiscal responsibility, but, taking our lead from Washington, few people seem able to keep the process honest or reach desired outcomes. Our federal government is probably the worst example of budgeting known to man, as the process is riddled with partisan politics, fudged calculations, unrealistic expectations and projections and extraneous falderol like earmarks, off-balance sheet expenditures and unfunded liabilities like Social Security and Medicare.

Household budgets are a bit simpler to make though not quite as difficult to keep. The best approach is to go for a monthly outlook, as most of us have recurring expenses that serve as a baseline. Things like utility bills, phone and cable bills, car payments, mortgage payments (though some of us have eliminated those recently) and credit card expenses come due at some time or another during the month and have to be paid in a reasonably timely manner.

After that, items such as food, clothing, entertainment, (liquor and cigarettes if so inclined) and other variable expenses should be calculated out on a monthly basis as best as possible. That way, one can readily see where overspending or potential savings might occur. The regular bills, known in the business world as "fixed expenses" aren't going to change much, if at all, month to month, and one will find that over time, even variable expenses don't bounce around very much.

Once one has all the monthly expenses lined up, then it's time to match it against income (if one still has any) and see how it balances out. If you are one of the lucky few who have an extra $5,000-$2,000,000 on the income side of the ledger, you can stop reading right here. You don't need a budget; you need a financial advisor or a beach house.

If, however, you're like most people, you'll see where all that money goes, and when you stop crying, you might find a little bit left over. Anything more than 10-20% above your monthly regular expenses would be a great sign. If you find yourself a few hundred dollars short each month, then there's work to do.

Where most people get into trouble is in making exceptions, overspending (usually caused by not thinking and acting on emotion), and bogus projections, like "I'll get a raise soon," or the classic fail, "when I start receiving Social Security checks..." as wishful thinking almost never returns positive results.

Another trap is not counting the little things that add up to big headaches without one noticing. Things like that morning latte - and doughnut, bagel, croissant or McDonald's McBiscuit - the extra tip for the heavenly lunch waitress or waiter, tolls, parking fees, snacks, bottled water, the occasional needed home item, more expensive gas than calculated, all contribute to budget busting in all but the most frugal environments.

There are remedies for those items, such as keeping receipts for everything or a log book exclusively for "little" expenses, but the best way is to take your monthly expense total and add 10% to it, calling it the miscellaneous expense column. If you're judicious and cautious, you'll find yourself spending less than that 10%, but it's doubtful it will add up to very much. The key concept is that every dime and dollar counts, even those $200 binge nights out with the guys or gals.

In the end, we'd all like to earn more and save more, the goal eventually being filthy rich and not having to worry about money any more. Since that's an unlikely event for the vast majority, taking a little time each month to review and preview income and expenses gives one a clearer outlook on where one's been, where one's money is going and what can be done about it.

There are an assortment of online tools and sites which can provide some assistance. Here's a good place to start, with brief reviews of some of the best budgeting websites.

Stocks Down on Greece, Bank Issues

The Markets

There were just two simple reasons for stocks to start out the week as miserably as they did: banks and Greece.

Naturally, there's more to it than just that, though those two catalysts have been driving the markets - in one direction or the other - for about the past year-and-a-half. There was also the concept, disclosed here on Friday, that last week's five-day rally was based upon pure nothingness, much like our fiat American currency. Coming at the end of options expiration, the market action for the week was completely suspect, and today market participants were treated to the big winners squaring their books.

But fears of a Greek default (it will happen. It must, because Greece is broke.) and its effects on the banking community worldwide clearly pushed Eurpean stocks lower and so too with US indices. The Dow dove more than 250 points in the early going, taking the rest of the market down with it. Of course, there was the obligatory, short-covering, melt-up rally at 3:00 pm, which cut the day's losses roughly in half, but today will look like a picnic compared to what's on the event horizon in the not-so-distant future.

That's really it. There was no real substantive news of any kind, outside of President Obama droning on about taxing the rich in a morning speech. The markets continue to experience great stress, but if the banks in this country are feeling the pain, all one can say is that it couldn't happen to a more-deserving group.

In news you won't see covered in any depth by the mainstream media, Ron Paul took the California Republican Party straw poll by a landslide, winning 44.9% of the vote, and seven are arrested during third day of Wall Street protests.

The latter story was reported by Bloomberg, and, as much as we like the company founded by the current New York mayor, they're still a bit outside the establishment mainstream of the large TV network apparatus.

Dow 11,401.01, -108.08 (0.94%)
NASDAQ 2,612.83, -9.48 (0.36%)
S&P 500 1,204.09, -11.92 (0.98%)
NYSE Composite 7,234.63, -113.55 (1.55%)
NASDAQ Volume 1,900,534,375
NYSE Volume 4,224,766,500
Combined NYSE & NASDAQ Advance - Decline: 1497-5053
Combined NYSE & NASDAQ New highs - New lows: 47-185
WTI crude oil: 85.70, -2.26
Gold: 1778.50, -34.00
Silver: 39.65, -1.01

Greece Will Not Default... This Week, Maybe Next

The Markets

All you need to know about today's "out of the blue" rally.

According to a Bloomberg report:

"Greece is an integral part of the euro area and recent decisions to meet budget targets will help shield the economy," the Greek government said in a statement today following a call between Greek Prime Minister George Papandreou, German Chancellor Angela Merkel and French President Nicolas Sarkozy.

...and with that, it was off to the races for the algo-spitting machines which double for a perfectly-functioning market.

Seriously, there was nothing other than that, oh, well, both PPI and retail sales figures were unchanged from the prior month, so nothing to see, there, really, move along. Something (not sure what) spooked the machines at about 3:30, just after the major indices hit their highs of the day and were careening toward an even bigger ramp up, but whatever it was, it took 140 points off the Dow and made today's extraordinary rally look... ordinary.

So, if reading the Wall Street tea leaves correctly, all that has to happen is for Greece not to default and we'll see Dow 20,000 in a matter of months. That appears to be the general herd mentality.

Just for a reference point, take a look at how far below the April highs the S&P, NASDAQ and Dow are and then rethink that strategy of buying everything that has momentum, like Netflix or Apple or maybe LuluLemon. Here's a hint: the Dow closed at 12810.54 on April 29, the high for the year, and, since we're checking, the close on Decembre 31, 2010 was 11557.51, so we're down for the year and about 1500 points off the high.

So, when Greece does default - because they surely will at some point - whether it be orderly or not, what will stocks be worth then?

Dow 11,246.73, +140.88 (1.27%)
NASDAQ 2,572.55, +40.40 (1.60%)
S&P 500 1,188.68, +15.81 (1.35%)
NYSE Composite 7,199.12, +89.17 (1.25%)
NASDAQ Volume 2,300,166,500
NYSE Volume 4,961,128,500
Combined NYSE & NASDAQ Advance - Decline: 4804-1800
Combined NYSE & NASDAQ New highs - New lows: 52-110
WTI crude oil futures: 88.91, -1.30
Gold: 1819.70, -14.50
Silver: 40.69, -0.44

BUMMER: The Plunge Protection Team Is Back in Action!

The Markets

Let's face it. US equity and commodity markets are completely, irretrievably, unconscionably manipulated beyond any basic sense of fairness.

On the morning of the first trading day of the week, US equity scalpers were met with futures that forecast a dismal Monday. Every index in every foreign country was lower on the day. In Asia, the Hang Seng led the way with a loss of greater than 4%. European bourses, shattered for the better part of the past three months, were all lower, the French CAC-40 taking over from the German DAX in leading the way to oblivion with a 4% decline.

But here in America, we have advantages. We have Ben Bernanke, the brilliant, often uninspiring and always shaking Chairman of the Federal Reserve. We have Timothy Geithner, the diminutive (matching his brain power) Treasury Secretary who keeps a watchful eye over the nation's exploding debt.

And we have printing presses (actually, they've been replaced by computers) spitting out US dollars faster than a 9th Avenue hobo picks up pennies thrown his way.

More than anything else, however, we have the fabled Plunge Protection Team (PPT), aka the President's Working Group on Financial Markets created by President Reagan in the aftermath of the LTCM blowup in 1987.

According to Executive Order 12631, the "Working Group" was established explicitly in response to events in the financial markets surrounding October 19, 1987 ("Black Monday") to give recommendations for legislative and private sector solutions for "enhancing the integrity, efficiency, orderliness, and competitiveness of [United States] financial markets and maintaining investor confidence.

In other words, when the markets are crashing, the Working Group, or PPT, springs, like trained attack Dobermans, into action to rescue witless investors from parting with their increasingly worthless cash.

Today, the PPT got busy early on. Stocks were hammered at the open, in response to the rest of the world in a near panic over Greece potentially defaulting and European credit market spreads blowing out all over the place. Stocks were down huge in the opening minutes of trading, as an extension of Friday's selloff and the continuing global debt implosion. The fact that Greece will eventually default on a large portion of their debt and ungraciously remove itself from the Euro standard (back to the Drachma) is unimportant to the functioning of the PPT. They buy futures. They buy stocks. They buy whatever is falling fastest, which on Monday, was just about anything that had a ticker symbol.

The PPT doesn't always prompt rallies. Their normal function is to keep US indices from falling too far, too fast, like today, like about six times in the past three weeks, like about a thousand times since the dotcom crash of 2000. And today was no different. They kept he markets in a sane neighborhood, down somewhere between a half and one per cent, until, that is, all the lights turned green.

Around 2:30, the Financial Times, another overstuffed relic from the days of ink and newsprint, ran a story that China was interested in buying Italian bonds, many of which will go up for bid this week as the Italian government seeks to finance its long-standing tradition of turning investor dough into pasta salad, along with assorted mafia side dishes and Berlusconi desserts.

Since noodles are noodles, whether they're doused in marinara or lobster sauce, the nitwits on CNBC were led to believe that this was a great idea, and the markets turned from merely moribund to miraculously magnificent in the final hour-and-a-half of trading. The US wins again. All of the US indices ended the day in positive territory.

Now, some may cheer that the US government has investor's backs, but the stark reality is that the PPT is all that's left between regular day-to-day life and a most serious, full-blown market crash of stupefying proportions. The global economy is on its knees due to too much debt, too many goods and too many currencies trying vainly to devalue themselves. The entire affair is deflationary in the most absolute sense as goods and services become more and more worthless, while the relative value of the currencies which buy such goods plummets into an phalanx of money-crunching debt.

Ah, for the good old days of really free, open markets, like back in the sixties and seventies, when a stock could be worthwhile returning a reasonable four to five per cent dividend along with annualized growth of 15-20%. A quarter point here, a half point there. We were all invested and looking forward to a safe, sensible and sane retirement.

Nostalgia. It's what one gets when one sees the fruits of labor lavished on the already rich.

And by the way, the day should not pass without acknowledging that Jaime Dimon, CEO of JP Morgan Chase, thinks the Basel 3 rules requiring the largest banks, such as his, to hold 9.5% of tier one capital, are "un-American." Right. FU, Jaime. Is JPM the next bank to start selling off assets? Probably should, but probably won't. Hey, the world is an imperfect place, suitable for misfit rich kids like Jaime.

Dow 11,061.12, +68.99 (0.63%)
NASDAQ 2,495.09, +27.10 (1.10%)
S&P 500 1,162.27, +8.04 (0.70%)
NYSE Composite 7,047.12, +2.11 (0.03%)
NASDAQ Volume 1,994,098,375
NYSE Volume 5,034,112,500
Combined NYSE & NASDAQ Advance - Decline: 3178-3364
Combined NYSE & NASDAQ New highs - new lows: 19-514
WTI crude oil futures: 88.19, +0.95
Gold: 1815.80, -42.80
Silver: 40.29, -1.09

Astute readers will understand what it means when all the major indices are up, but the A-D line is negative and especially when the new highs - new lows are tilted so heavily in favor of the lows. For those who still need guidance, it's a con, a complete, total, 100% sham. That oil futures are up while gold and silver suffer heavy losses really cinches it.

Idea: Fresh out, though working hard on "Making a budget and sticking to it," and "Saving 10% of your income." More tomorrow.

Obama Speech a Big Flop; Greece May Default Over Weekend

The Markets

The rhetoric in President Obama's address to a joint session of congress last night was so far over the top with his screeching, "Pass this jobs bill" over and over ad nauseam that the conclusion is that congress, though they may like some of it, will do everything in its power to delay, disrupt, debate and defeat Obama's American Jobs Act (AJA), and this time they would be doing everyone a favor.

Here's a Daily Kos blogger who lavishes on the praise for Obama's oratorial skill a bit too heavily (for our tastes), but basically has most of the details right.

Here's NPR's take:


The very last thing we need in this country is a bill wrapped in the flag (lest we forget the president advising congressional Republicans to put "country over party") which delivers little more than promises of tax credits to small business, but spends billions on teachers ($35 billion to be exact), repairing schools (the bulk of the $100 billion in infrastructure spending) and cuts the payroll tax contributions for both individuals and small businesses.

If this jobs bill is passed in any form, it's effect on unemployment will be minimal because businesses hire when they need work done, as in servicing more customers, and that just isn't happening in many small, medium and large American businesses. Consumers have been cutting back, and business cuts back to accommodate the slackening demand for their goods and/or services. Nobody hires because the government offers an incentive to do so, except those wishing to game the system, and there are plenty of those around.

No, the congress should delay and defeat any bill which proposes to spend more money we don't have. The first Obama stimulus - a much larger package - has already proven to be a failure, and this bill comes a number of months late and many dollars - and ideas - short.

The reaction from the markets on Friday was a collective sigh and a return to the "sell" button.

Obama's public bust was not the only item that rattled traders over the final session of the week. European markets were hammered down again, and that sent the dollar soaring against the Euro, which meant that the carry trade of shorting the dollar and buying stocks has gone up in smoke and the machines don't have an algo for that.

Persistent rumors that Greece was about to default, possibly over the weekend, sent European bourses down in droves and sent the US Treasury 10-year note to a record low yield of 1.92%. Also roiling markets was the abrupt resignation of ECB chief economist Juergen Stark, apparently over the continued buying of bonds by the ECB.

The combination of the European crisis escalating again and the failure of the president to offer any convincing plan to combat unemployment sent stocks back to levels not seen in nearly three weeks with the Dow closing below 11,000 for the first time since August 22nd.

The S&P 500 broke through several support levels and is only 31 points away from its August 8 closing low of 1119. The NASDAQ fared better, though not by much, finishing 126 points above its August 19 closing low of 2341.84.

If the rumors about Greece prove true, monday's markets could prove a bloodbath of monstrous proportions, but, even if the Greeks decide to play along, the European financial crisis won't simply fade away, nor will the sluggish environment in which the United States is currently embrolied.

Dow 10,992.13, -303.68 (2.69%)
NASDAQ 2,467.99, -61.15 (2.42%)
S&P 500 1,154.23, -31.67 (2.67%)
NYSE Composite 7,045.01, -212.35 (2.93%)
NASDAQ Volume 2,066,526,125
NYSE Volume 5,467,812,500
Combined NYSE & NASDAQ Advance - Decline: 1083-5459
Combined NYSE & NASDAQ New highs - New lows: 22-353
WTI crude oil futures: 87.24, -1.81
Gold: 1859.00, -10.60
Silver: 41.60, -0.74

The woes of Bank of America continue. They and other banks tied up in the robo-signing scandal may still face extensive civil and criminal charges after the 50-state Attorneys General reaches a "global solution" which has been rumored to be about $20 billion. New York AG Eric Schneiderman has been pursuing Bank of America through his own offices and is not participating in the investigation by the other 49 state AGs. Schneiderman is pushing to claim that BofA and others fraudulently transferred securities to investors, pledging the same notes to more than one group. His investigation continues.

Of all the bright guys out there who cover finance, bank analyst Chris Whalen, the founder and managing director of Institutional Risk Analytics, is among the very brightest of all, so when he says Bank of America (BAC) should file for bankruptcy, maybe CEO Brian Moynihan and others should listen. See Whalen make his case in the video below.

The Beginning of a Bear Market

Today was yet another example of the wickedness of having computer algorithms doing what humans used to do. The momentum play was on the upside after German court ruled that Germany's participation in the bailout of Greece and other cash-strapped European nations was constitutional, meaning, for the investing class, that the party of low interest rates, cheap money and free spending without responsibility would continue on the continent without interruption from annoying laws or moral hazard.

The rest of the day-long rally in equities was the work of machines, following the momentum flow of the day.

But what do these sharp rallies really mean? Are they signs of health in US equity markets and the global economy or are they false flag events designed only to be sold off minutes, hours or days later as a bear market commences?

The answer to those questions probably lies somewhere in the recent charts of the major indices, which all show the same pattern of a sharp drop-off at the end of July, followed by a series of volatile rallies and sell-offs, leaving the indices well below their 50 and 200-day moving averages (which have all already crossed over). The high bar for markets is to get back to those July levels, which seem like distant specs on the horizon from where the market now resides.

These high water marks are roughly 12750 for the Dow, 2875 for the NASDAQ, 1350 for the S&P and 8490 for the NYSE Composite. Just take a look below to see just how far stocks would have to rally to regain those levels and your thinking about whether or not this is a good time to invest in stocks might be changed radically because if they don't get there, technicians will call this environment a sustained correction - that is until the indices fall to 20% below their highs made back at the end of April, which would then confirm a bear market.

European indices are already in bear market territory, and the sharp rallies over there are nothing more than short-covering or knee-jerk rallies that belie the true nature of the environment, which has most of Europe falling into recession in the next quarter. If Europe goes, the US will not be far behind, and some say we're already there.

So, what will it be in the coming months? Recession and a bear market (and one which could be particularly brutal) or a sustained recovery, upon which the middle class of America has been waiting nearly three years? Choose wisely.

Bear in mind that today's rally, like so many before it, was punctuated by embarrassingly low volume.

Dow 11,414.86, +275.56 (2.47%)
NASDAQ 2,548.94, +75.11 (3.04%)
S&P 500 1,198.62, +33.38 (2.86%)
NYSE Composite 7,355.17, +207.04 (2.90%)
NASDAQ Volume 1,755,357,500
NYSE Volume 4,312,856,500
Combined NYSE & NASDAQ Advance - Decline: 5655-944
Combined NYSE & NASDAQ New highs - New lows: 35-46
WTI crude oil futures: 89.33, +3.31
Gold: 1817.00, -56.60
Silver: 41.64, -0.32


Idea: Buy Gold and Silver on eBay

Unless you've been living under a rock for the past decade, you know how gold and silver have outperformed stocks and bonds and just about all other asset classes (maybe all of them), but if you are reluctant to purchase some for your own portfolio, you might take a look at eBay's offerings and do a little bit of research into why gold and silver will continue to rise as fiat currencies devalue.

One fine site n which to do some research about pre-1965 silver coins is Coinflation.com, which offers a nice selection of metals-related news and some great charts and tools to determine present and future value of mostly 90% silver coins, which just happened to be the standard way back when the US was a net exporter and a strong, growing nation.

After 1964, coinage was dramatically changed, with the percentage of silver in dimes, quarters, halves and silver dollars substantially reduced. Once you check out the values, head over to ebay and buy a few Morgans or Walking Liberties or Washington Quarters. Prices are fair and right around spot, including shipping and the sellers are 99.99% honest and fair dealers.