European Mess Smashes Stocks; How Treasury Secretary Hank Paulson Screwed America

Yesterday in this space, an ancient Wall Street adage was invoked: "Never short a dull market."

We fairly dismissed the idea that, since the US market was basically on hold until the Europeans meet, greet and decide the economic fate of the continent, US stocks would wallow in hopeless delusion, because the Europeans, somewhat like our very own beloved congress, seem incapable of walking and chewing gum at the same time.

Most of them could not get arrested at a bong party, either, but the various inabilities of the ruling elite are not a primary concern. What they're doing to your money, your economic present and future, are.

And they're making a god-awful mess of it.

Just before US markets opened, the ECB announced a rate cut of 25 basis points (0.25%) to one percent, which was annoying to the majority of traders, who, as always, wanted more. A 50 bip reduction would have satiated their appetite for freer money for the while, but the ECB also announced that they would be extending loans of up to 36 months (that's three years for the mathematically-inept) to banks on the continent.

That was met with some enthusiasm, but within minutes, newly-appointed ECB president Mario Draghi dashed hopes at the press conference, claiming that the rate cut vote was not unanimous, signaling a lack of conviction on the part of ECB participants.

Stocks plummeted at the open in the US and only partially recovered late in the day as news leaks from the EU summit meeting beginning tomorrow indicated that a fiscal pact would be pursued by EU member nations, but even that news was short-lived as the major indices closed near the lows of the day.

Europe has become the focal point of global equity and commodity trading as it grapples with the potential for debt contagion among sovereign states and bank failures across the European Union. While difficulties in Europe may not directly affect the economy of the United States and other countries, it will have a pass-through effect, as pain anywhere in the global financial system is felt - to varying degrees - everywhere else.

Hope is now high that the crisis summit - a macabre circus in its own right - will produce some lasting, positive resolution, but the more one looks at the condition of Europe, the less one believes that there will be a positive conclusion short of destroying the Euro as a currency, an outcome that may have more benefits than downsides.

Until tomorrow, at least, stocks took a beating, as once again, the bulk of traders were hoping for positive results from another gang that can't shoot straight.

While on the topic of governments and their follies and foibles, an article by John Crudele in the NY Post should be at the top of the discussion of just how corrupt and obnoxious Wall Street has been and continues to be.

Crudele has been saying for two years that Paulson and other elements of the government were corrupt. In today's story, he finally gets confirmation from Bloomberg Markets that then-Secretary of the Treasury Hank Paulson was passing along insider tips to his buddies at Goldman Sachs (where he had served as CEO prior to being named to head Treasury by President Bush) and others.

Crudele says:

Under former Treasury Secretary Hank Paulson, confidential government information was regularly leaked to select people on Wall Street.

That's all one needs to know about how tightly intertwined Wall Street and top officials of the federal government are intertwined, but it brings up an essential question, or questions: Where are NBC, CBS, CNBC, ABC, FOX on this story, and why hasn't Attorney General Eric Holder announced an investigation?

The answers are simple. Bit players like Martha Stewart and Rob Blogojeich go to jail. Fat-ass scum-bags like Hank Paulson, the architect of TARP and god-knows how many other deceitful financial scams sail off into retirement sunset.

No wonder there is an ugly undercurrent of dissatisfaction and distrust in America. The people at the top have been screwing the public for years, yet not a single one is even investigated. Instead, we are subjected to daily wild market swings and the spectacle of former congressman, former New Jersey governor Jon Corzine explaining to a congressional panel how he didn't know what was going on while his firm, MF Global, raided the coffers of client money to the tune of $1.2 billion.

Corzine won't see the inside of a prison; that you can count on. Neither will Hank Paulson. But some ghetto kid who sells a bag of weed because it's the only way he can make a buck, will receive the full extent of what now humorously is called "justice" in America.

Face it, people, with the thieves and connivers we have in government, we're all royally screwed and the wake-up call is probably a few decades too late.

Thanks to John Crudele and the NY Post for his ground-breaking and tireless reporting efforts. It's amazing he hasn't been fired yet.

And seriously, isn't Ron Paul the only Republican presidential candidate that is electable? The others are either pandering flip-floppers (Gingrich, Romney) or wing-nuts (Santorum, Cain, Bachman, Perry). That leaves only Mr. Paul nd Jon Huntsman as viable candidates. But the mainstream media, which relies upon access to the corrupt political machines running the country, will have no part of either of them.

The best advice is to ignore all of them and fend - as best one can - for oneself and one's family, but, eventually, unless the liars, cheaters and thieves of Wall Street and Washington are rooted out and made to pay for their crimes, America is doomed.

Dow 11,997.70, -198.67 (1.63%)
NASDAQ 2,596.38, -52.83 (1.99%)
S&P 500 1,234.35, -26.66 (2.11%)
NYSE Composite 7,369.52, -190.19 (2.52%)
NASDAQ Volume 1,843,290,125
NYSE Volume 4,222,942,000
Combined NYSE & NASDAQ Advance - Decline: 774-4842
Combined NYSE & NASDAQ New highs - New lows: 100-89
WTI crude oil: 98.34, -2.15
Gold: 1,713.40, -31.40
Silver: 31.54, -1.09

Signs of Stupidity, Deflation and Depression

We've all heard about how Ben Bernanke, Tim Geithner and Hank Paulson saved the world from imminent financial collapse. Oddly enough, there was a Time Magazine cover story from 1999 about a similar trio of swashbuckling economists - Alan Greenspan, Robert Rubin and Lawrence Summers - who were then called the "Committee to Save the World."

Hmmm... 1999. Do we all remember what happened after this bunch - as Time loudly proclaimed on their cover - prevented a global economic meltdown?

What are we, stupid? I guess so. How is it that just 10 years ago we hailed the Fed Chairman and two Treasury Secretaries as "saviors" just before the whole country went kaput, and are doing the exact same thing again right now? Americans, and probably the majority of the world's population has the word "STUPID" printed on their foreheads in invisible ink which only economists can see through the aid of their special contact lenses and eyeglasses. Thus, their ability to hoodwink us into trusting them and then to hail them as heroes is entirely of our own making. We are their enablers.

So, don't blame them for the problems we face. Blame yourself. Did you take out too many loans? Did you overspend? Did you run up non-payable credit card debt? Did you not save a nickel during all those "boom" years, first in the 90s and more recently, from 2003-2008?

Go ahead and cry, it's OK. I did it too. But, there's a happy ending to this story. Well, maybe not exactly "happy," but maybe not tragic either. Now that we're all broke and penniless, or soon to be so, we're all in it together, down here scratching for scraps of food and any kind of work. An old adage suggests that "misery loves company," and in this instance, it could not ring more truly. With the accumulated debt of the nation approaching $13 trillion (not including $4 trillion from Fannie Mae and Freddie Mac, or about $59 trillion from unfunded Social Security, Medicare or federal retirement benefits - or is it $107 trillion?), millions of our countrymen and women out of work, foreclosures continuing to rise and a federal government bent on nationalizing everything from banks to car manufacturing to health care, bells and buzzers should be going off all over the place, yet we, yes, we dopes with STUPID surreptitiously stamped upon our foreheads, continue to work and spend and pay and worry and buy and pay, invest and lose, leaving our money in the same hands of the same greedy bankers who took us down this path to ruin.

We all deserve to be lined up and summarily executed, along with the congress and every member of the administration (people we voted into office). That would leave just little kids with no understanding of debt, the ultimate solution. I pray that my little tirade of sarcasm hasn't scared you into thinking it might just turn out that way. It might. It shouldn't, but to think that the people we call our heroes, but are actually a lying bunch of hoodlums, scoundrels and crooks, would be plotting the decimation of the world's finest democracy doesn't take much of a stretch of credulity.

There are things you and I can do before the situation gets much worse. I'll be discussing them in future posts as we wend our way through this sad, messy chapter of American history. But, just for starters, two things that won't work are: 1. leaving the country; 2. Staying put in a job you hate that doesn't pay you what you're worth.

The first doesn't work because other countries are in just as bad, if not worse, conditions than ours, and the second doesn't make any sense, right from Jump Street. Why anyone would want to waste their time on the planet toiling for people they don't like in a job they hate is beyond me. It sounds so masochistic. For a real solution, try watching the movie "Fight Club" until you either puke from disgust or actually come to an understanding of the deeper, hidden message in that film. Or, if you just need a good regurgitation, read Camus' "Nausea." I've heard it's even better in French.

As for the markets, the place people go when they wish to flush money away, stocks were generally weak and going nowhere. The daily movements of the stock market really don't stack up to a hill of fried chicken anymore, so thick is the distrust of counter-parties. Nobody really wants to be left holding the bag, and some estimates suggest that 40% of all trading is done by insiders, with insiders, and most of them work at Goldman Sachs. Funny, they say the same thing about betting on horses. 40% of all the action is carried out by owners, trainers, jockeys, grooms and even stewards. So, how are you supposed to win at that game? You're not. Get it?

Dow 10,270.55, -26.30 (0.26%)
NASDAQ 2,190.91, +0.85 (0.04%)
S&P 500 1,097.28, -6.04 (0.55%)
NYSE Composite 7,042.62, -58.82 (0.83%)

Losers beat gainers, 3910-2504. New highs beat new lows, 172-57, mostly due to the fact that at this time last year, stocks were falling faster than meteors from 13 miles above ground. Volume? Well, it absolutely sucked, just as it has for most of this miracle rally period since last March. With insiders trading mostly with insiders, what do you expect? There are fewer and fewer people willing to put money at risk every day. If you ave a 401k or other retirement plan, they're playing with your money, too. Isn't that a thought that makes you sleep well at night? If you're getting the idea that I'm just a little bit soured on the stock market and the general economy, you're beginning to get the message. However, unlike you, I'm fighting back. I've done some things to protect myself and eventually prosper from the obvious deflation that's been in place since the latter months of 2007.

NYSE Volume 4,917,465,000
NASDAQ Volume 2,341,595,500

Commodities were also weak. Oil, gold and silver were all lower. All the quotes I'm getting are different, depending on the source, so, for now, I'm not quoting specific prices, which is just what the market makers want: confusion. Haven't you ever wondered why currencies are so difficult to figure? The quotes most commonly used are Dollar:Yen, Euro:Dollar, Pound:Dollar. The Euro and Pound prices are inverted from the Yen, making comparisons and the real value of the dollar difficult, if not impossible, to decipher. It's a very confusing breakdown, but nobody cares to fix it? Why? Because it is confusing. Precisely.

According to Robert Prechter of the Elliott Wave, "a deflationary crash is characterized in part by a persistent, sustained, deep, general decline in people's desire and ability to lend and borrow. A depression is characterized in part by a persistent, sustained, deep general decline in production." (Conquer the Crash, Chapter 9)

Both of those conditions have been in place and at work since August, 2007. Efforts by the Fed, Treasury and the brilliant geniuses who troll Wall Street looking for suckers with money to forestall the inevitable have only lengthened the duration of the decline, then and now. Conditions seem to change with each month, quarter, economic or jobs report, but not much. Government statistics are so mangled that they no longer make sense or can be used as a true yardstick of economic vitality or disease.

We are in the throes of the worst depression the country has ever seen, kept afloat by federal payments to states, states to cites and so on, and by unemployment benefits, medicare transfers, retirement benefits, Social Security payments, and other seamless, unseen transfers of money like TARP, TALF, HAMP and other Federal Reserve machinations. Unemployment keeps rising, people keep losing their homes and most of us just go about their business as if things were normal.

Things are far from normal.

Gentle PPT nudging

Lest we all believe that 13,000 on the Dow is a number beneath which we dare not tread, today's positive close bears little resemblance to the underlying market realities.

About 2:15 pm ET, the Dow was resting comfortably at the magic 13,000 mark, when all of a sudden buying broke out like a spreading fire. A little over an hour later, the Dow had risen to its high of the day, 13,181.66 - a gentle nudge (no doubt by our friends at the President's Working Group on Financial Markets, otherwise known as the Plunge Protection Team or PPT) of 181 points to the good.

While the market pared off some 60 points of froth over the final 30 minutes, the volume tells much of the story. Nobody was actively trading. In fact, today's action was among the slowest of the year. Fewer shares were traded today than any other since July 3rd, a half-session at that. Apparently, the 600-point boost given to the market between Thursday afternoon and Friday was not enough to quell the fears of traders, other than the most intrepid (or stupid).

The ongoing mess that is the world banking and credit system has recently come within a whisker of complete collapse and Wall Street has taken notice. Either that, or half the brokers and fund managers in the world decided to begin their summer vacation today.

Dow 13,121.35 +42.27; NASDAQ 2,508.59 +3.56; S&P 500 1,445.55 -0.39; NYSE Composite 9,326.21 +11.22

Indicators were not encouraging. Advancing issues led decliners by a narrow 5-4 margin and new lows outnumbered new highs once again, 198-59.

Light crude priced lower, closing 86 cents lower at $71.12. Gold and silver took marginal losses, remaining at somewhat attractive buying levels.

The credit woes that beset Wall Street for much of the past four weeks persist, as stocks in the financial sector were hit once again.

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Merrill Lynch (MER), Bear Stearns (BSC), Bank of America (BAC), Lehman Bros. (LEH) and Citigroup (C) all took on water, with the brokerages all down at least 1.5%. Mortgage lender Countrywide (CFC) was absolutely whacked, losing 1.62 to 19.81, a 7.56% decline.

Countrywide, the nation's largest home mortgage financier, last week said it had to tap an $11 billion line of credit, since they were unable to raise funds in the market. Alongside that message was the disclosure that Countrywide originated more than $40 billion in sub-prime loans in 2006. Lenders have become so skeptical of packaged mortgage instruments that Countrywide finds itself without much support in financial markets. As highly leveraged as it is, a continuation of the credit squeeze could foster even more declines in its stock price and possibly even more serious circumstances, including forced liquidation.

That a company as robust as Countrywide could be facing bankruptcy within months is a startling development. The company is the undisputed leader in originating home mortgages, and its collapse - which was narrowly averted last week - could have far-reaching effects, both financial and psychological.

There is no antidote for non-performing loans. The solutions for lenders are somewhere between horror and catastrophe. Despite all the interventions and happy talk from Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke, this crisis is nowhere near an end.

Dead Cat Bounce

Investors shook off last week's monumental declines and searched for bargains amid the wreckage on Monday. All the major indices showed decent gains on relatively strong buying. There was certainly some resolve to Monday's rally, but whether or not it will last is another question altogether.

Dow 13,358.31 +92.84; NASDAQ 2,583.28 +21.04; S&P 500 1,473.91 +14.96; NYSE Composite 9,623.18 +114.95

Make no doubt about it, there's a big, big problem inside the sub-prime mortgage mess and it's leaking over into corporate borrowing and mainstream mortgage lending. The simplistic reassurances of people like Ben Bernanke and Hank Paulson are masking a problem that goes to the heart of the world banking systems.

Money and credit has expanded worldwide at an astonishing rate and there's payback on the way. For a clue, watch merger and acquisition (M&A) activity over the next few weeks and months. It's already slowed down after a rash of big deals earlier in the year. Private capital has gone soft and conservative, and these people know what they're doing - it's their money, after all. CNN Money has a particularly propitious story on stalled funding for some big buyouts.

Over the next month and a half, expect more fallout, because drops like we witnessed last week do not occur in a vacuum. There's more to the story and it's a good bet that the invisible hand of the Plunge protection Team (PPT) was again at work today. Shortly after the markets opened, they took an unhealthy dip, but quickly bounced back to the positive. All of the indices hugged the flatline until just after noon, when all of them took off into positive territory for the remainder of the session, trademark market manipulation by the usual suspects.

As is the fashion of the market manipulators of the secretive Working Group on Financial Markets, they prefer small losses over long periods of time rather than big, spectacular, headline-grabbing declines.

Their unseen actions in the markets cause a sheep-like follow-along response, as evidenced today. Advancing issues gained the upper hand over decliners by a 3-2 ratio, though the new lows were still holding sway in a rather ponderous manner, with 746 bottom-outers to just 93 new highs. That's still out of balance and augurs ill for stocks going forward.

One-day rallies are not a cure-all, and the same conditions that contributed to last week's sell-off still exist. Without the PPT, the markets may very well have finished lower again today. The stated goals of the so-called PPT are:

Recognizing the goals of enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation's financial markets and maintaining investor confidence

Keep an open mind and an open eye on how the markets - and, to a lesser degree, individual stocks - move in relation to events and non-events.

Since most companies have now already reported 2nd quarter earnings, the next six weeks will be a function more of emotion than fact and since the overall mood is still rather dubious about the future, sharp sell-offs may occur out of thin air. More likely are days of small double-digit-Dow losses, followed by some recovery, then the pattern repeating again. As it is, the Dow has traded lower 5 of the last 9 sessions and that measure bears close scrutiny. Should we actually be in a new bear market - which some analysts have suggested - the ratio of up days to down, in addition to the volume and point movements, will be a key divining tool.

Oil priced lower on the NY Mercantile Exchange, losing 19 cents to $76.83. Gold and silver both edged higher and continue to herald a breakout, though that's happened so many times in the past 18 months, nobody's giving it much credence.

Triple Bottom Breakdown

With no impetus to the upside, not even the shadowy Plunge Protection Team (the government's Working Group on Financial Markets headed by Treasury Secretary Hank Paulson) could quell the selling on Wall Street as dissatisfaction with corporate earnings and the implosion of capital markets sent the Dow to another 200+ point loss, hauling down the other major indices with it.

The week, which began with a 92-point gain on the Dow on Monday, turned considerably uglier as earnings reports and bad economic news - primarily from the housing and credit sectors - sent Wall Street into spasms of cynical, unstoppable, selling. The week was one of the worst ever for the Dow, losing 735 points, with losses of more than 200 points on Tuesday and Friday, and a 311-point loss on Thursday.

Dow 13,265.47 -208.10; NASDAQ 2,562.24 -37.10; S&P 500 1,458.95 Down 23.71; NYSE Composite 9,508.23 -146.15

The other major indices - the S&P, NYSE Composite and NASDAQ fared equally poorly in the paroxysm of panic selling. The Dow on Friday confirmed (and broke through support) a triple bottom breakdown at 13,265.47, with similar recent closes on June 7th (13,266.73) and June 12th (13,295.01).

The pertinent questions at this juncture are, 1. How much worse can it get?; 2. Is there an interim support level?; 3. Can the PPT finally staunch the ebb by buying overvalued shares (and will they)?; and, 4. Is there any safe haven for investment dollars?

The quick answers are that it can get much worse, interim support exists in the 12,100-12,300 area, nobody really knows exactly what the PPT can or will do, and as for a safe haven, cash is looking mighty good right now.

There is really no magic bullet to change the outcome of the massive unwinding of a near-decade-long credit and asset binge. Government policies have created a system so fragile and fraught with risks - seen and unseen - that a financial disaster seems to be the most likely occurrence at this juncture.

The obvious truths are that the market was severely overbought (the Dow was up nearly 30% from a year ago at the start of the week), mortgage failures will continue to proliferate due to an complete lack of oversight by regulators, and the contagion from mortgages will likely become systemic, spreading into all manner of credit instruments.

The key consumer is tapped out, the middle class is shrinking and afraid, and the trickle-down economic policies of the past 20 years have created a monstrous economy with a super-rich class, an impoverished middle and a growing, teeming bottom. America has gone from the world's greatest creditor state to the worst debtor nation in a span of just 50 years.

In a few words, we're pretty much screwed and it's beginning to show up in our markets. A good start would be to impeach all the top officials of the current administration and begin imposing some new standards of conduct for banks and other financial institutions to restore confidence in our capital markets.

A change in government isn't going to be a cure-all - far from it - but the numbskull liars currently in charge likely have more of a vested interest in overseeing the destruction of capital rather than the creation of it.

Next week and during the month of August, when the next wave of selling begins in earnest, officials of the NASDAQ and NYSE may consider closing the markets for a week, allowing for some time to contemplate next moves and reassure a frightened public.

This is no time to be giddy. This market has been overstretched - the bull market is something of the order of 57 months old - and in a very, very precarious condition. The US economy is also an extremely sick patient. Extreme actions may be the best medicine.

Surprisingly, market internals were not nearly as dismal as yesterday's. Declining issues beat advancers by an 11-5 ratio. There were few bright spots as new lows submerged new highs, 706-85.

Just to make matters even more cheerless, oil futures rose $2.07 to close at $77.02, close to an all-time high. Gold and silver continued to decline, oddly, as market manipulation is running rampant. The precious metals should be showing strength at a time like this. instead they are dropping along with all other asset classes.

Get ready for a long, long downturn, similar to Japan's 20-year deflationary cycle. It's been predicted and the stock market is telegraphing it.

There were a good number of earnings reports issued on the day, none of them of much consequence considering the overall tenor of the markets.

Have a great weekend.