Dark Day for Wall Street as Financial System Stressed to Limit

Compared to the preceding twelve days of market meltdown, today's finish qualified as the worst on a number of different levels.

The paucity of buyers produced something of a free-fall right from the opening bell, which accelerated in the final hour of trading. There were a couple of attempts at rallies - at 10:00 am and again just after noon - but both failed horribly as there was no support and traders, many of whom have been in the "buy the dip" camp until recently, sold into the brief upticks.

Volume was also noticeably higher, an indication that the selling has more room to run over the next days and weeks. The causes of today's particular collapsing equity valuations were the same that have dominated the markets over the past three weeks and are no nearer resolution than they were at the beginning of the month.

Greece continues to slide into anarchy and chaos, taking the rest of the EU - and the world - along for the careening ride to oblivion, unemployment fears in the US remain high, global growth may be nearing stall-out speed and an inactive congress and Federal Reserve - both eerily quiet - are doing nothing to alleviate any of the political, tax and regulatory issues.

The 156-point loss on the Dow was the second worst since the slide began on May 2nd, beaten only by the 168-pont decline of Friday, May 4th, the day the BLS disappointed everybody with poor April jobs numbers. That such a massive decline would come nearly two weeks later, without a respite rally in between, displays clearly how weak and uncertain markets are at the present juncture.

Through today's close, the Dow has lost a stunning 837 points since the May 1 close; the NADSAQ, with a loss of more than two percent today alone, has been beaten back 246 points since May 2nd, while the S&P 500 has given back just over 100 points since May 1st, finishing just above the technically-insignificant 1300 mark, though emotionally, the number carries great sentiment weight.

Adding to the existing problems were a couple of key economic data points released today. Initial unemployment claims came in flat for the most recent reporting week at 370,000, still stubbornly high. The Philadelphia Fed manufacturing index, which was supposed to ring up a slightly higher reading, to 8.8, from 8.5 in April, was a sorry disappointment when it printed at a devastating -5.8. And the index of leading indicators, which was expected to post a gain of 0.2%, actually fell by 0.1%, all of this adding up to excessive worry and a rush to get out of equities for the safety of bonds.

The 10-year benchmark bond closed at an historic low of 1.702, which is probably a solid number considering the level of deflation that is expected over the coming months. A yield approaching 2% against an environment of low to no growth - or even a recession or worse - is likely to be a pretty good hedging instrument.

JP Morgan Chase's (JPM) continuing drama with its $2 billion portfolio loss has expanded by another billion according to the NY Times, while the FBI and SEC have both opened inquiries into the trade and CEO Jaime Dimon has been called to testify before the Senate Banking Committee on the matter.

Mr. Dimon, whose firm also faces a number of shareholder lawsuits stemming from the trade, continues to maintain the position in the trade, attempting to slowly unwind the derivative bet from hell while counter-parties turn the screws tighter. It would not be a surprise to see eventual losses from this blunderbust approach the $5 or $6 billion figure, wiping out the entire quarter's profit for the bank with the supposed "fortress balance sheet."

Dimon will have to do some fancy tap-dancing when he appears before the Senate inquiry, because the trade, widely known as the "London Whale" was the furthest it could have been from an outright hedge, being a pure speculation trade, exacerbated by piling in deeper as the losses worsened.

On brighter notes, gold and silver did an abrupt about-face, despite the dollar index continuing to rise and the Euro settling nearly flat on Forex markets, while oil slid again, along with wholesale gasoline prices, which will eventually result in further price declines at the pump.

The widely-anticipated Facebook IPO, slated to hit the street Friday morning, priced at $38 per share, at the upper end of the expected range. While Mark Zuckerberg and others will become instant billionaires tomorrow, the timing for such a lucrative cash-out day could not have come at a worst time. Facebook will almost certainly reward early investors, but the story of one good stock will do little to alleviate long-term, long-standing economic issues that have plagued the markets for weeks.

Greek banks are seeing devastating outflows of capital, as are those in Spain. Europe's descent into economic hell has accelerated and the EU ministers and ECB economists have found now way out.

Widespread defaults, from sovereign nations, to banks, to businesses will be at the top of the news for at least the next six to 12 months.

It's been 41 years since then-president Richard M. Nixon closed the gold window and nations have been trading on pure fiat - backed only by promises - ever since. The promises now broken, the era of debt-money is quickly drawing to an unseemly and devastating end.

Real estate, precious metals and cash are all that stand between personal devastation for not millions, but billions of people worldwide. All paper assets, including stocks, bonds, letters of credit and contracts will be blown away by winds of economic chaos and change.

Dow 12,442.49, -156.06 (1.24%)
NASDAQ 2,813.69, -60.35 (2.10%)
S&P 500 1,304.86, -19.94 (1.51%)
NYSE Composite 7,480.75, -112.07 (1.48%)
NASDAQ Volume 1,915,098,500
NYSE Volume 4,597,205,500
Combined NYSE & NASDAQ Advance - Decline: 915-4734
Combined NYSE & NASDAQ New highs - New lows: 31-310 (1-10 on the wrong side; never good)
WTI crude oil: 92.56, -0.25
Gold: 1,574.90, +38.30
Silver: 28.02, +0.82

Early Earnings Euphoria Turns to Tears as Economic Data Disappoints

In the most classic of all classic bear market chart moves, the major indices took the ball that was handed to them by the like of Bank of America (BAC) and DuPont (DD), both of which reported 1st quarter earnings before the bell, opening to the upside, though without much conviction as the 380,000 initial unemployment claims hung over the markets like the Sword of Damocles.

Sporting gains by the 10:00 hour, the next set of economic data included the index of leading indicators from the shills at the Conference Board posting a gain of 0.3%, the Philadelphia Fed index showing a number of 8.3 when the expectations were for 12.0 and existing home sales - the real killer number - sporting a 2% decline from 4.60M in February to 48.8 in March.

Adding to the housing debacle is the fact that the numbers are woefully behind the times and generally a best-guess situation, indicating that April's figures, which will be released about this time in May, will be off the mark as well.

With those key economic data points in hand, the markets began to turn south and continued to do so until reaching the lows of the day before 3:00, though, of course, no Ponzi-scheme market would be complete without the requisite end-of-session tape painting that chopped off about 40% of the losses.

Still, it was an ugly chapter for a market struggling to find any kind of positive momentum. Those who based their hopes on bank earnings from BofA were sorely disappointed to find that the nation's most hated banking entity (though JP Morgan Chase and Citigroup are running close behind) produced a quarterly earnings report that more resembled a work of fiction rather than a well-reasoned, accurate accounting of their financial position.

Since 2008 - and probably even before then - all bank earning statements from the big five have been wholly fraudulent, based on assumptions like mark to model and other accounting gimmicks designed only to obfuscate the truth. Bank of America does't really make money any more than a dead person inhales oxygen, and the metaphor is appropriate, since BofA is technically a dead bank walking.

So, on a day in which the pundits and cheerleaders were looking for positives in corporate earnings, they got egg on their collective faces from the economy, which, after all, is the real harbinger of good or ill tidings. Continued high unemployment and a crippled housing market added to burgeoning government debt does not paint a very pretty picture, though Wall Street likes to view these things though rose-colored glasses.

Eventually, reality strikes home and the only option is to hit the sell button. Notably, today's volume was much higher than what has been the norm, not a good sign for any bulls still holding corporate shares.

Dow 12,964.10, -68.65 (0.53%)
NASDAQ 3,007.56, -23.89 (0.79%)
S&P 500 1,376.92, -8.22 (0.59%)
NYSE Composite 7,995.94, -34.43 (0.43%)
NASDAQ Volume 1,965,208,125
NYSE Volume 4,138,306,500
Combined NYSE & NASDAQ Advance - Decline: 2162-3363
Combined NYSE & NASDAQ New highs - New lows: 134-91
WTI crude oil: 102.27, -0.40
Gold: 1,641.40, +1.80
Silver: 31.78, +0.29