Machines At Work, or, Why Humans Are No Longer Needed (nor Safe) on Wall St.

I am going to take a wholly different approach to today's post.

You'll notice right away that I'm using first person singular rather then the usual third person tense usually employed on this blog, and the reason for that has to do with the absurd trading pattern exhibited on the major indices today, the Monday after the great storm Irene that wasn't so great, and the first trading day after the also-not-so-great Fed Chairman Ben Bernanke's Jackson Hole speech.

I'm speaking for myself, as a human being, because what trading on Wall Street has become - with the advent of co-located servers and HFTs - is definitely not anything that can be analyzed using old methodologies. Throw out the old P/E models; earnings per share are also meaningless now that computers and their PhD-designed algorithms perform 70 to 90% of the trading on any given day.

Technical analysis is another dead end. The computers do all the modeling, sampling and trading, as speeds no human can possibly compete. And, for the most part, the computers aren't all that smart. They chase momentum, and today's action, on a diagonal line from left to right, with about a 12-15% incline, is the perfect textbook example of just how broken our equity markets have become.

Buying and selling stocks for profit, gain, retirement, "investment" is old-school and strictly for geezers with nothing but time (and money) on their hands or the completely clueless who can't see the forest for the trees, failing to grasp the obvious point that the HFTs have such an enormous advantage, individuals have no hope of making gains. They will be ground down by untimely, surprise market convulsions and endless fees. The last lost decade on the S&P and NASDAQ should be proof enough.

I suppose what I'm trying to say is that one can do all the analysis and homework and use all the tools offered by the online brokerages, watch CNBC all day long, read Barron's, the Wall Street Journal, BusinessWeek, Forbes, Fortune and read all the right blogs (including this one) and still be completely clueless as to what's really going on down in lower Manhattan.

It's a losing game (BTW: I never did execute the put buys that I mentioned last week, being that the premiums were ridiculous and the chances of the market doing the rational thing and selling off are probably less than 50/50) and anyone who's invested in stocks should have sold them already and moved into gold, silver or hard assets. Personally, I gave up in 2007, when the market turned south and haven't returned, except to have a couple Gs taken from me during the 09-10 rally on options trades.

One realistically could do better betting on horses or football rather than playing in the rigged casino that is Wall Street. Unfortunately for anyone with a pension or 401k plan, you don't have that choice. Somebody does the trading for you - a concept I never could quite wrap my mind around - and your money is stuck wherever your fund manager decides it should go, and they haven't done much better lately, either.

So, I've decided today to try and change the tone here, to offer real world solutions that don't involve stocks, because, personally, and deep in my heart, I don't believe stocks are currently good investment vehicles - not in this environment and not until a lot of Wall Street crooks go to jail or the way markets function and are regulated is radically altered.

There are ways to get around owning stocks that can provide savings and maybe a little bit of sleep at night and I'll strive to unearth these gems while still providing some commentary on the hijinks of the privileged few who make their money on Wall Street while the vast majority of Americans work, save and struggle to make everyday expenses, which, by the way, just keep going up.

I'll still do the market recap and rerun the data on a daily basis, but the thrust of this blog will be - in addition to informing on the various scams and practices that make Wall Street a dead end for most people - will be on ways to make, accumulate and save money and assets, because I believe Wall Street is history and today's fantastic rise on extremely low volume proves my point.

I'll also probably go back to writing in the third person singular, once my pique of angst has subsided.

A couple of interesting articles appeared over the weekend, specifically, Grecthen Morgenson's NY Tmes piece, titled, The Rescue That Missed Main Street and Karl Denninger's screeching commentary from Friday on the illiquid equity markets.

Dow 11,539.25, +254.71 (2.26%)
NASDAQ 2,562.11, +82.26 (3.32%)
S&P 500 1,210.08, +33.28 (2.83%)
NYSE Composite 7,450.30, +204.48 (2.82%)

As expected, advancing issues smothered decliners, 5825-854, a 7:1 ratio. The NASDAQ showed 26 new highs and 30 new lows, while the NYSE reported 30 new highs and 9 new lows, flipping the indicator to positive for the first time in about three weeks (another sign of the fraud) at 56 new highs and 39 new lows. Volume, as mentioned above, was dismal.

NASDAQ Volume 1,598,409,000
NYSE Volume 4,101,816,000

Front-end crude oil futures gained $1.70, to $87.27, to the delight of only those who don't drive or buy consumer goods. Precious metals were slapped down again, with gold losing $41.50, to $1787.60 and silver getting hosed to the tune of a 68-cent loss, to $40.82.

Folks should start looking for credit card offers in the mail from the big banks. I received two from Citi offering 0% interest for 21 months, oddly almost the same time frame offered by the Federal Reserve with their ZIRP on federal funds. They will be coming your way and a good idea is to wait until you've received three or four before applying.

Once you do, make sure to transfer any large balances on high-interest cards over to Zero interest and start paying it down as fast as possible. The best way to keep yourself in the game and prospering is to pay down any and all debt as quickly as possible and live within one's means.

Savvy Consumers Shun Credit; Markets React Poorly

There truly is a disconnect between Wall Street and Main Street. The pinstriped crowd looks at the world through some-colored glasses, and while we're not sure whether they're rose or some other shade, their view of the world is certainly clouded by dollar signs, at the least. Their vision is that of an amorphous blob, a mass of numbers and data points and signals, charts and vector graphs all pointing in one orderly direction: toward their commission check. It is difficult for the average Wall Streeter to comprehend how people could miss a payment, budget and save, or go without something they desire.

Main Street's view is much more realistic. People are paid - and taxed - according to their worth, for the most part. You produce or you go home. You work or you become part of the underclass. Most Main Street Americans - businesspeople and consumers alike - comparison shop, love a good bargain and are generally (as compared to their Wall Street counterparts) frugal. They try to make ends meet, keep their places of employment and their homes clean and operable and they do most of these manual chores themselves. They understand just how much a dollar can buy and how many dollars they need to get through the week and the month. They have real needs and many of them are just a paycheck or three away from despair, if not already there.

These differences were never more noticeable than this afternoon, when the Federal Reserve announced that consumer credit outstanding declined at an annual rate of 5.6%, seasonally adjusted, down $11.5 billion, to $2.448 trillion in Febraury.

Wall Street's reaction to Main Street's frugality? You guessed it: fear and near-panic. Consumers not spending like drunken sailors is anathema to Wall Street. And not using credit is regarded as almost other-worldly. Wall Street just cannot get it through their heads that the rest of the world doesn't drive a Bentley, wear $2000 suits and fly to Curacao for weekends. Thus, when evidence like today's consumer credit condition - in decline 16 of the past 17 months - the investor class runs scared.

Sooner or later, they're also going to find out that many people can't afford the homes they're living in, and when that reality strikes home, it will make today's little scurry to the downside look like a walk in the park.

To illustrate just how much a drag on the US economy housing really is, this post and these graphs point out how far above historical levels housing prices galloped in the 2000s and just how poor the government's attempts to "stimulate" the market have been.

Since that's a story for another day, suffice it to say that Wall Street took a hit from the old reality pie straight in the kisser this afternoon. Following an exceptionally-well-received 10-year Treasury auction (another condition the "experts" had completely wrong), stocks were basically treading water until just before 3:00 pm, when the consumer credit news hit.

The Dow was off 124 points at the worst level, having earlier recovered lost ground after the $21 billion, 10-year Treasury auction which witnessed a 3.72 bid-to-cover ratio (far above the recent average of 2.87) and a solid 3.90% yield rate, which pushed 10-year yields further down, to 3.86%, by day's end. Yesterday, I wrote about fears of the 10-year heading North of 4% and why it isn't going to happen. Today we saw what was true. Indirect bidders (foreign central banks) accounted for 42% of the total, suggesting that maybe some people like US Treasuries at under 4% more than Greek's at around 7%.

Sure the Greek bonds offer more bang for the buck, but, then again, their economy might just blow up, too. Risk-avoidance is "in" once again.

Dow 10,897.52, -72.47 (0.66%)
NASDAQ 2,431.16, -5.65 (0.23%)
S&P 500 1,182.44, -6.99 (0.59%)
NYSE Composite 7,546.18, -58.26 (0.77%)

For a change, declining issues outpaced gainers, 3928-2577; new highs remained high at 600, compared to just 48 new lows. The most significant numbers were the volume readings, however, which evidenced a noticeable spike in trading activity. From a technical perspective, after days of low volume gains, a high-volume decline is a harbinger of doom and a sign that a corrective phase could soon be upon the markets. Almost everybody knew that stocks were overbought heading into earnings season and these upcoming 2-3 weeks could be damaging to sentiment long term.

NYSE Volume 5,700,141,000
NASDAQ Volume 2,872,620,250

The commodity market seemed uniformly confused by the day's data. Crude oil took a bit of a breather, losing 96 cents, to $85.88, but gold galloped ahead $17.20, to $1,152.30 and silver pushed higher by 27 cents, to $18.18, close to 52-wee highs. The metals moves make no sense at all in what can only be described as a deflationary environment, unless there was a rampant short squeeze, which many suspect this was. The metal may be giving an extended head-fake or be reacting to the credit numbers in a flight to safety.

Either way, the US is far from being clear of the crisis. Wall Street may be just beginning to find out what Main Street already knows.

The Economy Sucks but Stocks Keep Going Up

Stocks were up again today, and, truth be told, it's beginning to become a little bit sick and perverted, to think that US corporations are healthy and making money because they've been able to cut costs to the bone, costing US employees their jobs, or cutting the pay of those employees in order to please their investors. Soon enough, it will become truly sick and perverted, when these multi-national corporations begin to raise prices because they can't cut any more payroll or, like AT&T and Catterpillar, take huge write-offs and blame it on the increased costs of "ObamaCare," as they call it.

AT&T quietly announced late Friday that they would take a $1 billion charge because of all the evil new costs included in the heath care reform bill. One has to ask why they didn't mention this while the bill was in committee or on the senate and house floors. No, they just sat back and watched a billion dollars evaporate without raising their corporate voice?

Tell you what: any company that is that reckless with investor money should not be in your portfolio. If you own any AT&T stock, or the stock of any company that takes a write-off due to increased costs associated with the recently-passed health care reform bill, SELL IT, SELL ALL OF IT, SELL ALL OF IT NOW. They don't deserve your business, and furthermore, they're a sick, twisted bunch of creeps. Remember, AT&T was one of the companies which allowed the government unfettered access to YOUR phone calls, violated your privacy and probably broke numerous laws, but got away scott free. Screw them. They only care about themselves, not you, your cell phone or your land line. Just your money, that's all.

Not that I am particularly enamored with the health care legislation - I'm not - but AT&T is just using it as a scapegoat to cut employee benefits and/or hide other losses. Face it folks, these people are about as honest as Bernie Madoff's accountant.

Dow 10,895.86, +45.50 (0.42%)
NASDAQ 2,404.36, +9.23 (0.39%)
S&P 500 1,173.32, +6.73 (0.58%)
NYSE Composite 7,464.90, +61.32 (0.83%)

As usual, advancing issues outdid decliners, 4212-2245. There were 369 new highs and 42 new lows. So, nothing else has changed, except that volume returned to mostly insider trading. Participation levels are dropping like stones off a high bridge. It is possible that average people are awakening to the scheming ways of Wall Street after all. Most of the trading is being done by big banks, brokerages, hedge funds and mutual funds. Eventually, after they've fleeced the American - and foreign - public enough, they'll begin to eat each other's lunches and the market will be exposed for the grossly overvalued, manipulated joke it has become over the past two decades.

NYSE Volume 4,827,693,500
NASDAQ Volume 1,897,280,250

Oil was up $2.17, to $82.17, based on nothing but naked speculation and greed. Gold was up $6.10, to $1,110.30; silver higher by 48 cents, to $17.37, same reasons. Once again, in the face of a dawdling global economy and slack demand, prices continue to rise in stark contradiction to the "laws" of supply and demand.

Wake up, people. You toil all day, and sometimes part of your night, to do what? Pay utility bills, car payments, fuel, insurance and taxes. When that's all done you can look at what's left and Wall Street brokerages expect you to invest for your "retirement" or your kid's college education.

Get real. If retirement was such a grand idea, we'd do it when we're in our 20s or 30s not in our 70s and 80s. It's only because we're worth less as employees at that age: slower, less controllable, wiser, that companies want us to move along. You keep writing those checks. I'll keep telling you why it's a no-win situation.

Bank Oligarchs, the Fiddler President and Congressional Circus Clowns

There were no major economic data releases today, though there were a number of companies reporting 1st quarter earnings, including Bank of New York Mellon Corp., Northern Trust and State Street, all of which showed declines in earnings, though the latter beat analyst estimates.

Disappointing results from banking interests - reported eithe before the open or during the session - didn't deter investors from sparking a rally in financials, however, pushing the major indices to recoup some of Monday's dramatic decline.

After the close, CapitalOne (COF), once the nation's largest stand-alone credit card issuer, reported a net loss for the first quarter of 2009 of $111.9 million, or $0.45 per common share, which was far better than last quarter - a $1.4 billion loss, or -$3.74 per share - but far worse than the same period last year, in which the company reported a profit of $548.5 million, or $1.47 per share. during the session, shares of CapitalOne were higher by 1.67 (12.50%), but were seen lower in after-hours trading, down more than a point shortly after the earnings release.

On the Dow, 25 of 30 component stocks finished with gains. Leading the way were the three bank stocks - JP Morgan Chase (JPM), Bank of America (BAC) and Citigroup (C) - all of which ended the day at least 9.5% to the good. How the very same banks which are controlling the economy are manipulating the markets is a grand shame and these oligarchies need to be dismantled, as explained below.

Caterpillar (CAT) reported its first quarterly loss since 1992 and drug maker Merck (MRK) reported a profit but missed earnings estimates.

As for the rest of the market, suffice it to say that the market is mostly comprised of day-trading Wall Streeters and hedge fund managers who follow the leaders, which is why stocks were broadly higher today, despite the absence of any positive news.

Dow 7,969.56, +127.83 (1.63%)
Nasdaq 1,643.85, +35.64 (2.22%)
S&P 500 850.08, +17.69 (2.13%)
NYSE Composite 5,339.59, +119.47 (2.29%)

Advancing issues turned the table on decliners, beating them 4846-1627, though new lows continued the spread over new highs, by a count of 69-18. Volume was solid, though unspectacular.

NYSE Volume 1,671,525,000
Nasdaq Volume 2,435,768,000

In the commodity markets, a slight bounce from Monday's drubbing, with crude futures up 63 cents, to $46.51. Gold lost $4.60, to $882.70, with silver off a nickel, to $12.06. Futures for various foodstuffs were mostly higher.

Appearing before the Joint Economic Committee of Congress today were, among others, Federal Reserve Bank of Kansas City President Thomas Hoenig, Columbia University professor Joseph Stiglitz and MIT professor Simon Johnson, each of whom expressed skepticism over whether current government actions were effective in relieving the economic distress in the banking sector.

Will the government listen, and even more to the point, do the congressional member and senators who convened these hearings, actually understand what they're saying? Probably not. Politicians are a breed of people who understand power and politics and little more. What they do know is that their allegiance is to the Wall Street bankers, because that group, by and large, financed the campaigns that put them or keeps them in positions of power.

As usual, it will be politics first, constituents (the actual ones they're supposed to represent), last, and so, the sad saga of our nation being run into the ground by a coalition of Wall Street financiers and political puppets in Washington will continue unabated. Today's hearings are just more window dressing, designed to keep the public from rising up, rioting and throwing the whole bunch into the East and Potomac Rivers, which is precisely what should happen and very well may happen if this fiasco of keeping insolvent banks operating under clouds of secrecy and mountains of non-negotiable debt is allowed to continue much longer.

Below, Yahoo's Tech Ticker talks with former IMF chief economist and current MIT economics professor Simon Johnson about the big banks and how they stand in the way of a meaningful economic recovery.



Here is Johnson's breathtaking article, The Quiet Coup in this month's Atlantic.

Near the end of his reveling writing, Johnson finally comes to speak the unspeakable:

The conventional wisdom among the elite is still that the current slump “cannot be as bad as the Great Depression.” This view is wrong. What we face now could, in fact, be worse than the Great Depression—because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances.

There you have it. A respected economist - not me, a generally disrespected populist pundit blogger - says this current condition could devolve into something worse than the Great Depression. I've held that view all along, since early in 2007, and if you check my archives at Downtown Magazine, probably as early as 2002 or 2003, when I reported on the then-emerging pension crisis which now continues beneath the surface.

Like Johnson, I hold out slim hopes that the elite in Washington and the ruling oligarchs on Wall Street will yield power without a fight of monstrous proportions, against the citizenry of the United States, and to a larger extent, the populations and governments of their trading partners globally.

Mr. Johnson and I are not alone. The chorus for concentrated government action to close down the insolvent banks and replace their inept and likely corrupt management, is growing at a very rapid pace. The longer the government dithers, the closer the nation comes to the precipice of economic, political and social destruction.

Finally, below, here's the second part of Henry Blogett's interview with Simon Johnson, in which he extolls the virtue of quick, decisive action in cleaning up and breaking up the major bank's stranglehold on the country's finances:



It's become clear to just about everyone in the world, except the pols in Washington and the banksters themselves, that breaking up the nation's biggest banks and dismantling their management and interlocking boards of directors would provide the quickest, cleanest and least costly resolution to the global financial condition. Instead, President Barack Obama, like Nero in ancient Rome, fiddles while the empire burns to the ground and the congress can only be compared to circus clowns for all the good they've done over the past six months.

Cooler Heads Prevail; Wall St. Bucks Up

A day after one of Wall Street's more impressive downflights, the suits got back on their trains this morning as usual and began buying some stocks.

It wasn't exactly an overwhelming affirmation of the miracle of capitalism, but Wall Street, being the fickle beast that it is, turned the tide and restored some confidence after a severe battering on enormous volume - the largest ever for the NYSE.

Like I said yesterday, nobody should have been in a big hurry to dump their 401k or empty the college fund because yesterday's event was highly staged and will barely be seen as a blip in the long run of events. The fact remains, however, that all of the gains of January and February were wiped out in one day, so we're starting all over again for the year, like some version of an economic do-over.

There were probably more than a few millions made on the short side in options and most of that was likely in the hands of the big brokerages and other uber-traders. Today's mini-rebound notwithstanding, the overall mood is a bit dour and anyone who's anyone knows that stocks were overbought and in need of some kind of reversal. One should also be aware that in this shock-and-awe environment, yesterday's Bear barrage was only the first salvo and more down days are on the horizon.

A 3-4% wallop on one day is certainly a good start for a protracted correction, which is well underway and should see a fair share of up and down days over the next couple of months. Naturally, the down days will be larger and more dynamic that the speculative uppers, and the bottom will eventually be found well below current levels.

For the record, the Dow gained 52.39 points, the NASDAQ plowed ahead 8.29 and the S&P picked up 7.78. Those numbers are dwarfed by yesterday's hammering, but it shows there are still Bulls ready for slaughter.

Make no mistake, the correction has now been well-greased and there are still overvalued stocks aplenty. A couple of my favorites, Yahoo and eBay, are trading at current p/e ratios of nearly 60 and 40, respectively. (I've a mind to buy about a zillion Yahoo April 30 puts but I don't want to disturb the market. I just want to report on it.)

One doesn't have to look far to find stocks to sell. Tuesday's sell-off was rather uniform and orderly - as orderly as a mini-crash can be - and while there were a number of severe casualties, there were no fatalities.

Today's muted reaction was more of a calming session, even though suckers could be found on every issue. Volume was once again abnormally high. There is more downside risk, much more. Keep an eye peeled on oil, silver and gold. Crude has broken above $60 for now, closing today at $61.75, the last day of trading for April futures. Expect a pull-back tomorrow on crude, while gold remains rangebound. Silver is on the verge of a breakout and bears watching if not an outright screaming buy. Considering the carnage from Tuesday, the precious metals certainly displayed some generous giveback today.