Was That It? New Year's Rally a One-Day Wonder

Actually, the New Year's rally on Wednesday - the first day of trading in 2013 - wasn't even a one-day wonder. One might actually consider it a 30-minute - or even 30-second - wonder, in that most of the advances were right at the open with some follow-on in the first half hour of trading.

Naturally, this is how the market rolls these days. If you're not one of the connected special few that can trade pre-market, in futures or make huge buys via HFT computers, like 99% of individual investors, you're SOL, missing out on most of the biggest moves in the market.

Is there any wonder the individual investor has pulled most, if not all, of their money out of equities? The odds are severely stacked against the little and middle guys, yet another reason to despise the one-percenters who glom up the vast majority of Wall Street profits.

As for today's action, not much was happening. Stocks drifted lower in the morning, recovered to around break even or positive, but then slumped when the Fed minutes from the December FOMC meeting were released.

Horror of horrors, some members of the committee were actually openly suggesting an end to their long-standing asset purchase program "well before the end of" 2013.

It's obvious that the Fed can and will do whatever it feels necessary in order to achieve their goals of making every American a debt slave while keeping the US economy from falling into an abyss. In fact, the abyss might just be on the agenda, the Fed owing allegiance to nobody but themselves and their member banks.

So, when traders got a whiff of the odor of no more free money courtesy Helicopter Ben, some went scurrying for the exits, albeit, a bit prematurely. The Fed isn't about to end ZIRP or stop its insane money printing exercise (currenty at a cool $80 billion a month and counting), but there's also the fear that the political clowns in Washington may not exactly get around to cutting spending for a while, and they also may stage a huge fight over extending the debt limit, a la 2011.

So, life in La-La Land (AKA Wall Street) goes on. Stocks got a big boost by acersion of the fiscal cliff, though the job is only half done. There's a sense that whatever conditions arise to offend the investor class, the Fed and the government will be completely accommodative, so that corporate America and the financial sector participants can continue grinding the middle class into dust.

Today's small setback notwithstanding, there's very little fear to keep stocks contained in January, traditionally one of the best months for gains.

A couple of data releases on employment were mixed, with the ADP private jobs report for December showing a net gain of 215,000 jobs, while unemployment claims spiked higher, to 372.000, after last week's 350,000, which was revised (as it always is) higher, to 362,000. The dual releases sent a mixed message in front of tomorrow's December Non-farm Payroll data, due out at 8:30 am.

Dow 13,391.36, -21.19 (0.16%)
NASDAQ 3,100.57, -11.69 (0.38%)
S&P 500 1,459.37, -3.05 (0.21%)
NYSE Composite 8,597.61, -34.40 (0.40%)
NASDAQ Volume 1,724,966,250
NYSE Volume 4,005,988,250
Combined NYSE & NASDAQ Advance - Decline: 3305-3199
Combined NYSE & NASDAQ New highs - New lows: 427-17
WTI crude oil: 92.92, -0.20
Gold: 1,674.60, -14.20
Silver: 30.72, -0.287

Stocks Drop on Fears of NO QE by Fed

Nothing but headlines and rumors are moving the markets these days - and, incidentally, it's Monday, so stocks must go down - and, since Europe's already been sated by ECB president Mario Draghi's new proposal to bail out all sovereign nations in need by purchasing one, two and three year bond issues in exchange for said nations' acceptance of "conditions," all eyes have turned to the two-day FOMC meeting at which Chairman Ben Bernanke is supposed to announce his own version of bond-buying (AKA, QE3).

But, as with all things Ponzi-oriented and subject to whims, official data and sentiment - to say nothing of the upcoming presidential election - speculators, insiders, hedge fund managers and other market participants are a little nervous about what's to come on Wednesday afternoon, when the FOMC will surely announce no chance in policy, keeping rates at zero, and after that...

Chairman Bernanke may well hint at new stimulative measures or actually set a date for a plan to proceed, or, he may weigh all the factors, including Friday's uninspired non-farm payroll data, and do nothing (which would be, historically speaking, the correct path).

If that's the case - and that's what had investors worried in the final hour of trade today - then expect a sharp pull-back from the currently-inflated levels on the major indices. Additionally, the German high court is set to rule, earlier in the day on Wednesday, on the constitutionality of the ESM, and that could be an even bigger deal.

Some 70% or more of the German populace is opposed to the ESM, the funding mechanism that is supposed to - just like all other failed plans - save the Euro, because the bulk of the fund would be bourn by Germany and the good people of that country who pay taxes, which are already viewed as too high. The thought of more taxation in Germany, one of the highest-taxed nations in the world, is unpalatable to most, but taxpayers, alas, do not have a vote. The ruling will come at about the time markets open in the US, setting up for what could be a wicked roller coaster ride.

Thus, there's enough nervousness on Wall Street to make even the coolest of operators break into a cold sweat these days, as uncertainty exists at all levels of economies globally and in the political world.

Today's double digit losses on the major exchanges could be nothing more than profit-taking, or a precursor to some terrible future without government stimulus on both the European and American continents.

How sad. Brokers and dealers might actually have to do some fundamental analysis for a change instead of depending on round after round of money printing to keep the stock markets at nose-bleed levels. Time will tell, and the time is nigh.

Dow 13,254.29, -52.35 (0.39%)
NASDAQ 3,104.02, -32.40 (1.03%)
S&P 500 1,429.08, -8.84 (0.61%)
NYSE Composite 8,192.40, -42.11 (0.51%)
NASDAQ Volume 1,578,686,000
NYSE Volume 3,213,290,000
Combined NYSE & NASDAQ Advance - Decline: 2228-3284
Combined NYSE & NASDAQ New highs - New lows: 332-38
WTI crude oil: 96.54, +0.12
Gold: 1,731.80, -8.70
Silver: 33.63, -0.06

Wall Street's Summer Doldrums Extend Into 8th Day

For nearly two weeks running, trading ranges on the major indices have been slim and volume exceptionally light, as Wall Street sees no reason to rush either in or out of positions late in the summer.

This kind of trading regime is of no particular value to anybody, even to insiders who depend on at least some shred of volatility to move stocks in one direction or the other.

There's no catalyst for stocks at the present time, a condition which could persist until the elections in November or whenever the Europeans decide to actually do something about their ongoing crisis.

On the other hand, this just could be the "new normal" for US markets, since the triumvirate of high frequency trading (HFT), insider trading and the utter lack of individual investors to trust in the markets, has rendered just about all investment decisions a moot point.

Zero interest rate policy (ZIRP) by the Fed and general fraud on the part of the nation's biggest banks - in collusion with the federal government - have many otherwise investor types on the sidelines in cash or other hard assets like gold, silver or real estate.

About the only thing showing any movement are commodities, and they're moving in a very dangerous direction, with corn prices escalating and oil jumping back up into nose-bleed territory. In a macro sense, high food and energy prices will derail any kind of recovery, even the one we haven't had for the past three years.

Stocks, however, continue to levitate at unreasonable levels, another reason why there isn't much in the way of buying activity, but the conundrum is why there hasn't been more selling, either for profit-taking (and there's been plenty of profit of late) or out of a sense that the bottom is going to fall out of the global economy any day now.

In either case, one would expect some kind of movement, and most likely not to the upside. Corporate profits in the second quarter were barely as good as lowered estimates, small business continues to struggle along, housing is not fixed and unemployment remains stubbornly high.

Perhaps the lesson to be taken from this summer respite is that one can only kick a can so far down a given road until either the road ends or somebody picks up the can for a nickel deposit return.

Something will change to get Wall Street out of its rut, but timing such an event could prove costly and dangerous.

Dow 13,164.78, -7.36 (0.06%)
NASDAQ 3,030.93, +13.95 (0.46%)
S&P 500 1,405.53, +1.60 (0.11%)
NYSE Composite 8,030.08, +10.55 (0.13%)
NASDAQ Volume 1,498,334.250
NYSE Volume 2,527,355.50
Combined NYSE & NASDAQ Advance - Decline: 3628-1915
Combined NYSE & NASDAQ New highs - New lows: 152-57
WTI crude oil: 94.33, +0.90
Gold: 1,606.60, +4.20
Silver: 27.81, +0.05

Market Response to Fed Moves More Worrisome Than Reassuring

It's funny how everything seems to work out just as planned, but markets respond in their own unusual ways.

Such was the case today, as the FOMC announced no substantive changes to their ZIRP program and extended "operation twist," designed to spur the economy by having the Fed buy up the long end of the yield curve.

Memo to Bernanke: It ain't working.

All the tricks and ploys the central bankers have up their collective sleeves have now been tried and proven to have failed. Massive injections of liquidity may have temporarily bolstered the balance sheets of some of the world's largest insolvent banks - both here in the US and in Europe - but the one proven method of clearing out bad debt that hasn't been tried - default, repudiation, bankruptcy and restructuring - is the only way the world economy is ever going to get a solid kick-start.

The Fed and its counterparts in Europe, Japan and China seem to believe they can somehow suspend rules of economics and mathematical certainty. They are wrong, and continue to be proven so every day the global economy continues to carouse through its now nearly four-year-old funk.

The action on the stock market today can best be described in horse racing terms: it was what handicappers like to call a "Z." It's when a horse starts slow, rallies in the middle of the race and then fades down the stretch to the wire. Sometimes, it's a sign that the horse may do well in a subsequent race; usually, it means little, other than the horse was ridden badly or suffers from a lack of stamina.

That analogy could easily be applied to the stock market. It has been "ridden badly" by all the desperate attempts to justify prices and it sure looks like it has been running on empty for some time now.

Today's response to the policy decision to keep rates at or near zero and the Fed's tepid reliance on the "twist" program that only produces marginal support for the economy if any at all, is another shining example of the futility of central baking, government overspending and general malaise. Now, even the cheaters, swindlers and fraudsters on Wall Street aren't happy.

Serves them all right, since most of them should have been serving long prison terms by now. Well, maybe there's hope. After all, the price of gas at the pump keeps going down nearly every day. If nothing else, at least it will be cheaper to take the car out when it's time to head for the hills.

Dow 12,824.09, -13.24 (0.10%)
NASDAQ 2,930.45, +0.69 (0.02%)
S&P 500 1,355.70, -2.28 (0.17%)
NYSE Composite 7,747.91, -18.35 (0.24%)
NASDAQ Volume 1,477,882,125
NYSE Volume 3,637,796,250
Combined NYSE & NASDAQ Advance - Decline: 2639-2903
Combined NYSE & NASDAQ New highs - New lows: 156-27
WTI crude oil: 81.80, -2.23
Gold: 1,615.80, -7.40
Silver: 28.39, +0.02

Interest Rate Math and the Gathering Collapse of GDP

Taking a break from the usual, tired explanations of why the economy is imploding or why stocks went up or down on a particular day, today we will endeavor to discovre how much money is being lost to the US economy via the Federal Reserve's Zero Interest Rate Policy, that drives all other rates towards ZERO.

The idea for this enterprise came from an article n the September, 2010, edition of Reader's Digest, titled "Bonus Question" by Michael Crowley, abot how Wall Street profits at the expense of the middle class, especially through low interest rates. There's a podcast of the article available here.

The premise is simple. A long time ago, somebody, probably one or both of our parents, told us that saving was a good idea. And it was, especially when you could get 5% interest in a savings account.

Well, times have changed. One per cent is now the norm for CDs, savings accounts, money markets and other similar investments. So, the question emerges: how much has the Fed's Zero Interest Rate Policy (ZIRP) cost the middle class and the overall GDP?

Let's take an example of a person or couple having put away $300,000 for retirement, their plan, to retire on that money (they'll probably need more) and use the interest to pay for much of their daily living expenses. At 5% interest, they'd be looking at $15,000 a year, which is a very good start and would cover at least food, fuel and probably most of the rent.

But, let's suppose they've still retired, but they are only earning 1% today. That's only $3000, or, in other words, $12,000 that now has to come out of the principal, so every year that the Fed keeps ZIRP in place, they'll have to spend more and their net worth declines, impoverishing themselves and their heirs, someday in the future.

Editor's Note: I would like to point out that I'm using $300,000 in savings as an example here, figuring it is probably around the median savings of the already retired. Surely, many have saved less, but quite a few have saved even more. Actually, prior to 2000, the number was probably quite a bit higher.

OK, so now we can clearly see that the ZIRP has benefitted banks and Wall Street, as they borrow at nearly zero and lend at higher rates while investing in riskier assets like stocks and commodities. Retired individuals have no doubt tried to do the same with their savings, but the results have been poor over the past decade.

Getting back to our original premise, we have an average of $12,000 being lost to ZIRP, the money coming from the principal rather than interest. But suppose we say that this money is not being spent - and in some very real ways it isn't - because these retired folks are spending less on discretionary items since they have poor prospects for the future. Any way you look at it, ZIRP is causing a reduction in spending by seniors.

How much? Good question. We took a look and found that in April, 2011, there were 36,378,000 people collecting Social Security aged 65 or over.

So, simple math tells us that because of the Fed's ZIRP, there's roughly (36,378,000 X $12,000) $436,536,000,000 being lost in general spending to the economy. That's close to half a trillion dollars, and since we're two-and-a-half years into the Fed's ZIRP experiment, we lost that much in 2009, again in 2010 and are well on our way to doing it again this year.

Also, it's worth pointing out that Fed Chairman Greenspan, Ben Bernanke's predecessor, cut the federal funds rate to one per cent in the aftermath of the dot-com bust in 2001. Through the decade of the 2000s, the federal funds rate never got higher than 5 1/2%, and for much of the time it was well below that level, so the savings destruction has been going on for some time. We have been slowly eroding the wealth of seniors and future generations for over a decade and the effects are beginning to become quite a strain on the US economy.

So, how much damage is being done. If we can trust that number of $436,536,000,000 as the difference between 5% interest on savings versus 1%, it comes to about 3% of annual GDP, about the same amount the government would like the economy to grow annually. With the Fed's ZIRP in place, though, GDP will actually have to grow 6% just to make up the slack. And it isn't. It's not even close.

Charles Hugh Smith penned a very poignant essay on the topic of GDP on his Of Two Minds blog, in which he suggests that the economy isn't growing at all, thus reinforcing our point.

Since economics is mostly guesswork, extrapolation and statistics, please take this back-of-the-envelope with appropriate grains of salt, but the upshot is still the same: the Fed is actively destroying the savings and spending potential of seniors and anyone else who might be prudent enough to want to put something away for "a rainy day." Add in the implications of inflation, and it becomes clear why we're stuck in a no-growth economy and why deflation is not only desirable, but the best path out of our current morass.

Now, for our usual market recap:

Stocks went almost nowhere today, bothered by Wednesday's wicked sell-off and cognizant of Friday morning's May Non-farm Payroll release. Nobody seemed willing to put much "risk on", as they say, in advance of what could be a game-changing number. Most of the residual pain from Wednesday was felt in the Dow and in commodities, with the notable exception of crude oil (go figure).

Two pieces of economic data should have moved markets further to the downside, but the stubborn "recovery" crowd still refuses to buckle.

Initial jobless claims came in again above expectations (400,000) at 424,000, and factory orders fell 1.2% in April. This news, though bad, is about as good as anything seen in the past month. The Dow Jones Industrials were down nearly 100 points close to midday, but, as usual, recovered during the afternoon.

Dow 12,248.55, -41.59 (0.34%)
NASDAQ 2,773.31, +4.12 (0.15%)
S&P 500 1,312.94, -1.61 (0.12%)
NYSE Composite 8,277.76, -3.83 (0.05%)

Declining issues topped advancers, 3411-3119. On the NASDAQ, there were 30 new highs and uh, oh, 68 new lows. The NYSE saw 48 new highs and 47 new lows. Taken together, we have the expected flip, with 78 new highs being exceeded by 115 new lows. Unless the BLS pulls a rabbit out of its hat tomorrow morning and announces 150,000 or more new jobs created in May, it could mark a very important market turn that has taken many months to set up.

Volume on the day was back to pedestrian, depressed levels.

NASDAQ Volume 1,886,108,625
NYSE Volume 4,256,270,500

Crude oil was lower for much of the session, but finished the day up 11 cents, at $100.40, even though the government reported an inventory build of 2,878,000 barrels for the week ending 5/28.

Gold was punished again for being an alternative to paper money, losing $4.80, to $1534.30, though still very near all-time highs. Silver took more lumps, down 64 cents, to $36.18.

Just for fun, here's a chart which helps explain where the US economy is really heading via the Debt-to-GDP ratio:

And if that doesn't whet your technical appetite, try this long term chart of the S&P 500 measured in gold.