Fed's Bullard Fails to Halt Market Decline; Fed Credibility Nil; Correction, Potential Crash in Motion

At last!

After weeks of churning, uneventful trading, Wall Street delivered a most interesting session on Wednesday.

Instead of the usual down in the morning, up in the afternoon routine that's been de rigueur of late, this was a dip that virtually nobody was buying.

Stocks began the session quietly, but soon fell to their lows of the day, shortly before the close of European markets. Money that had heretofore been jumping from European equities into US stocks did not manage to materialize, as they have over the past few weeks.

Instead, stocks languished in negative territory, with the Dow down between 60 and 90 points most of the midday. Another bump lower between 1:00 and 2:00 pm EDT left the Dow at its lows of the day, the S&P and NASDAQ following it down, though on a lower percentage basis.

At 3:15 pm, St. Louis Fed president James Bullard, one of the more effeminate and dovish Fed members, laid out his pre-arranged meme to calm markets in an unofficial speech to a Rotary club in Paducah, Kentucky, saying that he Fed needed more data in the second half before embarking on any kind of bond purchase tapering and that the Fed should hold press conferences after every FOMC meeting, in order to facilitate a more open, quick response to markets.

Initially, stocks moved upward on his comments, but quickly fell back, signaling that traders and markets have become weary of the differentiating tone of the Fed, one day favoring tapering, the next day softening their stance. The market response to Bullard's comments was clearly a sign that fundamental market analysis was overtaking the Fed's manipulation by word of mouth and that the Fed was clearly stuck in a box from which there was no salvageable escape.

Truth is, the economy is not improving to any noticeable degree, and even a partial winding down or "tapering" of QE would cause a selloff in stocks and likely another round of interest rate hikes devoid of any influence from the Federal Reserve. Nearly disarmed and out of ammunition, the Fed is now stuck between a rock and a hard place. They can declare the economy improving and crash the market (because it isn't) or hold tight to their insane strategy of pumping $85 billion a month in bond purchases for a longer time period, a strategy that has caused distortions and dislocations of magnificent proportions.

Traders, usually quick-thinking and thick-skinned, have found no solace in Fed utterings of late, and are taking action on their own, mostly on the side of selling, to the utter dismay of the proponents of central planning and controlled economic reality.

Stocks suffered fairly severely, though still are floating on a sea of liquidity supplied by the ever-present Fed, a condition which - whether it changes or not - seems to have run its course. Valuations are such that further gains need a serious catalyst in the form or fundamentally strong data, which has yet to materialize. Thus, booking profits off the outsize gains from the first half seems to be the prudent strategy prior to the next FOMC meeting in September, and there's little the Fed can do to stem the waves of selling pressure now appearing in all sectors.

A slew of fiscal and geopolitical risks also conspire against the Federal Reserve and the stock market, making the condition ripe for a serious, sustained correction. The cyclical bull, inspired off the first round of QE and ZIRP in March 2009, is now 54 months old, and getting a bit weary.

Only fools would rush in to this market, but as is well known, Wall Street and investment types are replete with foolish folks, so a quick pop prior to a reversal would not be a surprise, though the odds for a solid correction of 5-10% are rising quickly.

Though losses were not large, the Hinderburg Omen strategy remains the most powerful. The advance-decline line was humbled on today's session, the losing streak has all indices down for the month and new lows overwhelmed new highs (as shown below) for the first time in two months. Gold and silver made substantial gains both during NYMEX and electronic trading, with silver the shining out-performer of the day.

All of this sets up for a bearish tone tomorrow and into next week, with key data releases on Thursday, including the closely-watched weekly unemployment claims.

Cisco (CSCO) reported after the bell, beating earnings per share by a penny with revenues roughly in line with estimates. Before the opening bell tomorrow, McDonald's reports with expectations of 1.25 pr share and revenue of 118.25 for the second quarter. Same store comps will be closely monitored as those fell in the previous quarter from a year ago.


Dow 15,337.66, -113.35 (0.73%)
NASDAQ 3,669.27, -15.17 (0.41%)
S&P 500 1,685.39, -8.77 (0.52%)
NYSE Composite 9,593.34, -37.23 (0.39%)
NASDAQ Volume 1,546,362,000
NYSE Volume 3,126,848,500
Combined NYSE & NASDAQ Advance - Decline: 2451-4038
Combined NYSE & NASDAQ New highs - New lows: 217-272
WTI crude oil: 106.85, +0.02
Gold: 1,333.40, +12.90
Silver: 21.79, +0.444

Where's the Money? Sellers Swamp Market Late on Last Day of May

The only major index that finished up on the last day in May was the Nikkei, but, that index closed the month in negative territory - not by much - but that was a result the "unlimited" QE by the BOJ was supposed to make impossible.

Impossibility. It's a word tossed around until the impossible become possible, then probable, then actually happens. The Titanic sank. Buster Douglas beat Mike Tyson. Secretariat lost (I was there, at the whitney Stakes at Saratoga in 1973). Sometimes, the Yankees don't make the playoffs, let alone win the world series.

As impossible as it may seem for the Dow Industrials to reverse course in the final 2 1/2 weeks of May and lose all the momentum supplied by $85 billion a month in bond purchases by the Fed, it happened. Unlimited money printing, when al is said and done, may not be the panacea for free market capitalism. In fact, it may be just the opposite, and Mr. Market may finally have seen enough, though we probably won't know, at the earliest, until Friday of next week, when the June employment data is released in the BIS non-farm payroll figures.

If this is the beginning of the end for failed central bank policy-making, that may take longer to discern.

In any case, stocks meandered in the early going on Friday, before settling into selling mode at 2:00 pm EDT, and really accelerating in the final hour of trade. There doesn't need to be a reason, just a sentiment, which could be a reality: that the general world economy is slow at best, receding, at worst.

It could be technical, since the US indices were making new all-time highs on just about a daily basis until just about a week ago.

The culprit could be bonds, as the 10-year's spike to 2.18 intra-day had some investors and speculators re-examining the stocks versus bonds paradigm.

Or it could be Ben Bernanke, whose exit strategy from the relentless easy money will be to retire from the chairmanship of the Federal Reserve. We wish him... well, we're not going there.

In any case, stocks sold off to give the Dow and S&P back-to-back losing weeks for the first time this year, with possibly more to come. Volume on the day was quite robust, the A-D line was better than 4:1 losers over winners, and, no, the number of new 52-week lows did not exceed the new highs, but it was close.

To finish off what could be a watershed week, here's Dan Hicks and His Hot Licks performing part of today's title, "Where's the Money" from the 1972 album of the same name:


Dow 15,115.57, -208.96 (1.36%)
NASDAQ 3,455.91, -35.38 (1.01%)
S&P 500 1,630.74, -23.67 (1.43%)
NYSE Composite 9,302.27, -157.79 (1.67%)
NASDAQ Volume 1,879,071,500
NYSE Volume 4,366,197,000
Combined NYSE & NASDAQ Advance - Decline: 1358-5007
Combined NYSE & NASDAQ New highs - New lows: 215-182
WTI crude oil: 91.97, -1.64
Gold: 1,392.60, -18.90
Silver: 22.24, -0.447

'Sell in May' the Mantra for Almost All Asset Classes

The first day of may held true to the tried and true market adage, "sell in May and stay away," as all asset classes declined, though commodity prices were hardest hit and forex barely budged.

Stocks took it on the chin from traders who continue to see horror in economic data, today's fright fest courtesy of the ADP Employment Index, construction spending and the ISM Index.

ADP said the economy missed its target of 150,000 new jobs by a wide amount, coming in at 119,000 for April and revised March lower as well. Construction spending shrank by 1.7% on expectations of a 0.4% increase, and the ISM reading, though nearly in line with expectations, registered a relatively weak 50.7, just barely above the 50 mark which signals growth above the number or decline below it.

It was likely the ADP figure that sent stocks careening at the open, but it wasn't until after the FOMC announcement at 2:00 pm EDT that stocks really began to slump deeply, finishing near the lows of the day after the Fed said they would keeps rates as they were, to the surprise of absolutely nobody. Daily volume was moderate.

The Vix spiked above 14.50, a signal that risk was being sold off, though still mired in a low range. Gold, silver and oil all surpassed the losses in stocks, with crude take=ing the biggest dive. WTI and Brent continue to converge; the expectation is that they will align at some point so that there is a global price for oil. Currently, futures are less than $10 apart, with Brent the higher of the two, falling below $100 per barrel as Europe's recession/depression begins to reach epic proportions.

As for gold and silver, the paper prices posted don't really seem to matter any more, as the price for physical metal has departed company from the spot price in nearly every venue in every country on the planet. People are aware of currency debasement and are seeking ways to preserve what little wealth remains in this era of extreme punishment for savers.

Treasuries have fallen below the recent plateau levels and continue to point up weakness in the economy and the need for some to flee to safe havens. As inflation remains subdued - using a Fedspeak term - bond holders are not losing much over time, though durations shorter than five years are yielding almost nothing. The benchmark ten-year was last seen around 1.63% yield.

The first day of the new month brought out the bears, though it remains to be seen whether this is the beginning of a trend or just a one-trick pony. The government's non-farm payroll data, due out Friday prior to the opening, should be the highlight of the week. Anticipation is for 155,000 new jobs created in April, but, after ADP's disappointing numbers this morning, prospects appear dim.

Dow 14,700.95, -138.85 (0.94%)
NASDAQ 3,299.13, -29.66 (0.89%)
S&P 500 1,582.70, -14.87 (0.93%)
NYSE Composite 9,174.76, -102.12 (1.10%)
NASDAQ Volume 1,769,443,125
NYSE Volume 3,697,257,75o
Combined NYSE & NASDAQ Advance - Decline: 1665-4789
Combined NYSE & NASDAQ New highs - New lows: 377-53
WTI crude oil: 91.03, -2.43
Gold: 1,446.20, -25.90
Silver: 23.34, -0.842

Something's Up... and it's Not the Stock Market

Intuition is vastly underrated by the scientific or technological community.

Understanding that the twinge of doubt or "gut feeling" is more than just an emotional reaction but in reality a hot process of accumulated experiences - some deeply-rooted and ancestral, others from immediate life experience - raises the process of intuitive thinking to a better standing, one that can assimilate data in microseconds and respond with appropriate action.

It's something along the lines of survival instinct in animals, who will move quickly at the rustling of leaves or changes in the flow of a stream. Humans, plugged into cell phones, iPods and a dizzying array of self-created distractions often don't have access to their own intuitiveness in the way other creatures do, but, sometimes, the clues are just too obvious to miss.

Such was the case with today's market action.

First, the ADP employment report for March, released prior to the opening bell, offered the second of three straight data point this week that was of a negative nature. The creation of 158,000 new jobs in the month was well short of the anticipated 197,000, and a precursor to Friday's "all-important" Non-farm payroll data from the BLS.

The other two data points on the negative side were the drop in the ISM index on Monday and the ISM Services index drop at 10:00 am EDT, that showed a slowdown to 54.4 from 56.0 in February.

Those were the catalysts to some pretty serious selling in equities, but also in gold, silver, oil, copper, corn, financial stocks, and a boost in bonds that sent yields lower, a trend that seems to be quite well-entrenched of late.

By midday, it was fairly obvious that everything was falling at the same time, which is not normal. On top of the usual market issues, the North Korean nut case keeps ramping up the rhetoric - the US responding with ongoing escalation - and the vision of depositor funds being vanished from bank accounts in Cyprus still fresh, the notion that things were fast unraveling was hard to miss.

Analysts of various stripes have been warning about a downturn in the markets for weeks, if not months, and the 100+ point decline on the Dow may serve notice that the top is in and everything from here to October (if we're lucky) is going to be downhill. The more obvious evidence comes in the form of the crumbling US economy, boosted with easy money, welfare checks, food stamps, disability payments and other government transfer payments that still cannot produce a GDP growing at faster than a two percent clip.

All the evidence is out there, in front of everyone's eyes, but it seemed that only today, the buzz-heads and stock jocks in equity la-la-land finally took the bait and took a big chunk out of the normalcy bias that pervades trading desks and the floors of the exchanges.

There was actual fear in the air, rather than the usual blather that the "Fed has our back," that has been conventional wisdom for the past four-plus years.

In effect, it's the Fed that has caused, in large part, the continuum of crisis that continues unabated, their easy money policies creating distortions of immense proportions, so that almost everything is mis-priced, mis-allocated and misinterpreted, the result being one massive, global mistake of monetary mismanagement that threatens the entire financial and social fabric of the planet.

It didn't take a genius to figure all of this out, just a feeling, that when everything began falling, the tumbling would not stop, the last time this happened (our minds reeling and whirring like the great analytical tools they are) was September of 2008, when Lehman Brothers was about to go under and the world changed - not for the better.

Mark this date, because it may be one for the history books, noted as the beginning of the end, when the tsunami of financial events, forestalled since the extraordinary measures of the Fed and other central banks in 2008-09, finally came rushing onshore, all at the same time, with a force and a fury that's been building since those well-embraced days of Hank Paulson putting a $700 billion gun to the head of the government and threatening to pull the trigger.

We may have weathered the storm of the past four years, but the backlash may be even worse, and it's coming faster than most people can anticipate or prepare for.

It's a funny thing about predicting disasters. You're humored or ignored or laughed at all the way up to the actual event. And then, people ask you what to do, when you've been telling them just that, all along.

Stocks may be up again tomorrow, or for the next week or month, even, but there's trouble coming, you can just feel it.

Dow 14,550.35, 111.66 (0.76%)
NASDAQ 3,218.60, -36.26 (1.11%)
S&P 500 1,553.69, -16.56 (1.05%)
NYSE Composite 8,983.40, -109.50 (1.20%)
NASDAQ Volume 1,813,335,250
NYSE Volume 4,418,003,000
Combined NYSE & NASDAQ Advance - Decline: 1499-4977 (huge)
Combined NYSE & NASDAQ New highs - New lows: 182-92 (tighter)
WTI crude oil: 94.45, -2.74
Gold: 1,553.50, -22.40
Silver: 26.80, -0.451

Draghi Delivers Win-Win for Europe, Stocks

ECB president Mario Draghi pleased just about everyone when he unveiled the latest bond-purchasing scheme by the European Central Bank at a news conference early this morning. Stocks rose across Europe and the Americas with the NASDAQ reaching 11 1/2 year highs.

Portions of the new ECB bond purchase program, which is designed to purchase sovereign bonds with maturities of 1, 2, and 3 years, were purposely leaked to the press in the days and weeks prior to the official announcement, which came after the ECB's rate policy meeting (kept the official bank lending rate at 0.75%), during afternoon trading on European bourses and prior to the open of trading in New York.

The plan, called by Draghi, Outright Monetary Transactions (OMT) rests on five main pillars: 1) Strict conditionality will be applied to bond purchases 2) There will be unlimited purchases of bonds with a maturity of one to three years 3) The ECB will not have seniority 4) All transactions will be 'sterilized' 5) Purchases will be reported monthly.

Countries wishing to participate (notably Spain and Italy) will have to make a formal application and adhere to conditions, mostly in the form of austerity measures, something at which many governments have balked.

While the stock markets advanced broadly, the S&P reaching a four-year high there are some land-mines over which the ECB will have to traverse in order to make the program a success.

First, there is the matter of legality, upon which the German high court will rule on Wednesday, September 12. The court is reviewing previous bond-buying programs by the ECB, such as the ESM, to determine if such plans comply the rigors of the German constitution. If the court decides against such plans, everything in Europe will be thrown into chaos, as Germany is the major funder of bailout programs.

The matter of nations applying for funding is another sticking point. Spain and Italy are in fiscal crises, but the political leaders are wary of conditionality, submitting their government to severe austerity measures, such as the recently-proposed six-day work week for Greeks. Additionally, sticking to the conditions ofthe loans is often difficult if not impossible, though the OMT specifically says that bond purchases will be curtailed if conditions are not met.

with the ECB now in the Fed's arena of massive money printing, what lies ahead for the US and global economies is next week's FOMC meeting, at which it is widely believed Fed chairman Ben Bernanke will unveil some new liquidity program of his own, commonly called QE3, though recent economic data, such as today's August ADP employment report and the ISM Services data would seem to indicate that further easing by the Fed is not warranted nor wise at this juncture.

Thus, positive economic data, a recovering economy and anything outside the stock market viewed as positive to growth will be viewed by Wall Street as an impediment to more easy money, likely causing a sell-off in equities.

Tomorrow's non-farm payroll report for August is the linchpin to Fed action. Anything over 150,000 net new jobs may cause the Fed to hold back from further easing. There's also widespread belief that the Fed will be reluctant to move so close to the US presidential elections, not wishing to be perceived as a political entity.

Next week is shaping up to be epic, one way or the other.

Dow 13,292.00, +244.52 (1.87%)
NASDAQ 3,135.81, +66.54 (2.17%)
S&P 500 1,432.12, +28.68 (2.04%)
NYSE Composite 8,160.40, +168.39 (2.11%)
NASDAQ Volume 1,883,115,000
NYSE Volume 3,919,524,250
Combined NYSE & NASDAQ Advance - Decline: 4360-1203
Combined NYSE & NASDAQ New highs - New lows: 494-39
WTI crude oil: 95.53, +0.17
Gold: 1,705.60, +11.60
Silver: 32.67, +0.35

Spanish Bank Bailout Has Bad Odor; Week Ahead Looks Fascinating

Following last week's magnificent vapor rally on the lightest volume of the year, the new week started off gangbusters with news of a $125 billion (100 billion euros) bailout of insolvent Spanish banks sending US equity futures up on a sugar high prior to the opening bell.

Asia rallied strongly on the same news, followed by significant upside on the European exchanges. However, once Wall Street got a whiff of the real stench coming from Europe (Spain's bailout is hardly anything to cheer about; the loans from either the ESM or EFSF are uncertain and have not been approved by the German parliament, which is a must; Greece's elections loom on Saturday), it didn't take long for the best minds, algos and short sellers on Wall Street to sell the rally and start taking profits from last week's big run.

The Dow was up 96 points in a flash, but by 10:00 am EDT was already under the unchanged line, dragging down the other major indices with it. Stocks took a breather during the middle of the session, but, after 2:00 pm, it was pretty much all downhill, as investors went scurrying for cover in defensive stocks and treasuries.

Fear of the impending and eventual full retard global financial collapse were once again front and center, and, with good reason.

Whatever the euphoria over endless money printing out of thin air, be it by the US Federal Reserve, the ECB, China or any other nation, it appears that most people with sense have come to ignore it, at least, and abhor it, at worst. This same story has been playing since the fall of 2008 - throwing more debt at bad debt - and, since the Spanish banks were about the only suckers buying the debt of the Spanish government, recapitalizing them was just another in a long, futile line of can-kicking efforts, far from a real solution to the global crisis caused by long-term issuance of excessive debt.

The centrally-planned, central bank model of piling more bad debt upon already bad debt is coming to a furious conclusion and there seems to be nothing to prevent a complete reset of the world's capital structure. Hard line Keynesians continue to pretend that there's a way to avoid a catastrophic global meltdown, but the reality is that very little has been done thus far, and it's probably now too late to change tactics.

What has passed muster in the past now seems old hat, the results already known, that more bailouts and printing of money will not suffice; old, tried and true methods such as default, bankruptcy, selling off of remaining assets and new management of failed institutions - be they financial or governmental in nature - are the only prescriptions that will cure the ailing patient that is the global financial system.

There is already a great deal of talk circulating about subordination, of soured notes and bonds taking a back seat to newer issues. Spain's stock market, up nearly 6% early on, ended the day in the red and in tatters, the Spanish benchmark 10-year note yielding above 6.5%, a danger area. Greece's 10-year has already achieved escape velocity, with a yield of more than 28%, probably not even ample considering the risk. The Euro finished below 1.25 to the dollar, which is still 20-30% too high, crude was pounded down to eight-month lows, and a quadruple-witching day awaits markets on Friday.

It's either ironic or appropriate that rich and poor dads alike will have one more day in the sun on Father's Day, June 17, upon which day Greeks vote once again to try to form a government in an ungovernable situation. By this time next Monday, there may well have been a 500-point decline on the Dow, with Europe slitting apart at the seams, US and other developed nations exhibiting no growth and Italy waiting in the wings to be the next major casualty.

This week promises to be one of the most interesting - from a macro perspective - though, with more than $800 billion being pulled out of equities in the two years following the May 2010 "flash crash," there may not be anyone left around the trading floor to turn off the lights.

The entire mess has been the product of government gone fiscally wild and banks more than willing to take on excessive, often foolish risk over the years and into today. There comes a reckoning, and that day will arrive eventually, without fanfare or pretense. Then the planet will tremble as great swaths of wealth are obliterated by the same system that made the unrealistic promise of endless growth on a finite planet.

Volume was once again horrifyingly absent, breadth was extremely negative and new lows crept up on new highs after a brief reversal last week.

Dow 12,411.23, -142.97 (1.14%)
NASDAQ 2,809.73, -48.69 (1.70%)
S&P 500 1,308.93, -16.73 (1.26%)
NYSE Composite 7,459.29, -94.49 (1.25%)
NASDAQ Volume 1,477,944,250
NYSE Volume 3,383,333,500
Combined NYSE & NASDAQ Advance - Decline: 1206-4401
Combined NYSE & NASDAQ New highs - New lows: 144-94
WTI crude oil: 82.70, -1.40
Gold: 1,596.80, +5.40
Silver: 28.62, +0.15

Apple Bifurcates Markets on Big Sell-off; Spain, Housing in Focus

Before getting to why the major indices were all over the map today, a couple of key economic data points:

The NAHB Housing Market Index fell for the first time in seven months, from 28 in March to 25 in April. A figure of 50 is considered "break even" wherein more builders are more confident. Obviously, this latest dip leasves new hoe builders nowhere close.

Regionally, the Northeast posted a four-point gain to 29 (its highest level since May of 2010), the West saw no change at 32, the South declined three poins to 24 and the Midwest was the weakest, posting an eight-point decline to 23.

With new home sales on tap for tomorrow, housing appears to be as weak as it ever has.

Retail sales for March posted an unexpected 0.8% gain on expectations of just a 0.3% rise, somewhat of a surprise considering high fuel costs and other issues facing consumers (no jobs, no homes, high debt, etc.).

On the downside, the Empire Manufacturing Index nose-dived from 20.21 in March to 6.56 in April. The collected wisdom of forecasters expected a decline - to 17.6. New orders and shipments were down, while the employment situation was mixed with more jobs, but for shorter durations.

Taken together, these data sets reveal a US economy that is crawling along and possibly sputtering to stall speed.

Investors in Apple (AAPL) took some long-overdue profits on Monday, sending the world's largest company by market cap down 25.10 points (4.15%), to close at 580.13, the worst decline for Apple in more than six months. Investors were buoyed by a 45% gain in the company stock since October, however.

The weight of Apple on the various indices was obvious, with the NASDAQ the most severely affected, the S&P less so. Meanwhile, the Dow registered a strong showing, with 24 of the 30 components sporting gains, led by Travelers (TRV), Proctor & Gamble (PG), Wal-Mart (WMT) and DuPont (DD).

Otherwise, it was a straightforward session, with much of the focus centered on Spain's 10-year note, which spiked back above 6% on the day and sent bond holders scrambling for the safety of the German Bund, which is nearing historic lows. The pressure on Spain's funding continues to fuel speculation that the country will need a Greek-style bailout soon.

Dow 12,921.41, +71.82 (0.56%)
NASDAQ 2,988.40, -22.93 (0.76%)
S&P 500 1,369.57, -0.69 (0.05%)
NYSE Composite 7,949.57, +18.47 (0.23%)
NASDAQ Volume 1,566,279,375
NYSE Volume 3,444,850,000
Combined NYSE & NASDAQ Advance - Decline: 3083-2500
Combined NYSE & NASDAQ New highs - New lows: 109-106
WTI crude oil: 102.93, +0.10
Gold: 1,649.70, -10.50
Silver: 31.37, -0.02

S&P Closes Under 1400; Precious Metals Whacked

The follow-on from yesterday's FOMC minutes release, combined with scary data from Australia and China (slowing economies) sent markets tumbling globally.

Asia and Europe each saw aggressive selling, and by the time US markets opened - despite ADP March employment data posting a modest beat of 209,000 jobs - the Dow was set up for a 100-point loss at the open.

The opening move was swiftly lower, taking the other major indices along for the ride. Dow Industrials remained below 13,100 all day, with the S&P 500 - despite a late day rally - eventually closing below 1400 for the first time in eight sessions.

To say that the markets have topped out temporarily would be putting it lightly; rather, stocks seem to be in a steady drift lower, as Winter turns to Spring and investors seek to lock in profits from one of the most rambunctious first quarters in stock market history.

Conditions in Europe once again made noise in the states, as a poor showing for a Spanish bond offering and rumors of another bailout for Portugal fanned the flames of global recession.

While some commentators continue to spout nonsense that the US is "decoupling" from Europe and the rest of the world's economies, such talk is nothing but hot air, mostly from the same people who rightly contended during the struggles in the US that a large portion of US earnings are derived from abroad.

One simply cannot have it both ways. We are either a part of the global economy or we are not and the facts are strongly in favor of the "globalized" economy model.

What concerns investors most during this transitional period are fears of a prolonged slump in Europe which would exacerbate tepid conditions in the US. Economic data has been fragile of late, but hope for a renewal to the rally on first quarter earnings data from US companies is keeping the markets somewhat range-bound and in a position of relative strength, though the thought of the Fed cutting off the easy money with the end of "operation twist" in June are tempering the bullish sentiments.

While stocks were damaged on the day, gold and silver were even harder hit, which makes little sense from an historical perspective. In times of economic distress, the precious metals usually hold up better, but, since they have been turned into trading vehicles by the Wall Street madmen, such assumptions may not hold up this time around. The mood is eerily similar to that of September 2008, when a fragile economy was overturned by a number of random events. The situation is vastly different today, however, but a major crisis anywhere in the world could rapidly spread.

In the face of some chaos, the strengthening dollar is at least bringing down oil prices, which should eventually lower the price of gas in the US. The high price of fuel is in itself a condition which could severely slow the already turbid US economy, though the good news for drivers may not be welcomed by equity investors.

The new high - new low indicator flipped to the negative today for the first time in a long while. Any continuation of that trend indicator could signal a prolonged correction, something the three-year-old bull market has not experienced since the flagging days of last summer.

Dow 13,074.75, -124.80 (0.95%)
NASDAQ 3,068.09, -45.48 (1.46%)
S&P 500 1,398.96, -14.42 (1.02%)
NYSE Composite 8,111.48, -105.06 (1.28%)
NASDAQ Volume 1,779,653,500
NYSE Volume 3,810,047,500
Combined NYSE & NASDAQ Advance - Decline: 1079-4563
Combined NYSE & NASDAQ New highs - New lows: 65-109
WTI crude oil: 101.47, -2.54
Gold: 1,614.10, -57.90
Silver: 31.04, -2.22

Market Knee-Jerk Response to Greek Deal is a Bullish One

Though there has been no official announcement, apparently, market participants believe that the Greek restructuring of their private debt (a 53.5% haircut for bond-holders) is a done deal.

This was always assumed to be the case, as nobody wanted a credit event and a triggering of the collective action clauses (though that WILL happen) and thus, force payouts of CDS as if Greece actually did default (which it of course did, which is why it suddenly changed its laws regarding bonds).

If all of this sounds too fantastic or incomprehensible is because all reporting today was based entirely upon rumors. The actual tally of how many and what percentage of the private bond holders agreed to the deal won't be known until 1:00 am ET at the earliest and probably not until 8:00 am ET, when the group arranging the deal will hold a news conference.

As usual, the most measured and unbiased reporting is being done by the Christian Science Monitor which has as its headline, Greece to investors: take a haircut so we can get our bailout and includes this little gem a few paragraphs into the article:

According to the deal the Greek government negotiated with the Institute of International Finance (IIF), which represents most of Greece's private sector creditors, investors will write off 53.5 percent of debt – which amounts to a waiver of 74 percent when the loss in future interest is taken into account – and exchange the rest of bonds they are holding into new papers which are worth less, have a longer maturity, and pay less interest.

So, according to equity market participants, having private bondholders - mostly banks and hedge funds - take a 74% loss on their investments - only to repackage a new deal to the same defaulting party - is better than having a country actually default on its debt and start over. Plus, this agreement paves the way for Greece to take on more debt that it can't possibly repay, ensuring that we'll reprise this particular farce all over again somewhere down the road.

If that is what passes for good news these days, then there's little wonder why most individuals are not invested in the stock markets, nor want to be. It also serves as a prime example of why most people don't trust banks, governments or the media, because instead of having debtors who can't pay back loans default, the prevaricators of this particular brand of financial suicide actually prefer pretending and replaying the same canard over and over again (like the US government and the Fed did with the too big to fail banks in 2008-09), all along adding even more debt, more derivative bets (CDS) and more equity market euphoria to the calculus.

It's a dangerous game, one in which any individual large player could pull the rug out from beneath everyone else at a moment's notice, although that's a scenario unlikely to occur because it would be the equivalent of playing Russian roulette with all chambers loaded.

If today's good news is that Greece isn't defaulting - at least not today - and the markets respond positively, one must ponder what would happen if there was some actual good news. Recalling images of the late Great One, Jackie Gleason, from the Honeymooners, "to the moon, Alice, to the moon."

Dow 12,907.94, +70.61 (0.55%)
NASDAQ 2,970.42, +34.73 (1.18%)
S&P 500 1,365.91, +13.28 (0.98%)
NYSE Composite 8,082.36, +102.58 (1.29%)
NASDAQ Volume 1,620,493,125
NYSE Volume 3,442,931,750
Combined NYSE & NASDAQ Advance - Decline: 4295-1323
Combined NYSE & NASDAQ New highs - New lows: 199-30
WTI crude oil: 106.58, +0.42
Gold: 1,698.70, +14.80
Silver: 33.83, +0.25

Individual Investors Not Buying Growth and Recovery Myths

Institutional investors, like hedge funds, mutual funds, retirement funds and the like, have a vested interest in keeping stock prices on the rise, such as has been seen in the first few months of this new year.

On the flip side, individual investors have shied away from equities in a meaningful way since the economic collapse of 2008 and few have ventured back. Their reasoning became evident today as stocks were hard-hit globally, beginning overnight in Asia and accelerating with large losses on the european exchanges. By the time the opening bell rang in New York, Wall Street was bracing for a world of hurt.

Remember that disturbing, repeating pattern mentioned at length here yesterday? The one in which stocks fell sharply at the open, only to gradually improve throughout the remainder of the session?

As it appears today, those dips and rises might have been nothing more than smart money getting out ahead of the carnage to come. The repeated attempts and failures for the Dow to close over 13,000 were at least a set-up for a trend top in stocks and may have signaled an impending correction or even outright rout.

The reasons for weakness in stocks could have been predicted by the constancy of low trading volumes, mixed to negative economic data and the non-confirmation by the transportation index. Wall Street's professional prostelitizing over the need for individuals to "get back into the market" or "stay invested" has been running contrary to evidence for quite some time, and it may finally begin to sink in that continual growth is an impossibility and the US "recovery" is nothing but a well-managed myth, propagated by the control freaks in Washington and New York and promulgated by the whores of the media.

Wall Street's five-month-long, liquidity-fueled bogus rally is coming to a quick end. All the cheerleaders for "dow 13,000" are going to look pretty stupid in coming weeks and months as the widely-watched average hovers closer to 12,000 and possibly even lower. How low it will go nobody knows for sure, though there are elements already in place, like Greece, Europe in recession, slowing economies in China, India and Brazil, high food and fuel prices, that could plunge the world into a re-enactment of the 2008 crash, only that this time, fed funds rates are already at zero and tens of trillions of dollars have been thrown at the problems without results.

Today's drop was the first triple-digit decline for the Dow of the new year and the largest percentage decline since November 23. That it comes a day before the release of the ADP private employment data report - which serves as a proxy for Friday's NFP call - is probably not a coincidence. Neither is it coincidental that private bond investors in the Greek bailout will vote on whether or not to accept the terms of a debt restructuring (read: haircut) on Thursday. Bad news might remain in the shadows for a while and might be purposely ignored, but eventually it surfaces, and by then it's usually worse than expected.

In the globally-connected world created by the Keynesian genii central bank economists, Greece's problems are Europe's and our own, and Chinas and everybody's. The contagion which will proceed from Europe will engulf all markets and all countries. Central bankers will have two options: lying and printing, which has been proven ineffective, or, bank liquidations, sovereign defaults and global deflation. They will likely opt for more "pretend and extend" tactics, leading to more inflation and more phony markets in which people of common sense will not participate. The other, proper, Austrian-style solution may be more painful at first for some, but once the toxic debts and zombie banks are flushed from the system, real recovery can begin.

This week and the next two may prove to be as pivotal in terms of the survivability for the entire global economic structure as any time in the last thirty years.

One should not be worried unless one has a job, a pension or most of one's wealth in stocks because the one-percenters of the world are about to become even more vilified than ever as the world's problems are brought out into the open and some may even join the ranks of the feeble top 20 percent. What the global nanking and political cartel has wrought will almost surely destroy more than a few ill-gotten fortunes and many more honestly-made ones, but, whatever path is taken, more economic pain is nearly assured, though this time it will be more evenly distributed.

In fact, those clinging to the bottom rungs of the economic ladder may fare best of all.

Dow 12,759.15, -203.66 (1.57%)
NASDAQ 2,910.32, -40.16 (1.36%)
S&P 500 1,343.36, -20.97 (1.54%)
NYSE Composite 7,920.13, -171.14 (2.12%)
NASDAQ Volume 1,870,041,375
NYSE Volume 4,171,692,250
Combined NYSE & NASDAQ Advance - Decline: 724-4956
Combined NYSE & NASDAQ New highs - New lows: 50-82 (flipped, finally)
WTI crude oil: 104.70, -2.02
Gold: 1,672.10, -31.80
Silver: 32.78, -0.91

Failed German Bond Auction Sends Stocks Scurrying Lower

Germany, a tower of strength throughout the ongoing European debt crisis, got a taste of the bad medicine which has been doled out mostly across Southern European nations, as an auction for $8.1 billion in German Bunds was not well received, as bids covered only $5.9 billion of the offering.

Additionally, investors demanded a higher yield on the 10-year note, pushing the yield to a six-week high at 2.02%, higher than the corresponding 10-year note in US treasuries, which plummeted to as low as 1.88% during the course of the day.

Foremost on the minds of traders of all stripes, the question was simple, "If Europe's strongest nation cannot fund itself, what's next for the continent and for the rest of the planet?"

The news struck just prior to the opening of US markets. Along with unusual readings on US durable goods orders, personal income and personal spending, markets opened sharply lower and languished in the red all day.

Personal income for October showed a gain of 0.4%, while personal spending increased a mere 0.1%. Along with those figures, both below forecasts, the national savings rate fell to 4.1% in the third quarter compared to 5.1% in the second quarter, suggesting that Americans are dipping into savings or saving less in order to make ends meet, a scenario of which most lower and middle-income citizens are already well aware.

Durable goods orders, a key driver of broad economic growth, fell sharply, off 0.7% and yielded another odd number. Without transportation orders (autos, planes, etc.), durables were up 0.7%.

Spooking the market even more were poor results in the flash reading of China's PMI, which showed contraction, at 48.0, down from 51.0 in October. The flash reading generally captures about 85-90% of the businesses surveyed. The final reading will be released on December 1.

As US markets pause to give thanks (for what, nobody's exactly sure) on Thursday, economies and markets are gripped by turmoil, fear and trepidation over an imminent recession and possible currency collapse in Europe and elsewhere. With half of Europe likely already in recession, global growth seems to be stalling out in much the same fashion as it did in 2008. The Euro fell to its lowest level against the US dollar in six weeks, though still holding valiantly to the 1.33 level, though without relentless priming and pumping from the US Fed, the Euro seems doomed to fall to levels not seen since the Euro's earliest days.

That Europe can actually fund itself and fix the problems caused by decades of overspending appears more and more a fiction that only financial broadcasters and government officials mouth. Whether they actually believe what they're saying is a matter for speculators.

The Dow Jones Industrial Average fell for the fifth time in the last sixth sessions. The NASDAQ and S&P 500 fell for the sixth consecutive day. All of the major averages are now back below where they started the year and each has fallen below its 50-day moving average. The number of advances was at a three-month low and new 52-week lows outpaced 52-week highs by its highest margin since August.

All sectors were lower, led by energy, basic materials, technology and financials. Bank of America, possibly the most-hated financial institution in the world (though Goldman Sachs may garner even more angst) fell to 5.14 at the close, the lowest level since March of 2009, the bottom of the 2008-09 downturn. All 30 Dow stocks finished lower on the day.

Gobble, gobble, Happy Thanksgiving. See you on Black Friday.

Dow 11,257.55, -236.17 (2.05%)
NASDAQ 2,460.08, -61.20 (2.43%)
S&P 500 1,161.79, -26.25 (2.21%)
NYSE Composite 6,951.56, -143.33 (2.02%)
NASDAQ Volume 1,715,325,750
NYSE Volume 3,798,937,500
Combined NYSE & NASDAQ Advance - Decline: 767-4911
Combined NYSE & NASDAQ New highs - New lows: 39-371
WTI crude oil: 96.17, -1.84
Gold: 1,695.90, -6.50
Silver: 31.88, -1.07

Debt Downgrade Fallout: Stocks Shattered, Gold Soars, Europe a Wasteland

At 9:00 pm Eastern time on Friday night, August 5, S&P officially released their downgrade of US debt from AAA to AA+, prompting widespread panic and sharp rebukes from the White House, who claimed, in effect, that S&P had made what amounted to "math errors."

Over the weekend, much was made of the downgrade, as the Obama hit the airwaves with gusto, rebuking the call from the ratings agency. Fitch and Moody's had previously reaffirmed the US debt as AAA, the highest possible sovereign bond rating, but S&P would not back down, and the downgrade remained in effect.

What S&P reasoned was that the US government did not take the necessary steps - in its theatrical production of waiting until the last possible moment to pass a debt ceiling increase - to address the structural problems facing it. S&P rightly concluded that US debt levels were and continue to rise and discretionary spending levels have not been controlled. Therefore, they downgraded the nation's debt and threaten to do it a second time, sometime around November, if the 12-member congressional committee charged with dealing with long term debt does not come up with actionable, concrete, debt reduction proposals.

As markets opened on Monday, the effects of a global panic were evident, especially on the heels of a 10% decline in US indices over the past two weeks and Thursday's dramatic sell-off of over four per cent on major markets.

First, it was the Asian markets which tanked at their various openings and continued through the day to sell off anywhere from 1.5 to 4.0%. Next up was Europe, where the crisis over bailing out Italy and Spain have reached a point of no return. EU officials stressed that they would be in the market with the ECB, buying up italian and Spanish debt, but that did little to change the outlook of investors, which had turned sour over the past fortnight.

Appetite for risk was at a low, as European markets suffered steep losses. England's FTSE was the best of the lot, down only 2.62%. France's CAC-40 took a 4.68% loss and Germany's DAX shed 5.02%. Other Euro-zone markets fell between 3.76 and 6.11%.

By the time US markets were to open, index futures had been hammered down to presage an inauspicious opening. Within minutes of the bell, the Dow was down more than 200 points, the S&P had taken a 25-point hit and the NASDAQ fell more than 70 points, though those declines were nothing compared to the carnage that lay ahead.

By the end of the day, after a minor rally in the first 15 minutes of the final hour, stocks were trading at or near their lows, with the Dow Jones Industrials surrendering the 6th-worst performance in its history. While the Dow suffered a 5.5% decline on the day, the other indices were actually much worse, with the NYSE Composite topping them all, coming home with a 7.05% loss.

It wasn't just the debt downgrade that spurred the sell-off. Conditions in Europe have worsened significantly over the past few months, to the point that European Union officials are without reasonable solutions to the debt contagion spreading across the region. While the ECB has managed to prop up smaller countries like Greece, Portugal and Ireland, Italy especially poses a much larger concern.

All the European leaders could muster on Monday was a terse statement which offered no concrete proposals but plenty of assurances, which was be roundly written off by markets. To wit:

We are committed to taking coordinated action where needed, to ensuring liquidity, and to supporting financial market functioning, financial stability and economic growth

That was the extent of the communique from the magnificent seven of the United States, Canada, Great Britain, France, Germany, Italy and Japan.

The irony is that one of them, Italy, has been the source of the most recent anguish.

Essentially, the funds available to the ECB fall short of meeting the debt purchases needed to save Italy and Spain. Europe will have to engage in quantitative easing, as was the case in the United States over the past two years, to stave off defaults and the threat of a cascading crisis which would envelop all of Europe and likely doom the 11-year-old Euro currency.

If the EU decides upon cheapening the currency - which it almost certainly will do - theknock-on effect will be to sink the Euro, probably close to parity with the US Dollar. As the dollar would grow in strength, commodities, particularly oil and gas for auto use, would plummet, a boon to US drivers and to the general economy. Costs of imports would also decline, on a relative basis, giving American consumers more purchasing power.

Within the same scenario, however, are pitfalls for the global manufacturers and companies that populate the S&P 500, NASDAQ and the Dow. A stronger US Dollar would make them less competitive in foreign markets, shrinking margins and thus, profits. Thus, the great selling rush today was more of a statement on the global condition rather than that of the debt downgrade, which, when all is said and done, won't amount to a hill of beans. In fact, treasuries were up sharply today, as yields fell to their lowest levels in over a year.

The benchmark 10-year note fell 25 basis points in just one day, from 2.56% on Friday to 2.31% on Monday. The 30-year bond fell 19 basis points, to 3.65% as the yield curve continues to flatten. Money is going out of stocks and into bonds, and whether they're AAA or AA+ doesn't matter to those seeking a safe haven. The ridiculously low yields offered are a moot point. As one trader put it, "Investors aren't looking at making money; they're more concerned with getting their money back."

And, therein, the next crisis, in bonds, especially if the US government doesn't get its house in order soon. Higher rates and another downgrade could trigger a default of impossible proportions as the US would be unable to roll over its debt and fund itself without incurring higher borrowing costs. Ditto for Europe. Rising interest rates signals the end game for fiat currencies globally and back to some form of honest money, most likely on a gold standard.

The market events of the past few days, in which the major indices lost more than 10% are not the end of the crisis, but rather the beginning of the end of a great generational bear market that began in 2007 and will eviscerate all risk assets until nobody wants to hold anything any more.

Markets have entered the final stages of the third leg down. QE 1 and 2 staved off the collapse, but there will be no bailouts this time around. It's every man, woman, child and company for itself. There will be some winners, but mostly there will be losers, anguish, agony and the disappearance of great hordes of wealth.

Dow 10,809.85, -634.76 (5.55%)
NASDAQ 2,357.69, -174.72 (6.90%)
S&P 500 1,119.46, -79.92 (6.66%)
NYSE Composite 6,895.97, -523.10 (7.05%)

The internals were equally as stunning as the headline numbers. Declining issues decimated advancers, 6553-375, a ratio of 17.5:1. It was truly one of the deepest, broadest declines in stock market history. On the NASDAQ, there were four (4) new highs next to 725 new lows. The NYSE had just three (3) new highs, but 1292 stocks making new 52-week lows. The combined total of seven (7) new highs and 2017 new lows rivals or exceeds the figures presented during the fallout of 2008-2009.

Volume was at the highest levels of the year, exceeding that of last Thursday, which was then the high volume day of the year. Investors aren't just scared, they are trampling each other running through the exits at breakneck speed.

NASDAQ Volume 4,002,857,250
NYSE Volume 11,046,384,000

Crude oil futures were pounded again, as the front-month contract on WTI crude fell $5.57, to $81.31. Gas prices will soon fall below $3.50 - and possibly below $3.00 - a gallon as current supplies are depleted and replaced by less expensive distillates. According to AAA, the average price of gas in the US is now $3.66 per gallon, but the deep declines have not yet been factored into the equation. That will happen over the next two to three weeks.

Gold was the big winner of the day, soaring $61.30, to $1,713.20, another all-time record price as investors, companies, nations, central banks and housewives scrambled to find reliable assets. Silver, still constrained by high margin requirements, gained $1.17, to $39.38. Silver is almost certainly the most under-appreciated asset in the world, though that will soon change. As the crisis escalates and governments make more and more bad moves, the precious metals will skyrocket to unforeseen heights.

The banking sector took it on the chin, but none more than Bank of America (BAC) which is on the verge of a well-deserved bankruptcy. shares of the nation's largest banks fell 20% on the day, losing 1.66, to close at 6.51. Just a few weeks ago, BofA was trading at a price nearly double that. The unfolding mortgage crisis, brought about by Bank of America's 2008 purchase of Countrywide, has become a fatal blow to the once proud institution.

David Tepper's Appaloosa Management Fund has reportedly sold its stake in Bank of America (BAC) and Wells Fargo (WFC), while significantly trimming Citigroup (C) from the portfolio.

Adding to the irony, AIG has sued Bank of America for $10 billion, citing "massive fraud" in its representations of mortgage-backed securities (MBS).

However, Citigroup analyst Keith Horowitz takes the booby prize for reiterating a "buy" rating on Bank of America shares this morning. Timing is not one of Mr. Horowitz's strong points, it would appear.

On top of all this, the FOMC of the Federal Reserve will issue a policy statement Tuesday at 2:00 pm EDT, followed by a news conference from Chairman Ben Bernanke. That alone should equate to another 300-point decline in the Dow.

For those with a morbid curiosity, check out the slideshow of the 10 worst days on the Dow, already outdated, as August 8, 2011, will go down in the history books as the 6th worst day for the blue chip index of all time.

Henry Blodgett and Aaron Task have a nice summation of the situation in the video below:

American Sheeple Love to Be Fleeced and Played

The lies, half-truths and material obfuscation by the government has reached new heights with the latest flip-flop on the "Osama bin Laden is dead" story.

Now the president won't release a picture of a dead bin Laden because it might inflame the Jihadists of the world. Rubbish! Pure, unadulterated nonsense from the man who is supposed to be the leader of the greatest nation on the planet, but is now exposed as nothing more than a simple liar.

Lies, lies and more lies are all the American people can expect from the most corrupt government the world has ever seen. The details of this entire, "we got him" affair have changed so often as to strain credulity until it doubles over in laughter or vomiting, or both.

First, the story originally released by AP on Sunday night, May 1, was that bin Laden was killed a week prior and that the White House had been waiting for DNA tests to confirm that the victim was indeed the world's bogeyman. Anyone watching the news scroll on FoxNews or CNN saw it, undeniably. That story vanished as soon as the president stepped up to the podium that Sunday night.

Then there were reports of a firefight, now, no firefight. Osama was armed, then he wasn't; he used his wife as a human shield, then he didn't and it wasn't even his wife, then it was his wife and she was shot because she rushed one of the Seals. There were two helicopters, no, three, no, there were four. Then Osama bin Laden is taken out of the compound to Afghanistan and rushed to an aircraft carrier for a proper burial at sea. Sure, that's completely understandable, especially if you believe Osama bin Laden was a seaman or a pirate.

Of course, there's the implausibility factor of a huge compound with 18-foot high walls, topped by barbed wire in a town populated by retired Pakistani military people, which never raised any suspicion for five or six years. That's certainly believable.

The entire episode is one huge farce and sadly, the iPad buying American sheeple public-at-large will gooble up every last sound bite of it, all the while chanting, USA, USA, USA! because the American sheeple actually love being conned, swindled, cheated, fleeced and sheared by their government. After all, this is the culmination of the 9/11 attacks, the major farce that has to this day never been adequately explained.

But, so what? Osama the Terrible is dead, right, and whether he's been dead for five, six or seven years is really immaterial because the powers that be are changing the narrative. They had to, because the most recent narrative of borrow and spend and gas at $4.00 a gallon and rising food prices and war on three fronts wasn't really going all that well, was it?

So, now, we have crashing commodity prices, falling stocks and oil down seven bucks in three days. Get ready for the new AUSTERITY coming to America. The sheeple will be fleeced from an entirely different direction and instead of calling it a recession or a depression, it will be known as a period of "slow growth" or "stagnation." Anything but calling a spade a spade, a recession a recession, a depression a depression.

The American sheeple will receive less in government service and be taxed more for it all in a "shared sacrifice" decade of austerity that is evolving even as we sit back and watch the latest American Idol or Star Dancing. America has been permanently dumbed-down and defeated, and the government loves it because an ignorant public is a well-behaved public. Give them their bread and circuses, today known as food stamps and football, and they'll just blindly follow along.

That's just the way it is, sheeple, one and all. You love being played.

Dow 12,723.58, -83.93 (0.66%)
NASDAQ 2,828.23, -13.39 (0.47%)
S&P 500 1,347.32, -9.30 (0.69%)
NYSE Composite 8,506.61, -78.07 (0.91%)

For a change, everything (except bonds) went down. Declining issues overwhelmed advancers - for the third day in a row - by a score of 4700-1904. On the NASDAQ, the flip required to shake the markets from rally mode to selling spree occurred today with 52 new highs, but 53 new lows. On the NYSE, stubbornness prevailed with 89 new highs and 28 new lows, but it's getting closer. Volume, unsurprisingly, was up again today, on a down day, an ominous warning that more selling is on the way.

NASDAQ Volume 2,250,185,000
NYSE Volume 5,078,037,500

Commodities continued to be whipped into submission. WTI crude oil futures fell another $1.81, to $109.24, the lowest price in two weeks. Gold tumbled another $20.60, to $1516.50 and silver took another massive beating, down $2.27, to $39.39. And, this just in after the close, margin requirements on silver are being raised again by the CME. Apparently sending the price of silver down $11 in three days isn't enough to square all of HSBC's and JP Morgan's short positions.

The often-discredited ADP Payroll report for April was released prior to the open today, showing private payrolls increasing by 179,000, short of consensus. But the real news was that the ISM Services index fell from 57.3 in March to 52.8 in April, a pretty big loss and well below consensus estimates of 57.5.

Tomorrow comes another week of initial unemployment and continuing claims, which precedes the BLS non-farm payroll report on Friday.

Prepare for disaster because we've been living one for the past three years.

Fear and the 10-Year Treasury Yield

Talk is rampant in financial circles over the trending 10-year bond yield, the benchmark Treasury that touched the 4.00% mark on Monday. In general terms, rising bond yields mean rising interest rates overall, from everything from credit cards to home mortgages and also serves as a early warning sign for inflation.

The run-up of the 10-year bond yield has sparked new widespread fears that inflation may return to US markets, crimping the year-long rally in stocks and pounding down any hope for recovery in the housing sector. These fears are largely unfounded, however, because the alignment of Treasury yields to the real economy is simply not sensible at this time.

First, the Fed isn't going to move on interest rates any time soon, even though they merely follow the direction of the markets as a normal course of operations. Second, higher interest for loans is something of a mystical chimera, since only mortgage loans have been held lower by the unprecedented slump in residential housing. Credit card rates for most Americans are already sky-high, with no relief in sight from the immoral banks and credit lending companies.

Third, as an inducement to inflation, bond yields should work as a dead weight on equities, as investors can make worry-free money on Treasuries as opposed to stocks. If stocks, and their underlying companies are forced to pay more for money that is going to slow down everything, from sea to shining sea. Additionally, high unemployment is underpinning the entire economy, producing slack demand, though the incredible sums of stimulus money has worked as an inducement to spend, baby, spend.

Treasury yields on the 10-year have been abnormally low for some time and will probably remain so, until there are real, powerful signs of a sustained recovery. The 160,000 jobs created in March are a one-off, hardly indicative of a trend, though one would have to believe that businesses simply cannot cut many more workers.

There are more factors at work, including flat wage growth and tight lending standards which are keeping robust economic growth in check. The 10-year hit 4%, and backed off immediately, as is the cyclical nature of the beast. The chances that it will surpass that mark and remain there are about as good as they are for yields to fall back into the 4.4 to 4.6% range, which is where they're likely to head in coming weeks and months.

What may be the real concern not finding any voice anywhere, is that foreign investors have soured on the longer-term Treasury offerings, the 10 and 30-year bonds, and are demanding a better payout. That would make more sense than any other argument recently being offered.

Investors on Wall Street still don't seem very afraid of anything, as stocks fell early in the day but rebounded on US dollar weakness. The weak dollar - strong stocks trade continues to be the height of Spring fashion, even as wrong-headed as that condition appears to be.

Dow 10,969.99, -3.56 (0.03%)
NASDAQ 2,436.81, +7.28 (0.30%)
S&P 500 1,189.43, +1.99 (0.17%)
NYSE Composite 7,604.44, +3.51 (0.05%)

Volume remained subdued as advancing issues soared past decliners late in the day, 3706-2731. New highs beat new lows by better-than a 10-1 margin, 917-90.

NYSE Volume 4,615,025,000
NASDAQ Volume 2,122,137,250

Oil rose for the sixth straight day, as though the warmer weather would serve as an inducement for everyone in America to go out for a leisurely drive. Crude for May delivery rose 22 cents, to $86.84, based entirely on nothing. There's are better arguments for oil selling for lower prices than there exists for supporting higher ones: higher prices for energy serve as a tax on consumers and takes away from other discretionary spending. But, being summer in America and the media foisting the parlance of "recovery" upon us, $3.00 a gallon is already standard in larger metropolitan areas.

Gold finsihed ahead by $2.20, to $1,135.10, though silver fell 19 cents to $17.92. We may be close to a temporary top in metals and most other commodities as well. The global economy cannot withstand a bout of inflation at this juncture, especially with entire nations suffering from the debt bomb. Consumers seem to be still pretty well entrenched, so where the spending is coming from is anybody's guess.

The bond yield bulls have it all wrong. Longer-dated instruments aren't going to exacerbate an already steep yield curve.

Deflation Storm Raging Globally

Thursday, February 4, 2010, may be a date to mark down as a pivotal one in the global economic cycle. As companies, consumers and nations struggle to rebound and refocus from the financial catastrophe of 2008 (actually the end result of decades of loose credit), more and more negative signs point to continued deterioration in capital, labor, commodity and equity markets.

What set the wheels in motion for a disastrous trading day in almost every global stock market, was the failed bond auction in tiny Portugal on Wednesday. The country failed to sell an expected 500 million Euros worth of one-year notes, as participation yielded the sale of only 300 million.

Early in the morning on Thursday, Moody's downgraded the outlook on the government of another tiny Eurozone nation, Lithuania, to negative, citing increased pressure due to a long-lingering recession and high debt-to-GDP ratio.

The two nations join Greece on the European list of sick economies, with no relief in sight. The global credit crunch continues to hamper the governments of smaller countries to borrow and spend. Fewer and fewer participants in government bond functions is like a loud bell clanging the death knell of debt-financed capitalist nations. Despite efforts by the US media to paper over our own failures in the bond market, news is gradually emerging, primarily from sources such as Robert Prechter of Elliott Wave and Jim Willie of Golden Jackass, that the entire US bond-debt function is a colossal sham, with government bonds being purchased by primary dealers and then repurchased by the Fed within a week's time.

The Chinese have virtually ceased participation in anything but the shortest-duration auctions, and other foreigners have followed suit. The Fed's policy of "quantitative easing" (printing money with no backing) was supposed to have ended in November, and, according to the Fed, it has stopped outright purchases of Treasuries, but the quiet, behind-the-scenes purchases of bonds from primary dealers - who cannot sell what they bought - works out to being exactly the same thing in practice.

All of these events are part of the positive feedback loop caused by the over-extension of credit without controls or proper risk analysis. What began in 2007 as the sub-prime mortgage crisis has extended to prime loans, commercial loans, junk bonds, corporate bonds, and finally all the way up the food chain to government bonds. Both Prechter and Willie predict that US Treasury bond defaults are bound to occur, though not until significant damage is done to other nations, particularly in Europe, already well underway.

What our "best and brightest" economists fail to either understand or are unwilling to admit, is that all of this nasty unwinding of credit and economy is the natural outcome of failed credit policies. Everyone, from college students all the way to the federal government, borrowed too much and now servicing the interest and principle payments are killing them. Residential and commercial real estate defaults are continuing to rise, another natural outcome of a bloated (by easy credit), overextended, mythical real estate boom. Today's global events are just another symptom of the same sickness, only to a greater degree.

Barely noticed amid the pre-market futures meltdown caused by another horrific reading of initial jobless claims - 480K - were the postponment of a pair of IPOs that were supposed to have priced overnight and sold into the market today. FriendFinder Networks (FFN) and Imperial Capital Group Inc (ICG) both were supposed to have gone off this week, but, due to weak market demand, neither went ahead with their offerings. Meanwhile, Ironwood Pharmaceuticals priced its offering of 16.7 million shares for $11.25 after its offering at $14 to $16 per share had met with considerable resistance. At the lowered price, Ironwood raised only 75% of their expected amount.

IPOs are having a truly difficult time coming to market. Investors are already highly risk-averse, and new issuance is seen as too risky. This is yet another deflationary signal as assets of all variety are put under microscopes and downgraded.

Then there's the firestorm surrounding Toyota. Problems keep propping up for the world's leading automaker. First, sticking gas pedals have forced a gigantic recall, and now, the brakes on their premium "green" maching, the Prius, are under scrutiny after having been the proximate cause for at least four US crashes. It's interesting speculation, but worth noting in an age of skulldruggery at the highest levels, that these problems should be happening to a foreign automaker just as American car companies find themselves in severe economic conditions. Most of the accidents are occurring in the US, where, incidentally, the parts, and, to some extent, the entire vehicles, were manufactured.

The next case is commodities. Oil, gold and silver are being hammered yet again, though this should come as no surprise. Oil consumption continues to be driven down by slack demand, in addition to artificial overpricing, and, while gold and silver are fine hedges against inflation, they can't escape the inevitable vortex of deflation. Like any other asset, they will be devalued, especially gold, which has been on a tear to the upside for the past decade. All those companies which were advertising "cash for gold" are going to end up just like buyers of overpriced homes in Southern California, upside-down and hopelessly in debt, though some may fare better than others as the metals are at least a somewhat reliable store of value, better than beanie babies, stocks or lawn furniture, though neither, in their raw investment form, have any functional purpose.

All of this sent investors scrambling on Thursday in advance of Friday morning's Non-farm payroll data. Anyone with half a brain is getting out of the way today, selling shares in anticipation of yet another disappointment.

Here's another mention of Great Depression II, only this time, it's in the mainstream.

I sold all my gold today before it went any lower. I received a good price, all cash, and now will watch as its price erodes. Cash is KING!

On Wall Street, they're beginning to run scared. All the talk this AM on CNBC (pays to watch it so you know what NOT to do) was about retail sales, and how the major chain stores reported better-than-expected results for January. But, let's ask, better than what? Last January, which stuck to high heaven? Exactly, and nobody bothered to mention that people who are shopping at Kohl's, Macy's et.al. are idiots with free money from unemployment, SS, disability, etc. The real carnage came from unemployment and the Sovereign Debt crisis mentioned at the beginning of this post.

Here's how stocks looked at the end of the day:

Dow 10,002.18, -268.37 (2.61%)
NASDAQ 2,125.43, -65.48 (2.99%)
S&P 500 1,063.11, -34.17 (3.11%)
NYSE Composite 6,787.86, -254.76 (3.62%)

Those are some pug-ugly numbers, and the volume was elevated, meaning the rush for the exits has begun. You, and your silly 401k or retirement plan, are trapped. Get ready for another colossal blow to your dreams and aspirations, because it's coming and this time it has been telegraphed loud and clear. Declining issues trampled all over the few gainers, 5566-828, a huge 7-1 ratio. And, as I've been saying would happen the past few weeks, the new highs-new lows indicators finally rolled over. There were 117 new lows and just 96 new highs. Folks, it's OVER.

NYSE Volume 6,857,842,500
NASDAQ Volume 2,819,441,000

The Dow finished at its lowest level since November 4, 2009, almost exactly 3 months. The S&P broke through key support levels at 1071 and 1065 and appears doomed for a return to 960 in short order. The NASDAQ didn't do any better, finishing just above its November 6 close.

Commodities were savaged as investors sold to raise cash. Oil lost $4.01, to $72.97. Gold fell $48.00, to $1064 per ounce. Silver shed 99 cents - an enormous 7% decline - to finish at $15.33.

What's truly frightening this time around is that this is only the beginning. All talk of the V-shaped recovery is now being laughed right out of town. Owning anything - stocks, bonds, homes, commercial real estate, art, gold, silver, barrels of oil, sports cards, you name it - may prove fatal to your financial health.

Here's a tip: If you're buying anything today, look at the price, offer 25% less, and you just may get it. One caveat, it still may not be a good deal six months from now. Be careful.

READ THE POST BELOW

Stocks, Commodities Belted; New Highs-Lows Indicator Calls Shot

After a week of listless trading which ended Friday with an upside-down condition between the headline number and the market internals, the measurement of new highs vs. new lows indicated that a reversal was at hand. On Friday, June 12, the Dow reached its highest level since January 6 of this year, and true to form, marked an interim market top from which a fall was not only predictable, but almost too obvious.

The Dow index was trapped between the last vestiges of a long bear market rally and the nearly-impossible condition of making new highs, converting to a new bull market. Since the transportation index failed to confirm the highs on the Industrial, there seemed to be no other direction but down, and on Monday, investors took the bearish signal and ran with it.

The major indices fall in line with the Dow decline, the worst hit being the Composite, with the broadest base of stocks. As usual, market participants tried to force a last-hour rally, as has been their behavior on nearly every down day, but their efforts failed to recover much of the ground lost during the session. At the low point of the day, the Dow was down 223 points, rallied from 3 pm to 3:45 pm to -175 points, but lost traction in the final 15 minutes of trade with all of the major indices ending near their lows for the day.

As concerns our most valued (and simple) indicator, the new highs-new lows measure went positive for five straight sessions, reversing a 21-month-old pattern, before rolling over into the negative (more new lows than highs) on Friday, in stark contradiction to the upside move on the Dow. Interestingly, the advance-decline line on Friday also went negative, nearly telegraphing Monday's direction.

Dow 8,612.13, -187.13 (2.13%)
NASDAQ 1,816.38, -42.42 (2.28%)
S&P 500 923.72, -22.49 (2.38%)
NYSE Composite 5,967.26, -181.35 (2.95%)

On the day, declining issues led advancers by an enormous margin, 5283-1174, (9-2); while new lows remained in control over new highs, 65-34. Volume was once more in the negligible range, close to levels seen last week, so, not influential. It may be that we are witnessing the summer level of activity on the market. Many participants may have already retreated to the sidelines, and will seek re-entry points at some later date. There are still large amounts of profits to be taken as the markets have not yet gone into "gran mal seizure" mode, though that may occur at any time.

Refreshingly, the new lows-new highs indicator rang true and maintained the negative bias from Friday, restoring faith in the one simple indicator that has been absolutely dead on throughout the market decline of the past 22 months.

NYSE Volume 1,150,418,000
NASDAQ Volume 2,178,292,000

While stocks were sliding, commodities were doing the same, with losses across the spectrum. Notable contrarians were Natural Gas and Pork Belly futures, both up sharply. Crude oil for July delivery fell $1.42, to $70.62. Further pullback, to the $55-62 level is expected, unless there's evidence of increased demand. One can safely assume that the recent rise in oil prices was the result of naked speculation of a seasonal variety, and thus, unlikely to produce long-lasting gains.

Gold was sent southward once more, dipping $13.20, to $927.50. Silver also took a large hit, losing 85 cents (a massive one-day loss), to $14.03. It's likely that the metals may remain somewhat range-bound, much of the trade dependent upon this week's PPI (tomorrow) and CPI (Wednesday) figures. If gains in both are sizable, that would indicate inflation, taking up all commodity prices, but there seems to be unfolding evidence that markets have cooled considerably and will remain moribund for the foreseeable future, making speculation difficult, it not foolish.

The world's economies are not as badly damaged as they appeared to be back in the fall of 2008, though the stresses to the overall global system has been significant. Market players are discovering that the recent rally in stocks may have been quite overdone and without justification, forcing many investors into a more defensive posture. Additionally, with the recent Treasury data indicating that foreign involvement has dried up considerably, there's increased pressure on bonds, forcing yields higher, and, thus, moving money away from riskier stocks and commodities.

Given the current conditions, there appears to be few places to make money, so a flight to the relative safely of bonds may be the preferred route for many.

Inflation, Anyone?

Stocks on US indices closed lower again on Tuesday following a lackluster performance to open the week's trading. While investors hunt for bargains, search for insight and generally take whatever profits are available, many were glued to the bond bourses, which pushed yields to recently-unprecedented levels. The 10-year note closed with a yield of 5.248%, up more than 100 basis points from yesterday.

Dow 13,295.01 -129.95; NASDAQ 2,549.77 -22.38; S&P 500 1,493.00 -16.12; NYSE Composite 9,724.49 -117.24

As interest rates rise, so do inflation fears, or vice versa, depending upon which side of the fence you're so inclined. Consumers have watched energy - and to some extent, food - prices climb without pause for the past six months, and the pain at the pump is finally spreading to stocks and bonds.

It's little wonder that bond yields are rising. They've been at or below the level of inflation for years. The current upticking indicates a number of thorny issues are about to slap the US economy in the face: a slumping housing market, stagnant wages, China's floating of the Yuan and the twin deficits produced by the government in trade and budget, to name just a few.

The price increases in just about everything, juxtaposed against a weak dollar, are making investments in US stocks somewhat difficult to swallow for foreigners who must fund US excess or watch as the entire global economy dissipates into the ether. They don't have much of a choice, but there are moments - like the past few weeks - in which they take stock, pause, and sell. It isn't perfect science, but it does make as much sense as any other explanation for recent market ups-and-downs.

Today's dip certainly cannot be laid at the feet of the oil barons. The price of their filthy, slimy lucre actually declined by 62 cents, though it's still a pricey $65.35. The mini-rally in metals was cut short as both gold and silver gave back much of yesterday's gains.

Tracking the internals, today's market losses were indeed as bad as they looked. Declining issues overwhelmed advancers at nearly a 5-1 rate. New lows were over the top at 236 as compared to the paltry number of new highs: 124. Not to worry. We've been down this particular road before and won't become concerned until the new lows reach and remain above 320.

Relax, we're in an adjustment/consolidation phase.