One look at any of today's major index charts - or European charts, for that matter - tells the real story of the world economy and the overall effects of globalization, fiat money and constant Keynesian-modeled tinkering.
Down at the open and no chance of a rally at any point was the order of the day. Markets were completely flattened following Tuesday's slap-happy, bogus insider ramp job. With any luck, the same traders and rich, brassy speculators who made a few ducats on the way up yesterday are upside-down today.
While US markets were royally screwed, European bourses were overwhelmingly slammed to earth, with the major indices whacked more than 1.75%, led downward by the CAC 40, smashed a whopping 2.24% as the EUR/USD sank below 1.24 on its inexorable path to parity and then, extinction.
All indications from not just today's trade, but the overall tenor of markets since the end of April, are that Europe's crisis is not going to be solved easily, if at all. There's no hiding from the big stick of deflation, no crying in a deflationary spiral, except by the weak and unprepared, who deserve nothing but woe, destitution and poverty. May they take all of the major banking interests with them.
The carnage was unavoidable. The US 10-year note fell to an historic low yield of 1.62%, which, along with the German Bund, is headed for negative returns.
Whether or not this is coordinated end-game by the world's central bankers and our own small-minded Ben Bernanke, the siren's cry of lower prices has been heard loud and clear. By the end of fall or sooner, the entire charade should be over, for all intents and purposes. Adam Smith's invisible hand has given globalists the undeniable back-slap one receives for overindulgence, malinvestment and outright economic stupidity.
The pseudo-rally from the depths of 2008-09 is officially defunct and all that's left is picking up the pieces when everything crashes to the floor before falling into the abyss. It's almost as if the ancient tradition of the jubilee - in which all debts are forgiven - has been secretly woven into the fabric of modern economics. The crush of unpaid obligations will affect rich and poor alike. Only those with investments in useful machinery, arable land, real estate and precious metals will be spared, though their lot will no doubt be a difficult one.
Ordinary working class folk should be cheering the downfall of the tyrannical central banking regime, though anyone relying on pensions for retirement cushion should have already begun reordering their priorities. The last three-and-a-half years have been nothing more than a chance to prepare for the ultimate collapse of the global banking and sovereign state cabal and their over-leveraged, inflationist, dangerous, deadly ideas.
Resistance is futile against the wicked spiral of deflation, as it carries the weight of the world down with it, as derivatives are unwound and the banking and finance system breaks down. The worry is that governments will impose iron-fisted regimes and police states to quell the disquiet populace once the rioting begins, and it will, sure as day follows night.
As stocks tumbled, precious metals strengthened today, a significant development not seen in recent months and a trend almost certain to continue. Oil's drop continues and a plunge below $90/barrel today was an event long overdue. The world is absolutely glutted with the stuff as demand continues to plunge. Everything will be - or should be - cheaper as 2012 unfolds further.
The chaos should only worsen in this shortened week as the culmination is Friday's sure to be horrific non-farm payroll report. Tomorrow will afford an early sneak preview as ADT releases their private payroll data for May and hour and a quarter prior to the ringing of the bell at the Wall Street loser's casino. Additionally, Thursday will be heavy with data, with Challenger job cuts, initial unemployment claims and the second GDP estimate all due prior to US market opening. It should almost surely worsen from there forward with Chicago PNI and crude inventories guiding early-day trading.
It would require nothing short of divine intervention or an alien landing for the remainder of the week to be nothing short of a bloodbath.
Free houses for everyone! At least for those who need shelter and have a creative mind and two good hands with which to rebuild, that is.
Dow 12,419.86, -160.83 (1.28%)
NASDAQ 2,837.36, -33.63 (1.17%)
S&P 500 1,313.32, -19.10 (1.43%)
NYSE Composite 7,476.36, -138.68 (1.82%)
NASDAQ Volume 1,629,529,250
NYSE Volume 3,441,592,750
Combined NYSE & NASDAQ Advance - Decline: 1011-4774
Combined NYSE & NASDAQ New highs - New lows: 42-134
WTI crude oil: 87.82, -2.94
Gold: 1,563.40, +14.70
Silver: 27.98, +0.19
Showing posts with label deflation. Show all posts
Showing posts with label deflation. Show all posts
Wednesday, May 30, 2012
Tuesday, May 15, 2012
Commodities, Stocks Continue to Slide in Deflationary Downturn
It's time to look at some numbers in a broad macro view to get a handle of where the global economy is heading over the next six to twelve months.
In less than six months, Americans will head to the polls to either elect a new president or give Barack Obama the benefit of the doubt and return him for a second term. There are also key Senate races and all members of the House of Representatives are up for re-election. The implications of who becomes president and which party controls congress will have profound implications for the US economy going forward.
However, the presidency is the most important piece of the puzzle. In a nutshell, if Obama wins, we will have a continuation of the descent into a welfare state. If Romney takes it, bet on police state, with brutal, militarized police forces mobilized to quell citizen uprisings throughout the country.
Either way, the USA is in a tough spot, because neither the Republicans or Democrats will do anything remotely positive to improve conditions for millions of Americans.
Let's look at the numbers:
America's current deficit is $1.3 trillion for 2012.
The total US debt is beyond $15 trillion, and, if you add in unfunded liabilities - pensions, Social Security and Medicare - that number grows to somewhere between $125 and $150 trillion. That's a number that cannot be paid out or paid back easily.
In just the past 15 days, reality seems to have struck all the way from Washington to Wall Street. The economy is just barely limping along; in some areas of the country, local economies are dead or nearing a fatal state. More than half the US states face budget shortfalls for fiscal 2013 (starting July 1), the worst being California, Massachusetts (thank you, Mitt!), Illinois and Louisiana. The total gap for the states is estimated at $49 billion and that may be low.
Since the states have to balance their budgets, there will be layoffs and cuts in services. These will be anything but bullish for the general economy.
Retail sales have slowed for four straight months. In related news, JC Penny's (JCP) just today reported second quarter (non) earnings. They lost 0.25 cents per share on estimates of an 11-cent loss. Top-line revenue also missed the projected target of $3.41 billion, coming in at a squeamish $3.15 billion.
CEO Ron Johnson, who took over the reigns of the struggling merchandiser recently and had been widely praised as the master planner of Apple's signature stores, has a difficult road ahead. His Apple experience cannot be rightly compared to what he is dealing with at JC Penny's . Apple's stores were designed to sell only Apple products, which are unique and the envy of the retail world. Penny's deals with thousands of products from a multitude of vendors. It's not the same, and, even though Mr. Johnson is a bright fellow, he's in over his head in an environment that is not favorable to retailers.
Penny's also announced they were discontinuing their dividend of 80 cents per share. The stock was trading down more than 10% in the after-hours.
There are more than 44 million Americans - nearly one in six - receiving food stamps.
New home sales in 2011 had their worst year since 1961.
Stocks on the major averages are down between 4.5 and 5% in just the last 10 trading days. The Dow lost ground on nine of the last ten days; the S&P and NASDAQ have finished in the red eight of the last 10 sessions.
Meanwhile, the dollar index has soared, from 78.71 on April 27, to 81.26 at the close today. Meanwhile the Euro has collapsed to under 1.28 against the US dollar, finishing at 1.2729 at today's close. The move up in the value of the dollar has sent commodities screaming lower, with gold, oil and silver all suffering steep losses in the month of May. That's actually good news for Americans, particularly because lower oil prices eventually will translate into lower gas prices at the pump.
So, what is all of this data telling us? Surprisingly, despite tens of trillions of dollars pumped into the economy since 2008 by the Fed and the federal government, the wailing tone of deflation is unmistakable. Prices are falling rapidly, though incomes are stagnant or declining. There simply are not enough people working and making sufficient money to keep price levels high.
Anecdotally, food prices are coming down. Real estate remains in a moribund, deep slump and home foreclosures are once again rising. Everything will get cheaper as the economy continues down the inescapable path of deflation because the Federal Reserve's money spigot has directed all the flows to the banks, and they are not lending, mainly because they're still repairing their badly damaged balance sheets, and, even when they do cough up some dough, the borrower has to have absolutely pristine credit, a circumstance which is becoming something of a rarity.
Some say the US economy will be destroyed because its unpayable debts will undermine the value of the dollar and cause hyper-inflation. That may be so, though it's difficult to see inflation in anything when 15-20% of Americans are living in what's essentially a day-to-day fight for survival.
If hyper-inflation does one day come about and the dollar is smashed to a fraction of its former value, a deflationary depression will occur first. The government needs low interest rates to continue paying off the massive debt it has created, and will do everything it can to keep rates low.
But, because the Federal reserve has failed so miserably on the second part of its mandate - employment - all the money in the world (and the Fed has most of it now) cannot make people spend when they have no jobs, no prospects, and are worried about having enough food to eat tomorrow. Food prices are likely to stabilize, but, for the most part, the rest of the economy is toast, though it is still marginally better than that of Europe, of which half the countries are already in recession.
The money that was furnished to the banks by the American taxpayer, courtesy of the Fed and Treasury, went straight to financial institutions, and we know that they are profligate gamblers and thieves who will only enrich themselves, leaving Main Street, small business and the American public to fend for themselves in a mostly cash system which is quietly, albeit quickly, turning into a massive black market, underground economy.
Eventually, the government will fail horribly, and many will suffer. Those with wits, skills, cunning and a propensity to see the future and break rules, will prosper. Europe will fall first, but you can bet your bottom dollar (if you still have any) that their problems will come to roost on the shimmering shores of America.
Dow 12,632.00, -63.35 (0.50%)
NASDAQ 2,893.76, -8.82 (0.30%)
S&P 500 1,330.66, -7.69 (0.57%)
NYSE Composite 7,635.81, -69.64 (0.90%)
NASDAQ Volume 1,835,801,375
NYSE Volume 4,114,145,250
Combined NYSE & NASDAQ Advance - Decline: 2214-3408
Combined NYSE & NASDAQ New highs - New lows: 77-236 (gap widening)
WTI crude oil: 93.98, -0.80
Gold: 1,557.10, -3.90
Silver: 28.08, -0.27
In less than six months, Americans will head to the polls to either elect a new president or give Barack Obama the benefit of the doubt and return him for a second term. There are also key Senate races and all members of the House of Representatives are up for re-election. The implications of who becomes president and which party controls congress will have profound implications for the US economy going forward.
However, the presidency is the most important piece of the puzzle. In a nutshell, if Obama wins, we will have a continuation of the descent into a welfare state. If Romney takes it, bet on police state, with brutal, militarized police forces mobilized to quell citizen uprisings throughout the country.
Either way, the USA is in a tough spot, because neither the Republicans or Democrats will do anything remotely positive to improve conditions for millions of Americans.
Let's look at the numbers:
America's current deficit is $1.3 trillion for 2012.
The total US debt is beyond $15 trillion, and, if you add in unfunded liabilities - pensions, Social Security and Medicare - that number grows to somewhere between $125 and $150 trillion. That's a number that cannot be paid out or paid back easily.
In just the past 15 days, reality seems to have struck all the way from Washington to Wall Street. The economy is just barely limping along; in some areas of the country, local economies are dead or nearing a fatal state. More than half the US states face budget shortfalls for fiscal 2013 (starting July 1), the worst being California, Massachusetts (thank you, Mitt!), Illinois and Louisiana. The total gap for the states is estimated at $49 billion and that may be low.
Since the states have to balance their budgets, there will be layoffs and cuts in services. These will be anything but bullish for the general economy.
Retail sales have slowed for four straight months. In related news, JC Penny's (JCP) just today reported second quarter (non) earnings. They lost 0.25 cents per share on estimates of an 11-cent loss. Top-line revenue also missed the projected target of $3.41 billion, coming in at a squeamish $3.15 billion.
CEO Ron Johnson, who took over the reigns of the struggling merchandiser recently and had been widely praised as the master planner of Apple's signature stores, has a difficult road ahead. His Apple experience cannot be rightly compared to what he is dealing with at JC Penny's . Apple's stores were designed to sell only Apple products, which are unique and the envy of the retail world. Penny's deals with thousands of products from a multitude of vendors. It's not the same, and, even though Mr. Johnson is a bright fellow, he's in over his head in an environment that is not favorable to retailers.
Penny's also announced they were discontinuing their dividend of 80 cents per share. The stock was trading down more than 10% in the after-hours.
There are more than 44 million Americans - nearly one in six - receiving food stamps.
New home sales in 2011 had their worst year since 1961.
Stocks on the major averages are down between 4.5 and 5% in just the last 10 trading days. The Dow lost ground on nine of the last ten days; the S&P and NASDAQ have finished in the red eight of the last 10 sessions.
Meanwhile, the dollar index has soared, from 78.71 on April 27, to 81.26 at the close today. Meanwhile the Euro has collapsed to under 1.28 against the US dollar, finishing at 1.2729 at today's close. The move up in the value of the dollar has sent commodities screaming lower, with gold, oil and silver all suffering steep losses in the month of May. That's actually good news for Americans, particularly because lower oil prices eventually will translate into lower gas prices at the pump.
So, what is all of this data telling us? Surprisingly, despite tens of trillions of dollars pumped into the economy since 2008 by the Fed and the federal government, the wailing tone of deflation is unmistakable. Prices are falling rapidly, though incomes are stagnant or declining. There simply are not enough people working and making sufficient money to keep price levels high.
Anecdotally, food prices are coming down. Real estate remains in a moribund, deep slump and home foreclosures are once again rising. Everything will get cheaper as the economy continues down the inescapable path of deflation because the Federal Reserve's money spigot has directed all the flows to the banks, and they are not lending, mainly because they're still repairing their badly damaged balance sheets, and, even when they do cough up some dough, the borrower has to have absolutely pristine credit, a circumstance which is becoming something of a rarity.
Some say the US economy will be destroyed because its unpayable debts will undermine the value of the dollar and cause hyper-inflation. That may be so, though it's difficult to see inflation in anything when 15-20% of Americans are living in what's essentially a day-to-day fight for survival.
If hyper-inflation does one day come about and the dollar is smashed to a fraction of its former value, a deflationary depression will occur first. The government needs low interest rates to continue paying off the massive debt it has created, and will do everything it can to keep rates low.
But, because the Federal reserve has failed so miserably on the second part of its mandate - employment - all the money in the world (and the Fed has most of it now) cannot make people spend when they have no jobs, no prospects, and are worried about having enough food to eat tomorrow. Food prices are likely to stabilize, but, for the most part, the rest of the economy is toast, though it is still marginally better than that of Europe, of which half the countries are already in recession.
The money that was furnished to the banks by the American taxpayer, courtesy of the Fed and Treasury, went straight to financial institutions, and we know that they are profligate gamblers and thieves who will only enrich themselves, leaving Main Street, small business and the American public to fend for themselves in a mostly cash system which is quietly, albeit quickly, turning into a massive black market, underground economy.
Eventually, the government will fail horribly, and many will suffer. Those with wits, skills, cunning and a propensity to see the future and break rules, will prosper. Europe will fall first, but you can bet your bottom dollar (if you still have any) that their problems will come to roost on the shimmering shores of America.
Dow 12,632.00, -63.35 (0.50%)
NASDAQ 2,893.76, -8.82 (0.30%)
S&P 500 1,330.66, -7.69 (0.57%)
NYSE Composite 7,635.81, -69.64 (0.90%)
NASDAQ Volume 1,835,801,375
NYSE Volume 4,114,145,250
Combined NYSE & NASDAQ Advance - Decline: 2214-3408
Combined NYSE & NASDAQ New highs - New lows: 77-236 (gap widening)
WTI crude oil: 93.98, -0.80
Gold: 1,557.10, -3.90
Silver: 28.08, -0.27
Friday, April 13, 2012
China's Slowing GDP a Symptom of Faltering Global Economy
Yesterday's rumor that China would report first quarter GDP of upwards of 9% growth - which fueled the ramp-up in stocks on Thursday - turned into today's reality that China's economy is slowing, and quickly.
When the news that China's economy grew less than expected - by 8.1%, the slowest rate of growth in the world's most populous country in nearly three years - traders in Europe and the US could not sell shares of selected equities quickly enough. By the time US markets opened, futures had cratered to their lowest levels of the morning and the selling continued throughout the lackluster session.
By he close, Thursday's gains were all but eviscerated, leaving investors to wonder what comes next in terms of the global economic condition.
Also, prior to the open, two major banks, JP Morgan Chase (JPM) and Wells-Fargo (WFC) announced first quarter earnings. Both beat estimates, but the stocks sold off on the reports, many analysts citing bookkeeping chicanery for the better-than-expected returns.
By the end of the day, JPM dropped 3.64%, while WFC lost 3.47%. Both stocks are near 52-week highs and are currently looking like serious short-sell candidates.
The Chinese data should not have come as a surprise. Since most of China's recent growth has been tied to exports - mainly to the US and Europe - slack demand has crimped output and China's nascent middle class is not yet robost enough to fill in the growth gap. Concerns over the debt condition of the Eurozone have not abated, and, in fact, may be exacerbated as Spain's situation worsens.
Sooner or later, principals are going to have to come to terms with the global condition of faltering sovereign nations, an excessive overhang of debt and limited solutions from fiscal and monetary authorities. The search for yield has many investors scrambling again into dividend-paying stocks or the marginal returns of US treasuries, which rallied once more, the ten-year dipping to 1.99% at the close of trading.
In such an environment, there is no safe harbor except for hard assets, though even oil, gold and silver were pounded lower on the news.
The major averages finished the week with losses of around two percent. The idea that stocks sporting solid gains for the first quarter have been selling off nevertheless, portends more downside for equity investors.
Deflation is a cruel environment, for which most in the financial arena are ill-prepared. The global economy is close to stall speed, which, for most ordinary people, is bliss, though the highly-leveraged worldwide financial system is surely strained at present.
Dow 12,849.67, -136.91 (1.05%)
NASDAQ 3,011.33, -44.22 (1.45%)
S&P 500 1,370.27, -17.30 (1.25%)
NYSE Composite 7,937.65, -102.31 (1.27%)
NASDAQ Volume 1,437,334,625
NYSE Volume 3,433,928,000
Combined NYSE & NASDAQ Advance - Decline: 1332-4234
Combined NYSE & NASDAQ New highs - New lows: 95-69
WTI crude oil: 102.83, -0.81
Gold: 1,660.20, -20.40
Silver: 31.39, -1.14
When the news that China's economy grew less than expected - by 8.1%, the slowest rate of growth in the world's most populous country in nearly three years - traders in Europe and the US could not sell shares of selected equities quickly enough. By the time US markets opened, futures had cratered to their lowest levels of the morning and the selling continued throughout the lackluster session.
By he close, Thursday's gains were all but eviscerated, leaving investors to wonder what comes next in terms of the global economic condition.
Also, prior to the open, two major banks, JP Morgan Chase (JPM) and Wells-Fargo (WFC) announced first quarter earnings. Both beat estimates, but the stocks sold off on the reports, many analysts citing bookkeeping chicanery for the better-than-expected returns.
By the end of the day, JPM dropped 3.64%, while WFC lost 3.47%. Both stocks are near 52-week highs and are currently looking like serious short-sell candidates.
The Chinese data should not have come as a surprise. Since most of China's recent growth has been tied to exports - mainly to the US and Europe - slack demand has crimped output and China's nascent middle class is not yet robost enough to fill in the growth gap. Concerns over the debt condition of the Eurozone have not abated, and, in fact, may be exacerbated as Spain's situation worsens.
Sooner or later, principals are going to have to come to terms with the global condition of faltering sovereign nations, an excessive overhang of debt and limited solutions from fiscal and monetary authorities. The search for yield has many investors scrambling again into dividend-paying stocks or the marginal returns of US treasuries, which rallied once more, the ten-year dipping to 1.99% at the close of trading.
In such an environment, there is no safe harbor except for hard assets, though even oil, gold and silver were pounded lower on the news.
The major averages finished the week with losses of around two percent. The idea that stocks sporting solid gains for the first quarter have been selling off nevertheless, portends more downside for equity investors.
Deflation is a cruel environment, for which most in the financial arena are ill-prepared. The global economy is close to stall speed, which, for most ordinary people, is bliss, though the highly-leveraged worldwide financial system is surely strained at present.
Dow 12,849.67, -136.91 (1.05%)
NASDAQ 3,011.33, -44.22 (1.45%)
S&P 500 1,370.27, -17.30 (1.25%)
NYSE Composite 7,937.65, -102.31 (1.27%)
NASDAQ Volume 1,437,334,625
NYSE Volume 3,433,928,000
Combined NYSE & NASDAQ Advance - Decline: 1332-4234
Combined NYSE & NASDAQ New highs - New lows: 95-69
WTI crude oil: 102.83, -0.81
Gold: 1,660.20, -20.40
Silver: 31.39, -1.14
Tuesday, March 6, 2012
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
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
Thursday, September 22, 2011
Market Crash Alert... Oops, Too Late, Dow Drops 391 Points
Editor's note: Switching over to first person singular tense for today, as it seems to work when I'm happy and the market is not. Some may be confused as to why I'd be happy over a market crash. That will be explained below.
The Markets
Today was another one of those doozies that come along... well, about once a week these days and I really wanted to issue a crash alert yesterday after the close, but didn't, even though I was alarmed over the number of new lows in relation to new highs. Anybody who reads this blog on a semi-regular basis (that's you, Dan K.) would know that the new lows - new highs is my favorite - and highly reliable - sentiment and direction indicator and it was flashing red at the end of the day on Wednesday.
Sure enough, Thursday turned into an all-out rout for equities on significantly higher volume, to say nothing of what happened to gold and silver (well, you can't have everything). Asian markets started the ball rolling downhill, with losses between 2 and 4%, then Europe kicked in with average losses of about 4.5% on the various exchanges.. The US declines were tempered by the usual late-day rally, in this case taking the Dow up about 130 points off the lows of the day, set at about 3:20 pm EDT.
The catalysts for the sell-off were various, but by no means, exclusive. Most market commentaries are blaming the Fed for their squeamish "Operation Twist" maneuver, which, upon further inspection, is a worse program than originally thought when we noticed this statement from yesterday's FOMC release:
The more telling stories came out of China and Europe. China's PMI (Purchasing Managers Index) for the month was 49.4, down from 49.9 in August. In Europe, the PMI dropped to its weakest level since July 2009 with a reading of 50.8. Anything under 50 indicates contraction, so the Chinese are already moderately contracting (read: recession), while Europe is right on the cusp. Their PMI's are at levels very similar to those in the US.
Speaking of the banks, the biggest of them, the TBTF types, took more body blows on the day. Our personal favorite, Bank of America (BAC) sold down to 6.04 at the close, making Warren Buffett's $5 billion investment look pretty stupid, along with the warrants to buy to up 750,000 shares for $7.14. Mr. Buffett used to be one of the wisest investors of all time, but after investing $5 billion in Goldman Sachs - also with similar underwater warrants - and now BAC, he seems to have lost the Midas touch. Of course, Mr. Buffett normally makes better investments than the ones he has been forced into by President Obama.
So, stocks are down big again, and closing in on bear market territory, and the future looks pretty grim. Those of you still putting your money into a retirement fund or IRA, having not heeded my advice from August of 2007 (you can check) when I advised to cash out, take the penalty hit and move on, are probably looking at a 20% loss over the past two months. That is more than the usual early withdrawal penalty, so, sure, you made some dough in 2009 and 2010, but you're about to be giving it back now.
There seems to be little left for stocks to do but go down, so long as the following conditions exist (see if you can find a positive catalyst in this list):
All of this sounds pretty gloomy, like a coming recession and a deflationary depression on the front burner, but there is hope, and that hope explains why I cheer when stocks look like they're about to crash (when they actually do crash, I really start to party!). The reason for this is pretty obvious from my perspective. I've been pretty much out of stocks since August of 2007, and completely out since the fall of 2009. There's too much risk involved for my simple tastes.
I'm also an independent businessman who fights red tape and higher prices constantly in order to keep the doors open. It's a struggle, but, as I say, it beats working for a living.
When the deflation and depression become full-blown, there's a very real possibility that the banksters and politicians will be eating each other's lunches, and I suspect there is some of that going on already. The public backlash against the kleptocracy of fractional reserve banking and ridiculous levels of taxation (like the 15% Social Security tax ponzi scheme) will be ferocious and many of the people in power will be knocked from their perches.
In a deflationary environment, cash and specialized skills will become more valuable. So too, gold and silver, we hope. Oil will - must - go lower, and along with it, gas, meaning more money in everyone's pocket to spend on other things than just basic transportation. Prices and wages will return to more manageable levels and business will eventually boom. It's all relative. If you're making $50,000 a year and you get cut down to $30,000, if prices have declined by 40% in general, it's a wash.
So, yes, I firmly believe that bank failures and a stock market crash will eventually result in a stronger, better-balanced economy, after a lot of pain and suffering, of course, but nothing good has ever come from anything earned without commensurate sacrifice.
(Oh, and I almost forgot, minus signs are easier to type than plus signs - no shift key required.)
Dow 10,733.83, -391.01 (3.51%)
NASDAQ 2,455.67, -82.52 (3.25%)
S&P 500 1,129.56, -37.20 (3.19%)
NYSE Composite 6,726.62, -254.71 (3.65%)
NASDAQ Volume 2,928,526,750
NYSE Volume 7,893,035,000
Combined NYSE & NASDAQ Advance - Decline: 928-5812
Combined NYSE & NASDAQ New highs - New Lows: 10-1385 (yes, you're reading that right)
WTI crude oil: 80.51, -5.41 (yippie!)
Gold: 1737.70, -45.20
Silver: 35.85, -3.84 (buying opportunity)
Quick note on silver. I believe it will go lower, possibly materially lower, as no true support for anything exists in a deflationary environment, of which we are clearly entering. Silver could crash all the way back to the mid-20s, depending on the severity of the overall global crash, so I would advise scaling in at this bargain point, and using dollar cost averaging to keep your basis reasonable. Eventually, silver should top out at well over $100, possibly even more, especially of much of the world finds the wisdom to return to real money.
The Markets
Today was another one of those doozies that come along... well, about once a week these days and I really wanted to issue a crash alert yesterday after the close, but didn't, even though I was alarmed over the number of new lows in relation to new highs. Anybody who reads this blog on a semi-regular basis (that's you, Dan K.) would know that the new lows - new highs is my favorite - and highly reliable - sentiment and direction indicator and it was flashing red at the end of the day on Wednesday.
Sure enough, Thursday turned into an all-out rout for equities on significantly higher volume, to say nothing of what happened to gold and silver (well, you can't have everything). Asian markets started the ball rolling downhill, with losses between 2 and 4%, then Europe kicked in with average losses of about 4.5% on the various exchanges.. The US declines were tempered by the usual late-day rally, in this case taking the Dow up about 130 points off the lows of the day, set at about 3:20 pm EDT.
The catalysts for the sell-off were various, but by no means, exclusive. Most market commentaries are blaming the Fed for their squeamish "Operation Twist" maneuver, which, upon further inspection, is a worse program than originally thought when we noticed this statement from yesterday's FOMC release:
To help support conditions in mortgage markets, the Committee will now reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities.The Fed is becoming the buyer of last resort for toxic and other MBS, the Wall Street concoctions which started the whole financial contagion back in 2007. We wish them well with their purchases, especially since housing is about to embark on another 10-15% price decline over the next year to two years. The conditions for residential real estate have not changed much materially in three years, and, despite some cheerleading headlines, prices continue to slide and will until the entire mess is wiped from the books of our favorite zombie banks, which, if the Fed and the banks have their ways, will be never.
The more telling stories came out of China and Europe. China's PMI (Purchasing Managers Index) for the month was 49.4, down from 49.9 in August. In Europe, the PMI dropped to its weakest level since July 2009 with a reading of 50.8. Anything under 50 indicates contraction, so the Chinese are already moderately contracting (read: recession), while Europe is right on the cusp. Their PMI's are at levels very similar to those in the US.
Speaking of the banks, the biggest of them, the TBTF types, took more body blows on the day. Our personal favorite, Bank of America (BAC) sold down to 6.04 at the close, making Warren Buffett's $5 billion investment look pretty stupid, along with the warrants to buy to up 750,000 shares for $7.14. Mr. Buffett used to be one of the wisest investors of all time, but after investing $5 billion in Goldman Sachs - also with similar underwater warrants - and now BAC, he seems to have lost the Midas touch. Of course, Mr. Buffett normally makes better investments than the ones he has been forced into by President Obama.
So, stocks are down big again, and closing in on bear market territory, and the future looks pretty grim. Those of you still putting your money into a retirement fund or IRA, having not heeded my advice from August of 2007 (you can check) when I advised to cash out, take the penalty hit and move on, are probably looking at a 20% loss over the past two months. That is more than the usual early withdrawal penalty, so, sure, you made some dough in 2009 and 2010, but you're about to be giving it back now.
There seems to be little left for stocks to do but go down, so long as the following conditions exist (see if you can find a positive catalyst in this list):
- US banks have been recapitalized since the collapse of 2008, but are still not lending and still are holding scads of bad loans both on and off their books, plus some have significant exposure to Europe - notably Morgan Stanley (MS) which is set to implode on the first whiff of a Greek default.
- Unemployment is officially at 9.2% and heading higher, though the real number is somewhere North of 17% and there doesn't seem to be much of a rush in Congress to pass comprehensive tax reform or jobs program.
- Congress, the President and the leaders of most of the nations of the world are blithering idiots, a fact made worse by the level of inbreeding among the elite class of society.
- Foreclosures are on the rise again, and the glut of homes on the market remains at or near record high levels.
- There is oversupply in just about everything, from gas and oil to houses to computers to automobiles. Prices are being or will be forced down in nearly every consumer class.
- Banks are still reluctant to lend to anyone except the biggest and most secure individuals and companies, leaving little room for start-ups and small businesses, the real drivers of job growth.
- Europe has more problems than one can imagine. The Germans are upset over having to guarantee such a large portion of the Greek bailout, now on its second time to the trough, with Italy, Spain and Portugal waiting in the wings.
- The federal government will continue to run deficits of over a trillion dollars per year for at least two more years.
- State and local governments are just now catching up to the private sector, laying off thousands of employees a month.
- The US poverty rate is at an all time high.
- The number of people receiving food stamps is at an all time high and still rising.
- Did I mention the people in congress and the president are nitwits?
All of this sounds pretty gloomy, like a coming recession and a deflationary depression on the front burner, but there is hope, and that hope explains why I cheer when stocks look like they're about to crash (when they actually do crash, I really start to party!). The reason for this is pretty obvious from my perspective. I've been pretty much out of stocks since August of 2007, and completely out since the fall of 2009. There's too much risk involved for my simple tastes.
I'm also an independent businessman who fights red tape and higher prices constantly in order to keep the doors open. It's a struggle, but, as I say, it beats working for a living.
When the deflation and depression become full-blown, there's a very real possibility that the banksters and politicians will be eating each other's lunches, and I suspect there is some of that going on already. The public backlash against the kleptocracy of fractional reserve banking and ridiculous levels of taxation (like the 15% Social Security tax ponzi scheme) will be ferocious and many of the people in power will be knocked from their perches.
In a deflationary environment, cash and specialized skills will become more valuable. So too, gold and silver, we hope. Oil will - must - go lower, and along with it, gas, meaning more money in everyone's pocket to spend on other things than just basic transportation. Prices and wages will return to more manageable levels and business will eventually boom. It's all relative. If you're making $50,000 a year and you get cut down to $30,000, if prices have declined by 40% in general, it's a wash.
So, yes, I firmly believe that bank failures and a stock market crash will eventually result in a stronger, better-balanced economy, after a lot of pain and suffering, of course, but nothing good has ever come from anything earned without commensurate sacrifice.
(Oh, and I almost forgot, minus signs are easier to type than plus signs - no shift key required.)
Dow 10,733.83, -391.01 (3.51%)
NASDAQ 2,455.67, -82.52 (3.25%)
S&P 500 1,129.56, -37.20 (3.19%)
NYSE Composite 6,726.62, -254.71 (3.65%)
NASDAQ Volume 2,928,526,750
NYSE Volume 7,893,035,000
Combined NYSE & NASDAQ Advance - Decline: 928-5812
Combined NYSE & NASDAQ New highs - New Lows: 10-1385 (yes, you're reading that right)
WTI crude oil: 80.51, -5.41 (yippie!)
Gold: 1737.70, -45.20
Silver: 35.85, -3.84 (buying opportunity)
Quick note on silver. I believe it will go lower, possibly materially lower, as no true support for anything exists in a deflationary environment, of which we are clearly entering. Silver could crash all the way back to the mid-20s, depending on the severity of the overall global crash, so I would advise scaling in at this bargain point, and using dollar cost averaging to keep your basis reasonable. Eventually, silver should top out at well over $100, possibly even more, especially of much of the world finds the wisdom to return to real money.
Wednesday, August 10, 2011
Fear Factor: Wall Street, Europe in Full Retreat; Dow Down Another 520 Points
Wall Street suffered one of its worst losses of all time and the third major loss in the last week.
Stocks were battered right from the opening bell, though selling accelerated in the final two hours of trading, just after stocks had reached their highs of the session.
The culprits - just in case anyone needs a good villain for the orderly destruction of capital - today were European banks such as France's Societe Generale, Germany's Duetsche Bank and Italy's Unicredit. European liquidity is being pinched again, just as it was during the global financial meltdown in 2008-09, though most of the players involved do not yet see the risk as severe.
The markets are telling different story, with stocks suffering deep declines for the third time in five days. Tuesday's enormous snap-back rally was completely overwhelmed by today's selling, and the end of the crisis seems well into the future.
To put matters into perspective as to how deep these recent losses are, consider:
A pretty picture this is not. Additionally, there's nowhere to park money with any kind of real return. The 10-year note fell to an historic low of 2.09%, the 30-year bond dropped to 3.50% at the close, while a 2-year bill fetches a ridiculous 17/100ths of a percent in interest. Might as well stuff dollar bills into a mattress for the next few years as it's likely a safer place than the bond markets.
Even after yesterday's stunning announcement by the Federal Reserve that it would keep the federal funds rate at near zero for the next two years, markets were still unrelieved. What the Fed did, in effect, was broadcast deflation with about as big a bullhorn as they could, saying that unemployment was getting worse, the housing crisis has not been resolved and prospects for further deterioration in the economy outweighed the chances for meaningful recovery.
Meanwhile, most of congress is off on its annual month-long vacation, supposedly back in their various states and legislative districts, watching the mess from as far away as they can get. It would be interesting to see how many are out of the country, and, if this stock market malaise continues, how many of those come back to face the music.
Here's the sad story of the day in numbers:
Dow 10,719.94, -519.83 (4.62%)
NASDAQ 2,381.05, -101.47 (4.09%)
S&P 500 1,120.76, -51.77 (4.42%)
NYSE Composite 6,938.23, -319.81 (4.41%)
Losing issues belted advancers again, 5050-1691, though, by those figures, there was at least a smattering of selectivity in the sell-off. On the NASDAQ, six (6) new highs were offset by 232 new lows. Over on the NYSE, a mere three (3) stocks posted new highs, while 221 made new lows. The combined total of 9 new highs and 453 new lows is indicative of yesterday's smash-up, which set many stocks above their recent lows, though the feeling is that it's only a matter of a few more days before the new lows reach well beyond the 1000 mark.
Volume was robust again, in keeping with the current trend of being "all in."
NASDAQ Volume 3,437,055,500
NYSE Volume 9,282,671,000
Oil stopped skidding for a day, gaining $3.59, to $82.89. Gold briefly priced at over $1800, but fell back, to $1,784.30, a $41.30 gain on the day. Silver picked up finally, gaining $1.44, to $39.33. Both gold and silver are up as trading heads to Asian markets.
Tomorrow will begin with an 8:30 read of initial unemployment claims, which is still expected to be hovering around the 400,000 mark. It will likely be a non-market-moving number, as the macro condition is truly driving the declines.
Some are already saying that stocks are cheap, but many were saying that a few weeks ago, before the bottom began falling out.
Cheap is such a relative term. A particular asset may be "cheap" to some and pricey to others. Right now, stocks look like they're being sold as fast as they can, before they lose even more value.
Maybe the worst thing about this sudden crashing is that it's only Wednesday. There are still two more trading days to get through.
Stocks were battered right from the opening bell, though selling accelerated in the final two hours of trading, just after stocks had reached their highs of the session.
The culprits - just in case anyone needs a good villain for the orderly destruction of capital - today were European banks such as France's Societe Generale, Germany's Duetsche Bank and Italy's Unicredit. European liquidity is being pinched again, just as it was during the global financial meltdown in 2008-09, though most of the players involved do not yet see the risk as severe.
The markets are telling different story, with stocks suffering deep declines for the third time in five days. Tuesday's enormous snap-back rally was completely overwhelmed by today's selling, and the end of the crisis seems well into the future.
To put matters into perspective as to how deep these recent losses are, consider:
- On July 27, the Dow closed at 12,724.41; today's close was 10,719.94, a drop of more than 2000 points in just 14 sessions.
- The NASDAQ topped out at 2858.83 on the 22nd of July; today's close of 2381.05 is a 17.7% drop.
- The Russell 2000, comprised primarily of small and mid-cap names, is already in bear territory, down more than 20% from recent highs
- The Dow Jones Transportation Index, which topped out at 5514.87, closed today at 4377.14, technically signaling a bear market as it is down 21%
- The S&P 500 lost 32 points last Tuesday, another 60 points last Thursday, 80 points on Monday and another 51 points today.
- The Dow Jones Industrials is just 500 points from making a 20% decline and resumption of the Bear market which was interrupted for 53 months by a stimulus and quantitative easing-induced rally that is now evaporating.
A pretty picture this is not. Additionally, there's nowhere to park money with any kind of real return. The 10-year note fell to an historic low of 2.09%, the 30-year bond dropped to 3.50% at the close, while a 2-year bill fetches a ridiculous 17/100ths of a percent in interest. Might as well stuff dollar bills into a mattress for the next few years as it's likely a safer place than the bond markets.
Even after yesterday's stunning announcement by the Federal Reserve that it would keep the federal funds rate at near zero for the next two years, markets were still unrelieved. What the Fed did, in effect, was broadcast deflation with about as big a bullhorn as they could, saying that unemployment was getting worse, the housing crisis has not been resolved and prospects for further deterioration in the economy outweighed the chances for meaningful recovery.
Meanwhile, most of congress is off on its annual month-long vacation, supposedly back in their various states and legislative districts, watching the mess from as far away as they can get. It would be interesting to see how many are out of the country, and, if this stock market malaise continues, how many of those come back to face the music.
Here's the sad story of the day in numbers:
Dow 10,719.94, -519.83 (4.62%)
NASDAQ 2,381.05, -101.47 (4.09%)
S&P 500 1,120.76, -51.77 (4.42%)
NYSE Composite 6,938.23, -319.81 (4.41%)
Losing issues belted advancers again, 5050-1691, though, by those figures, there was at least a smattering of selectivity in the sell-off. On the NASDAQ, six (6) new highs were offset by 232 new lows. Over on the NYSE, a mere three (3) stocks posted new highs, while 221 made new lows. The combined total of 9 new highs and 453 new lows is indicative of yesterday's smash-up, which set many stocks above their recent lows, though the feeling is that it's only a matter of a few more days before the new lows reach well beyond the 1000 mark.
Volume was robust again, in keeping with the current trend of being "all in."
NASDAQ Volume 3,437,055,500
NYSE Volume 9,282,671,000
Oil stopped skidding for a day, gaining $3.59, to $82.89. Gold briefly priced at over $1800, but fell back, to $1,784.30, a $41.30 gain on the day. Silver picked up finally, gaining $1.44, to $39.33. Both gold and silver are up as trading heads to Asian markets.
Tomorrow will begin with an 8:30 read of initial unemployment claims, which is still expected to be hovering around the 400,000 mark. It will likely be a non-market-moving number, as the macro condition is truly driving the declines.
Some are already saying that stocks are cheap, but many were saying that a few weeks ago, before the bottom began falling out.
Cheap is such a relative term. A particular asset may be "cheap" to some and pricey to others. Right now, stocks look like they're being sold as fast as they can, before they lose even more value.
Maybe the worst thing about this sudden crashing is that it's only Wednesday. There are still two more trading days to get through.
Friday, August 5, 2011
Wild Swings, Ugly Market
There's probably no good reason for the wild ride taken by stocks on Friday other than people are confused about what's really happening in Europe and in the United States.
The best guess is that the Euro is still a dead currency walking and the US has issues ranging from housing to jobs to ineptitude in government. Ditto that last bit for Europe as well.
The font of endless fiat money is beginning to run dry and useless because every nation is seemingly engaging in a race to devalue their currency in order to remain "competitive."
What may substitute for the truth is that sovereign nations are failing and the global banking system is decrepit and defunct. Time for a grand reset is upon us, though it could be years off before the reign of money backed by "good faith and credit" - two commodities in very short supply - is ended for good and some form of gold/silver standard is established.
In the meantime, citizens of most of the world's developed nations will suffer through recessions, inflation, deflation and depression as the financial engines of the world run off the rails, run by a vacuous leadership.
Friday's non-farm payroll report in the US set the stage for a strong opening rally, with the Dow up more than 170 points within the first five minutes of trading, making the high of the day. Within 20 minutes all of the major indices were negative and by noon the dow sported a loss of more than 240 points. By 2:00 pm EDT, the Dow was back up, close to the highs, eventually settling for a minor gain, with all three other majors closing in the red.
Dow 11,444.61, +60.93 (0.54%)
NASDAQ 2,532.41, -23.98 (0.94%)
S&P 500 1,199.38, -0.69 (0.06%)
NYSE Composite 7,419.07, -9.33 (0.13%)
Declining issues led advancers by a wide margin, 4812-1952, as investors scrambled into Treasuries and blue chips. NASDAQ new highs were 7, with 436 new lows. On the NYSE, there were all of 6 new highs and 828 new lows, blowing out the gap in the combined total to 13 new highs and 1264 new lows. This side margin indicates that a long, deep, sustained bear market is underway, and the next 6-12 months could be pure equity hell.
Volume was again substantial; the gains on the Dow Industrials nearly meaningless, as they will be wiped away in the next round of selling, which is more than likely to begin in earnest on Monday.
NASDAQ Volume 3,775,836,000
NYSE Volume 9,798,826,000
Oil gained a mere 25 cents on the day, to $86.88. Gold lost $7.20, to $1,651.80, and silver was down $1.22, to $38.21. These are true deflationary signs and nothing - yet - to stop them. Of course, the Fed will likely announce some new form of QE, since the Jackson Hole conference is just weeks away.
It was a remarkable week for stocks and bonds, with the major indices taking their worst beatings since early 2009.
There is simply more downside risk ahead, and no bailouts coming this time around... we hope.
The best guess is that the Euro is still a dead currency walking and the US has issues ranging from housing to jobs to ineptitude in government. Ditto that last bit for Europe as well.
The font of endless fiat money is beginning to run dry and useless because every nation is seemingly engaging in a race to devalue their currency in order to remain "competitive."
What may substitute for the truth is that sovereign nations are failing and the global banking system is decrepit and defunct. Time for a grand reset is upon us, though it could be years off before the reign of money backed by "good faith and credit" - two commodities in very short supply - is ended for good and some form of gold/silver standard is established.
In the meantime, citizens of most of the world's developed nations will suffer through recessions, inflation, deflation and depression as the financial engines of the world run off the rails, run by a vacuous leadership.
Friday's non-farm payroll report in the US set the stage for a strong opening rally, with the Dow up more than 170 points within the first five minutes of trading, making the high of the day. Within 20 minutes all of the major indices were negative and by noon the dow sported a loss of more than 240 points. By 2:00 pm EDT, the Dow was back up, close to the highs, eventually settling for a minor gain, with all three other majors closing in the red.
Dow 11,444.61, +60.93 (0.54%)
NASDAQ 2,532.41, -23.98 (0.94%)
S&P 500 1,199.38, -0.69 (0.06%)
NYSE Composite 7,419.07, -9.33 (0.13%)
Declining issues led advancers by a wide margin, 4812-1952, as investors scrambled into Treasuries and blue chips. NASDAQ new highs were 7, with 436 new lows. On the NYSE, there were all of 6 new highs and 828 new lows, blowing out the gap in the combined total to 13 new highs and 1264 new lows. This side margin indicates that a long, deep, sustained bear market is underway, and the next 6-12 months could be pure equity hell.
Volume was again substantial; the gains on the Dow Industrials nearly meaningless, as they will be wiped away in the next round of selling, which is more than likely to begin in earnest on Monday.
NASDAQ Volume 3,775,836,000
NYSE Volume 9,798,826,000
Oil gained a mere 25 cents on the day, to $86.88. Gold lost $7.20, to $1,651.80, and silver was down $1.22, to $38.21. These are true deflationary signs and nothing - yet - to stop them. Of course, the Fed will likely announce some new form of QE, since the Jackson Hole conference is just weeks away.
It was a remarkable week for stocks and bonds, with the major indices taking their worst beatings since early 2009.
There is simply more downside risk ahead, and no bailouts coming this time around... we hope.
Thursday, June 16, 2011
From Greece to Philadelphia, It Is All Bad
Whether it's indecision by the IMF, the EU, the Greek government or any other body that has an interest in the continued operation of the nation formerly known as Greece, markets have been roiled by the chain of events, delays, misconceptions and outright fabrications that have come to light over the past two weeks in the continuing collapse of Greece, and, by proxy, the European Union.
The situation has been in flux and flummoxed for a fortnight, with no apparent end in sight. Various people whose names all sound like Pompondreaus and will soon be forgotten pledge to make austerity nation of the Greeks, resign their office or do some other dastardly deed, hoping to end the crisis, though, in reality, everybody knows that Greece must be set free to return to the Drachma as their official currency and be done with the eleven-year-old experiment that is the Euro.
Ditto that for Portugal, Ireland, Belgium and sooner or later, Italy and Spain. Within a few years time, if not much sooner, the European Union will cease to exist.
Between now and whenever the bankers and politicians can decide on how best to divide the spoils of their failed experiment in a unified currency, we are likely to see more riots, food lines, general strikes, paramilitary actions, riots, shortages, lies, changes of governments, riots and as much discontent as a continent can have without actually being at war. Of course, war is always an option, one which may be used as an interim resort, by which to save the fannies and faces of the corrupt and wholly bankrupt European banking system.
The effect on the US is felt in myriad ways. For one, our sovereign dollar becomes better looking as a "safe" currency, our bonds become more expensive and yield less and US global stocks go for a merry-go ride, such as today's.
Also affecting the price of stocks - discounting the usual front-running, insider scams and outright HFT manipulation - was the report from the Philadelphia Fed on business activity within that district, which sank from an already-abysmal reading of 3.9 in May to -7.7 in June, the worst number since July of 2009. This followed Wednesday's stunner from the NY region, which had the Empire Index at -7.8 in June after a 11.9 number in May. Both indices measure general manufacturing and business conditions for their respective regions and show a general malaise reappearing when we're supposed to be in the midst of a recovery.
It's simply not happening, as continuing unemployment claims showed, dropping a bit to 414,000 in the most recent week, though still far too high a number to indicate anything other than continued pain and a lack of available jobs for the shrinking American workforce.
Stocks responded with a zig-zag effect, up in the morning, down in the afternoon, with a half-hearted rally at the end. Apparently there is some stomach for the larger, established, global industrial stocks contained in the Dow 30.
Dow 11,961.52, +64.25 (0.54%)
NASDAQ 2,623.70, -7.76 (0.29%)
S&P 500 1,267.64, +2.22 (0.18%)
NYSE Composite 7,963.60, -4.21 (0.05%)
Internals were not bifurcated in the least, offsetting any calming effect the headline numbers might suggest. Declining issues led advancers once more, 3562-3022. The NASDAQ saw a mere 13 stocks make new highs, while 112 recorded new lows. New lows led new highs on the NYSE as well, 82-16, giving the edge to new lows for the 10th straight session, 194-29. Eventually, most likely on a free-fall day in which the Dow is down 300 or more points, this measure will read off the charts, with over 1000 stocks hitting new lows. It is a moment to watch for, because it will signal the second phase of the bear market, the one which usually lasts the longest and is the most painful, in which stocks trade sideways to down for an extended period of time. Watch for it in a few weeks or months, though it could come at any time, depending on the particular catalyst.
Volume was along the same range as yesterday's, not much help to anyone doing technical analysis, though probably favoring the bearish case more than anything else.
NASDAQ Volume 1,985,734,500.00
NYSE Volume 4,642,697,500
Unfortunately, WTI crude oil futures were up 14 cents, to $94.95, instead of continuing the precipitous decline. It's an odd paradox for the American consumer. While most would like to see oil around $60 a barrel, which would drive gasoline prices down to around $3.00 per gallon, the correlated rise in the dollar would also serve to drive stocks lower, such is the pair-trade these days. However, the resulting stronger dollar would do more than just keep fuel prices down. It would keep more money in the hands of consumers while lowering the cost of just about everything, because everything needs to be shipped from one place to another. Additional discretionary money in the consumer's hands would lead, most likely, to paying down more debt, which is needed, and giving a general boost to the economy, also sorely needed.
Why it will not happen is because it is inherently deflationary, something by which the Federal Reserve and the US Treasury cannot abide, simply because lower prices for consumer end-products, outright deflation and improving conditions would also push interest rates higher, making the debt more expensive to repay. Thanks to the wizardry of the Federal Reserve, Americans are barred from lower prices, saving, and actually living in a world in which every last penny is not spent on either food, energy or taxes.
It is completely untenable and eventually one side will have to give in. A few million starving Americans might just force the Fed's hand and allow natural market forces to take hold. (I am dreaming of course, but do not wake me.)
Precious metals were essentially flat, with gold up 10 cents, to $1529.30 and silver down six cents, at $35.53.
Friday will be interesting if only to see whether the current losing streak for stocks continues for a nearly unprecedented seventh straight week. With it being a quadruple-witching day, we should certainly have our doubts. The markets are temporarily oversold, so any impetus at all should result in at least a small rally, which will save the day, though the war is far from being over.
The situation has been in flux and flummoxed for a fortnight, with no apparent end in sight. Various people whose names all sound like Pompondreaus and will soon be forgotten pledge to make austerity nation of the Greeks, resign their office or do some other dastardly deed, hoping to end the crisis, though, in reality, everybody knows that Greece must be set free to return to the Drachma as their official currency and be done with the eleven-year-old experiment that is the Euro.
Ditto that for Portugal, Ireland, Belgium and sooner or later, Italy and Spain. Within a few years time, if not much sooner, the European Union will cease to exist.
Between now and whenever the bankers and politicians can decide on how best to divide the spoils of their failed experiment in a unified currency, we are likely to see more riots, food lines, general strikes, paramilitary actions, riots, shortages, lies, changes of governments, riots and as much discontent as a continent can have without actually being at war. Of course, war is always an option, one which may be used as an interim resort, by which to save the fannies and faces of the corrupt and wholly bankrupt European banking system.
The effect on the US is felt in myriad ways. For one, our sovereign dollar becomes better looking as a "safe" currency, our bonds become more expensive and yield less and US global stocks go for a merry-go ride, such as today's.
Also affecting the price of stocks - discounting the usual front-running, insider scams and outright HFT manipulation - was the report from the Philadelphia Fed on business activity within that district, which sank from an already-abysmal reading of 3.9 in May to -7.7 in June, the worst number since July of 2009. This followed Wednesday's stunner from the NY region, which had the Empire Index at -7.8 in June after a 11.9 number in May. Both indices measure general manufacturing and business conditions for their respective regions and show a general malaise reappearing when we're supposed to be in the midst of a recovery.
It's simply not happening, as continuing unemployment claims showed, dropping a bit to 414,000 in the most recent week, though still far too high a number to indicate anything other than continued pain and a lack of available jobs for the shrinking American workforce.
Stocks responded with a zig-zag effect, up in the morning, down in the afternoon, with a half-hearted rally at the end. Apparently there is some stomach for the larger, established, global industrial stocks contained in the Dow 30.
Dow 11,961.52, +64.25 (0.54%)
NASDAQ 2,623.70, -7.76 (0.29%)
S&P 500 1,267.64, +2.22 (0.18%)
NYSE Composite 7,963.60, -4.21 (0.05%)
Internals were not bifurcated in the least, offsetting any calming effect the headline numbers might suggest. Declining issues led advancers once more, 3562-3022. The NASDAQ saw a mere 13 stocks make new highs, while 112 recorded new lows. New lows led new highs on the NYSE as well, 82-16, giving the edge to new lows for the 10th straight session, 194-29. Eventually, most likely on a free-fall day in which the Dow is down 300 or more points, this measure will read off the charts, with over 1000 stocks hitting new lows. It is a moment to watch for, because it will signal the second phase of the bear market, the one which usually lasts the longest and is the most painful, in which stocks trade sideways to down for an extended period of time. Watch for it in a few weeks or months, though it could come at any time, depending on the particular catalyst.
Volume was along the same range as yesterday's, not much help to anyone doing technical analysis, though probably favoring the bearish case more than anything else.
NASDAQ Volume 1,985,734,500.00
NYSE Volume 4,642,697,500
Unfortunately, WTI crude oil futures were up 14 cents, to $94.95, instead of continuing the precipitous decline. It's an odd paradox for the American consumer. While most would like to see oil around $60 a barrel, which would drive gasoline prices down to around $3.00 per gallon, the correlated rise in the dollar would also serve to drive stocks lower, such is the pair-trade these days. However, the resulting stronger dollar would do more than just keep fuel prices down. It would keep more money in the hands of consumers while lowering the cost of just about everything, because everything needs to be shipped from one place to another. Additional discretionary money in the consumer's hands would lead, most likely, to paying down more debt, which is needed, and giving a general boost to the economy, also sorely needed.
Why it will not happen is because it is inherently deflationary, something by which the Federal Reserve and the US Treasury cannot abide, simply because lower prices for consumer end-products, outright deflation and improving conditions would also push interest rates higher, making the debt more expensive to repay. Thanks to the wizardry of the Federal Reserve, Americans are barred from lower prices, saving, and actually living in a world in which every last penny is not spent on either food, energy or taxes.
It is completely untenable and eventually one side will have to give in. A few million starving Americans might just force the Fed's hand and allow natural market forces to take hold. (I am dreaming of course, but do not wake me.)
Precious metals were essentially flat, with gold up 10 cents, to $1529.30 and silver down six cents, at $35.53.
Friday will be interesting if only to see whether the current losing streak for stocks continues for a nearly unprecedented seventh straight week. With it being a quadruple-witching day, we should certainly have our doubts. The markets are temporarily oversold, so any impetus at all should result in at least a small rally, which will save the day, though the war is far from being over.
Friday, May 20, 2011
Random Notes as Stocks Slump Near Lows of Month
In the absence of earnings or economic data, let us suffice to say that stocks did today what they should have done yesterday, given the housing and Philly Fed data. That said, it seems we now are actually getting somewhere in the coming great unwind, which must happen if QE2 ends.
With the close of the Dow today, we can see that the decline is going to be gradual - about 100 points per week on average - which should get the Dow down to around 11,000 by Labor Day.
Along those lines, allow me to close the week with some random thoughts on the current working environment and the accelerating deflation:
Current economic conditions are fostering an environment where work has changed and what you call the "existential needs" might more reasonably be filled by the technology-marginalized workers, such as home gardening, DYI home repair and generally more resourcefulness and less dependence on the "system", the grid.
I am one of these technology-marginal types, in my own home business, with very limited overhead, having to actually do work about five to six hours a day, and that only four days a week. The rest of my time is spent raising my own vegetables, making my home more energy efficient and sourcing other income streams. It's actually a pretty sweet spot.
The promise of technology was always presented - back in the 60s and 70s - as more leisure time, but the banksters and politicians stole that luxury lifestyle from the common man. However, through their own rampant greed, this is backfiring, because more people are now on welfare (read: government-supplied leisure), not paying mortgages (bankster inspired leisure), and working less (congress, thanks for doing nothing).
With all this free time on their hands, common folks - the smart ones - are devising ways to capitalize and take back their leisure, which has some new definitions, such as, leisure as not spending, leisure as self-education, leisure as efficiency.
Deflation is going to hurt the most at the top of the food chain. Those already at or near the bottom will be scarcely affected, while the smartest of that group will actually prosper, just as during the Great Depression. Fortunes will be lost, but many others will be made.
It's all coming at very slow speed, thanks to the Fed's unending fight against deflation, but it's coming, no matter what. There is no other good alternative.
Always remember - and I don't know where I got this, maybe Malcolm Gladwell - but economies are always created at the margins. It't not LinkedIn with a $10 billion capitalization that will make change - that is simply a misallocation of capital on a grand scale - but the guy building solar heaters in his garage, or the people in Cleveland harvesting fish and vegetables in the same facility.
There may be the Googles and eBays of the world which created great shareholder value, but, both of those companies profited on the margin of hundreds of thousands, maybe millions, of small entrepreneurs, buying and selling ads, goods, services.
I tend to think the raw data on the level of entrepreneurship in this country is vastly understated because so many people are not reporting what they are doing nor what they are making because of the absurdly high level of government invasion and regulation. There's more wealth hidden in the underground economy than ever.
Sound familiar? Same thing happened during prohibition. Read the book, "Last Call" for a clue.
Dow 12,512.04, -93.28 (0.74%)
NASDAQ 2,803.32, -19.99 (0.71%)
S&P 500 1,333.27, -10.33 (0.77%)
NYSE Composite 8,357.53, -70.42 (0.84%)
Declining issues finished well ahead of advancers on the day, 4314-2224. On the NASDAQ, 58 new highs and 53 new lows. The NYSE was ever the outlier, with 97 new highs and 22 new lows. However, all week we've witnessed the gap between the new highs and new lows narrow and considering the dipsy-do taken in July and August of last year, may not revisit equilibrium until the end of summer. The stimulus is still being worked through the system, but cracks have become visible in the facade of recovery.
Volume was once again light, though considering that it was an options expiration day, it was actually horribly so. Fewer players means lower velocity, leading eventually to atrophy.
NASDAQ Volume 1,786,991,750
NYSE Volume 4,011,100,500
WTI crude oil was lower by as much as $2.00 during the morning, but finished the day with a gain of $1.05, closing at $99.49. Gold rocketed $20.50, to $1514.30, though silver barely budged, up 11 cents, to $35.05 per ounce.
This choppiness in commodities and stocks should persist until traders are more certain of the future, which could be a long, long time, considering the state of negotiations on the debt limit and the 2012 budget in Washington. They are at standstills on both issues. Our president and congress should be absolutely ashamed of themselves as they dawdle over pressing issues.
This is the worst government, on the federal level, maybe of all time.
With the close of the Dow today, we can see that the decline is going to be gradual - about 100 points per week on average - which should get the Dow down to around 11,000 by Labor Day.
Along those lines, allow me to close the week with some random thoughts on the current working environment and the accelerating deflation:
Current economic conditions are fostering an environment where work has changed and what you call the "existential needs" might more reasonably be filled by the technology-marginalized workers, such as home gardening, DYI home repair and generally more resourcefulness and less dependence on the "system", the grid.
I am one of these technology-marginal types, in my own home business, with very limited overhead, having to actually do work about five to six hours a day, and that only four days a week. The rest of my time is spent raising my own vegetables, making my home more energy efficient and sourcing other income streams. It's actually a pretty sweet spot.
The promise of technology was always presented - back in the 60s and 70s - as more leisure time, but the banksters and politicians stole that luxury lifestyle from the common man. However, through their own rampant greed, this is backfiring, because more people are now on welfare (read: government-supplied leisure), not paying mortgages (bankster inspired leisure), and working less (congress, thanks for doing nothing).
With all this free time on their hands, common folks - the smart ones - are devising ways to capitalize and take back their leisure, which has some new definitions, such as, leisure as not spending, leisure as self-education, leisure as efficiency.
Deflation is going to hurt the most at the top of the food chain. Those already at or near the bottom will be scarcely affected, while the smartest of that group will actually prosper, just as during the Great Depression. Fortunes will be lost, but many others will be made.
It's all coming at very slow speed, thanks to the Fed's unending fight against deflation, but it's coming, no matter what. There is no other good alternative.
Always remember - and I don't know where I got this, maybe Malcolm Gladwell - but economies are always created at the margins. It't not LinkedIn with a $10 billion capitalization that will make change - that is simply a misallocation of capital on a grand scale - but the guy building solar heaters in his garage, or the people in Cleveland harvesting fish and vegetables in the same facility.
There may be the Googles and eBays of the world which created great shareholder value, but, both of those companies profited on the margin of hundreds of thousands, maybe millions, of small entrepreneurs, buying and selling ads, goods, services.
I tend to think the raw data on the level of entrepreneurship in this country is vastly understated because so many people are not reporting what they are doing nor what they are making because of the absurdly high level of government invasion and regulation. There's more wealth hidden in the underground economy than ever.
Sound familiar? Same thing happened during prohibition. Read the book, "Last Call" for a clue.
Dow 12,512.04, -93.28 (0.74%)
NASDAQ 2,803.32, -19.99 (0.71%)
S&P 500 1,333.27, -10.33 (0.77%)
NYSE Composite 8,357.53, -70.42 (0.84%)
Declining issues finished well ahead of advancers on the day, 4314-2224. On the NASDAQ, 58 new highs and 53 new lows. The NYSE was ever the outlier, with 97 new highs and 22 new lows. However, all week we've witnessed the gap between the new highs and new lows narrow and considering the dipsy-do taken in July and August of last year, may not revisit equilibrium until the end of summer. The stimulus is still being worked through the system, but cracks have become visible in the facade of recovery.
Volume was once again light, though considering that it was an options expiration day, it was actually horribly so. Fewer players means lower velocity, leading eventually to atrophy.
NASDAQ Volume 1,786,991,750
NYSE Volume 4,011,100,500
WTI crude oil was lower by as much as $2.00 during the morning, but finished the day with a gain of $1.05, closing at $99.49. Gold rocketed $20.50, to $1514.30, though silver barely budged, up 11 cents, to $35.05 per ounce.
This choppiness in commodities and stocks should persist until traders are more certain of the future, which could be a long, long time, considering the state of negotiations on the debt limit and the 2012 budget in Washington. They are at standstills on both issues. Our president and congress should be absolutely ashamed of themselves as they dawdle over pressing issues.
This is the worst government, on the federal level, maybe of all time.
Tuesday, September 21, 2010
When The Boom Really Goes Bang, Bang, Bang!
Pensions become Ponzi, Recess becomes recession and eventually depresses into depression. There's a natural progression to these things and trying to stop them is like throwing water back over a broken dam. There's some temporary relief, a feeling that it may all work out for the best, but eventually, the dam bursts, flooding everything and drowning most. This is the situation in which most of the world's economies - but mainly the United States - currently find themselves. Patches have been applied to the broken dam, but, even though all the experts know that it will eventually burst, they will not, either from some misguided confidence or fear of what may occur should they reveal the truth.
Either way, they'll look bad when it does, but they'll probably be long gone, either dead or expatriated.
Since there's nothing worthwhile happening in the equity markets other than the usual churn associated with the Fed's POMOs (Permanent Open market Operations), today we offer some background, which only took a little bit of searching on the internet. (Apparently, there are quite a few skeptics on the loose these days.)
First, though, let's make sure we know what really happened today.
Any and all trading centered around the FOMC statement at 2:15 pm, in which the Fed neither raised nor lowered rates (Actually, they can't lower them below ZERO, where they currently sit.), but they did change some of the wording in their release.
The salient points were, "the pace of recovery in output and employment has slowed in recent months.", "Housing starts are at a depressed level. Bank lending has continued to contract, but at a reduced rate in recent months." and "The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate."
That final quote is a mouthful, though most have interpreted it to mean that the Fed is ready to engage in further quantitative easing (i.e., printing money), to keep the economy from falling off a cliff. Ouch! Ohh!
The market reaction was odd. Stocks first went straight up, as in "Happy days! More free money!" and then did an about face when moron buyers realized they had been taken and that the reason the Fed is printing more money is because the economy sucks. There, it's been said. The economy sucks, and the Fed writ that large today.
Dow 10,761.03, +7.41 (0.07%)
NASDAQ 2,349.35, -6.48 (0.28%)
S&P 500 1,139.78, -2.93 (0.26%)
NYSE Composite 7,245.95, -20.07 (0.28%)
Once again, the markets delivered a split decision, with the Dow up and everything else down. In contrast to the soft headline numbers, declining issues far outpaced advancers, 3612-2095. New highs ramped past new lows, 428-38 and volume was actually a bit on the strong side (poor timing).
Commodities took a hit, too, though they were trending lower prior to the Fed statement. Crude oil slipped $1.34, to $73.52. Gold fell $6.60, to $1,272.40 and silver dropped 16 cents, to $20.62, all of which makes perfect sense if we are actually going to slide quietly into a deflationary depression. Shhh! Don't tell anybody.
NASDAQ Volume 2,148,134,500
NYSE Volume 4,403,680,500
Please note, this following little piece is someone else's work. It is not my intent to plagiarize.
Here's a step-by-step look at the banks and bailouts.
1) All the global banks were up to their eye-balls in toxic assets. All the AAA mortgage-backed securities etc. were in fact JUNK. But in the balance sheets of the banks and their special purpose vehicles (SPVs), they were stated to be worth US$ TRILLIONS.
2) The collapse of Lehman Bros and AIG exposed this ugly truth. All the global banks had liabilities in the US$ Trillions. They were all INSOLVENT. The central banks the world over conspired and agreed not to reveal the total liabilities of the global banks as that would cause a run on these banks, as happened in the case of Northern Rock in the U.K.
3) A devious scheme was devised by the FED, led by Bernanke to assist the global banks to unload systematically and in tranches the toxic assets so as to allow the banks to comply with RESERVE REQUIREMENTS under the fractional reserve banking system, and to continue their banking business. This is the essence of the bailout of the global banks by central bankers.
4) This devious scheme was effected by the FED’s quantitative easing (QE) – the purchase of toxic assets from the banks. The FED created “money out of thin air” and used that “money” to buy the toxic assets at face or book value from the banks, notwithstanding they were all junks and at the most, worth maybe ten cents to the dollar. Now, the FED is “loaded” with toxic assets once owned by the global banks. But these banks cannot declare and or admit to this state of affairs. Hence, this financial charade.
5) If we are to follow simple logic, the exercise would result in the global banks flushed with cash to enable them to lend to desperate consumers and cash-starved businesses. But the money did not go out as loans. Where did the money go?
6) It went back to the FED as reserves, and since the FED bought US$ trillions worth of toxic wastes, the “money” (it was merely book entries in the Fed’s books) that these global banks had were treated as “Excess Reserves”. This is a misnomer because it gave the ILLUSION that the banks are cash-rich and under the fractional reserve system would be able to lend out trillions worth of loans. But they did not. Why?
7) Because the global banks still have US$ trillions worth of toxic wastes in their balance sheets. They are still insolvent under the fractional reserve banking laws. The public must not be aware of this as otherwise, it would trigger a massive run on all the global banks!
8) Bernanke, the US Treasury and the global central bankers were all praying and hoping that given time (their estimation was 12 to 18 months) the housing market would recover and asset prices would resume to the levels before the crisis. . Let me explain: A House was sold for say US$500,000. Borrower has a mortgage of US$450,000 or more. The house is now worth US$200,000 or less. Multiply this by the millions of houses sold between 2000 and 2008 and you will appreciate the extent of the financial black-hole. There is no way that any of the global banks can get out of this gigantic mess. And there is also no way that the FED and the global central bankers through QE can continue to buy such toxic wastes without showing their hands and exposing the lie that these banks are solvent. It is my estimation that they have to QE up to US$20 trillion at the minimum. The FED and no central banker would dare “create such an amount of money out of thin air” without arousing the suspicions and or panic of sovereign creditors, investors and depositors. It is as good as declaring officially that all the banks are BANKRUPT.
9) But there is no other solution in the short and middle term except another bout of quantitative easing, QE II. Given the above caveat, QE II cannot exceed the amount of the previous QE without opening the proverbial Pandora Box.
10) But it is also a given that the FED will embark on QE II, as under the fractional reserve banking system, if the FED does not purchase additional toxic wastes, the global banks (faced with mounting foreclosures, etc.) will fall short of their reserve requirements.
11) You will also recall that the FED at the height of the crisis announced that interest will be paid on the so-called “excess reserves” of the global banks, thus enabling these banks to “earn” interest. So what we have is a merry-go-round of monies moving from the right pocket to the left pocket at the click of the computer mouse. The FED creates money, uses it to buy toxic assets, and the same money is then returned to the FED by the global banks to earn interest. By this fiction of QE, banks are flushed with cash which enable them to earn interest. Is it any wonder that these banks have declared record profits?
12) The global banks get rid of some of their toxic wastes at full value and at no costs, and get paid for unloading the toxic wastes via interest payments. Additionally, some of the “monies” are used by these banks to purchase US Treasuries (which also pay interests) which in turn allows the US Treasury to continue its deficit spending. THIS IS THE BAILOUT RIP OFF of the century.
The rest is all original, and mine.
Ah, well, that's not even the worst of it. In order to stave off imminent implosion of the entire global banking system, some believe the Fed will have to print (and waste) some $30 TRILLION. Now, that happens to be just an round estimate, but it does amount to twice the annual GDP or twice the existing debt (choose your poison). Since the Fed is already in somewhere between $2 and $11 Trillion, depending on your level of pessimism and how you choose to crunch the numbers, we are only, at best, one third of the way down the path of complete, utter and final desolation.
If this first third of the way took three years (2007-2010), then we should finally be soup by 2016, though anybody with the uncanny ability to think that far ahead would probably be living in Brazil, China or Belize by then. The rest of us will just have to "suck it up" so to speak. The good/bad news is that you will be able to buy a traditional, three-bedroom home in a good suburb for about $30,000; a pound of tomatoes will be only $8.00, your utility bill will be 40-70% higher because usage will be very low and you have to take up the slack and your property taxes will be at least triple your mortgage payment (at least in the Northeast).
However, you won't be paying any taxes since there will be no jobs, but, for all you 50-and-60-somethings out there, that Social Security check you planned on receiving monthly will no longer be available. The overwhelming debt the nation has built up will see to it that almost all entitlements will have to be curtailed or, at a minimum, severely curtailed.
Soooooo, the lifestyles you've so carefully planned for yourselves and your children will go entirely up in the smoke of debt and default. The world will be a poorer place, you will be old and decrepit and the minions from nations to which we owe money we can never repay will be scouting the streets and byways of America for choice deals, to which they feel entitled!
The problem is that most Americans took it for granted that our government and our leaders were telling us the truth, not lying through their collective teeth in order to keep being re-elected. We - and I'm speaking mostly to the baby boomers - allowed them to tax us to the max, spend every last penny and then borrow more. we've brought it upon ourselves, you see.
And, just in case you're not convinced that we're well upon a path of self-destruction, in order to keep the public in the dark and at ease through our economic nightmare, the government is manipulating the stock market.
Either way, they'll look bad when it does, but they'll probably be long gone, either dead or expatriated.
Since there's nothing worthwhile happening in the equity markets other than the usual churn associated with the Fed's POMOs (Permanent Open market Operations), today we offer some background, which only took a little bit of searching on the internet. (Apparently, there are quite a few skeptics on the loose these days.)
First, though, let's make sure we know what really happened today.
Any and all trading centered around the FOMC statement at 2:15 pm, in which the Fed neither raised nor lowered rates (Actually, they can't lower them below ZERO, where they currently sit.), but they did change some of the wording in their release.
The salient points were, "the pace of recovery in output and employment has slowed in recent months.", "Housing starts are at a depressed level. Bank lending has continued to contract, but at a reduced rate in recent months." and "The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate."
That final quote is a mouthful, though most have interpreted it to mean that the Fed is ready to engage in further quantitative easing (i.e., printing money), to keep the economy from falling off a cliff. Ouch! Ohh!
The market reaction was odd. Stocks first went straight up, as in "Happy days! More free money!" and then did an about face when moron buyers realized they had been taken and that the reason the Fed is printing more money is because the economy sucks. There, it's been said. The economy sucks, and the Fed writ that large today.
Dow 10,761.03, +7.41 (0.07%)
NASDAQ 2,349.35, -6.48 (0.28%)
S&P 500 1,139.78, -2.93 (0.26%)
NYSE Composite 7,245.95, -20.07 (0.28%)
Once again, the markets delivered a split decision, with the Dow up and everything else down. In contrast to the soft headline numbers, declining issues far outpaced advancers, 3612-2095. New highs ramped past new lows, 428-38 and volume was actually a bit on the strong side (poor timing).
Commodities took a hit, too, though they were trending lower prior to the Fed statement. Crude oil slipped $1.34, to $73.52. Gold fell $6.60, to $1,272.40 and silver dropped 16 cents, to $20.62, all of which makes perfect sense if we are actually going to slide quietly into a deflationary depression. Shhh! Don't tell anybody.
NASDAQ Volume 2,148,134,500
NYSE Volume 4,403,680,500
Please note, this following little piece is someone else's work. It is not my intent to plagiarize.
Here's a step-by-step look at the banks and bailouts.
1) All the global banks were up to their eye-balls in toxic assets. All the AAA mortgage-backed securities etc. were in fact JUNK. But in the balance sheets of the banks and their special purpose vehicles (SPVs), they were stated to be worth US$ TRILLIONS.
2) The collapse of Lehman Bros and AIG exposed this ugly truth. All the global banks had liabilities in the US$ Trillions. They were all INSOLVENT. The central banks the world over conspired and agreed not to reveal the total liabilities of the global banks as that would cause a run on these banks, as happened in the case of Northern Rock in the U.K.
3) A devious scheme was devised by the FED, led by Bernanke to assist the global banks to unload systematically and in tranches the toxic assets so as to allow the banks to comply with RESERVE REQUIREMENTS under the fractional reserve banking system, and to continue their banking business. This is the essence of the bailout of the global banks by central bankers.
4) This devious scheme was effected by the FED’s quantitative easing (QE) – the purchase of toxic assets from the banks. The FED created “money out of thin air” and used that “money” to buy the toxic assets at face or book value from the banks, notwithstanding they were all junks and at the most, worth maybe ten cents to the dollar. Now, the FED is “loaded” with toxic assets once owned by the global banks. But these banks cannot declare and or admit to this state of affairs. Hence, this financial charade.
5) If we are to follow simple logic, the exercise would result in the global banks flushed with cash to enable them to lend to desperate consumers and cash-starved businesses. But the money did not go out as loans. Where did the money go?
6) It went back to the FED as reserves, and since the FED bought US$ trillions worth of toxic wastes, the “money” (it was merely book entries in the Fed’s books) that these global banks had were treated as “Excess Reserves”. This is a misnomer because it gave the ILLUSION that the banks are cash-rich and under the fractional reserve system would be able to lend out trillions worth of loans. But they did not. Why?
7) Because the global banks still have US$ trillions worth of toxic wastes in their balance sheets. They are still insolvent under the fractional reserve banking laws. The public must not be aware of this as otherwise, it would trigger a massive run on all the global banks!
8) Bernanke, the US Treasury and the global central bankers were all praying and hoping that given time (their estimation was 12 to 18 months) the housing market would recover and asset prices would resume to the levels before the crisis. . Let me explain: A House was sold for say US$500,000. Borrower has a mortgage of US$450,000 or more. The house is now worth US$200,000 or less. Multiply this by the millions of houses sold between 2000 and 2008 and you will appreciate the extent of the financial black-hole. There is no way that any of the global banks can get out of this gigantic mess. And there is also no way that the FED and the global central bankers through QE can continue to buy such toxic wastes without showing their hands and exposing the lie that these banks are solvent. It is my estimation that they have to QE up to US$20 trillion at the minimum. The FED and no central banker would dare “create such an amount of money out of thin air” without arousing the suspicions and or panic of sovereign creditors, investors and depositors. It is as good as declaring officially that all the banks are BANKRUPT.
9) But there is no other solution in the short and middle term except another bout of quantitative easing, QE II. Given the above caveat, QE II cannot exceed the amount of the previous QE without opening the proverbial Pandora Box.
10) But it is also a given that the FED will embark on QE II, as under the fractional reserve banking system, if the FED does not purchase additional toxic wastes, the global banks (faced with mounting foreclosures, etc.) will fall short of their reserve requirements.
11) You will also recall that the FED at the height of the crisis announced that interest will be paid on the so-called “excess reserves” of the global banks, thus enabling these banks to “earn” interest. So what we have is a merry-go-round of monies moving from the right pocket to the left pocket at the click of the computer mouse. The FED creates money, uses it to buy toxic assets, and the same money is then returned to the FED by the global banks to earn interest. By this fiction of QE, banks are flushed with cash which enable them to earn interest. Is it any wonder that these banks have declared record profits?
12) The global banks get rid of some of their toxic wastes at full value and at no costs, and get paid for unloading the toxic wastes via interest payments. Additionally, some of the “monies” are used by these banks to purchase US Treasuries (which also pay interests) which in turn allows the US Treasury to continue its deficit spending. THIS IS THE BAILOUT RIP OFF of the century.
The rest is all original, and mine.
Ah, well, that's not even the worst of it. In order to stave off imminent implosion of the entire global banking system, some believe the Fed will have to print (and waste) some $30 TRILLION. Now, that happens to be just an round estimate, but it does amount to twice the annual GDP or twice the existing debt (choose your poison). Since the Fed is already in somewhere between $2 and $11 Trillion, depending on your level of pessimism and how you choose to crunch the numbers, we are only, at best, one third of the way down the path of complete, utter and final desolation.
If this first third of the way took three years (2007-2010), then we should finally be soup by 2016, though anybody with the uncanny ability to think that far ahead would probably be living in Brazil, China or Belize by then. The rest of us will just have to "suck it up" so to speak. The good/bad news is that you will be able to buy a traditional, three-bedroom home in a good suburb for about $30,000; a pound of tomatoes will be only $8.00, your utility bill will be 40-70% higher because usage will be very low and you have to take up the slack and your property taxes will be at least triple your mortgage payment (at least in the Northeast).
However, you won't be paying any taxes since there will be no jobs, but, for all you 50-and-60-somethings out there, that Social Security check you planned on receiving monthly will no longer be available. The overwhelming debt the nation has built up will see to it that almost all entitlements will have to be curtailed or, at a minimum, severely curtailed.
Soooooo, the lifestyles you've so carefully planned for yourselves and your children will go entirely up in the smoke of debt and default. The world will be a poorer place, you will be old and decrepit and the minions from nations to which we owe money we can never repay will be scouting the streets and byways of America for choice deals, to which they feel entitled!
The problem is that most Americans took it for granted that our government and our leaders were telling us the truth, not lying through their collective teeth in order to keep being re-elected. We - and I'm speaking mostly to the baby boomers - allowed them to tax us to the max, spend every last penny and then borrow more. we've brought it upon ourselves, you see.
And, just in case you're not convinced that we're well upon a path of self-destruction, in order to keep the public in the dark and at ease through our economic nightmare, the government is manipulating the stock market.
Thursday, August 12, 2010
No Cat, No Bounce In Dead Trade
Normally, following a massive decline like the one Wednesday, traders will be looking to see if the market shows any signs of strength with a bounce the following session. In bull markets, there's almost always some buoyancy with buyers stepping in to scoop up what they deem bargains. Even during bear markets there is usually enough optimism to promote some short-term relief, but there was none to be found on Thursday, as the major exchanges wrote down their third straight session on the red side of the ledger.
Although the markets opened down heavily and within minutes were trading at what would eventually be the lows of the day, stocks spent the entire session below the unchanged line, without even a hint of buying. This is a very bad sign for anybody holding stocks right now. An acute lack of buyers in the public marketplace presages not only a severe downturn in the values of stocks, but potentially a liquidity crisis in which stocks cannot even trade efficiently.
If there's going to be another shock to the financial system, it's likely to be in the form of liquidity since we've already entered into a deflationary environment. The one asset hailed as supreme during deflationary periods is CASH, simply because that's what everyone covets. Stocks will be shunned, and eventually bonds too, as the wisest choice will be seen as fast-appreciating cash, because it will buy more tomorrow than today as asset values are pounded down into the earth.
Since sellers are normally looking to "cash out" of positions, what happens when they don't recirculate their cash back into the equity markets is a lack of liquidity. This soon turns into a vortex, as buyers cannot be found except at deeply-discounted prices, sucking down the value of stocks with every trade. The abnormally low volume witnessed over the past week demonstrates, quite clearly, that buying interest has all but dried up. It's only a matter of time before stock holders cash in their chips and leave the markets for a long, long time.
Dow 10,319.95, -58.88 (0.57%)
NASDAQ 2,190.27, -18.36 (0.83%)
S&P 500 1,083.61, -5.86 (0.54%)
NYSE Composite 6,881.94, -20.77 (0.30%)
Declining issues ramped past advancers on the day, 3788-2646. Even more telling was the now-complete about-face in the daily new highs and lows. New lows took the upper hand for the second straight session, by a widening margin of 264-209. While volume has been decried as out of order, it is worth noting that the only positive daily finish of the week (Monday) was accompanied by the lowest volume, by a long shot. Overall, trading volume has improved each successive day since, though every day was a losing one. That's about all one needs to know about whether or not this downturn will continue. Volume continues to gain strength as more and more traders hit the panic button and sell. Since Tuesday was only the beginning of this current round of equity liquidation, expect further declines and the same or higher trading volumes in days and weeks ahead. There seems to be no stopping the markets from engaging in a race to the price discovery bottom.
NASDAQ Volume 2,211,456,250
NYSE Volume 4,563,876,000
As the dollar gained strength again, oil prices careened downward, losing $2.28, to $75.74, a quick reversal from the trades last week above the $80 mark. Gold got a sizable lift, up $17.30, to $1,214.80, now that speculators can read the Fed's hand without even having to peek. The Fed is out to eventually rip up the currency, making gold more valuable, and trader's aren't particularly concerned with short-term dollar strength, like today. They're ready to dive into gold and drive it to new highs, something that should surprise nobody, as gold has outperformed every other asset on nearly every level over the past ten years.
Silver gained slightly, adding 16 cents, to $18.05.
The markets were blind-sided once again prior to the open by another depressing report on initial unemployment claims, up to 484,000, following last week's stunning 479,000, which was revised higher, to 482,000. Not only are jobs not being created in the United States, more companies are beginning to lay workers off as the economy has stalled. If unemployment continues to rise, there is no hope for a recovery, which seems obvious. The double-dip recession which so many have discounted as unlikely, now seems a certainty, though one wonders why it took so many people so long to admit it.
For what it's worth, Bank of America (BAC) closed at another 52-week low today, down 13 cents, at 13.06.
Tomorrow's CPI report for July should show the effects of a moribund economy. Unless I've been completely wrong the past three years, the number should be lower, signifying further deflation.
Although the markets opened down heavily and within minutes were trading at what would eventually be the lows of the day, stocks spent the entire session below the unchanged line, without even a hint of buying. This is a very bad sign for anybody holding stocks right now. An acute lack of buyers in the public marketplace presages not only a severe downturn in the values of stocks, but potentially a liquidity crisis in which stocks cannot even trade efficiently.
If there's going to be another shock to the financial system, it's likely to be in the form of liquidity since we've already entered into a deflationary environment. The one asset hailed as supreme during deflationary periods is CASH, simply because that's what everyone covets. Stocks will be shunned, and eventually bonds too, as the wisest choice will be seen as fast-appreciating cash, because it will buy more tomorrow than today as asset values are pounded down into the earth.
Since sellers are normally looking to "cash out" of positions, what happens when they don't recirculate their cash back into the equity markets is a lack of liquidity. This soon turns into a vortex, as buyers cannot be found except at deeply-discounted prices, sucking down the value of stocks with every trade. The abnormally low volume witnessed over the past week demonstrates, quite clearly, that buying interest has all but dried up. It's only a matter of time before stock holders cash in their chips and leave the markets for a long, long time.
Dow 10,319.95, -58.88 (0.57%)
NASDAQ 2,190.27, -18.36 (0.83%)
S&P 500 1,083.61, -5.86 (0.54%)
NYSE Composite 6,881.94, -20.77 (0.30%)
Declining issues ramped past advancers on the day, 3788-2646. Even more telling was the now-complete about-face in the daily new highs and lows. New lows took the upper hand for the second straight session, by a widening margin of 264-209. While volume has been decried as out of order, it is worth noting that the only positive daily finish of the week (Monday) was accompanied by the lowest volume, by a long shot. Overall, trading volume has improved each successive day since, though every day was a losing one. That's about all one needs to know about whether or not this downturn will continue. Volume continues to gain strength as more and more traders hit the panic button and sell. Since Tuesday was only the beginning of this current round of equity liquidation, expect further declines and the same or higher trading volumes in days and weeks ahead. There seems to be no stopping the markets from engaging in a race to the price discovery bottom.
NASDAQ Volume 2,211,456,250
NYSE Volume 4,563,876,000
As the dollar gained strength again, oil prices careened downward, losing $2.28, to $75.74, a quick reversal from the trades last week above the $80 mark. Gold got a sizable lift, up $17.30, to $1,214.80, now that speculators can read the Fed's hand without even having to peek. The Fed is out to eventually rip up the currency, making gold more valuable, and trader's aren't particularly concerned with short-term dollar strength, like today. They're ready to dive into gold and drive it to new highs, something that should surprise nobody, as gold has outperformed every other asset on nearly every level over the past ten years.
Silver gained slightly, adding 16 cents, to $18.05.
The markets were blind-sided once again prior to the open by another depressing report on initial unemployment claims, up to 484,000, following last week's stunning 479,000, which was revised higher, to 482,000. Not only are jobs not being created in the United States, more companies are beginning to lay workers off as the economy has stalled. If unemployment continues to rise, there is no hope for a recovery, which seems obvious. The double-dip recession which so many have discounted as unlikely, now seems a certainty, though one wonders why it took so many people so long to admit it.
For what it's worth, Bank of America (BAC) closed at another 52-week low today, down 13 cents, at 13.06.
Tomorrow's CPI report for July should show the effects of a moribund economy. Unless I've been completely wrong the past three years, the number should be lower, signifying further deflation.
Tuesday, August 3, 2010
Deflation Debate Rages as Fed Ponders QE2
Editor's Note: This is a post covering two days - Monday and Tuesday, August 2 and 3 - due to my summer schedule, which includes a late afternoon round of golf on Mondays. The market stats are for Tuesday.
For conspiracy theorists, the constant droning about deflation which began on Friday with St. Louis Fed President James Bullard appearing on "Squawk Box" in the aftermath of his paper, Seven Faces of “"The Peril”", seems ominous enough to conclude that the new master plan is to plunge the economy into a deflationary depression.
While that may or may not be so, there are some views that make future prospects - even with the deflation element added in - not quite so frightening, such as Jim Rickards' thought-provoking response to Paul Krugman that deflation can actually benefit the economy, though Gary North's Economic Warnings From Niall Ferguson and Nassim Taleb and the Golden Jackass (Jim Wilie CB) Kindergarten Double Dip Recession Economics offer less-rosy scenarios.
Of course, here at Money Daily, my position has been consistent - that we've been deflating since August of 2007 - running diametrically-opposed to the views of Puru Saxena, who boldly penned, Debunking the Mainstream Economists Deflation Myths, while neither establishing economic realities as "myths" nor debunking any deflationary tendencies.
For whatever it's worth, the view here is that deflation is a soluble way out of the financial conundrum and relatively painless for regular people who would like their dollars to stretch a little further. For those invested in non-liquid assets with malleable price structures, the result of prolonged deflation might not be so pretty, and could actually be quite messy, ending up in bankruptcy court, where, indeed, many of the mal-investments of the past 20 years belong.
Since the non-stop talking heads on CNBC can't seem to leave the topic alone, it's probably a good sign that deflation is well underway. Either that, or they're purposely trying to scare investors, for whatever nefarious purpose they or their corporate masterminds may have concocted. It wouldn't be the first time that the on-air talent at CNBC was so far behind the curve that it appeared as a straight line, nor will it be the last. One only has to recall the archives from the Fall of '08 for some fresh views of the then-shocked and dismayed countenances witnessing the market meltdown in unanticipated awe.
If deflation truly takes hold and begins a spiral downward - something oil certainly seems not to want to do - day-to-day changes in stock or market indices will become more and more irrelevant over the near term, as will the generally feeble attempts by the Fed to do anything about any part of the economy, except, that is, to make it worse.
A paragraph from Jim Wilie's latest article (linked above) sums up the current catastrophe nicely:
What seems clear is the Fed's desire to re-inflate via Quantitative Easing once again, a plan that has largely failed once and continues to do so, with what has become known as QE2. Should the Fed decide to expand its purchases of Treasuries, agency and mortgage slush, the result will be more of the same: banks will hoard cash, consumers won't spend and the dollar will be reduced in value against other currencies, which, naturally, may be the Fed's plan in a nutshell.
Debasing the greenback may (probably) not stimulate the US economy, but it will have the effect of improving our trade balance if only by making exports cheaper. That benefit accrues mostly to multi-national corporations, the very same ones that have been reporting stellar second quarter results while the real world wallows in a sea of debt, fear and uncertainty.
They'll probably do it, and it will probably fail, deflation will rule, and the brainy folks who call themselves economists can all go scratch their collective heads. While inflation, according to Milton Friedman, is always a "monetary event," deflation will prov to be a global fiscal event with long-lasting implications.
On Monday, traders sent stocks soaring like the Yankees had just won the World Series, based upon some very suspect ISM numbers, which actually fell from the previous month and were only buoyed by the artificial stimulus of public sector (government) spending.
Tuesday saw no visible follow-through, a hint that the massive Monday rally was only a trading ploy, designed to maximize profits from shorting into Friday's non-farm payroll report. Stocks plummeted right off the open and spent the rest of the day underwater, partially recovering.
Dow 10,636.38, -38.00 (0.36%)
NASDAQ 2,283.52, -11.84 (0.52%)
S&P 500 1,120.46, -5.40 (0.48%)
NYSE Composite 7,146.99, -27.91 (0.39%)
Decliners led advancers, 4000-2430; new highs lead new lows, 361-73. Volume was downright pathetic, even for August.
NASDAQ Volume 2,011,883,125
NYSE Volume 4,551,798,500
Oil continued to confound, gaining $1.21, to $82.55, an overshoot of dramatic proportions. Gold gained $1.80, to $1,185.20, while silver was unchanged, at $18.41.
For conspiracy theorists, the constant droning about deflation which began on Friday with St. Louis Fed President James Bullard appearing on "Squawk Box" in the aftermath of his paper, Seven Faces of “"The Peril”", seems ominous enough to conclude that the new master plan is to plunge the economy into a deflationary depression.
While that may or may not be so, there are some views that make future prospects - even with the deflation element added in - not quite so frightening, such as Jim Rickards' thought-provoking response to Paul Krugman that deflation can actually benefit the economy, though Gary North's Economic Warnings From Niall Ferguson and Nassim Taleb and the Golden Jackass (Jim Wilie CB) Kindergarten Double Dip Recession Economics offer less-rosy scenarios.
Of course, here at Money Daily, my position has been consistent - that we've been deflating since August of 2007 - running diametrically-opposed to the views of Puru Saxena, who boldly penned, Debunking the Mainstream Economists Deflation Myths, while neither establishing economic realities as "myths" nor debunking any deflationary tendencies.
For whatever it's worth, the view here is that deflation is a soluble way out of the financial conundrum and relatively painless for regular people who would like their dollars to stretch a little further. For those invested in non-liquid assets with malleable price structures, the result of prolonged deflation might not be so pretty, and could actually be quite messy, ending up in bankruptcy court, where, indeed, many of the mal-investments of the past 20 years belong.
Since the non-stop talking heads on CNBC can't seem to leave the topic alone, it's probably a good sign that deflation is well underway. Either that, or they're purposely trying to scare investors, for whatever nefarious purpose they or their corporate masterminds may have concocted. It wouldn't be the first time that the on-air talent at CNBC was so far behind the curve that it appeared as a straight line, nor will it be the last. One only has to recall the archives from the Fall of '08 for some fresh views of the then-shocked and dismayed countenances witnessing the market meltdown in unanticipated awe.
If deflation truly takes hold and begins a spiral downward - something oil certainly seems not to want to do - day-to-day changes in stock or market indices will become more and more irrelevant over the near term, as will the generally feeble attempts by the Fed to do anything about any part of the economy, except, that is, to make it worse.
A paragraph from Jim Wilie's latest article (linked above) sums up the current catastrophe nicely:
The chain of ignominy includes gaping blind spots, blatantly wrong forecasts, minimized ignitions that spread crisis, misguided focus on goofy indicators, outright removal of important indicators, sloppy deception of monetization efforts (see last week's article), clumsy justification of Wall Street welfare, backwards perception of Too Big To Fail banks, and lying before the USCongress. The nation is dominated by fools who profess the lasting benefits of 'Hand to Mouth' approaches like tax rebates, purchase credits, jobless insurance extensions, and helicopter drops. Their worst investments are their biggest investments, like Fannie Mae and AIG nationalizations travesties. Harken back only to last winter, when economists were talking about a second half recovery, running all the red lights and stop signs. Then they shifted the klapptrapp to claims of a jobless recovery, which should evoke laughter from its impossibility. The economic counsel has forgotten what capital formation means, while they prepare for their next tourniquet to be applied to hemorrhages. The objective of monetary policy and banking policy is not recovery, but instead very clearly to retain power.
What seems clear is the Fed's desire to re-inflate via Quantitative Easing once again, a plan that has largely failed once and continues to do so, with what has become known as QE2. Should the Fed decide to expand its purchases of Treasuries, agency and mortgage slush, the result will be more of the same: banks will hoard cash, consumers won't spend and the dollar will be reduced in value against other currencies, which, naturally, may be the Fed's plan in a nutshell.
Debasing the greenback may (probably) not stimulate the US economy, but it will have the effect of improving our trade balance if only by making exports cheaper. That benefit accrues mostly to multi-national corporations, the very same ones that have been reporting stellar second quarter results while the real world wallows in a sea of debt, fear and uncertainty.
They'll probably do it, and it will probably fail, deflation will rule, and the brainy folks who call themselves economists can all go scratch their collective heads. While inflation, according to Milton Friedman, is always a "monetary event," deflation will prov to be a global fiscal event with long-lasting implications.
On Monday, traders sent stocks soaring like the Yankees had just won the World Series, based upon some very suspect ISM numbers, which actually fell from the previous month and were only buoyed by the artificial stimulus of public sector (government) spending.
Tuesday saw no visible follow-through, a hint that the massive Monday rally was only a trading ploy, designed to maximize profits from shorting into Friday's non-farm payroll report. Stocks plummeted right off the open and spent the rest of the day underwater, partially recovering.
Dow 10,636.38, -38.00 (0.36%)
NASDAQ 2,283.52, -11.84 (0.52%)
S&P 500 1,120.46, -5.40 (0.48%)
NYSE Composite 7,146.99, -27.91 (0.39%)
Decliners led advancers, 4000-2430; new highs lead new lows, 361-73. Volume was downright pathetic, even for August.
NASDAQ Volume 2,011,883,125
NYSE Volume 4,551,798,500
Oil continued to confound, gaining $1.21, to $82.55, an overshoot of dramatic proportions. Gold gained $1.80, to $1,185.20, while silver was unchanged, at $18.41.
Thursday, July 29, 2010
The "D" Word
Geez, the cat is finally out of the bag.
No sooner does Federal Reserve Bank of St. Louis President James Bullard utter the word "deflation," then the whole market gets all quivery and queasy. It's as though nobody wants lower prices or even a temporary restraint on runaway excess credit expansion.
Well, here's the news: We've been experiencing deflation - depending on how loosely you wish to interpret the definition - since about August of 2007.
Really? You ask, stunned by not being aware of current financial conditions. Yes, really, since August, 2007, like three years, when stocks began to deflate (or, go down). And real estate prices deflated. Remember when they called residential real estate prices a bubble? What happens when you prick a bubble? It deflates. If there's any indication of deflation, just ask homeowners in vast areas of California, Michigan, Florida or Nevada, where home prices have fallen by as much as 60% or more.
Technically speaking, there are two definitions of deflation, though since economics is more art than science, the two are often blended into one, such as this definition from Investopedia: "A general decline in prices, often caused by a reduction in the supply of money or credit. Deflation can be caused also by a decrease in government, personal or investment spending."
Over on Wikipedia, deflation is described as. "a decrease in the general price level of goods and services." Pretty simple, and correct, though some economics adherents will insist that deflation is a decrease in the supply of money.
There are very good discussions on both of the above linked references, and each of them makes salient points which overlap and intersect in such a way as to make my argument - that we've been in deflation since August, 2007 - pretty darn accurate.
So, let's take a look at conditions since the summer of 2007, and see how we Americans are doing on the deflation scale. First, we know that houses aren't as expensive as they were back then, so the residential housing market is definitely deflated.
How about other assets, like stocks? Well, the Dow Jones Industrials were tickling the 14,000 mark back then, and are barely able to maintain a level over 10,000 today. Sounds like about a 30% deflation there.
Here's one nobody gets: wages, which haven't generally risen since 2002 and even before that were pretty stagnant. So, if you're an employer, you like deflation - or, at least stagnation - in the price of labor.
As for money supply, it may have been increasing, though according to these charts from Shadowstats.com, the rate of growth of the various popular money supply definitions (M1, M2, etc.) seems to have been slowing, so that would qualify, technically, as "disinflation," not deflation. Hey, I can't be 100% right all the time, no?
And, lest we forget, the Spring and Summer of 2008, when gasoline prices hit upwards of $3 and $4, so, since everything doesn't all go down at once, and some prices actually have gone up (like gold, or silver), I believe it's safe to say that deflation has been the dominant economic theme for the better part of past three years.
If you're unconvinced, just try raising prices on consumer goods and see how quickly your customers will become those of your competitors. Deflation, while it isn't an evil thing (in fact, it's probably preferable to inflation), is not regarded as generally good for businesses, especially the kind whose stocks are traded on Wall Street, who have to keep increasing their profits every quarter, which, when you think about it, is a pretty absurd concept. Most people who own small businesses are fairly happy just making the same profit over and over and never becoming billionaires, just "comfortable."
Deflation really scares the bejesus out of Wall Street types and with god reason. The companies they hype will die in a prolonged deflationary environment.
As for how the markets responded to the dreaded "D" word, the response was rather muted. Being fairly bright people, many traders already know that deflation has already been in effect for some time, and they also don't jump the shark and sell everything on the word of one Fed President, so the markets did a little dip, then rose, then sold off at the close, producing a chart probably more closely related to fears of what the second quarter GDP estimate will be tomorrow morning than anything else.
Dow 10,467.16, -30.72 (0.29%)
NASDAQ 2,251.69, -12.87 (0.57%)
S&P 500 1,101.53, -4.60 (0.42%)
NYSE Composite 6,994.57, -4.61 (0.07%)
Advancing issues barely beat decliners on the day, 3296-3093, and new highs continued to dominate new lows, 280-85. Volume was better than average.
NASDAQ Volume 2,332,617,500
NYSE Volume 5,247,904,500
The forces of deflation seemed to have little effect on commodities. Oil surged $1.37, to $78.36 per barrel. Gold was up $8.10, to $1,170.50 per ounce, with silver gaining 18 cents, to $17.62.
Initial unemployment claims came in slightly lower than the previous week, though still unacceptably high, at 457,000.
The first estimate of second quarter GDP will be announced at 8:30 am on Friday.
No sooner does Federal Reserve Bank of St. Louis President James Bullard utter the word "deflation," then the whole market gets all quivery and queasy. It's as though nobody wants lower prices or even a temporary restraint on runaway excess credit expansion.
Well, here's the news: We've been experiencing deflation - depending on how loosely you wish to interpret the definition - since about August of 2007.
Really? You ask, stunned by not being aware of current financial conditions. Yes, really, since August, 2007, like three years, when stocks began to deflate (or, go down). And real estate prices deflated. Remember when they called residential real estate prices a bubble? What happens when you prick a bubble? It deflates. If there's any indication of deflation, just ask homeowners in vast areas of California, Michigan, Florida or Nevada, where home prices have fallen by as much as 60% or more.
Technically speaking, there are two definitions of deflation, though since economics is more art than science, the two are often blended into one, such as this definition from Investopedia: "A general decline in prices, often caused by a reduction in the supply of money or credit. Deflation can be caused also by a decrease in government, personal or investment spending."
Over on Wikipedia, deflation is described as. "a decrease in the general price level of goods and services." Pretty simple, and correct, though some economics adherents will insist that deflation is a decrease in the supply of money.
There are very good discussions on both of the above linked references, and each of them makes salient points which overlap and intersect in such a way as to make my argument - that we've been in deflation since August, 2007 - pretty darn accurate.
So, let's take a look at conditions since the summer of 2007, and see how we Americans are doing on the deflation scale. First, we know that houses aren't as expensive as they were back then, so the residential housing market is definitely deflated.
How about other assets, like stocks? Well, the Dow Jones Industrials were tickling the 14,000 mark back then, and are barely able to maintain a level over 10,000 today. Sounds like about a 30% deflation there.
Here's one nobody gets: wages, which haven't generally risen since 2002 and even before that were pretty stagnant. So, if you're an employer, you like deflation - or, at least stagnation - in the price of labor.
As for money supply, it may have been increasing, though according to these charts from Shadowstats.com, the rate of growth of the various popular money supply definitions (M1, M2, etc.) seems to have been slowing, so that would qualify, technically, as "disinflation," not deflation. Hey, I can't be 100% right all the time, no?
And, lest we forget, the Spring and Summer of 2008, when gasoline prices hit upwards of $3 and $4, so, since everything doesn't all go down at once, and some prices actually have gone up (like gold, or silver), I believe it's safe to say that deflation has been the dominant economic theme for the better part of past three years.
If you're unconvinced, just try raising prices on consumer goods and see how quickly your customers will become those of your competitors. Deflation, while it isn't an evil thing (in fact, it's probably preferable to inflation), is not regarded as generally good for businesses, especially the kind whose stocks are traded on Wall Street, who have to keep increasing their profits every quarter, which, when you think about it, is a pretty absurd concept. Most people who own small businesses are fairly happy just making the same profit over and over and never becoming billionaires, just "comfortable."
Deflation really scares the bejesus out of Wall Street types and with god reason. The companies they hype will die in a prolonged deflationary environment.
As for how the markets responded to the dreaded "D" word, the response was rather muted. Being fairly bright people, many traders already know that deflation has already been in effect for some time, and they also don't jump the shark and sell everything on the word of one Fed President, so the markets did a little dip, then rose, then sold off at the close, producing a chart probably more closely related to fears of what the second quarter GDP estimate will be tomorrow morning than anything else.
Dow 10,467.16, -30.72 (0.29%)
NASDAQ 2,251.69, -12.87 (0.57%)
S&P 500 1,101.53, -4.60 (0.42%)
NYSE Composite 6,994.57, -4.61 (0.07%)
Advancing issues barely beat decliners on the day, 3296-3093, and new highs continued to dominate new lows, 280-85. Volume was better than average.
NASDAQ Volume 2,332,617,500
NYSE Volume 5,247,904,500
The forces of deflation seemed to have little effect on commodities. Oil surged $1.37, to $78.36 per barrel. Gold was up $8.10, to $1,170.50 per ounce, with silver gaining 18 cents, to $17.62.
Initial unemployment claims came in slightly lower than the previous week, though still unacceptably high, at 457,000.
The first estimate of second quarter GDP will be announced at 8:30 am on Friday.
Thursday, July 15, 2010
Yes, That Was the End of the Rally
As queried yesterday, the split decision by the major indices, resulting in paltry gains and losses across the board, appears to have signaled at least a pause of optimism for the markets.
News flows were both good and bad (depending on one's perspective) prior to the open, highlighted by JP Morgan Chase (JPM) trying to get away with reporting second quarter results which included unusual one-time gains. The usual protocol is for one-time charges or gains to be stripped out, as the vast majority of analysts predict on such a basis.
The Financial Times reports that JPM's earnings "Signal end of Wall St. rebound" and even Wall Street darling CEO Jamie Dimon couldn't get away with reporting $1.09 per share, when analysts were seeking 70 cents, excluding one-time charges. JPM decided to pad earnings by lowering their loan-loss reserves by $1.5 billion. Stripping those out, the venerable House of Morgan made 75 cents per share in the quarter, though there were likely other crafty accounting tricks employed.
For their efforts, investors sold off the nation's second-largest bank to the tune of a little more than a point at the lows of the day. When all was said and done, however, and the Wall Street connivers couldn't stand a little decline, all stocks were boosted in a furious final half-hour, which saw the Dow gain about 70 points and JP Morgan close 11 cents higher on the day, closing at 40.46.
The final push was attributed to passage of the long-overdue Financial Regulation bill by the Senate, but stocks finished mixed again. As the Dow and NASDAQ finished higher on Wednesday, today's two winners were the S&P 500 and NYSE Composite, a complete reversal. So, for the past two days, all the markets did was vaporize a lot of money.
Also prior to the open Initial jobless claims for the week reportedly totaled 429,000, down 29,000 from the previous week. Following last week's precipitous drop, continuing claims climbed by almost 250,000 to 4.68 million. Separately, the Producer Price Index (PPI) for June fell 0.5% month-over-month, another sure sign that deflation is well-entrenched.
The NY Fed Empire Manufacturing Index fell to 5.08 in July, from 19.57 in June, a seven-month low.
Industrial production gained 0.1% in June, while Capacity Utilization stalled out at 74.1% over the same span. All of these indicators cause stocks to sell off at the open, but career further and deeper into the red after 10:00 am when the Philadelphia Fed announced that their manufacturing index fell from 8.0 in June to 5.0 in July.
If there isn't a double-dip or recession headed our way, you sure can't tell it from the spate of negative statistics sprouting from every corner of the economy.
Dow 10,359.31, -7.41 (0.07%)
NASDAQ 2,249.08, -0.76 (0.03%)
S&P 500 1,096.48, +1.31 (0.12%)
NYSE Composite 6,916.81, +13.45 (0.19%)
Decliners again led advancing issues, 3601-2789, and new highs remained ahead of new lows, 172-71. Volume was weak, owing to the uncertainty of the marketplace.
NASDAQ Volume 1,980,588,625
NYSE Volume 5,214,455,500
Crude oil sold off, losing 66 cents, to $76.62, but gold was higher once more, up $1.30, to $1,208.10. Silver gained 7 cents, to $18.35. All traders in commodities are due for a rude awakening at some point, when deflationary forces can no longer be contained and demand eventually falls off a table. Those not in cash (unlike myself and ardent followers of this blog) should begin shedding all semi-liquid assets, including futures contracts, as all signs point to a resumption of the bear market, though this time bottoms could be severe - far lower than expected.
After the final bell, Google (GOOG) was ravaged as it missed analyst expectations of $6.52, by seven cents, or $6.45 per share. To understand the absurdity of Wall Street, one must realize that Google is among the most profitable companies in the world. GAAP operating income (revenues after expenses) was $2.37 billion, which is a pretty good sum of money for any three-month period. Nonetheless, some traders saw fit to wallop the stock down more than 20 points in after hours trading, or, by more than 4%.
Maybe it was a touch overvalued at $494 a share, or, 22 times earnings. Live and learn.
This earnings season can't be over with already, can it? We've just gotten started. There are sure to be wild gyrations tomorrow on options expiration and over the next two weeks, which will only be fun if you're winning.
News flows were both good and bad (depending on one's perspective) prior to the open, highlighted by JP Morgan Chase (JPM) trying to get away with reporting second quarter results which included unusual one-time gains. The usual protocol is for one-time charges or gains to be stripped out, as the vast majority of analysts predict on such a basis.
The Financial Times reports that JPM's earnings "Signal end of Wall St. rebound" and even Wall Street darling CEO Jamie Dimon couldn't get away with reporting $1.09 per share, when analysts were seeking 70 cents, excluding one-time charges. JPM decided to pad earnings by lowering their loan-loss reserves by $1.5 billion. Stripping those out, the venerable House of Morgan made 75 cents per share in the quarter, though there were likely other crafty accounting tricks employed.
For their efforts, investors sold off the nation's second-largest bank to the tune of a little more than a point at the lows of the day. When all was said and done, however, and the Wall Street connivers couldn't stand a little decline, all stocks were boosted in a furious final half-hour, which saw the Dow gain about 70 points and JP Morgan close 11 cents higher on the day, closing at 40.46.
The final push was attributed to passage of the long-overdue Financial Regulation bill by the Senate, but stocks finished mixed again. As the Dow and NASDAQ finished higher on Wednesday, today's two winners were the S&P 500 and NYSE Composite, a complete reversal. So, for the past two days, all the markets did was vaporize a lot of money.
Also prior to the open Initial jobless claims for the week reportedly totaled 429,000, down 29,000 from the previous week. Following last week's precipitous drop, continuing claims climbed by almost 250,000 to 4.68 million. Separately, the Producer Price Index (PPI) for June fell 0.5% month-over-month, another sure sign that deflation is well-entrenched.
The NY Fed Empire Manufacturing Index fell to 5.08 in July, from 19.57 in June, a seven-month low.
Industrial production gained 0.1% in June, while Capacity Utilization stalled out at 74.1% over the same span. All of these indicators cause stocks to sell off at the open, but career further and deeper into the red after 10:00 am when the Philadelphia Fed announced that their manufacturing index fell from 8.0 in June to 5.0 in July.
If there isn't a double-dip or recession headed our way, you sure can't tell it from the spate of negative statistics sprouting from every corner of the economy.
Dow 10,359.31, -7.41 (0.07%)
NASDAQ 2,249.08, -0.76 (0.03%)
S&P 500 1,096.48, +1.31 (0.12%)
NYSE Composite 6,916.81, +13.45 (0.19%)
Decliners again led advancing issues, 3601-2789, and new highs remained ahead of new lows, 172-71. Volume was weak, owing to the uncertainty of the marketplace.
NASDAQ Volume 1,980,588,625
NYSE Volume 5,214,455,500
Crude oil sold off, losing 66 cents, to $76.62, but gold was higher once more, up $1.30, to $1,208.10. Silver gained 7 cents, to $18.35. All traders in commodities are due for a rude awakening at some point, when deflationary forces can no longer be contained and demand eventually falls off a table. Those not in cash (unlike myself and ardent followers of this blog) should begin shedding all semi-liquid assets, including futures contracts, as all signs point to a resumption of the bear market, though this time bottoms could be severe - far lower than expected.
After the final bell, Google (GOOG) was ravaged as it missed analyst expectations of $6.52, by seven cents, or $6.45 per share. To understand the absurdity of Wall Street, one must realize that Google is among the most profitable companies in the world. GAAP operating income (revenues after expenses) was $2.37 billion, which is a pretty good sum of money for any three-month period. Nonetheless, some traders saw fit to wallop the stock down more than 20 points in after hours trading, or, by more than 4%.
Maybe it was a touch overvalued at $494 a share, or, 22 times earnings. Live and learn.
This earnings season can't be over with already, can it? We've just gotten started. There are sure to be wild gyrations tomorrow on options expiration and over the next two weeks, which will only be fun if you're winning.
Thursday, July 1, 2010
ISM Data, Home Sales Rattle Markets: Deflation Clearly Evident
The relentless slide in the markets continued on Thursday as the series of data releases evidencing poor economic performance across the entire global swath of markets added even more dour numbers.
Prior to the opening bell, the government-affiliated PMI for China fell to 52.1 in June from 53.9 in May and 55.7 in April, and the HSBC China Manufacturing PMI fell to 50.4 in June from 52.7 in May. HSBC reports their figure the lowest in a year, even though readings over 50 do indicate expansion.
First time unemployment claims came in at 472,000, a rise above the prior week's revised reading of 459,000 new claimants.
Once markets were open for trading, matters turned even worse when the US ISM Index dropped to 52.6 in June from 59.7 in May and pending home sales registered a 30% decline month-over-month.
Revealing in the ISM data was the 20.5% decline in prices. Overall, production slipped 5.2% and new orders were off 7.2%.
Much of the decline in housing starts was credited to the end of the government's tax credit on home purchases in April, but the 30% decline was more than twice what was expected, sending the index to an all-time low of 77.6 from a reading of 110.9 in April. The index is also is 15.9% below the May 2009 figure.
Stocks plunged when that disastrous duo came off the news wires, with the Dow quickly plummeting to its intra-day low of 9,621.89, with other indices following the path lower.
Markets tore through all levels of support, but regained composure midday and closed with relatively minor losses.
But serious technical damage had been done this day, as in days past. Concern over the shaky health of the US economy continued to dog investors at every turn and tomorrow's release of non-farms payroll from June hasn't offered much hope, though many are wondering whether or not the market is seriously oversold and the impact of the employment data already factored into prices.
More than likely, that is not the case, but rather the market was guided by insiders on the short side of many trades, covering today and re-instituting positions in anticipation of a tepid report before the beginning of Friday's trade. while that may seem cynical to some, it's how the market has been running for some time. It's a big boy's game and small investors do not stand a chance.
Unless, by some miracle of accounting, the government shows 50,000 or more private sector jobs created over the month just past, the markets are on course for one of their worst weeks in quite some time.
Dow 9,732.53, -41.49 (0.42%)
NASDAQ 2,101.36, -7.88 (0.37%)
S&P 500 1,027.37, -3.34 (0.32%)
NYSE Composite 6,462.03, -7.62 (0.12%)
Giving more credence to the bearish camp, decliners outstripped advancers by an unhealthy margin, 4052-2496, and new lows ramped past new highs, 439-101, the third straight day in which the lows have buried the highs and the largest margin of the three. Volume was also very heavy, the best showing of the week.
NASDAQ Volume 2,678,066,750
NYSE Volume 7,533,900,500
Today's sudden decline caused liquidation and winding down of many trades, particularly in the highly-hedged commodity arena. Oil saw its worst price decline in at least three months, losing $2.68, to $72.95. Gold was completely devastated, dropping $39.00, to $1,206.30 and even further - below $1200 - after the NY close. Silver also disappointed, dropping 91 cents (4.88%), to $17.76. Prices for the precious metals fell to levels not seen in over a month.
Continued weakness in global markets continue to stir fears of widening deflationary trends, particularly worrisome to those who carry heavy debt burdens, such as almost all government entities, hedge funds, banks and other financial institutions.
Global deflation, begun in earnest in August 2007, continues to gain momentum and shake existing financial infrastruture.
Prior to the opening bell, the government-affiliated PMI for China fell to 52.1 in June from 53.9 in May and 55.7 in April, and the HSBC China Manufacturing PMI fell to 50.4 in June from 52.7 in May. HSBC reports their figure the lowest in a year, even though readings over 50 do indicate expansion.
First time unemployment claims came in at 472,000, a rise above the prior week's revised reading of 459,000 new claimants.
Once markets were open for trading, matters turned even worse when the US ISM Index dropped to 52.6 in June from 59.7 in May and pending home sales registered a 30% decline month-over-month.
Revealing in the ISM data was the 20.5% decline in prices. Overall, production slipped 5.2% and new orders were off 7.2%.
Much of the decline in housing starts was credited to the end of the government's tax credit on home purchases in April, but the 30% decline was more than twice what was expected, sending the index to an all-time low of 77.6 from a reading of 110.9 in April. The index is also is 15.9% below the May 2009 figure.
Stocks plunged when that disastrous duo came off the news wires, with the Dow quickly plummeting to its intra-day low of 9,621.89, with other indices following the path lower.
Markets tore through all levels of support, but regained composure midday and closed with relatively minor losses.
But serious technical damage had been done this day, as in days past. Concern over the shaky health of the US economy continued to dog investors at every turn and tomorrow's release of non-farms payroll from June hasn't offered much hope, though many are wondering whether or not the market is seriously oversold and the impact of the employment data already factored into prices.
More than likely, that is not the case, but rather the market was guided by insiders on the short side of many trades, covering today and re-instituting positions in anticipation of a tepid report before the beginning of Friday's trade. while that may seem cynical to some, it's how the market has been running for some time. It's a big boy's game and small investors do not stand a chance.
Unless, by some miracle of accounting, the government shows 50,000 or more private sector jobs created over the month just past, the markets are on course for one of their worst weeks in quite some time.
Dow 9,732.53, -41.49 (0.42%)
NASDAQ 2,101.36, -7.88 (0.37%)
S&P 500 1,027.37, -3.34 (0.32%)
NYSE Composite 6,462.03, -7.62 (0.12%)
Giving more credence to the bearish camp, decliners outstripped advancers by an unhealthy margin, 4052-2496, and new lows ramped past new highs, 439-101, the third straight day in which the lows have buried the highs and the largest margin of the three. Volume was also very heavy, the best showing of the week.
NASDAQ Volume 2,678,066,750
NYSE Volume 7,533,900,500
Today's sudden decline caused liquidation and winding down of many trades, particularly in the highly-hedged commodity arena. Oil saw its worst price decline in at least three months, losing $2.68, to $72.95. Gold was completely devastated, dropping $39.00, to $1,206.30 and even further - below $1200 - after the NY close. Silver also disappointed, dropping 91 cents (4.88%), to $17.76. Prices for the precious metals fell to levels not seen in over a month.
Continued weakness in global markets continue to stir fears of widening deflationary trends, particularly worrisome to those who carry heavy debt burdens, such as almost all government entities, hedge funds, banks and other financial institutions.
Global deflation, begun in earnest in August 2007, continues to gain momentum and shake existing financial infrastruture.
Friday, February 19, 2010
Fed Discount Hike No Issue
The Fed's decision to hike the discount rate (announced after the close on Thursday) created a bit of a stir in Japan's markets, but barely elicited a yawn in the US. Market participants shrugged off the Federal reserve's surprise announcement to hike the emergency rate at the discount window from half a percent to 3/4 percent (0.75) and dial back the repayment time from 30 days to 24 hours - the normal time period for what used to be known as "overnight" loans - and pulled markets into positive territory for the fourth straight session.
PIMCO's Bill Gross believes that the "surprise" Fed move was simply to appease inflation hawks on the Fed's Board of Governors, and that real rates would remain low.
Dow 10,402.35, +9.45 (0.09%)
NASDAQ 2,243.87, +2.16 (0.10%)
S&P 500 1,109.17, +2.42 (0.22%)
NYSE Composite 7,083.25, +2.87 (0.04%)
Despite the tame headline numbers, advancers pounded decliners, 3612-2828, and new highs soared past new lows, 290-30. Volume was a bit above normal, owing to February options expiration.
NYSE Volume 4,586,752,500
NASDAQ Volume 2,132,987,000
Oil continued its absurd price gains, picking up 93 cents, to $79.99. Analysts believe as much as $30-35 in the price of a barrel of crude is due to speculation. Demand has been slack for months and there has been ample supply as well. The control of the oil futures markets by a handful of participants has distorted the true pricing by quite a degree, to he dismay of many a driver.
Gold gained $3.30, to $1,122.00, and silver bumped higher by 35 cents, to $16.41.
If the Fed's action was a signal that inflation was on the horizon, January CPI data might argue otherwise. Consumer prices gained just 0.2% in the month, with core prices - excluding food and energy - fell 0.1. These figures came in stark contrast to yesterday's release of PPI, which were higher on a relative basis.
Since the Fed's discount window-dressing was more symbolism than actual rate-adjusting, the inflation-deflation debate is likely to rage onward for months. Eventually, the deflationists are probably more correct in their overall assessment of the current condition than the market-oriented inflationists.
PIMCO's Bill Gross believes that the "surprise" Fed move was simply to appease inflation hawks on the Fed's Board of Governors, and that real rates would remain low.
Dow 10,402.35, +9.45 (0.09%)
NASDAQ 2,243.87, +2.16 (0.10%)
S&P 500 1,109.17, +2.42 (0.22%)
NYSE Composite 7,083.25, +2.87 (0.04%)
Despite the tame headline numbers, advancers pounded decliners, 3612-2828, and new highs soared past new lows, 290-30. Volume was a bit above normal, owing to February options expiration.
NYSE Volume 4,586,752,500
NASDAQ Volume 2,132,987,000
Oil continued its absurd price gains, picking up 93 cents, to $79.99. Analysts believe as much as $30-35 in the price of a barrel of crude is due to speculation. Demand has been slack for months and there has been ample supply as well. The control of the oil futures markets by a handful of participants has distorted the true pricing by quite a degree, to he dismay of many a driver.
Gold gained $3.30, to $1,122.00, and silver bumped higher by 35 cents, to $16.41.
If the Fed's action was a signal that inflation was on the horizon, January CPI data might argue otherwise. Consumer prices gained just 0.2% in the month, with core prices - excluding food and energy - fell 0.1. These figures came in stark contrast to yesterday's release of PPI, which were higher on a relative basis.
Since the Fed's discount window-dressing was more symbolism than actual rate-adjusting, the inflation-deflation debate is likely to rage onward for months. Eventually, the deflationists are probably more correct in their overall assessment of the current condition than the market-oriented inflationists.
Wednesday, February 10, 2010
Bernanke's Naked Put Signals End of Fed
Once upon a time, I owned a fairly successful, profitable newspaper publishing business. Due to events mostly beyond my control the business declined and eventually was bankrupted. During the phase of decline, my father, knowing the challenges and tribulations I faced on a daily basis, used to say, "I don't know how you keep going."
Being a resourceful and resolute sort, I usually replied that the alternative would be to ball up in a corner and cry.
Nowadays, I laugh. I laugh quite a bit. And, what keeps me laughing the most is the outright insanity of the global economy and the people who are supposed to be running it. That idea alone, that a few people, like Fed Chairman Ben Bernanke and heads of foreign central banks, are supposed to keep the global machinery of commerce well-maintained and regulated.
HAHAHAHAHAHAHAHA!!!!! Financial mismanagement of far-flung enterprises, like nations, began with the creation of money, but didn't really gather momentum until the Fed was created in 1913 (just before the Great Depression, I should add) and John Maynard Keynes began commenting and writing on economics. The art was nearly perfected by the expansionist Maestro himself, Alan Greenspan, and is today being expanded to the nth degree of absurdity by Chairman Bernanke.
Today was a literal laugh riot. Bernanke released a transcript of his remarks prepared for testimony before the Committee on Financial Services, U.S. House of Representatives. His actual appearance was postponed since the nation's capitol is currently under two to three feet of snow (this is a probably a good thing that won't last), but Chairman Ben decided to unveil it today, since he probably wanted to get the blueprint outlining the devastation of a nation's finances out for inspection by his central banker buddies around the world.
The text of his remarks, lined above, reads like a fantasy. It is almost all fiction and represents the hopes and prayers of the fed Chariman, because, technically, with the federal funds rate essentially at zero and there being no economic conditions which would cause the FOMC to change its policy stance, i.e., raising the rate, the Fed has NO WAY TO INFLUENCE INTEREST RATES.
What our ingenious Chairman has suggested in this little piece of fiction, is that interest rate policy will be tied to interest paid on member bank reserves. In other words, Bernanke has suggested a game-changer because the usual federal funds rate is going to stay at ZERO for much longer than he or anyone else in the banking industry ever imagined it would.
Essentially, he's saying - despite his claims that the economy is improving - that conditions continue to deteriorate and will continue to deteriorate for as far as the eye can see. Inside his veiled statement of "change" (we've heard that one before) is the seed of truth: the Fed has failed in its responsibility to promote a sound economy and stable prices. They have been unable to shake loose from their accommodative posture because the debt burden is still too severe and getting worse.
The only way out for them is to pay interest on their money they themselves hold and hope that credit markets respond in kind to yet another inflationary gesture. In all probability, it won't work, for two good reasons. First, the entire structure of the Fed is based on lending out money at interest, not paying interest on money held in reserve. Their plan is entirely a chimera, a sham, a puppet show. Second, the private markets will not adjust to the "new, improved" interest-on-reserves-as-the-basis-for-all-lending program. Markets, regional and local, have their own priorities and standards and will shake free from the Fed umbrella. Growing markets will encourage higher interest rates. Slowing or stagnant markets, that being most of the nation, will not be able to raise rates with any success.
Bernanke's plan is as boneheaded as most of the ideas spawned by the minds of these Lilliputian thinkers. More than anything else, the Chairman has issued the first statement signaling the end of the Federal Reserve. He admits that the economy's problems began in August of 2007, as I have repeatedly stated at various times on this blog and elsewhere. His highly-fictionalized account of the proceeding events fail to hide the fact that the Fed and his counterparts at the US Treasury have been entirely unable to correct the prevailing conditions of decline.
He is admitting defeat, The US economic system, as it has been engineered by the Federal Reserve, is broken beyond repair. The fed funds rate is ZERO, and will remain at ZERO forever, or, until the Federal Reserve Act is either amended or revoked. Since the Federal Reserve Act did not include a charter or set term for the operation of the Fed, there is no renewal or expiration. They operate in perpetuity, thus, the only way to dispose of or abolish this abominable creation is by an act of congress, so don't hold your breath. By the time the numbskulls in DC come to the realization that the Fed has bankrupted the nation, it will be too late. Besides, the federal government has done their own demolition job with entitlements, deficits and the burgeoning national debt.
In 2007, I suggested taking all money out of the stock market and putting it into cash. This new twist on the entire structure of money reinforces my ideas from yesterday that the only place to put money now is in foodstocks that can be stored, reliable transportation, clothing, arable land and tools of trade. Obviously, an investment in a sewing machine or any kind of gardening instrument would be a worthwhile use of your money in light of today's developments.
The Fed's failure may result in very unusual movements in currency markets. An absolute breakdown of global trade is not out of the question as more and more individuals and countries question the viability of fiat currencies as a whole. The alternatives to our busted system of credit are gold, silver and barter. However, since gold and silver have been highly commoditized and traded as investments, they may be less reliable as stores of wealth as their values should fall along with all other asset classes, albeit to a lesser degree. Add to the list, seeds, for vegetables. They're cheap, and everybody needs to eat more veggies.
The market reaction to Bernanke's comments, released about 10:00 am, was complete horror. Stocks immediately sold off on the very thought that the fed would even consider ending their free-money regime. Cooler heads prevailed, however, sending stocks back up and into a stable area for much of the remaining session. Overhanging everything was the snowstorm ravaging the East coast, which kept Washington shut down and many traders away from their desks. Volume was a dribble and the major indices ended the day without much change, though all were down.
Dow 10,038.38, -20.26 (0.20%)
NASDAQ 2,147.87, -3.00 (0.14%)
S&P 500 1,068.13, -2.39 (0.22%)
NYSE Composite 6,819.12, -16.04 (0.23%)
Declining issues beat advancers, 3271-3086. New highs: 113; New lows: 53. Still no perceptible break in these indicators. Volume was on the low side.
NYSE Volume 4,982,940,500
NASDAQ Volume 2,039,927,875
Commodities were split. Crude oil gained 17 cents, to $74.69. That's about to change. Look for crude at $65 within months, possibly sooner and possibly lower. Gold lost $1.10, to $1,076.10. Silver edged down 11 cents, to $15.33.
Just to reinforce how grossly mismanaged the US economy is, I cite this mainstream article, called, Is America about to go broke?, a brief, yet exceptional insight to the unfunded liabilities of Social Security and Medicare by Scott Burns.
Having previously written on this topic just a few days or weeks ago, I discovered that the unfunded liabilities were an amorphous blob, with estimates ranging from $69 to $99 trillion. Burns pegs it at a "mere" $42.9 trillion, citing the actual 2008 Trustee's Report as his source. Burns makes more claims in his article, the most compelling being that the total expense for SS and Medicare will outstrip revenue sometime between 2010 and 2015. Previous estimates had this date pegged as 2037, quite a few years off. Burns also pegs Alan Greenspan as the architect for the detonation of the entitlement time bomb, a point on which he is probably correct.
But then Burns makes the leap to inflation, purporting that in order to keep the payments system going, the Fed will have to print more money. That's where he and I part company. The Fed has been printing money as fast as it can for years. Inflation has not occurred because the banks are hoarding it, keeping an ungodly amount as reserves within the Federal Reserve. Just printing money doesn't cause inflation. It has to be put into circulation, and currently, its not. And, as we learned today, the Fed is going to pay interest on all this money the banks have stored within the Fed as reserves. There's the final solution. The US economy is kaput, forcibly being thrown down a deflationist hole by the Federal Reserve and its member banks.
The plan by the Fed is ingenious, yet utterly transparent. They'll inflate when they see fit. When they have every mortgage in America underwater, when real estate values have plummeted to 30-40% of what they are today, that's when they'll release a torrent of previously-reserved money as they buy up every depressed property in America, converting the nation's most valuable assets from the hands of homeowners, Fannie Mae and Freddie Mac, to their own. Oh, yes, and then, once Americans already have been forced out of their homes, the prices of everything - from food, to fuel to every imported good - will rise out of their buying range.
Yes, we will have inflation, but not before we encounter years and years of crushing deflation.
I'm not laughing as hard as I was earlier, because the conditions are dire indeed. However, the proposed solutions and what passes today for economic analysis are absolutely side-splitting.
Being a resourceful and resolute sort, I usually replied that the alternative would be to ball up in a corner and cry.
Nowadays, I laugh. I laugh quite a bit. And, what keeps me laughing the most is the outright insanity of the global economy and the people who are supposed to be running it. That idea alone, that a few people, like Fed Chairman Ben Bernanke and heads of foreign central banks, are supposed to keep the global machinery of commerce well-maintained and regulated.
HAHAHAHAHAHAHAHA!!!!! Financial mismanagement of far-flung enterprises, like nations, began with the creation of money, but didn't really gather momentum until the Fed was created in 1913 (just before the Great Depression, I should add) and John Maynard Keynes began commenting and writing on economics. The art was nearly perfected by the expansionist Maestro himself, Alan Greenspan, and is today being expanded to the nth degree of absurdity by Chairman Bernanke.
Today was a literal laugh riot. Bernanke released a transcript of his remarks prepared for testimony before the Committee on Financial Services, U.S. House of Representatives. His actual appearance was postponed since the nation's capitol is currently under two to three feet of snow (this is a probably a good thing that won't last), but Chairman Ben decided to unveil it today, since he probably wanted to get the blueprint outlining the devastation of a nation's finances out for inspection by his central banker buddies around the world.
The text of his remarks, lined above, reads like a fantasy. It is almost all fiction and represents the hopes and prayers of the fed Chariman, because, technically, with the federal funds rate essentially at zero and there being no economic conditions which would cause the FOMC to change its policy stance, i.e., raising the rate, the Fed has NO WAY TO INFLUENCE INTEREST RATES.
What our ingenious Chairman has suggested in this little piece of fiction, is that interest rate policy will be tied to interest paid on member bank reserves. In other words, Bernanke has suggested a game-changer because the usual federal funds rate is going to stay at ZERO for much longer than he or anyone else in the banking industry ever imagined it would.
Essentially, he's saying - despite his claims that the economy is improving - that conditions continue to deteriorate and will continue to deteriorate for as far as the eye can see. Inside his veiled statement of "change" (we've heard that one before) is the seed of truth: the Fed has failed in its responsibility to promote a sound economy and stable prices. They have been unable to shake loose from their accommodative posture because the debt burden is still too severe and getting worse.
The only way out for them is to pay interest on their money they themselves hold and hope that credit markets respond in kind to yet another inflationary gesture. In all probability, it won't work, for two good reasons. First, the entire structure of the Fed is based on lending out money at interest, not paying interest on money held in reserve. Their plan is entirely a chimera, a sham, a puppet show. Second, the private markets will not adjust to the "new, improved" interest-on-reserves-as-the-basis-for-all-lending program. Markets, regional and local, have their own priorities and standards and will shake free from the Fed umbrella. Growing markets will encourage higher interest rates. Slowing or stagnant markets, that being most of the nation, will not be able to raise rates with any success.
Bernanke's plan is as boneheaded as most of the ideas spawned by the minds of these Lilliputian thinkers. More than anything else, the Chairman has issued the first statement signaling the end of the Federal Reserve. He admits that the economy's problems began in August of 2007, as I have repeatedly stated at various times on this blog and elsewhere. His highly-fictionalized account of the proceeding events fail to hide the fact that the Fed and his counterparts at the US Treasury have been entirely unable to correct the prevailing conditions of decline.
He is admitting defeat, The US economic system, as it has been engineered by the Federal Reserve, is broken beyond repair. The fed funds rate is ZERO, and will remain at ZERO forever, or, until the Federal Reserve Act is either amended or revoked. Since the Federal Reserve Act did not include a charter or set term for the operation of the Fed, there is no renewal or expiration. They operate in perpetuity, thus, the only way to dispose of or abolish this abominable creation is by an act of congress, so don't hold your breath. By the time the numbskulls in DC come to the realization that the Fed has bankrupted the nation, it will be too late. Besides, the federal government has done their own demolition job with entitlements, deficits and the burgeoning national debt.
In 2007, I suggested taking all money out of the stock market and putting it into cash. This new twist on the entire structure of money reinforces my ideas from yesterday that the only place to put money now is in foodstocks that can be stored, reliable transportation, clothing, arable land and tools of trade. Obviously, an investment in a sewing machine or any kind of gardening instrument would be a worthwhile use of your money in light of today's developments.
The Fed's failure may result in very unusual movements in currency markets. An absolute breakdown of global trade is not out of the question as more and more individuals and countries question the viability of fiat currencies as a whole. The alternatives to our busted system of credit are gold, silver and barter. However, since gold and silver have been highly commoditized and traded as investments, they may be less reliable as stores of wealth as their values should fall along with all other asset classes, albeit to a lesser degree. Add to the list, seeds, for vegetables. They're cheap, and everybody needs to eat more veggies.
The market reaction to Bernanke's comments, released about 10:00 am, was complete horror. Stocks immediately sold off on the very thought that the fed would even consider ending their free-money regime. Cooler heads prevailed, however, sending stocks back up and into a stable area for much of the remaining session. Overhanging everything was the snowstorm ravaging the East coast, which kept Washington shut down and many traders away from their desks. Volume was a dribble and the major indices ended the day without much change, though all were down.
Dow 10,038.38, -20.26 (0.20%)
NASDAQ 2,147.87, -3.00 (0.14%)
S&P 500 1,068.13, -2.39 (0.22%)
NYSE Composite 6,819.12, -16.04 (0.23%)
Declining issues beat advancers, 3271-3086. New highs: 113; New lows: 53. Still no perceptible break in these indicators. Volume was on the low side.
NYSE Volume 4,982,940,500
NASDAQ Volume 2,039,927,875
Commodities were split. Crude oil gained 17 cents, to $74.69. That's about to change. Look for crude at $65 within months, possibly sooner and possibly lower. Gold lost $1.10, to $1,076.10. Silver edged down 11 cents, to $15.33.
Just to reinforce how grossly mismanaged the US economy is, I cite this mainstream article, called, Is America about to go broke?, a brief, yet exceptional insight to the unfunded liabilities of Social Security and Medicare by Scott Burns.
Having previously written on this topic just a few days or weeks ago, I discovered that the unfunded liabilities were an amorphous blob, with estimates ranging from $69 to $99 trillion. Burns pegs it at a "mere" $42.9 trillion, citing the actual 2008 Trustee's Report as his source. Burns makes more claims in his article, the most compelling being that the total expense for SS and Medicare will outstrip revenue sometime between 2010 and 2015. Previous estimates had this date pegged as 2037, quite a few years off. Burns also pegs Alan Greenspan as the architect for the detonation of the entitlement time bomb, a point on which he is probably correct.
But then Burns makes the leap to inflation, purporting that in order to keep the payments system going, the Fed will have to print more money. That's where he and I part company. The Fed has been printing money as fast as it can for years. Inflation has not occurred because the banks are hoarding it, keeping an ungodly amount as reserves within the Federal Reserve. Just printing money doesn't cause inflation. It has to be put into circulation, and currently, its not. And, as we learned today, the Fed is going to pay interest on all this money the banks have stored within the Fed as reserves. There's the final solution. The US economy is kaput, forcibly being thrown down a deflationist hole by the Federal Reserve and its member banks.
The plan by the Fed is ingenious, yet utterly transparent. They'll inflate when they see fit. When they have every mortgage in America underwater, when real estate values have plummeted to 30-40% of what they are today, that's when they'll release a torrent of previously-reserved money as they buy up every depressed property in America, converting the nation's most valuable assets from the hands of homeowners, Fannie Mae and Freddie Mac, to their own. Oh, yes, and then, once Americans already have been forced out of their homes, the prices of everything - from food, to fuel to every imported good - will rise out of their buying range.
Yes, we will have inflation, but not before we encounter years and years of crushing deflation.
I'm not laughing as hard as I was earlier, because the conditions are dire indeed. However, the proposed solutions and what passes today for economic analysis are absolutely side-splitting.
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