Fed Raises Rates, Stocks Tank, Regular People Get Squeezed

Sometimes, there's just too much of a good thing.

Like booze, or sex, or food, or federal funds interest rate increases.

Yes, one of those is different from the others, but, if you're a big brain at the Federal Reserve, maybe not. People who live for an love money might have the same kind of reactions ordinary people have to normal stimuli from money-induced pleasure.

Keeping interest rates at near zero for such a long time, from 2008 to 2015, had to be hard on people at the Fed. There was a lot of stress during that time, and the FOMC governors and presidents of the regional banking hubs had to make up for their lack of money pleasure (ZIRP) by printing oodles of dollars out of thin air (QE). It was an artificial high, a necessary evil to some, and everybody knew it would have to come to an end.

Nothing brings a smile to the face of a banker, central or otherwise, than interest rate increases. It means more money in their silk-lined pockets.

Ordinary humans may not be able to comprehend the exhilaration of a 0.25% increase in the federal funds rate, but central bankers do. They revel in it. Imagine, with one simple policy announcement, making an extra $2.5 billion per year. That's real excitement. And that's just the interest on a trillion dollars. The Fed is handling one heck of a lot more than just a didly trillion. By golly, that's just pocket change.

Rest assured, there are a lot of bemused smiles at the Fed this afternoon. Probably some good old back-slapping, toasting with fine wine, and smoking of expensive cigars, such is the wont of the central banking elite. They've made themselves a mighty handy profit today, and you're paying for it, on your credit cards, mortgages, personal loans, car loans and leases and just about every other negotiable debt instrument you can think of. Business is paying the piper as well. In spades.

So, does the market reaction to the Fed's scheme surprise anybody? Nope. Higher interest rates are always bad for consumers, especially those carrying debt, which is just about everybody these days.

The major indices were cruising along with decent gains until the Fed's announcement at 2:00 pm EDT. After a pause and a slight rise, stocks began to slip. From it's intra-day peak at 2:15 pm, the Dow shed 231 points, the NASDAQ lost 78 points. The move was significant. The Dow has posted losses three days in a row. Correlation, in this case, seems to imply causation.

Wall Street investors aren't immune to the interest rate malaise. They know where their bread is buttered and some surely shifted some dough out of stocks and into bonds, or cash, or art, or expensive cars.

The Fed's insistence on raising rates every quarter has gotten to be a pretty definable pattern by now, but some people are beginning to question when it's all going to end and also, how it's going to end.

Will the stock market and all those juicy profits go down in flames? Hard to say, but a 3.10% yield on a ten-year treasury note ($31,000 a year risk free on a $1,000,000 investment) isn't hard to take, and, in the world of rich people with millions of dollars, yen, or euros to throw around, many will take it.

The rich just got a little bit richer. The poor didn't get any poorer, but the people in the middle (debtors) did.

Dow Jones Industrial Average September Scorecard:

Date	Close	Gain/Loss	Cum. G/L
9/4/18	25,952.48	-12.34	-12.34
9/5/18	25,974.99	+22.51	+10.17
9/6/18	25,995.87	+20.88	+31.05
9/7/18	25,916.54	-79.33	-48.28
9/10/18	25,857.07	-59.47	-107.75
9/11/18	25,971.06	+113.99	+6.24
9/12/18	25,998.92	+27.86	+34.10
9/13/18	26,145.99	+147.07	+181.17
9/14/18	26,154.67	+8.68	+189.85
9/17/18	26,062.12	-92.55	+97.30
9/18/18	26,246.96	+184.84	+282.14
9/19/18	26,405.76	+158.80	+440.94
9/20/18	26,656.98	+251.22	+692.16
9/21/18	26,743.50	+86.52	+778.68
9/24/18	26,562.05	-181.45	+597.23
9/25/18	26,492.21	-69.84	+527.39
9/26/18	26,385.28	-106.93	+420.46

At the Close, Wednesday, September 26, 2018:
Dow Jones Industrial Average: 26,385.28, -106.93 (-0.40%)
NASDAQ: 7,990.37, -17.10 (-0.21%)
S&P 500: 2,905.97, -9.59 (-0.33%)
NYSE Composite: 13,102.68, -57.92 (-0.44%)

FOMC Keeps Fed Funds Rate Unchanged; Stocks Look Elsewhere

As expected the FOMC of the Federal Reserve took no action on interest rates Wednesday, concluding their two-day May meeting.

The federal funds rate remained at 0.75-1.00% for now, though analysts expect the Fed to raise rates twice more this year, most likely at the June and September or December meetings.

While the Fed wants to raise rates in order to have some ammunition to stave off any chance of a recession, the thinking is somewhat backwards. One would normally raise rates in good times, to keep the economy from overheating. Increasing the cost of borrowing in a stable environment might produce exactly what the Fed is fighting - an economic downturn.

Skepticism is high over the Federal Reserve's actual control of the economy beyond their massive "investments" and liquidity injections over the past eight years since the GFC. Now that the Fed has done its job, the ECB and Bank of Japan have picked up the slack with hefty asset purchases. How these central bankers intend to wind down their bloated balance sheets without causing severe oversupply is a question that remains unanswered, thus the nervousness within what is, after all, the second-longest bull market in history.

At the end of the day, only the Dow finished positive. The other major markets were marginally on the downside.

At the close, 5/3/17:
Dow: 20,957.90, +8.01 (0.04%)
NASDAQ: 6,072.55, -22.82 (-0.37%)
S&P 500: 2,388.13, -3.04 (-0.13%)
NYSE Composite: 11,529.66, -21.64 (-0.19%)

Jobs Miss Mark: To Markets, OK, But FED COURTS DEPRESSION

Jobs. Who needs 'em?

Friday's epic non-farm payroll data turned out to be disappointing to the Fed cheerleaders and assorted brain-dead economists and analysts who are still touting the "recovery" mantra.

Instead of the predicted 205,000 net new jobs that were supposed to be created in April, the BLS reported a net gain of just 160,000, a 20% miss, but at least something to seize upon by those who believe in ultra-low interest rates (aka, free money).

Thus, in the world of bass-ackward economics, stocks actually gained on the final day of the week, thinking (probably correctly) that more evidence of a weak economy would cause the Fed to continue to pause on their relentless rate-hiking journey, which, to date, has been confined to one measly 0.25% hike in December of last year, which was a prima facia cause for a wicked stock market decline in January.

Since then, however, the Fed has talked down the rate hike theme with alarming accuracy as relates to paper assets (stocks), and the markets have responded in kind, reversing all of the losses from January and the first two weeks of February.

Odds of the Fed raising the federal funds rate in June are now approaching infinity, because the one thing the Fed wants to avoid is another market correction. They are, in the estimation of many leading private money managers, OUT OF THEIR MINDS.

A return to "normalized rates," - something on the order of 3-5% on the fed funds front - is still years out, and, since the only data the Fed is interested in happens to be the levels on the Dow, S&P and NASDAQ, the market is probably going to overrule the ivory tower charlatans at the Fed. Corporate profits are and have been heading south since the third quarter of 2015, and will likely continue to do so, as capital is being mis-allocated to an alarming degree.

The levels of absurdity between stock prices and profits also are approaching extreme levels. It's only a matter of time before investors (and the term is used loosely, because most of the market is algo-driven, speculative, and dominated by institutional buyers and sellers) give up on future gains, cash out and head to the safety of alternatives, those being cash, bonds, and precious metals to a small degree.

In other words, the Fed has not abolished the business cycle. They've managed only to delay the inevitable, and by delaying, in a perverse avoidance of any pain, will cause degrees more devastation to not just financial markets, but markets in everything.

The Fed is courting depression by denying the failure of their experiment in fiat money with no backing save faith, and that faith has been on the wane. Expect a cratering of the economy just in time for the November presidential election. Between now and then, plenty of market noise, but nothing any good at all.

For the Week:
Dow: -33.01 (-0.19%)
S&P 500: -8.16 (-0.40)
NASDAQ: -39.20 (-0.82)

On the day:
S&P 500: 2,057.14, +6.51 (0.32%)
Dow: 17,740.63, +79.92 (0.45%)
NASDAQ: 4,736.16, +19.06 (0.40%)

Crude Oil 44.56 +0.54% Gold 1,289.70 +1.37% EUR/USD 1.1405 -0.04% 10-Yr Bond 1.78 +1.83% Corn 377.25 +0.94% Copper 2.15 -0.09% Silver 17.50 +1.03% Natural Gas 2.09 +0.82% Russell 2000 1,114.72 +0.61% VIX 14.72 -7.48% BATS 1000 20,677.17 0.00% GBP/USD 1.4431 0.00% USD/JPY 107.1050 -0.02%

Markets Moribund Facing FOMC Meeting

Nothing matters except the Fed and the FOMC rate policy meeting which wraps up tomorrow.

At 2:00 pm EDT, something will happen, though the Fed is expected to leave the federal funds rate unchanged.

La-dee-da.

S&P 500: 2,015.93, -3.71 (0.18%)
Dow: 17,251.53, +22.40 (0.13%)
NASDAQ: 4,728.67, -21.61 (0.45%)

Crude Oil 36.53 -1.75% Gold 1,232.80 -0.99% EUR/USD 1.1119 +0.13% 10-Yr Bond 1.9590 -0.20% Corn 368.25 -0.14% Copper 2.24 -0.13% Silver 15.29 -1.49% Natural Gas 1.85 +1.65% Russell 2000 1,066.67 -1.62% VIX 16.84 -0.47% BATS 1000 20,682.61 0.00% GBP/USD 1.4147 -1.08% USD/JPY 113.1630 -0.56%

Jobs Number Baffles Market, But, The Market Is Saying SELL, SELL, SELL

With a January jobs number that was well short of expectations, at 151,000, the reaction from Wall Street was truly a puzzler. One could have easily gone with the "bad news is good news" meme, because if the economy is deteriorating (hint: it is) and layoffs are rampant (they are), then the Fed may not be able to justify any more increases in the federal funds rate this year.

That would be undeniably good for stocks.

It wasn't.

All the major indices took a nosedive right out of the gate, correctly predicted by the futures trading, which collapsed as soon as the number came out, an hour prior to the open.

So, what were the market mavens reading into the garbled mess that was the January Non-farm payrolls report?

Perhaps they looked at the wage growth, which was impressive, up a solid 1/2 percent, an unusually large jump, but probably the result of new legislation in a number of states which mandated higher minimum wages, which were where all the new jobs are - at the low end.

Or, the market might have reacted to the 4.9% unemployment rate, an unbelievable number, and again, a sign of a strengthening economy, which gives the Fed some latitude in raising rates. In any case, the odds of a rate increase later this year jumped on the news, sending stocks down the drain.

What traders see in the numbers may be far removed from what the numbers actually revealed, and the numbers themselves may not be very believable. After all, who actually believes that of those 151,000 jobs created, 58,000 of them were in retail? Remember, this was January, when retailers are normally laying people off after the holiday season. And this was no normal January either. Big chains, from Wal-Mart to Macy's to Sears were closing stores and letting people go. So, just who was hiring all these retail employees?

Then there were the 47,000 jobs created in the food service industry. Really? McDonald's, Applebee's, et. al., were hiring in January? The report also included a manufacturing sector increase of 29,000 jobs, which runs contrary to the recent ISM and PMI manufacturing jobs outlooks.

Money Daily warned yesterday that the BLS is famous for convoluted schemes to concoct bad figures and massive revisions, making the initial releases almost comical, and this one certainly fit the bill.

November and December were revised in opposite directions. The change in total nonfarm payroll employment for November was revised from +252,000 to +280,000, and the change for December was revised from +292,000 to
+262,000, for a net loss of 2,000.

We also noted that the number would not be influential to markets unless it was a big overshoot or a big miss. It was a big miss, with the consensus estimate at 190,000. Besides being down more than 100,000 from December - even after the revision - it's a massive miss, and one that the market apparently could not readily overlook.

Overall, the damage to equity markets was pretty severe. The NASDAQ closed at its lowest level since October, 2014, some 17 months hence.

For the week:
S&P 500: -60.19 (-3.10%)
Dow: -261.33 (-1.59%)
NASDAQ: -250.81 (-5.44%)

The day's rout:
S&P 500: 1,880.05, -35.40 (1.85%)
Dow: 16,204.97, -211.61 (1.29%)
NASDAQ: 4,363.14, -146.42 (3.25%)

Crude Oil 31.02 -2.21% Gold 1,173.70 +1.40% EUR/USD 1.1162 -0.34% 10-Yr Bond 1.85 -0.86% Corn 366.50 -0.54% Copper 2.09 -1.88% Silver 15.02 +1.14% Natural Gas 2.07 +4.72% Russell 2000 985.62 -2.87% VIX 23.38 +7.05% BATS 1000 20,306.40 -1.64% GBP/USD 1.4503 -0.50% USD/JPY 116.8300 -0.05%

Fed's FOMC Announces 0.25% Rate Hike, Stocks Soar On The News, Banks Raise Prime Rate

As expected, the FOMC (Federal Open Markets Committee) raised the interest rate on federal funds (the rate for overnight loans from one financial institution to another from funds held at the Federal Reserve) from a range of 0.00-0.25 to 0.25 to 0.50.

Full release here.

On the surface, this seems much ado about nothing, or, almost nothing, but the Fed's long-awaited rate increase will have ramifications across the investing and business world.

For instance, the first salvo will be to any and all loans tied to the Prime Rate, which include most credit card, revolving debt and home equity loans and lines of credit.

Shortly after the Fed's rate announcement, major banks began announcing that they were raising their prime lending rate from 3.25 percent to 3.50 percent. Wells Fargo was the first bank to announce the rate hike, followed in rapid pace by Chase, Citibank and Bank of America. The increases are effective immediately.

What that means is if you've been paying 4% (not unusual) on a home equity loan, your new rate will be 4.25%. In real terms, on $250,000, that's an additional $37 per month. Not much, one might think, but, considering that the Fed plans on continuing to increase their base FF rate - which will green light the banks to up the prime rate - the cost of borrowing will simply continue to increase.

Many analysts have shied away from calling the Fed's move ill-timed, though an equal number has called it "too late." What it certainly is not is "too little." Insofar as it is the smallest rate hike imaginable, its effects will be far reaching.

In larger, banking terms, try this: A billion dollars borrowed over seven years at 1/4% would cost $12,010,470 per monthly payment. At 1/2%, it's $12,116,790, an increase of $106,000 a month. That same billion, borrowed for just one year at 1/4% interest requires a monthly payment of $83,446,220. At 1/2%, it's 83,559,200, an increase of $112,980 per month.

With numbers like these being thrown around routinely - and daily - by the largest financial institutions, hedge funds, brokerages and their ilk, something is bound to blow up sooner, rather than later. Already we've witnessed carnage in the junk bond markets, which have been pounded in anticipation of today's Fed announcement and there will surely be more to come.

On wall Street, stocks appeared to love the move, with the Dow up 224 points, the S&P gaining 29.66, and the NASDAQ ahead by 75.77. This looks all well and good right out of the box, but there's a quadruple witching day coming up Friday on options, and year end is now within spitting distance.

It might be wise to square up one's positions - if one has any - before the end of 2015 to take advantage of tax breaks for losses and/or long term gains. Precious metals moved rather sharply throughout the day and did not pull back after the Fed announcement, despite the dollar remaining strong, which is the obvious outcome.

For now, the strong dollar will continue to stoke deflation, as imports will become cheaper. To anybody who's been Christmas shopping, the price structure is obviously on the low end this season and will likely be bargain basement after the holiday shopping ends.

Most Americans will find bargains in stores, if they have any money with which to purchase them after paying what are sure to be higher credit card bills.

According to the Federal Reserve, the US economy is supposed to be strong enough now to absorb this rate increase and the associated nuances. At this juncture, it's far too early to tell.

We shall see in coming weeks and months. As Ernest Hemingway so eloquently put it in The Sun Also Rises: "How did you go bankrupt?"

"Two ways. Gradually, then suddenly."

Weekly Recap for W/E April 10, 2015: Economy Weak, Stocks Leap

Stocks and bonds have gotten to a point which indicate there won't be a rate increase to the Federal Reserve's most basic federal funds rate until at least September of this year and quite probably, beyond that.

Dependent upon data flows to determine whether the economy (or more specifically, the stock market and the 1% of the population that owns them) is strong and durable enough to withstand raising rates from the zero-bound to something higher, say, 0.25 percent or, as some have cynically put forth, 0.125 percent.

Data has been daunting to the Fed. Industrial production, durable goods and advance figures on first quarter GDP have all been short of expectations, adding to the pain which last week's March non-farm payroll figures presented. Of course, stocks, which have become the only game in town, loved the weak numbers, because it puts any thought of a rate increase on a semi-permanent hold, meaning free-or-nearly-free money and credit, with which it is an easy task to invest and make money.

So, we have the twisted dynamic of bad news on the economy being nothing but champagne and rose for players of stocks, and that was well reflected in this week's trading, with all the indices heading back toward all-time highs. This followed a brief respite in March, as speculators nervously sold out of equities, thinking that the Fed might increase rates in June.

The NFP data crushed that line of thinking, and sent stocks off like rockets this week, concluding with Friday's nifty rise, sending the Dow back over 18,000 once again and the NASDAQ within shouting distance of the magical 5,000 mark. The final day of trading for the week was bolstered by an announcement from General Electric (GE), stating that the company would sell nearly all of its GE Capital financing unit and real estate holdings (about $23 billion) to Blackstone and Wells-Fargo, two companies, which over the past seven years since the housing bust, have become the nation's new landlords. GE put forward a plan to repurchase some $50 billion worth of its own shares over the next three years.

Timing of the deal isn't very curious at all. GE has been stock in a range for the past fifteen years, and, with interest rates such a challenge by which to make profits, CEO Jeff Imelt and his executive team probably felt it was due time to return to its industrial roots. It does set precedent, however, by selling such a large chunk of real estate and real estate financing assets to companies that are already heavily entrenched in the sector, putting an exclamation point at the end of the boom-gone-bust that is damning to capitalism and competition.

GE's buyback provisions will not be put to scrutiny. Wall Street loves dilution, making shares more valuable to the fewer who hold them. With a market cap of nearly $298 billion, GE had room to maneuver, but the key question remains, by lopping off more than a quarter of its asset base, is the company going to generate better returns?

It's already at nosebleed levels, with a P/E of 19 and an annual divided of 0.92, meaning it will take the plunger who invests in the stock today nearly 31 years to double his/her money on the dividend alone. That's a long time, and, with arduous risk implanted.

Nonetheless, stock junkies loved the deal, boosting shares of GE by nearly 11% on the day and making the Dow the percentage winner among major indices.

For the week the Dow Industrials jumped 294.41 points (1.66%); the S&P added 35.10 (1.70%) and the NASDAQ was the big winner for the week, gaining 109.04 points (2.23%).

On the day:
Dow 18,057.65, +98.92 (0.55%)
S&P 500 2,102.06, +10.88 (0.52%)
NASDAQ 4,995.98, +21.41 (0.43%)

Editor's note: Due to unforeseen circumstances and largely, common sense, Money Daily will soon be converting to a weekly format - with the occasional daily post thrown in on major news developments - to present a more robust and well-reasoned approach to our readers. The daily noise and rigid schedule has made it difficult to offer a cogent, thought-provoking view, which is our purpose. In coming weeks, readers should be advised to seek out the weekly recaps, published on Friday evenings, or, more likely, Saturday afternoons.

Fed's Yellen, FOMC Spark Enormous Rally on Dow, Nearly 380+ Points, Oil Up Too

Seriously, this is just plain nonsense.

Print money out of thin air, issue it as debt, give some to the nation's biggest banks and return 1/2% to them on Billions of dollar in excess reserves, constipate the entire lending transmission function, make minute, detailed changes to your statement every month or so, trot out your Chairwoman - who looks like your grandmother - every three months, keep the federal funds rate at ZERO and continuing raping the wealth and resources of your country, forcing everybody into stocks (mostly), bonds and commodities.

It's absolutely brilliant. The banks don't have to pay interest on savings (whatever that old, quaint concept happens to be), and everybody except the general population goes home happy.

The Fed won't raise the federal funds rate for at least six more months, and probably not until 2017. Seriously. It's broken. Grag some gold, guns and land and head for the hills, unless you are a welfare (FSA) mooch, then, live in a city slum, or a suburban slum, which are popping up all over the country.

What a monstrously sad joke is being played on the American public. Too bad it's not funny.

Whether you're old or young, you're getting taken to the cleaners and it's not about to change any time soon.

The Dow Jones Industrials were off by more than 130 points just prior to the FOMC statement at 2:00 pm EDT. It closed up 227.

WTI Crude oil - of which there is an historic oversupply - was under $42/barrel in the morning. By the end of the trading session it was approaching $47/barrel. Supply and demand, my BEHIND.

Dow 18,076.19, +227.11 (1.27%)
S&P 500 2,099.42, +25.14 (1.21%)
NASDAQ 4,982.83, +45.39 (0.92%)

Cyprus Still an Issue; Fed Statement a Snoozer

For some reason known only to those who choose to follow rather than lead, everything market-related hinged upon the release of the FOMC policy statement on federal funds rates, which, as almost everyone in the civilized world already knew, would remain unchanged.

Nonetheless, the bearded chairman and his scholarly cohorts ripped Cyprus from the front pages of economic news for the day and delivered their usual hokum statement about "moderate growth", "targeted inflation" and other assorted word-bites designed to make the markets kowtow to their planned economic dictums.

The committee also released forecasts on economic growth and unemployment for the remainder of 2013, 2104 and 2015 - forecasts which are generally nothing but flights of fancy and will almost certainly miss their marks widely.

And, there was a press conference and question and answer period, in which chairman Bernanke reread the aforementioned statement, added a few humorless remarks and fielded a number of softball questions from the drooling press pool.

It was enough to lull babies and pets to sleep.

Meanwhile, the ECB and IMF continue to wrestle with the issue of what to do about Cyprus, which is still unsettled and operating without banks being open for a fifth straight day. Today's announcement was that Cypriot banks will remain closed until Tuesday of next week, as the government expects massive bank runs once they are open for business.

Imagine the grand, self-important EU ministers losing any remaining credibility over what amounts to a three to six billion euro matter. Incredible as it sounds, that's what's happening.

Party on, America.

Party on, Europe.

Dow 14,511.73, +55.91 (0.39%)
NASDAQ 3,254.19, +25.09 (0.78%)
S&P 500 1,558.71, +10.37 (0.67%)
NYSE Composite 9,081.09, +63.42 (0.70%)
NASDAQ Volume 1,605,044,125
NYSE Volume 3,682,038,000
Combined NYSE & NASDAQ Advance - Decline: 4657-1782
Combined NYSE & NASDAQ New highs - New lows: 506-37
WTI crude oil: 92.96, +0.80
Gold: 1,607.50, -3.80
Silver: 28.82, -0.026

Why Nothing Matters Any More

We've all heard the phrase, "this is going to end badly," before, and, like a failed love affair, so too the centrally-planned economies masquerading as free markets will also surely end in tears, tatters, remorse and recrimination.

Following in the footsteps (or, as the case may be, the mouthpiece) of ECB president Mario Draghi, today, German Chancellor Angela Merkel and French President Francois Hollande issued a joint statement after a teleconference, saying they their government would "do everything to protect" the Euro.

And, with that, the markets were once again off to the races, continuing a rally that is based upon nothing more than promises to pile more debt upon the mountainous pile of unpayable sovereign obligations already in existence, create more deteriorating fiat money, continue bailing out failed financial institutions and keeping interest rates at artificially low yields.

Nothing good has come from any of these efforts thus far, except to perpetuate the status quo of financial fraud run amok without penalties for wrongdoers and the funding of political campaigns by the very same transgressors and beneficiaries of central bank largesse.

Today, the US government announced first quarter GDP grew at a rate of 1.5%, which, in normal times, would be fairly disturbing news, but, couched in the belief that the slowing economy will encourage the Federal Reserve to engender another round of quantitative easing (QE) at its meeting next week of the FOMC, the market soared like an eagle catching a thermal updraft.

The effects of all this money printing and free flow of capital into and out of banks and into government coffers to spend freely beyond their means has been effectively maintained by ultra-low interest rates offered to the world's biggest banks, the ones that were bailed out in 2008, and continue to go to the discount window for Federal Funds at 10 to 16 basis points, invest in longer-term notes and pocket the difference, known as the carry trade. It's easy street for the TBTF banks, which continue to borrow and no loan money, except, of course, to the worst creditors of them all, governments, which haven't balanced their books in decades.

Were the banks and foreign central banks to suspend lending to the US and European entities - an occurrence which has a 100% likelihood to happen at some point - the economic calamity would be unthinkable, thus, the game continues. At certain points, casualties occur, but they are patched over by bailouts or simply shoved aside, as in cases such as Madoff, MG Global and previously, Lehman Bros., Countrywide Financial, Bear Stearns or Merrill Lynch.

The losses are socialized, or, passed onto the taxpayer as it were, though if taxes were at rates commensurate to meet all government obligations and pay off the burgeoning debt load, the average paycheck would be 80-90% taxes and 10-20% take home. It would be likely that most people would stop working for companies, go into a side business of their own and not pay taxes, while larger businesses would suffer from a lack of qualified, willing labor and the whole super-structure of the global economy would grind quickly to a complete halt.

In some sense, that is already happening, and it will continue to worsen, everywhere there are unpayable debt burdens placed upon the citizenry. In Europe, the German people are already braying at the notion of higher and higher tax rates to pay for bailing out the southern states of Greece, Portugal and soon, Spain and Italy.

While the Germans have profited and prospered from fiscal and monetary discipline, the regime of Angela Merkel is rapidly fostering a growing debt burden that will force taxes higher and eventually cripple their own economy. While most of southern Europe is already in a recession and Greece, at least, a depression, Germany, being the lender of last resort, so to speak, is nearing a political breaking point, where the populace is about ready to take a stand against the free-spending policies of their government.

Merkel is tip-toeing on a high wire (a horrifying mental image), balancing her own political future against the success or failure of the Euro. Germany benefits from the declining euro because of its huge export base, so abandoning it and returning to the Deutschemark is out of the question, as the new currency would be among the strongest in the world, making German products prohibitively expense in other countries.

France, which behind Germany is the second largest economy in Europe, seems content to tax and spend to promote their socialist agenda of government handouts to everyone, shorter working hours and large, public pensions. The French people are notorious protesters, who will take to the street at even the slightest hint that any kind of public benefit will be cut, and, as they showed former president Sarkozy the door this past Spring, they will vote against any mention of austerity, a dirty word in the Gallic nation.

In America, it's the culling of the middle class that proceeds apace. Wages have been stagnant, new job creation sparse and sporadic, but price increases in food and energy, along with threats of higher taxes have all but eliminated discretionary spending and saving for growing numbers. The middle class has become a huge class of debt slaves, content to keep paying and playing along until the pensions and social security and health care monies are exhausted.

The rest of the world has other problems, though even growth countries like China, India, Brazil (together with Russia, making up the BRICs nations) are slowing down as the speculative economies strip out all wealth to the top one percent of earners and actual productive growth falters.

There is a tipping point somewhere down the road, and it's a wonder that the whole global mess hasn't completely fallen apart by now, but it does appear that those in charge of "managing" the economy can keep the plates spinning for a while longer, maybe as much as three to five years. By then, these central planners hope that entrepreneurs will have bolstered the fragile, stagnant economy back to life and that a more normalized functioning will have emerged.

It's a pipe dream built on the faulty assumption that expanded liquidity can supplant insolvency. It never has, and it won't. The end game comes from a deflationary spiral in which too little money is chasing too many goods, even in an era of expansionary monetary supply (inflation). The problem is that the money is going into the wrong hands, to those of the bankers, who hoard their cash for liquidity and speculation, as seen repeatedly in the stock market, while the middle and lower classes go begging for credit (at usurious rates), jobs, and eventually, food.

In every instance in which a reserve currency such as the US dollar was not backed by gold, silver or both, or other tangible assets as collateral for debt creation, that currency has failed and been replaced. Every time.

And this time is not different. It's just taking longer than expected.

Dow 13,075.66, +187.73 (1.46%)
NASDAQ 2,958.09, +64.84 (2.24%)
S&P 500 1,385.97, +25.95 (1.91%)
NYSE Composite 7,912.16, +157.65 (2.03%)
NASDAQ Volume 2,085,560,250
NYSE Volume 4,290,734,500
Combined NYSE & NASDAQ Advance - Decline: 4511-1073
Combined NYSE & NASDAQ New highs - New lows: 343-86
WTI crude oil: 90.13, +0.74
Gold: 1,618.00, +2.90
Silver: 27.50, +0.05

Computer-driven Market Continues to Defy Gravity

Following Apple's huge beat on first quarter earnings after yesterday's closing bell, nothing was going to stop the Wall Street horde from bidding up everything tech and everything else, for that matter.

Stocks roared out of the gate, despite the worst durable goods orders in more than three years. The 4.2% decline for March was the worst print since January of 2009.

Even such a negative report on a critical indicator could not stop the flurry of computer-driven orders (now a full 83% of the total market) from diving headlong into equities. Apple (AAPL) opened the trading day more than 50 points to the upside (nearly 9%) and held steady through the remainder of the session, finishing with a gain of 49.72 to close at 610, rendering the sharp losses of the past two weeks to the dustbin of history.

When the FOMC announced no change in interest rate policy - keeping the targeted federal funds rate at 0 to 25 basis points - and little change in the wording of their statement (though slightly more hawkish), there was barely a reaction, as computers programmed to buy don't react to announcements of no change to a failed macro-economic policy.

This is truly not your father's stock market. Algorithmic trading has turned what once was the engine of the financial world into a complete farce where humans have little to do or say and fundamentals do not matter. There is rarely a reasoned reaction to any economic news, only an incessant grind higher. In addition to the computer-driven market dynamics, the advent of weekly options trading has turned US markets into a carnival that would give honest casinos a bad name.

Daily swings of enormous percentages are now the norm, as the algos follow each other into buying patterns that do not recognize downside risk. There is no place for the individual investor as the machines have a huge advantage in both timing and speed of execution, which is why stocks trade more or less on the futures, causing massive gaps to either the upside or downside upon market opening, locking out small limit orders. There is no way to play in such a controlled sandbox, as any gains will already be taken by the HFT machines and their controllers before an order can be properly executed.

That is why volume will continue to remain on the light side. Individual investors stand no chance of making profits and have stayed away, despite the outlandish and often ridiculous gains.

Global thermo-nuclear war could break out and the computers would still trade stocks higher. It's like a bad Terminator movie, in which the puny humans are no match for the pre-programmed droids.

Dow 13,090.72, +89.16 (0.69%)
NASDAQ 3,029.63, +68.03 (2.30%)
S&P 500 1,390.69, +18.72 (1.36%)
NYSE Composite 8,070.84, +82.82 (1.04%)
NASDAQ Volume 1,697,138,250
NYSE Volume 3,981,364,750
Combined NYSE & NASDAQ Advance - Decline: 4223-1395
Combined NYSE & NASDAQ New highs - New lows: 215-42
WTI crude oil: 104.12, +0.57
Gold: 1,642.30, -1.50
Silver: 30.36, -0.39

Fed to Keep Rates Low Through Late 2014; Most Investors Pleased

Ending the first FOMC rate policy meeting of 2012 with a bang, the Federal Reserve announced today no change in their target federal funds rate of 0-0.25%, but the major announcement was that they would keep this same, historically-low rate in effect through "late 2014." The rapid results of the Fed's announcement that they would keep monetary policy ridiculously easy for the next three years were felt immediately in all markets.

The dollar dropped like a rock against most other currencies, especially the Euro.

Bond yields fall dramatically.

Stocks turned from mildly negative to ferociously positive.

Gold, silver, crude oil and most other commodities spiked higher.

Those were the winners. The losers were just about anybody on a fixed income, which includes not only those on Social Security or retirement pensions, but also most workers in the private sector, which has experienced flat to lower labor prices for most of the past decade.

Therein lies the fallacy of the Fed's dual mandate of providing stable prices and full employment. Obviously, on both measures, the Fed has failed badly over recent years and is now in a no-win situation without much flexibility to react to real-time events and unforeseen circumstances.

With yields on money market funds and certificates of deposit at or near record lows, the Fed is encouraging risk, though Americans, still saddled with too much household debt, many with underwater mortgages to go along with stagnant wages, still aren't fully in the mood - nor do many have the wherewithal - to spend freely and get the economy out of the dolorous regime of 1-3% growth.

Business, generally, though there are pockets of severe conditions, are content to keep grinding on, though innovation and new enterprise creation has been somewhat stifled, though not to the degree it has been, especially during the forlorn days of late 2008 and early 2009.

Conditions are generally much better than back then, as major banks have largely re-capitalized, households have paid down a good portion of debt and governments - outside of the petulant federal one - have tightened budgets though labor reductions, better spending discipline and capital controls. The final pieces to the puzzle of a sustained, vibrant recovery rest squarely upon the shoulders of the federal government, which must seriously tackle the issues of Fannie Mae and Freddie Mac, reducing the annual deficit (a balanced budget, or something close to it, would be a welcome change), restructuring the tax code, reducing needless regulations and implementing fundamental changes in entitlement programs.

The federal government's list of dirty laundry is long and unlikely to be resolved to any great extent in the background of a presidential election year. That is not the Fed's problem, just as the profligate spending of many of the European nations should not be an epidemic for the ECB, though that is exactly what it has become.

The Fed is doing just about everything it can to make the business environment friendly and accommodative while the federal government, though gridlock and ideological differences, fights, kicking and screaming at any and every notion of change.

Americans, on the other hand, are ready for change in a more positive direction, a theme repeatedly stressed in Tuesday night's State of the Union address by President Obama, who outlined a number of measures to get government working for the people again at the federal level, such notions quickly dismissed by political commentators and opponent Republicans as mere politicking.

Sadly, the politics of Washington, DC will not allow for any substantive changes for at least another year, meaning that Americans are stuck with what they've been handed, like it or not, making the matter of improving one's economic conditions a paramount requirement for each individual and family.

How, though can individuals help the economy grow?

Perhaps through being wiser shoppers, better disciplined managers of their own finances and smarter stewards of their own assets, which is not limited to just stocks, bonds, retirement accounts and real estate, but must include a dedication to some basic American principles, such as working hard, saving (though that is tough, but necessary), and making progress and innovation in one's chosen career path.

Working Americans, must shoulder much of the burden, as usual, though the lot of most working Americans (the 80-90% of the labor force with jobs) isn't really all that bad presently, it's the future - along with the repayment of past debts - about which most are overly concerned.

Considering that the worst of the recession is well behind us by now and that the Fed has signaled that conditions are unlikely to change much in the coming three years, the real issue is that of confidence, in one's job, one's future and in America.

It is up to everyone to see to it that the federal government is brought into line with the wishes of the middle class. It's not enough to deride the rich for not paying their fair share of taxes. More emphasis must be placed upon the well-entrenched welfare state. The poor aren't pulling their weight very well, either.

It's not enough to vote for the candidates of choice in November. It is the duty of all Americans to inquire and to become informed about government policies, resist them if necessary, protest them if they are wrong and change them if possible.

The Federal Reserve or the federal government will not make the needed changes to bring America back to a system of individual rights and fairness without hearing from each of us, all of us. It is long past time for Americans to take matters into their own hands, deal with the vagueries and inconsistencies of institutions and turn the tide. We are at an important point of change in our history and individuals must make the difference.

Dow 12,758.85, +83.10 (0.66%)
NASDAQ 2,818.31, +31.67 (1.14%)
S&P 500 1,326.06, +11.41 (0.87%)
NYSE Composite 7,914.81, +74.16 (0.95%)
NASDAQ Volume 1,954,827,375
NYSE Volume 4,410,711,500
Combined NYSE & NASDAQ Advance - Decline: 4049-1578
Combined NYSE & NASDAQ New highs - New lows: 239-20
WTI crude oil: 99.40, +0.45
Gold: 1,710.90, +46.40
Silver: 33.28, +1.30

Markets Rebound as Fed Stands Pat; Greece in a Bind over Bailout

Dow 11,836.04, +178.08 (1.53%)
NASDAQ 2,639.98, +33.02 (1.27%)
S&P 500 1,237.90, +19.62 (1.61%)
NYSE Compos 7,461.10, +123.96 (1.69%)
NASDAQ Volume 1,942,050,875
NYSE Volume 4,062,845,250
Combined NYSE & NASDAQ Advance - Decline: 4528-1072
Combined NYSE & NASDAQ New highs - New lows: 47-45
WTI crude oil: 92.51, +0.32
Gold: 1,729.60, +17.80
Silver: 33.94, +1.21

Recapping the days events in no-frills fashion:

German Chancellor Angela Merkel and French President Nicolas Sarkozy met with the IMF and Greece's Prime Minister George Papandreou to discuss the Greek leader's abrupt call for a national referendum on whether or not to accept the Euro bailout and associated austerity measures. According to early, unconfirmed reports, Papandreou would not budge on a plebesite early next year, pushing the EU leaders to issue a freeze on Greece's $8 billion in bailout funds, a move which could send the whole European debt crisis into a new, more dangerous phase as the Greek government will surely run out of cash prior to the proposed referendum.

The Federal Reserve chose to take no policy action on the federal funds rate, keeping the effective rate between 0.25% and zero. The Fed added some language to its statement, highlighting more positive tones as the US economy gathered steam in the 3rd quarter.

The ADP private payroll survey estimated that US employers added 110,000 private sector jobs in the month of October, after a revised 116,000 job gains in September.

Stocks ended a two-day losing streak, though the Fed's announcement and subsequent news conference didn't move markets much in either direction.

Volatility remains quite high, with the S&P Volatility Index (^VIX) ending the day at 32.74.

All interest will turn to employment over the next two days, as unemployment claims are announced Thursday morning and the BLS' non-farm payroll data come out on Friday, both releases timed for prior to the markets' opening bell. Continuing news from Europe is also likely to be at the top of investor interest.

Stocks Sell Off after Bernanke, Fed Disappoint Wall Street

The Markets

The entire process of Central Bank watching and anticipation is just so ludicrous, especially when a central bank such as the Federal Reserve overtly telegraphs most of their moves well in advance.

The secrecy, the waiting and then the immediate market reaction is simply so annoying, one would almost hope that the process and the players be done away with, once and for all. That sentiment is, in fact, what would happen under a monetary system operating under a gold standard. There would be little need for the Federal Reserve and much less attention paid to their arcane machinations. However, since the United States has been officially off a gold standard since 1971 and under the thumb of the debt-crazed Fed since 1913, hope for change any time soon is slim, though under a monetary breakdown, much like the one begun in 2008 that hasn't yet been resolved, possibilities exist.

After tow days of meeting, the FOMC of the Federal Reserve finally came out today, shortly after 2:00 pm EDT, with another one of their insipid statements, outlining their plans to "save the world" from financial ruin. while some on Wall Street hoped for a resumption of some kind of quantitative easing, what the Fed delivered was not unexpected and something of a disappointment to the money-hoarding bankster types populating lower Manhattan.

In additions to keeping the federal funds rate at ZERO, the Fed announced plans to sell $400 billion of its shorter-term Treasuries to buy longer-term Treasuries through June 2012 in a plan based on a failed 1960's plan known as "Operation Twist," the effect of which will be to bring down longer-dated interest rates. If successful, the program will flatten the yield curve, with short-term rates already well below historical norms, and longer term rates down, but with more room to decline. The economic effect ought to be limited or nearly invisible, which is what sent the Wall Street bears into selling mode after the announcement.

Stocks had hovered around the flat line in anticipation of the announcement and sold off sharply on strong volume afterwards and into the close. All of the major indices finished at or near their lows of the day all but wiping out the gains from last week's phantom, options-induced rally.

Stocks continue to be a very unsound and unsafe choice for investors.

The bond market reaction was swift and decisive, with two-and-three-year bill yields rising and longer-dated bonds, the 10-and-30-year maturities collapsing. The 10-year closed out the day with a yield of 1.85% and the 30-year at 3.01%.

Dow 11,124.84, -283.82 (2.49%)
NASDAQ 2,538.19, -52.05 (2.01%)
S&P 500 1,166.76, -35.33 (2.94%)
NYSE Composite 6,981.33, -236.19 (3.27%)
NASDAQ Volume 2,180,005,500
NYSE Volume 5,446,355,500
Combined NYSE & NASDAQ Advance - Decline: 1135-5427
Combined NYSE & NASDAQ New highs - New lows: 26-562 (OUCH!)
WTI crude oil: 84.76, -2.16
Gold: 1782.10, -22.70
Silver: 39.69, -0.05


A couple of items caught our attention today. One was an excellent summary of decades of manipulation in the price of gold by Chris Powell, Secretary/Treasurer, Gold Anti-Trust Action Committee (GATA) at the 18th CLSA Investors' Forum, Grand Hyatt Hotel in Hong Kong.

For pure emotion and unbridled rage that captures the pent-up feelings of millions of middle and lower-class Americans, nothing beats the Best of walstreetpro2 (greatest f---ing hits) - 3 of 3 Warning: the video cntains great amounts of vulgarity, adult language, truth about the US economy and the destruction of many consumer goods. All in all, a classic.

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:

• 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.

Everything Is Going Up, Except Your Wages and the US Dollar

On March 28, 2008 - about the time Bears Stearns was blowing up and before just about anyone was predicting a crisis - the Dollar Index bottomed out at 71.585.

Today, after the FOMC re-confirmed (for about the 16th time) that the federal funds rate would remain at "near" zero per cent, that very same index hit a three-year low at 73.26, closing just a touch above that level, at 73.317.

Some not suffering from the all-American malaise of short-term memory loss will recall that 2008 was not a very pretty time to be in stocks. Nor was it particularly good to be working for a Fortune 500 or other large corporation, as, by the end of the year, employees were being shed light so much dead weight off a beached ocean cruiser.

Comparing today to that sorry state of affairs is rather simple. Then, we were just heading into what would turn out to be one of the most devastating recession/depressions of modern times. Today, we are still not recovered from it.

Back in 2008, Ben Bernanke was saying that everything was OK, and soon he would glibly announce that the sub-prime crisis had been contained (insert laugh track here).

Today, the Bernanke delivered the very first of what we hope will be a short-lived experiment - a press conference following the announcement of the FOMC rate policy (no change). Once again, the Bernanke assured us that everything was just peachy, except that the economy was "recovering" a little bit slower than he'd like. We can all join him in that sentiment.

Today, Mr. Bernanke read some prepared remarks, bored us to tears and took questions from the assembled press corps, boring us even more. Today, Mr. Bernanke wants us to believe that core inflation is running at about a 1.6 to 2.2% rate, and while that may be true, core inflation leaves out food and energy, so with those included, real inflation is running at about 6-8%.

The Chairman also assured us that inflation risks were contained, just like he said the sub-prime situation was contained back in 2008. Many of us in the blogosphere didn't believe him then, and we don't believe him now, except this time we have proof.

All one has to do is go shopping, which means getting in a vehicle and driving somewhere and maybe buying some gas, which is more expensive than it was last week, and the week before that and the week before that...

Once one is over the shock of $4.00/gallon gasoline, one can go shopping for some food maybe, and find that prices are higher on fruits, vegetables, canned goods, meats, just about everything.

So, no, Mr. Bernanke, you and your Federal Reserve buddies, whose mandate is to provide price and wage stability and full employment, have failed on all accounts and your pronouncements to the press and the public are falling on deaf ears. Many don't bother to pay any attention to you at all, and even more don't even know who you are (that may come in handy when the pitchforks and torches come out). Another group believes you are lying and that you are ruining the economy and the nation with your mindless inflation-building, dollar-destroying policies.

And don't forget, we have proof. This time, we won't be fooled again.

On this day that the Fed reiterated its Zero Interest Rate Policy (ZIRP), everything went up while the dollar crashed and burned. Stocks were up. Interest rates were up. Gold was up, so too silver, oil, live cattle, cocoa and oil. The few commodities that did go down were already way up, and will likely go up more in the not-too-distant future.

The Fed is killing us, which it why is so refreshing to learn that Ron Paul is running for president. The Texas firebrand, if elected, will run Bernanke and his crew out of town.

Dow 12,690.96, +95.59 (0.76%)
NASDAQ 2,869.88, +22.34 (0.78%)
S&P 500 1,355.66, +8.42 (0.62%)
NYSE Composite 8,609.28, +54.29 (0.63%)

On the major stock indices, advancers pummeled declining issues, 4233-2315. NASDAQ pumped out 148 new highs and 25 new lows. The NYSE produced 290 stocks which hit new highs and 10 which made new lows. Volume was in line with expectations, which is a polite way of saying it was low, again, as usual.

NASDAQ Volume 2,083,155,500
NYSE Volume 4,525,766,000

Crude oil closed up 55 cents, to $112.76. The average price for a gallon of unleaded regular in the USA is now $3.88. Nine states are already averaging over $4/gallon, and West Virginia and Wisconsin are at $3.96 and $3.97, respectively. Soon that number will be 15, then 25 then 45. In time, even those states closest to the Gulf of Mexico - Alabama, Mississippi, South Carolina, Louisiana, Georgia, where prices are among the lowest in the nation, will be hovering near the $4 mark, the point at which the nation surrenders what little is left of its dignity - and money - to the global oil cartel.

Those adding to their stash of gold and/or silver yesterday on the rare pull-back, received instant gratification as both metals popped on the FOMC and Bernanke's policy announcement. It seems the gold bugs and silver liners also appreciate Bernanke's policies, except that theywish he'd take a break now and again to give them time to buy more precious metals before the prices go absolutely hyperbolic.

Gold hit another all-time record, currently trading at $1527.20, up a whopping $20.10 from Tuesday's close. Silver also regained its mojo, picking up $2.16, to $47.76, closing in on the magical Hunt brothers high of $50.25, achieved in 1980. Silver is expected to go right on past that point as long as Bernanke keeps interest rates at zero and the dollar continues to slide into oblivion.

Therefore, if you're feeling a bit squeezed, thank the Bernanke. He's our guy.

Oil Tops $100, Drifts Back; Stocks Hammered Again; Bank Runs in S. Korea

At some point, everyone knew this was going to happen. Stocks were so ridiculously overvalued - and have been for many months - that a pullback was inevitable.

The culprits, it appears, are Middle East sovereign despots, losing their grip on their populations which are largely demanding freedom and a democratic voice. But it goes much deeper. Many blame the Federal Reserve, which has fostered a dual policy of federal funds rates approaching zero while simultaneously printing dollars by the billions.

Those cheap dollars flood the markets, causing speculation and inflation, and that's been particularly acute in the poorest nations, where the percentage of income spent on basic survival - food, housing, clothing - is much higher, approaching 100% and often more. Hungry people being angry people, they've taken to the streets in countries where unemployment and government corruption have outpaced the economy, resulting in popular uprisings.

Add to that the declining value of the dollar, as expressed in the rising price of crude oil, and you have today's recipe for disaster. And all of this comes before the morons in congress and the White House and various state capitols attempt to come to some sort of meeting of the minds on their budgets.

The states have to find ways to balance theirs, while the federals fight over how much spending is enough to keep the government just barely functioning, if at all.

If it feels like the United States is running rudderless on fumes, you get the idea and the nervousness has been manifested in trading the past two days. Despite the usual pumping by the Fed, sellers are out in force and it doesn't take much to move stocks hard to the downside. Missing earnings estimates - normally a sin punishable by a few points off the top - has become a mortal wound, such as what happened to Hewlett Packard (HWP), following their quarterly report, released after the close on Tuesday.

Investors scurried out of the stock on Wednesday, propelling a nearly 10% decline. Vloume was five times normal.

Most of the rest of the market didn't fare much better. Holders of gold and silver are grinning ear-to-ear.

Dow 12,105.78, -107.01 (0.88%)
NASDAQ 2,722.99, -33.43 (1.21%)
S&P 500 1,307.40, -8.04 (0.61%)
NYSE Composite 8,292.92, -32.94 (0.40%)

Decliners led advancing issues again, 4470-2093. On the NASDAQ, the flip: there were 54 new lows and only 44 new highs. At the NYSE, 60 new highs and 27 new lows, though it seems the tide has turned, at least for the present. The question now becomes how long will this downturn last before the hoards of money from the Fed overwhelm all fears and make stocks and risk appear palatable again.

Volume, which hit its best levels of the year on Tuesday, topped that on Wednesday, giving a clue that the selling is only gaining momentum.

NASDAQ Volume 2,498,464,250
NYSE Volume 6,623,988,500

Crude oil - specifically WTI (West Texas Intermediate) on the NYMEX hit $100 in midday trading, but backed off to close up a mere $2.68, at $98.10, marking the highest price seen since 2008. Since the US gets most of its oil from Canada and other Western Hemisphere sources, WTI has fallen well behind the pace in Brent Crude, tied mostly to Europe and Asia. Brent prices topped $110. Spot is quoted at $111.83 per barrel.

Gold had another banner day, rising $12.90, to reach $1,414.00, closing in on all-time highs. Silver continues to be the stellar commodity performer, up another 44 cents, to $33.30. Specialists in gold's cousin say this is nothing and $50 per troy ounce is not only possible before the calendar turns over to 2012, but likely. There simply is not enough physical supply to meet growing investor demands, much of which is causing tightness in industrial applications.

If silver demand continues, look for rising prices in many electronic devices, especially cell phones, though the price rise should not be severe since only small amounts of silver go into the overall manufacturing price.

Turmoil and popular revolt in the Middle East and across many states in America over budget issues and union busting don't exactly set up well for smooth sailing on Wall Street. Until the noise quiets, expect fear to have its way with investor confidence. Nobody wants to catch the proverbial falling knife, and with short interest at record lows, a small tumble could easily turn into an overwhelming cascade.

Meanwhile, silver and gold investors are sitting pretty as the strain on fiat currency is being felt worldwide. What nobody wants to talk about in our civil society are the bank runs in South Korea.

Nothing funny about that story.

Federal Reserve Throws Up White Flag, Surrenders Authority

Stocks ended mixed after the Federal Open Market Committee of the Federal Reserve issued the following statement at 2:15 pm EDT. I have decided to republish the entire release, interspersed with my notes in italics. It is also quite noteworthy that this is by far the most terse statement the Fed has released in many years. My feelings, essentially, are, that since they have little to do to stem the continuation of dour economic conditions within an essentially deflationary environment, they have little to say. For that, they deserve some small credit. For the rest, they deserve what currency manipulators always earn: ire and scorn.

Release Date: June 23, 2010

For immediate release

Information received since the Federal Open Market Committee met in April suggests that the economic recovery is proceeding and that the labor market is improving gradually.

This opening statement is an absolute lie. If anybody should know a thing or two about economic conditions and the labor market, it would be the Fed. Even as a casual observer, it is quite easy to refute the foregoing statement. Labor conditions continue to worsen and the economy is embarking upon another retraction.

Household spending is increasing but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.

I won't even bother to check. Maybe "official" government statistics show household spending increasing, but anyone who's worked for a living in the private sector knows that wages have been stagnant for at least the last 20 years. Any excess spending is likely coming from people who are not paying their mortgage or from government subsidies. So, the statement may be true, but look at their qualifiers, then, add mine.

Business spending on equipment and software has risen significantly; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls.

Business spending on infrastructure is probably increasing, but most businesses are also hoarding cash. The telling statement is "investment in nonresidential structures continues to be weak." Commercial real estate is in free-fall. Note that they mention unemployment again as an impediment to growth.

Housing starts remain at a depressed level.

Obviously.

Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad.

Read the first part of the sentence. The second part desires to shift blame to Europe. It's BS. We have enough of our own problems. Europe's only make them worse.

Bank lending has continued to contract in recent months.

Actually, I am somewhat surprised they would say this, as bank lending has been depressed since 2008.

Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be moderate for a time.

This statement is just a wish. There is no evidence that the economy will grow substantially in the near term. Watch what happens to the term, "resource utilization" in the remainder of the statement. Also, make note of their mention of price stability and inflation, never using the term, "deflation." The "D-word" scares them to death, because they, and all other Keynesian economists have no answers for the bottomless pit of deflation.

Prices of energy and other commodities have declined somewhat in recent months, and underlying inflation has trended lower.

Deflation.

With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

Deflation.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

In other words, they've thrown up the white flag of surrender here. They admit that they have no solutions except to keep lending money at ZERO percent. THEY cannot make money. They have failed. The US economy, from which, over the past nearly 100 years, the Federal Reserve has stolen almost all wealth from the nation, is bankrupt. There needs to be no more evidence than this statement to make the case that the Federal Reserve should be dissolved. Their policies, over the course of the past 96 years, has destroyed the capacity for the US economy to produce and grow. Ben Bernanke should step down and the governors of the Fed should declare bankruptcy and turn their assets over to the United States government for proper disposal.

Make particular note that they mention "low rates of resource utilization" when in the previous paragraph they said, "the Committee anticipates a gradual return to higher levels of resource utilization..." They are wishing. They are clueless. They have nothing. "Gradual" could mean six months just as easily as six years.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

They have no more policy tools to employ. They have no more gimmicks to steal more money from the Treasury. They have nothing. They are worthless and defunct. Ordinary Americans have more power to promote economic prosperity - by hiring a kid to mow a lawn - than the Federal Reserve and they openly admit it.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to a build-up of future imbalances and increase risks to longer-run macroeconomic and financial stability, while limiting the Committee’s flexibility to begin raising rates modestly.

This final piece was probably entered upon the insistence of Mr. Hoenig, who, for whatever purpose (maybe to avoid hanging) wishes to separate himself from the lying majority. His effort to save himself should be applauded, though the addition of this statement is more than likely the most damaging blow to the unity of the Federal Reserve board of governors since its inception.

------------------------- End of FOMC Statement ---------------------------------

OK, readers can agree with my assessment in whole or in part or disagree as they please. In a nutshell, I'd say that we, as a nation, are in for a world of hurt. As I've been saying for the better part of the last three years, maybe four, our current economic path is unsustainable, and here is a stab to the heart of the US economy. The Federal Reserve today serves our nation no useful purpose except to delay the inevitable, while their cronies and friends steal as much more wealth as possible before they flee the country.

As for our friendly criminal enterprise known as Wall Street, well, they couldn't just sell everything all at once, could they? Their response was measured and cynical. They realize that the Fed has failed and that the underground economy - the part of the nation that avoids taxes, regulations and government intervention - will flourish far beyond the prospects of the "measured" economy.

Expect unreported income to far outstrip the GDP over the next 3-5 years. Expect small businesses to alternately fail and prosper, depending on how well they are able to skirt the laws and taxation. Expect a renaissance of personal responsibility and resourcefulness and the utter destruction of governance.

Greed, corruption, theft and incompetence have their consequences. This is the second phase of the post-government era, in which individuals will take matters even more into their own hands. Millionaires will mysteriously appear from the dust of destroyed cities. The stock market will crash or be held afloat by the criminals who operate under the now-discredited idea that big business is at the heart of American prosperity.

Economic and social dislocation will occur on a daily, even momentary basis, as individuals seize monetary power from the dethroned "masters of the universe" embodied in the money center banks and publicly-owned firms in general.

Today's market data is meaningful only in the internals.

Dow 10,298.44, +4.92 (0.05%)
NASDAQ 2,254.23, -7.57 (0.33%)
S&P 500 1,092.04, -3.27 (0.30%)
NYSE Composite 6,850.05, -8.90 (0.13%)

NOTABLE: declining issues led advancers, 3441-2978. NOTABLE: new lows surpassed new highs, 116-73. NOTABLE: Volume was anemic. Fear has fully gripped the trading community.

NYSE Volume 5,294,169,500
NASDAQ Volume 1,895,673,875

One would have expected gold and silver to rise off the back of the Fed announcement. Since they are serially controlled and manipulated by central banks and money center banks, they did not. Gold dipped $5.40, to $1,234.10. Silver fell 44 cents, to $18.45. These price levels will not maintain. Either there will be massive liquidation shortly, due to another financial crisis, or the dye has already been cast, that fiat money is dead and a new gold standard is about to emerge, the eventuality of which is now without doubt. It may not be advisable to buy gold or silver at these prices, but by no means should anybody be selling any until the prevailing economic conditions are resolved and the global economies are at healthy status.

Prices may decline for some time, but they will surely rise, most likely well beyond these levels. Cash or land are now useful converters into gold. If you find somebody willing to exchange equities or bonds for gold or silver, by all means take their hard assets at whatever discount comforts you. Gold and silver will endure. Paper money and certificates will not.

Oil dropped $1.50, to $76.35. Expect this price to settle at its true level of $35/barrel within the next three years. Outside of absolute manipulation, oil will not see $80/barrel for at least another 15 years.

Had enough?

I'll be back tomorrow, and the next day and many more after that. The party is just getting interesting.

Who turned out the lights?

If you thought yesterday was a slow trading day, you may have wanted to hang around for today's snoozy session.

Except for a flurry of trading in the final minutes, it was one of the dullest sessions of the year, so make that two days in a row that investors have pretty much sat on the sidelines.

Dow 13,090.86 -30.49; NASDAQ 2,521.30 +12.71; S&P 500 1,447.12 +1.57; NYSE Composite 9,332.54 +6.33

There was no need for Fed injections of liquidity or PPT behind-the-scenes maneuvers. There was little urgency to even show up on the trading floor. Nothing much at all was happening. It was really, really, really quiet. Almost spooky.

The Dow was down, but all the other indices closed lower. This is what happens when governments interfere in free markets. Inertia. Nobody trusts anything any more. It's neither a buyer's nor a seller's market. This is a dead market and that's not a very appealing state of affairs.

Without trading activity, people will soon begin another round of selling. While the market hates uncertainty (and there's still plenty of that going around), it absolutely despises complacency. If nobody's interested in buying, then stocks, like just about any other traded commodity, get marked down, just like a sale on shoes that have gone out of style.

Advancing issues superseded decliners by a 4-3 margin. New lows outdid new highs for the umpteenth consecutive session, 190-66.

There was just a little more interest in the oil market, where September futures expired with a whimper rather than a bang, down $1.65 to $69.45. Oil under $70 a barrel? I thought supplies were tight? What's next? $2.00 gas?

Even commodities markets were cool. Gold was down 30 cents to $666.30. Silver is rapidly approaching the bargain basement. On the day it lost 23 cents to $11.67 an ounce.

The truth of the matter in all of this is that there really is a liquidity crisis. We're not out of it. In fact, we're just getting started. A lot of hedge funds are out of the market, forced to liquidate to cover their market calls. Big money is sitting still, preferring bonds for the moment. Wall Street is now seen as having huge cracks in the pavement, big enough for large things to fall through, like people, businesses, banks and buildings.

Big Ben Bernanke made an appearance at the Capitol, reassuring Senator (hello, I'm running for president too) Dodd, Chairman of the Senate Finance Committee, that he would make use of "all tools necessary" to calm the volatile financial markets. Judging by the action the past two days, he already has.

Bernanke is nothing but a hack, and a rookie at that. Whatever he does will be viewed skeptically. Remember, this is an avowed adherent of "targeted inflation." His core ideas, roundly expressed in a 2002 speech titled, Deflation: Making Sure "It" Doesn't Happen Here are somewhat along the lines of dropping money from helicopters.

Essentially, Bernanke's solution to every kind of crisis, as was that his predecessor, Alan Greenspan, is to throw money at it. That's exactly what he did by lowering the lending rate and requirements in the discount rate, so a cut in the federal funds rate shouldn't be far behind. With the markets now drubbed into an unconscious trance, he'll probably make an "emergency" cut before the Fed's next scheduled meeting on September 18.

God save us all. We're being led down the garden path by a gang of fools and thieves.