On Wednesday, he Fed conducted another in a series of overnight repurchase auctions (REPO) which was oversubscribed by the most since the operations began to be a daily fixture last week. Wednesday's overnight funding fiasco was for a maximum of $75 billion, but offers were up to $92 billion, meaning somebody didn't get ready cash for operations.
This is becoming more and more of a liquidity crisis, which, as learned from the Lehman crash of 2008, can readily become a solvency crisis, as Lehman and Bear Stearns before them both were forced into liquidation.
With the oversubscribed condition seemingly becoming worse by the day, the NY Fed quietly announced that the operations proposed last week - daily $75 billion overnight until October 10 and three $30 billion two-week terms - were to be raised to $100 billion overnight and $60 billion in the two-week auctions.
Markets seemed more concerned with making money quickly rather than focus on a looming issue or the impeachment farce currently making the rounds in Washington. For what it's worth, Wall Street either doesn't want to look or considers these events inconsequential. In the case of impeachment, they may be right, since the Democrats are pushing on a string in their flimsy argument that President Trump committed some kind of crime by discussing with the president of Ukraine some possibly-underhanded dealings by former vice president Joe Biden.
It's nonsense, as the White House has released the complete transcript of the two leaders' phone conversation and there is no quid pro quo element to it and the Bidens (Joe and his son, Hunter) were brought up by Ukrainian President Volodymyr Zelensky.
As far as the Fed's actions are concerned, traders are normally blind to the much larger world of bonds and credit. Doug Noland, a reputable bond and credit analyst (possibly the world's best) writes in his most recent credit bubble bulletin that the Fed's actions are a response to excessive speculative leverage, mainly in the bond markets, which have been whipsawed of late, but spilling over into equities and currencies - especially China - as well.
While the street may have its focus on near term profits and end-of-quarter positioning, real experts see nothing good from the Fed's reach for substantial amounts of liquidity and expect volatility to continue over the next month or more.
At the Close, Wednesday, September 25, 2019:
Dow Jones Industrial Average: 26,970.71, +162.94 (+0.61%)
NASDAQ: 8,077.38, +83.76 (+1.05%)
S&P 500: 2,984.87, +18.27 (+0.62%)
NYSE Composite: 13,037.61, +45.35 (+0.35%)
Showing posts with label liquidity. Show all posts
Showing posts with label liquidity. Show all posts
Thursday, September 26, 2019
Wednesday, September 18, 2019
Anticipating Federal Funds Rate Slash, Fed Conducts Repo for Cash-Strapped Banks
In case you missed it, on Tuesday, the Federal Reserve conducted a repurchasing event - known in the business as a "repo" - to inject cash into the system, which had run low on reserves.
Essentially, the primary dealers, among them the nation's largest banks, found themselves a little short on cash and needed to sell some bonds back to the Fed. In all, the Fed took back $53 billion and the system survived a rare liquidity crunch. It was the first repo auction since the great Financial Crisis of 2008.
This kind of activity may not be so rare going forward. The Financial Times reports that the Fed is holding another repo auction on Wednesday morning, offering up $75 billion in cash in exchange for various types of bonds, most typically, Treasuries or Mortgage-backed securities (MBS).
What triggered the double-dip into repo-land is the unusually high volatility in bond markets, which have been whipsawed of late. The benchmark 10-year-note, for instance, has yielded as low as 1.46% and as high as 1.90% just this month, and currently sits at a yield of 1.81%. The high rate at which bonds are turned over by the primary dealers and others may have left some banks upside down, or wrong-footed, this week.
The second repo has taken place, ending before 8:30 am, Wednesday morning.
The results were less-than-encouraging going forward. The auction was oversubscribed by $5 billion, meaning somebody has a short-term cash flow problem. The Fed offered up $75 billion and $80 was bid, so somebody didn't get what they were seeking. $5 billion is a lot of money, no matter how you slice it. This is going to show up somewhere and it won't be pretty. Prepare for bank failures at an increasing rate.
Otherwise, the markets stay relatively calm on the surface, with futures modestly in the red. At 2:00 pm ET Wednesday, the FOMC will announce their policy directive, ending a two-day meeting. They are widely expected to decrease the federal funds rate by 25 basis points, from 2.00-2.25 to 1.75-2.00.
If the idea of a range, rather than a distinct point for the federal funds rate seems different, it is. The Fed used to just set the rate at a distinct point, like 2.50%, but now they issue a range. That change occurred in 2008, when they dropped the rate to zero, or actually, 0.00 to 0.25. The Fed didn't like the rate being exactly zero bacuse that would have sent a bad signal, so they changed to a range.
What really happened is that the global fiat currency economy broke in 2008. ZIRP and the various forms of QE were bandages when a splint and a cast were needed. The system is still broken, moreso than in 2008 and the injury, once a break, is now amplified with a fever, an infection, and the hospital is out of meds.
Tra-la-la.
At the Close, Tuesday, September 17, 2019:
Dow Jones Industrial Average: 27,110.80, +33.98 (+0.13%)
NASDAQ: 8,186.02, +32.47 (+0.40%)
S&P 500: 3,005.70, +7.74 (+0.26%)
NYSE Composite: 13,131.41, +23.43 (+0.18%)
Essentially, the primary dealers, among them the nation's largest banks, found themselves a little short on cash and needed to sell some bonds back to the Fed. In all, the Fed took back $53 billion and the system survived a rare liquidity crunch. It was the first repo auction since the great Financial Crisis of 2008.
This kind of activity may not be so rare going forward. The Financial Times reports that the Fed is holding another repo auction on Wednesday morning, offering up $75 billion in cash in exchange for various types of bonds, most typically, Treasuries or Mortgage-backed securities (MBS).
What triggered the double-dip into repo-land is the unusually high volatility in bond markets, which have been whipsawed of late. The benchmark 10-year-note, for instance, has yielded as low as 1.46% and as high as 1.90% just this month, and currently sits at a yield of 1.81%. The high rate at which bonds are turned over by the primary dealers and others may have left some banks upside down, or wrong-footed, this week.
The second repo has taken place, ending before 8:30 am, Wednesday morning.
The results were less-than-encouraging going forward. The auction was oversubscribed by $5 billion, meaning somebody has a short-term cash flow problem. The Fed offered up $75 billion and $80 was bid, so somebody didn't get what they were seeking. $5 billion is a lot of money, no matter how you slice it. This is going to show up somewhere and it won't be pretty. Prepare for bank failures at an increasing rate.
Otherwise, the markets stay relatively calm on the surface, with futures modestly in the red. At 2:00 pm ET Wednesday, the FOMC will announce their policy directive, ending a two-day meeting. They are widely expected to decrease the federal funds rate by 25 basis points, from 2.00-2.25 to 1.75-2.00.
If the idea of a range, rather than a distinct point for the federal funds rate seems different, it is. The Fed used to just set the rate at a distinct point, like 2.50%, but now they issue a range. That change occurred in 2008, when they dropped the rate to zero, or actually, 0.00 to 0.25. The Fed didn't like the rate being exactly zero bacuse that would have sent a bad signal, so they changed to a range.
What really happened is that the global fiat currency economy broke in 2008. ZIRP and the various forms of QE were bandages when a splint and a cast were needed. The system is still broken, moreso than in 2008 and the injury, once a break, is now amplified with a fever, an infection, and the hospital is out of meds.
Tra-la-la.
At the Close, Tuesday, September 17, 2019:
Dow Jones Industrial Average: 27,110.80, +33.98 (+0.13%)
NASDAQ: 8,186.02, +32.47 (+0.40%)
S&P 500: 3,005.70, +7.74 (+0.26%)
NYSE Composite: 13,131.41, +23.43 (+0.18%)
Tuesday, September 3, 2019
Weekend Wrap: Stocks Rebound in Face of Coming Currency Crisis
Other than the idea that Chinese and US officials were "talking" about trade and tariffs, nothing much changed in the world of high finance during the week, though investors thought they heard the "all clear" whistle.
Major indices broke off a four-week losing streak, bounding higher by 2.5 to three precent over the course of the week, heading into the Labor Day holiday.
The end of August marks the unofficial end of summer, back to school activity, and a return from the idyllic Hamptons or other leisure locales of the Wall Street hard-liners, the big boys with big money who guide trades, firms and financial fates.
Over the holiday weekend, the US slapped on the promised tariffs on September 1, with China responding with some of their own on US imports. That ran in stark contrast to the trading sentiment from the week past and suggests that the gains may be fleeting.
As the opening approaches for the first trading day of September, US futures are sliding. Anticipation of easing tensions in the trade wars are fading fast, though the narrative that the trade and tariff foibles of Trump and Xi are the sole motivator for moving equities is likely a contrived one.
What really worries Wall Street and should concern anybody with a pension tied to a 401k or other stock market vehicle is the shaky state of global commerce. The World Bank, IMF, and pundits far and wide have been predicting a recession for well over a year. Though the timing of such a downturn is far from settled science, evidence continues to build. More than just recession concerns are deeper fears that central banks have run out of ammunition with which to save the world again.
Interest rates, long regarded as the primary tool of central banks to stave off natural downturns in the business cycle are already low and many negative, prompting unbelievers to portend the end of central bank monetary hegemony. While such calls for an impending end to the global financial scheme are almost always present, this time appears to hold some truth.
Fractional reserve lending of debt has impoverished the lower and middle classes, expanded wealth inequality, and may now be acting as a brake on the system as money movement is nearing stall speed. It's been nearly 50 years since President Nixon closed the gold window and set the world on a path of unbacked, floating currencies. The result has been a revolving bubble, boom-bust scenario, punctuated by massive counterfeiting by coordinated central banking interests, each successive round more severe than the last.
Considering the depth of the last crisis in 2007-2009, central banks are desperate to keep the financial plates spinning for as long as possible, because the next crisis may well be their last.
These prospects are not pretty for central banks, or, for that matter, anybody. However, change is always in the wind, and the wind is blowing with a hot breath.
2001 was a malinvestment correction. 2008 was a liquidity affair. 202---? will be a currency crisis that will shake the foundations of monetary policy.
At the Close, Friday, August 30, 2019:
Dow Jones Industrial Average: 26,403.28, +41.08 (+0.16%)
NASDAQ: 7,962.88, -10.51 (-0.13%)
S&P 500: 2,926.46, +1.88 (+0.06%)
NYSE Composite: 12,736.88, +32.88 (+0.26%)
For the Week:
Dow: +774.38 (+3.02%)
NASDAQ: +211.12 (+2.72%)
S&P 500: +79.35 (+2.79%)
NYSE Composite: +320.43 (+2.58%)
Major indices broke off a four-week losing streak, bounding higher by 2.5 to three precent over the course of the week, heading into the Labor Day holiday.
The end of August marks the unofficial end of summer, back to school activity, and a return from the idyllic Hamptons or other leisure locales of the Wall Street hard-liners, the big boys with big money who guide trades, firms and financial fates.
Over the holiday weekend, the US slapped on the promised tariffs on September 1, with China responding with some of their own on US imports. That ran in stark contrast to the trading sentiment from the week past and suggests that the gains may be fleeting.
As the opening approaches for the first trading day of September, US futures are sliding. Anticipation of easing tensions in the trade wars are fading fast, though the narrative that the trade and tariff foibles of Trump and Xi are the sole motivator for moving equities is likely a contrived one.
What really worries Wall Street and should concern anybody with a pension tied to a 401k or other stock market vehicle is the shaky state of global commerce. The World Bank, IMF, and pundits far and wide have been predicting a recession for well over a year. Though the timing of such a downturn is far from settled science, evidence continues to build. More than just recession concerns are deeper fears that central banks have run out of ammunition with which to save the world again.
Interest rates, long regarded as the primary tool of central banks to stave off natural downturns in the business cycle are already low and many negative, prompting unbelievers to portend the end of central bank monetary hegemony. While such calls for an impending end to the global financial scheme are almost always present, this time appears to hold some truth.
Fractional reserve lending of debt has impoverished the lower and middle classes, expanded wealth inequality, and may now be acting as a brake on the system as money movement is nearing stall speed. It's been nearly 50 years since President Nixon closed the gold window and set the world on a path of unbacked, floating currencies. The result has been a revolving bubble, boom-bust scenario, punctuated by massive counterfeiting by coordinated central banking interests, each successive round more severe than the last.
Considering the depth of the last crisis in 2007-2009, central banks are desperate to keep the financial plates spinning for as long as possible, because the next crisis may well be their last.
These prospects are not pretty for central banks, or, for that matter, anybody. However, change is always in the wind, and the wind is blowing with a hot breath.
2001 was a malinvestment correction. 2008 was a liquidity affair. 202---? will be a currency crisis that will shake the foundations of monetary policy.
At the Close, Friday, August 30, 2019:
Dow Jones Industrial Average: 26,403.28, +41.08 (+0.16%)
NASDAQ: 7,962.88, -10.51 (-0.13%)
S&P 500: 2,926.46, +1.88 (+0.06%)
NYSE Composite: 12,736.88, +32.88 (+0.26%)
For the Week:
Dow: +774.38 (+3.02%)
NASDAQ: +211.12 (+2.72%)
S&P 500: +79.35 (+2.79%)
NYSE Composite: +320.43 (+2.58%)
Monday, August 12, 2019
Far From Ordinary Times For National Economies
Empires rise and fall. Nations traverse through periods of feast and famine, disputes with other nations, sometimes wars, and economic booms and busts. History is rife with stories detailing the life and times of nations and their leaders.
The vast majority of nations today face conditions that are far from normal.
There are at least three major migrations taking place, Africans to Europe, Chinese to Africa, and South Americans to North America. These are disruptive events, not only for the individuals involved but for the entire populations of the nations affected. Changes are gradual, mostly, but the mundane can be cracked by atrocities, absurdities and maladjustments committed by migrants in the clash of cultures.
Such conditions are prevalent in Europe and the United States, with migration reaching epidemic proportions. Indeed, President Trump himself calls the illegal immigration at the southern US border an "invasion." He is not wrong. The United States was built on the back of immigrants - legal ones - whose individual efforts and respect for their fellows built the greatest nation on Earth.
Illegal immigration is challenging the normative behavior of well-established citizens. According to certain left-leaning politicians and a corrupted media, illegal immigrants should receive free health care, free schooling, and largely, freedom from gainful employment. Ordinary, established US citizens do not receive such largesse, nor should they. Nor should the illegal entrants, who have violated our borders, broken our laws and flaunted the lifestyles and even the national flags of whence they came.
Such activity is largely disruptive to the fine working condition of a nation and the United States has been building to this state of affairs for more than 40 years. Estimates of people living in the US illegally range from 11 million to as many as 60 million people. The higher end of that range is probably closest to the truth, which is why immigrants - mostly the illegal ones - disrespect US laws, commit crimes, and take advantage of an overly generous social framework and increasingly undisciplined judicial process.
The condition in many European countries is far worse, where theft, rape, and other human crimes are committed with impunity. Often, if an immigrant is accused of crime, there exists no punishment. The system feeds upon itself and eventually fails to protect the national culture.
That is not all. Every nation on earth is controlled economically by an unelected elite, otherwise know as a central bank. In Europe, where the financial condition is dire, all nations on the continent are controlled by one central bank, the ECB. Nations have usurped their right to issue currency, having been overwhelmed by the collectivist desires of the European Union. The ECB issues fiat currency, in the form of a counterfeit euro, bolstered most recently by negative interest rates because the system is a fraud and it imploded over 10 years ago, during the Great Financial Crisis. The global central banks added untold amounts of liquidity, but it will never be enough because the crisis is one not of liquidity, but of solvency. All central banks create currency out of thin air, charge interest for its use, and, via the magic of fractional reserve lending, multiply the amount of currency in circulation by ghastly amounts.
The system is broken and will remain broken until it is completely rejected by the various populaces which employ it. That moment in time is unknowable, but it is inevitable.
There is more.
Great Britain, wise enough to keep their currency - the pound - national in nature, is attempting to exit the EU, but has been met with resistance three years since a national referendum preferred exiting, or, in common parlance, Brexit.
This is a further disruption to the status quo, and the elites will have none of it.
President Donald J. Trump, of the United States, foments more radical departures, not the least of which being his penchant for fair trade via tariffs. For three decades, the globalists have promulgated their "free trade" jingoism, which is commonly broken, cheated upon, corrupted, deceitful, unequal, and decrepit. Global trade should well collapse, and if President Trump's tariffs are the agent of change, all the better.
Thus, these days are far from normal. Superficially, people go about their business as if nothing is brewing beneath the casual calm. There will be a shock, probably multiple shocks, similar to, and many of them larger than the events of 2007-2009.
How long the politicians, bankers, and the media can keep a lid on the calamity that is bubbling up below, is anyone's guess, but their time is running short. Currencies will collapse, nations will fall, there will be wars.
It would pay to keep a sharp eye on one's assets, hard and soft. Anything that is not well-protected can be stolen away in a flash. Consider the number of security breaches at financial institutions as warnings. The money is unsafe. Hard assets are safer, but must be protected, defended.
All of this is frighteningly real and happening at breakneck speed. The usual media sources will not tell you the truth. You must find it on your own.
Ten years is a long time for the central banks and their friends to keep the spinning plates of a corrupt, defunct global financial construct from experiencing inertia and crashing to the floor, shattering into millions of tiny, unrecoverable pieces.
The spinning will end. Everything will change.
At the Close, Monday, August 12, 2019:
Dow Jones Industrial Average: 25,897.71, -389.73 (-1.48%)
NASDAQ: 7,863.41, -95.73 (-1.20%)
S&P 500: 2,883.09, -35.56 (-1.22%)
NYSE Composite: 12,586.24, -162.18 (-1.27%)
The vast majority of nations today face conditions that are far from normal.
There are at least three major migrations taking place, Africans to Europe, Chinese to Africa, and South Americans to North America. These are disruptive events, not only for the individuals involved but for the entire populations of the nations affected. Changes are gradual, mostly, but the mundane can be cracked by atrocities, absurdities and maladjustments committed by migrants in the clash of cultures.
Such conditions are prevalent in Europe and the United States, with migration reaching epidemic proportions. Indeed, President Trump himself calls the illegal immigration at the southern US border an "invasion." He is not wrong. The United States was built on the back of immigrants - legal ones - whose individual efforts and respect for their fellows built the greatest nation on Earth.
Illegal immigration is challenging the normative behavior of well-established citizens. According to certain left-leaning politicians and a corrupted media, illegal immigrants should receive free health care, free schooling, and largely, freedom from gainful employment. Ordinary, established US citizens do not receive such largesse, nor should they. Nor should the illegal entrants, who have violated our borders, broken our laws and flaunted the lifestyles and even the national flags of whence they came.
Such activity is largely disruptive to the fine working condition of a nation and the United States has been building to this state of affairs for more than 40 years. Estimates of people living in the US illegally range from 11 million to as many as 60 million people. The higher end of that range is probably closest to the truth, which is why immigrants - mostly the illegal ones - disrespect US laws, commit crimes, and take advantage of an overly generous social framework and increasingly undisciplined judicial process.
The condition in many European countries is far worse, where theft, rape, and other human crimes are committed with impunity. Often, if an immigrant is accused of crime, there exists no punishment. The system feeds upon itself and eventually fails to protect the national culture.
That is not all. Every nation on earth is controlled economically by an unelected elite, otherwise know as a central bank. In Europe, where the financial condition is dire, all nations on the continent are controlled by one central bank, the ECB. Nations have usurped their right to issue currency, having been overwhelmed by the collectivist desires of the European Union. The ECB issues fiat currency, in the form of a counterfeit euro, bolstered most recently by negative interest rates because the system is a fraud and it imploded over 10 years ago, during the Great Financial Crisis. The global central banks added untold amounts of liquidity, but it will never be enough because the crisis is one not of liquidity, but of solvency. All central banks create currency out of thin air, charge interest for its use, and, via the magic of fractional reserve lending, multiply the amount of currency in circulation by ghastly amounts.
The system is broken and will remain broken until it is completely rejected by the various populaces which employ it. That moment in time is unknowable, but it is inevitable.
There is more.
Great Britain, wise enough to keep their currency - the pound - national in nature, is attempting to exit the EU, but has been met with resistance three years since a national referendum preferred exiting, or, in common parlance, Brexit.
This is a further disruption to the status quo, and the elites will have none of it.
President Donald J. Trump, of the United States, foments more radical departures, not the least of which being his penchant for fair trade via tariffs. For three decades, the globalists have promulgated their "free trade" jingoism, which is commonly broken, cheated upon, corrupted, deceitful, unequal, and decrepit. Global trade should well collapse, and if President Trump's tariffs are the agent of change, all the better.
Thus, these days are far from normal. Superficially, people go about their business as if nothing is brewing beneath the casual calm. There will be a shock, probably multiple shocks, similar to, and many of them larger than the events of 2007-2009.
How long the politicians, bankers, and the media can keep a lid on the calamity that is bubbling up below, is anyone's guess, but their time is running short. Currencies will collapse, nations will fall, there will be wars.
It would pay to keep a sharp eye on one's assets, hard and soft. Anything that is not well-protected can be stolen away in a flash. Consider the number of security breaches at financial institutions as warnings. The money is unsafe. Hard assets are safer, but must be protected, defended.
All of this is frighteningly real and happening at breakneck speed. The usual media sources will not tell you the truth. You must find it on your own.
Ten years is a long time for the central banks and their friends to keep the spinning plates of a corrupt, defunct global financial construct from experiencing inertia and crashing to the floor, shattering into millions of tiny, unrecoverable pieces.
The spinning will end. Everything will change.
At the Close, Monday, August 12, 2019:
Dow Jones Industrial Average: 25,897.71, -389.73 (-1.48%)
NASDAQ: 7,863.41, -95.73 (-1.20%)
S&P 500: 2,883.09, -35.56 (-1.22%)
NYSE Composite: 12,586.24, -162.18 (-1.27%)
Sunday, December 30, 2018
WEEKEND WRAP: With Continued Volatility In Stocks, Is It Time To Consider Alternative Investment Asset Classes?
To say the least, this was one wild week.
Monday opened with word that Treasury Secretary Steven Mnuchin had phoned six major banks and the Plunge Protection Team to assure that the banks had adequate liquidity to survive a significant downturn. There were two problem with Mnuchin making these calls and then making them public. First, nobody was thinking about bank liquidity. Second, alerting the PPT suggests that there are significant economic issues facing the market.
Mnuchin initiated a panic, good for -653 points on the Dow, on a day in which markets closed at 1:00 pm. That was Christmas Eve.
The day after Christmas, Wednesday, the Dow set a record for points gained in one session. It was a spectacular day for anybody in the bullish camp. All the other indices were up more than four percent, another first.
On Thursday, stocks were slumping badly again, but then, the rally from nowhere produced a positive finish, boosting the Dow more than 600 points from 2:15 pm into the close, for a net gain on the day of 260 points.
On Friday, the opposite occurred. The Dow Industrials were up 240 points at three o'clock, but closed down 76.
Volatility. It's what's for Christmas, it appears.
When it was all over the week turned out to be a winner, the first in four weeks of December. Since the start of October, there have been nine weekly losses on the Dow, with just five weekly gains. The net result of this wicked roller-coaster of a market is a Dow Jones Industrial Average that's down nearly 2500 points in December and 3766 points from October 3.
While the week's heavy lifting (most likely done by our friends at the PPT) kept the Dow out of bear market territory, it - and the other major indices - are still deep in the correction zone, and all indices are down for the year. Since there's only one trading day left in 2018, this year is a good bet to end up a loser, despite the best efforts of the pumpers, panderers, shills, and jokers in the financial field to separate you from your money with promises of outstanding gains.
Every stock pumper in the world mouths the word "diversification" as a key element leading to positive investment results. The problem with their kind of diversification is that it normally references one, maybe two asset classes: stocks, and then, maybe, bonds.
Such short-sighted thinking obscures all the other asset classes, broadly, real estate, commodities, currencies, art, collectibles, precious metals and gemstones, vehicles, business equipment, private equity, cash, cash equivalents, and human capital.
There are plenty of opportunities in small business development, where ownership can be hands-on or hands-free, with the potential to grow a local business within a community. President Donald Trump (and many other private businessmen) is one good example of how much money can be made in real estate investment and privately-owned businesses.
People who held on to their Spiderman, X-Men, and Fantastic Four comic books are smiling broadly. So too, those who kept baseball and football cards for more than 50 years. The value of a Mickey Mantle rookie card today is astronomical compared to its original cost (less than a penny).
With the recent volatility in stocks, people may be considering diversifying out of stocks and into other asset classes. In the coming year and beyond, presentation of alternative money-making and investment opportunities will be a focus of Money Daily.
Here's to looking forward at a year of diversifying out of strictly stocks in a portfolio.
In advance: Happy New Year!
Dow Jones Industrial Average December Scorecard:
At the Close, Friday, December 28, 2018:
Dow Jones Industrial Average: 23,062.40, -76.42 (-0.33%)
NASDAQ: 6,584.52, +5.03 (+0.08%)
S&P 500: 2,485.74, -3.09 (-0.12%)
NYSE Composite: 11,290.95, +5.64 (+0.05%)
For the Week:
Dow: +617.03 (+2.75%)
NASDAQ: +251.53 (+3.97%)
S&P 500: +69.12 (+2.86%)
NYSE Composite: +254.11 (+2.30%)
Monday opened with word that Treasury Secretary Steven Mnuchin had phoned six major banks and the Plunge Protection Team to assure that the banks had adequate liquidity to survive a significant downturn. There were two problem with Mnuchin making these calls and then making them public. First, nobody was thinking about bank liquidity. Second, alerting the PPT suggests that there are significant economic issues facing the market.
Mnuchin initiated a panic, good for -653 points on the Dow, on a day in which markets closed at 1:00 pm. That was Christmas Eve.
The day after Christmas, Wednesday, the Dow set a record for points gained in one session. It was a spectacular day for anybody in the bullish camp. All the other indices were up more than four percent, another first.
On Thursday, stocks were slumping badly again, but then, the rally from nowhere produced a positive finish, boosting the Dow more than 600 points from 2:15 pm into the close, for a net gain on the day of 260 points.
On Friday, the opposite occurred. The Dow Industrials were up 240 points at three o'clock, but closed down 76.
Volatility. It's what's for Christmas, it appears.
When it was all over the week turned out to be a winner, the first in four weeks of December. Since the start of October, there have been nine weekly losses on the Dow, with just five weekly gains. The net result of this wicked roller-coaster of a market is a Dow Jones Industrial Average that's down nearly 2500 points in December and 3766 points from October 3.
While the week's heavy lifting (most likely done by our friends at the PPT) kept the Dow out of bear market territory, it - and the other major indices - are still deep in the correction zone, and all indices are down for the year. Since there's only one trading day left in 2018, this year is a good bet to end up a loser, despite the best efforts of the pumpers, panderers, shills, and jokers in the financial field to separate you from your money with promises of outstanding gains.
Every stock pumper in the world mouths the word "diversification" as a key element leading to positive investment results. The problem with their kind of diversification is that it normally references one, maybe two asset classes: stocks, and then, maybe, bonds.
Such short-sighted thinking obscures all the other asset classes, broadly, real estate, commodities, currencies, art, collectibles, precious metals and gemstones, vehicles, business equipment, private equity, cash, cash equivalents, and human capital.
There are plenty of opportunities in small business development, where ownership can be hands-on or hands-free, with the potential to grow a local business within a community. President Donald Trump (and many other private businessmen) is one good example of how much money can be made in real estate investment and privately-owned businesses.
People who held on to their Spiderman, X-Men, and Fantastic Four comic books are smiling broadly. So too, those who kept baseball and football cards for more than 50 years. The value of a Mickey Mantle rookie card today is astronomical compared to its original cost (less than a penny).
With the recent volatility in stocks, people may be considering diversifying out of stocks and into other asset classes. In the coming year and beyond, presentation of alternative money-making and investment opportunities will be a focus of Money Daily.
Here's to looking forward at a year of diversifying out of strictly stocks in a portfolio.
In advance: Happy New Year!
Dow Jones Industrial Average December Scorecard:
| Date | Close | Gain/Loss | Cum. G/L |
| 12/3/18 | 25,826.43 | +287.97 | +287.97 |
| 12/4/18 | 25,027.07 | -799.36 | -511.39 |
| 12/6/18 | 24,947.67 | -79.40 | -590.79 |
| 12/7/18 | 24,388.95 | -558.72 | -1149.51 |
| 12/10/18 | 24,423.26 | +34.31 | -1115.20 |
| 12/11/18 | 24,370.24 | -53.02 | -1168.22 |
| 12/12/18 | 24,527.27 | +157.03 | -1011.19 |
| 12/13/18 | 24,597.38 | +70.11 | -941.08 |
| 12/14/18 | 24,100.51 | -496.87 | -1437.95 |
| 12/17/18 | 23,592.98 | -507.53 | -1945.58 |
| 12/18/18 | 23,675.64 | +82.66 | -1862.92 |
| 12/19/18 | 23,323.66 | -351.98 | -2214.90 |
| 12/20/18 | 22,859.60 | -464.06 | -2678.96 |
| 12/21/18 | 22,445.37 | -414.23 | -3093.19 |
| 12/24/18 | 21,792.20 | -653.17 | -3746.36 |
| 12/26/18 | 22,878.45 | +1086.25 | -2660.11 |
| 12/27/18 | 23,138.82 | +260.37 | -2399.74 |
| 12/28/18 | 23,062.40 | -76.42 | -2476.16 |
At the Close, Friday, December 28, 2018:
Dow Jones Industrial Average: 23,062.40, -76.42 (-0.33%)
NASDAQ: 6,584.52, +5.03 (+0.08%)
S&P 500: 2,485.74, -3.09 (-0.12%)
NYSE Composite: 11,290.95, +5.64 (+0.05%)
For the Week:
Dow: +617.03 (+2.75%)
NASDAQ: +251.53 (+3.97%)
S&P 500: +69.12 (+2.86%)
NYSE Composite: +254.11 (+2.30%)
Sunday, May 27, 2018
Weekend Wrap: Oil Slips Lower, Stocks Stagnate, Bond Yields Plunge
On Friday, the Dow Jones Industrial Average bottomed out at 2:45 pm EDT, down by 124 points on the day. From that point - with an hour and fifteen minutes remaining in the session - stocks magically rose by 68 points to end the day down marginally.
This pattern had been tested on both Wednesday and Thursday, as stocks took deep losses on both days, though Friday's low was much later in the session than it was the previous two days. Friday's low was also more shallow, the implication being that a major force (such as the - hush now - PPT) came to the market's aid in the nick of time.
That there might have been intervention on Friday, and indeed, on all three days, is not far-fetched. Nobody in positions of power were interested in a market crash just before the Memorial Day weekend. That is being saved for a more opportune time, such as just prior to the November mid-term elections.
If this is too much intrigue and conspiracy theory for you, dear reader, you can stop reading right here, though the naivety of burying one's head in a sand dune isn't going to make you any smarter, nor is it going to grant you immunity from market dynamics, be they either contrived or natural.
As seen in the scorecard and weekly data below, the Dow ended with a small 38-point gain and is lower than where it was two weeks ago, the bulk of May's advance made during an eight-day run starting on the 3rd and ending on the 14th, which was, notably a Monday. Tuesday the 15th saw the streak ended with a thud of -193 points. Since then, stocks have essentially gone nowhere and this week saw minor advances on the major indices with the notable exception of the NYSE Composite, which suffered a loss commensurate with the gain on the NASDAQ.
Confused? Not yet. Trading in stocks, always a risky business, is about to become something that defies quantification. Money is moving around markets at a dizzying rate, fueled by geo-politics and, in the main, a massive amount of misunderstanding of how markets are being distorted and defiled.
It's now more than three months since the waterfall effects of February which sent stocks into a state of bearish hibernation or paralysis from which they have yet to recover. The longer stocks fail to reflate towards their all-time highs the stronger the argument for a bear market becomes.
The problem with a bear market at this juncture is that stocks continue to underpin all manner of funds, especially public employee pensions, which are already massively underfunded. An extended market decline would push these funds further underwater and possibly trigger a liquidity trap which would make the 2008-09 financial crisis appear tame by comparison.
States like Illinois, California, Connecticut and New Jersey have the biggest underfunding problem and a bear market would blow out all of their actuarial projections. Not that these massive pension funds are going to go broke right away, rather they would see their future positions eroded to a point at which raising taxes, seeking higher employee contributions, reduction in services, or slashing payouts to retires will all be proposals on the table in an effort to salvage the failed over-promises of delinquent politicians.
A pension crisis might be just the tip of the proverbial iceberg that is the cumulative national debt shared by federal and state governments, businesses and individuals. Of the three, private businesses are most likely the best insulated from a market downturn and subsequent liquidity emergency, though they are by no means standing on safe ground. With the average American family or individual deeply indebted, businesses large and small will suffer from decreased volume and a general deterioration of business conditions. Such conditions are already well underway in small, rural communities lacking sufficiently large markets and audiences. Some largely Northeast and Midwest areas have never recovered from the Great Financial Crisis of a decade ago and another negative event could be potentially devastating. Government would be unable to collect taxes from an overburdened population and businesses would be faced with the indelicate choices of laying off employees, cutting back on goods or services or closing the doors for good.
The heavy reliance on stocks alone to lead the nation out of the deep depression of 2008 has set the stage for a rather unwelcome asset collapse and recent stock market activity is serving fair warning.
The only data this week that suggested a possible way out or easing of the tightening conditions (which the Fed is fueling with reckless abandon) were the decline in oil prices (from above $72 to below $68) and the crunching of yields in the treasury market. The 10-year note topped out at 3.11% before ending the week massively lower, at 2.93%, a huge move in a significant market.
What oil and bonds are foretelling is nothing less than a full-blown recession within six to eight months, signaling that consumers cannot sustain demand for energy and businesses and government cannot withstand rising borrowing costs.
All of these conditions are contributing to a very volatile situation which, thus far, has been contained by the Fed and the deep underground traders, attempting to keep equity prices at premiums. The chances of this lasting though the summer into the fall are Slim to None, and Slim has left town.
Dow Jones Industrial Average May Scorecard:
At the Close, Friday, May 25, 2018:
Dow Jones Industrial Average: 24,753.09, -58.67 (-0.24%)
NASDAQ: 7,433.8535, +9.42 (+0.13%)
S&P 500: 2,721.33, -6.43 (-0.24%)
NYSE Composite: 12,634.94, -61.75 (-0.49%)
For the Week:
Dow: +38.00 (+0.15%)
NASDAQ: +79.51 (+1.08%)
S&P 500: +8.36 (+0.31%)
NYSE Composite: -82.48 (-0.65%)
This pattern had been tested on both Wednesday and Thursday, as stocks took deep losses on both days, though Friday's low was much later in the session than it was the previous two days. Friday's low was also more shallow, the implication being that a major force (such as the - hush now - PPT) came to the market's aid in the nick of time.
That there might have been intervention on Friday, and indeed, on all three days, is not far-fetched. Nobody in positions of power were interested in a market crash just before the Memorial Day weekend. That is being saved for a more opportune time, such as just prior to the November mid-term elections.
If this is too much intrigue and conspiracy theory for you, dear reader, you can stop reading right here, though the naivety of burying one's head in a sand dune isn't going to make you any smarter, nor is it going to grant you immunity from market dynamics, be they either contrived or natural.
As seen in the scorecard and weekly data below, the Dow ended with a small 38-point gain and is lower than where it was two weeks ago, the bulk of May's advance made during an eight-day run starting on the 3rd and ending on the 14th, which was, notably a Monday. Tuesday the 15th saw the streak ended with a thud of -193 points. Since then, stocks have essentially gone nowhere and this week saw minor advances on the major indices with the notable exception of the NYSE Composite, which suffered a loss commensurate with the gain on the NASDAQ.
Confused? Not yet. Trading in stocks, always a risky business, is about to become something that defies quantification. Money is moving around markets at a dizzying rate, fueled by geo-politics and, in the main, a massive amount of misunderstanding of how markets are being distorted and defiled.
It's now more than three months since the waterfall effects of February which sent stocks into a state of bearish hibernation or paralysis from which they have yet to recover. The longer stocks fail to reflate towards their all-time highs the stronger the argument for a bear market becomes.
The problem with a bear market at this juncture is that stocks continue to underpin all manner of funds, especially public employee pensions, which are already massively underfunded. An extended market decline would push these funds further underwater and possibly trigger a liquidity trap which would make the 2008-09 financial crisis appear tame by comparison.
States like Illinois, California, Connecticut and New Jersey have the biggest underfunding problem and a bear market would blow out all of their actuarial projections. Not that these massive pension funds are going to go broke right away, rather they would see their future positions eroded to a point at which raising taxes, seeking higher employee contributions, reduction in services, or slashing payouts to retires will all be proposals on the table in an effort to salvage the failed over-promises of delinquent politicians.
A pension crisis might be just the tip of the proverbial iceberg that is the cumulative national debt shared by federal and state governments, businesses and individuals. Of the three, private businesses are most likely the best insulated from a market downturn and subsequent liquidity emergency, though they are by no means standing on safe ground. With the average American family or individual deeply indebted, businesses large and small will suffer from decreased volume and a general deterioration of business conditions. Such conditions are already well underway in small, rural communities lacking sufficiently large markets and audiences. Some largely Northeast and Midwest areas have never recovered from the Great Financial Crisis of a decade ago and another negative event could be potentially devastating. Government would be unable to collect taxes from an overburdened population and businesses would be faced with the indelicate choices of laying off employees, cutting back on goods or services or closing the doors for good.
The heavy reliance on stocks alone to lead the nation out of the deep depression of 2008 has set the stage for a rather unwelcome asset collapse and recent stock market activity is serving fair warning.
The only data this week that suggested a possible way out or easing of the tightening conditions (which the Fed is fueling with reckless abandon) were the decline in oil prices (from above $72 to below $68) and the crunching of yields in the treasury market. The 10-year note topped out at 3.11% before ending the week massively lower, at 2.93%, a huge move in a significant market.
What oil and bonds are foretelling is nothing less than a full-blown recession within six to eight months, signaling that consumers cannot sustain demand for energy and businesses and government cannot withstand rising borrowing costs.
All of these conditions are contributing to a very volatile situation which, thus far, has been contained by the Fed and the deep underground traders, attempting to keep equity prices at premiums. The chances of this lasting though the summer into the fall are Slim to None, and Slim has left town.
Dow Jones Industrial Average May Scorecard:
| Date | Close | Gain/Loss | Cum. G/L |
| 5/1/18 | 24,099.05 | -64.10 | -64.10 |
| 5/2/18 | 23,924.98 | -174.07 | -238.17 |
| 5/3/18 | 23,930.15 | +5.17 | -233.00 |
| 5/4/18 | 24,262.51 | +332.36 | +99.36 |
| 5/7/18 | 24,357.32 | +94.81 | +194.17 |
| 5/8/18 | 24,360.21 | +2.89 | +197.06 |
| 5/9/18 | 24,542.54 | +182.33 | +379.39 |
| 5/10/18 | 24,739.53 | +196.99 | +576.38 |
| 5/11/18 | 24,831.17 | +91.64 | +668.02 |
| 5/14/18 | 24,899.41 | +68.24 | +736.26 |
| 5/15/18 | 24,706.41 | -193.00 | +543.26 |
| 5/16/18 | 24,768.93 | +62.52 | +605.78 |
| 5/17/18 | 24,713.98 | -54.95 | +550.73 |
| 5/18/18 | 24,715.09 | +1.11 | +551.84 |
| 5/21/18 | 25,013.29 | +298.20 | +850.04 |
| 5/22/18 | 24,834.41 | -178.88 | +671.16 |
| 5/23/18 | 24,886.81 | +52.40 | +723.56 |
| 5/24/18 | 24,811.76 | -75.05 | +648.51 |
| 5/25/18 | 24,753.09 | -58.67 | +589.84 |
At the Close, Friday, May 25, 2018:
Dow Jones Industrial Average: 24,753.09, -58.67 (-0.24%)
NASDAQ: 7,433.8535, +9.42 (+0.13%)
S&P 500: 2,721.33, -6.43 (-0.24%)
NYSE Composite: 12,634.94, -61.75 (-0.49%)
For the Week:
Dow: +38.00 (+0.15%)
NASDAQ: +79.51 (+1.08%)
S&P 500: +8.36 (+0.31%)
NYSE Composite: -82.48 (-0.65%)
Sunday, March 12, 2017
Despite Near-Surety Of Fed Rate Hike, Stocks Gain To Close Out Week
Editor's Note: This weekend edition may be the last Money Daily posting until Thursday of this week as incredibly bad weather has persisted in our neck of the woods, a recent windstorm knocking out power to over a quarter million of our neighbors immediately to the West. Bone-chilling temperatures and a major snowstorm are predicted for the early part of this coming week. Money Daily will return to a regular daily posting once weather conditions permit.
Investors took Friday's non-farm payroll (NFP) report of 235,000 net new jobs added to the US economy in February as genuine good news, despite the nearly foregone conclusion that the robust figure would make the case for a federal funds rate increase by the FOMC of the Federal Reserve a fait acommpli. The gains snapped a recent string of losing sessions on the major indices.
In reality, the idea of a rate increase of 25 basis points shouldn't be worrying to anybody, especially with the federal funds overnight rate remaining at or below zero for 14 of the past 17 years and the last eight straight.
A 0.25% increase would move the rate to 0.75-1.00, a number that the Fed has been apprehensive of since the Great Financial Crisis of 2008. Since then, they and their fellow travelers in central banking have added trillions in liquidity to the fractured system, saving it from complete collapse.
In the process, however, they have managed to dilute the currencies of most nations, notably those of Japan and the European Union. While rate increases by the US may be a panacea, they could impact other nationas and the global economy in a variety of ways. As the last crisis was liquidity-driven, expect any future crises to be based upon sovereign solvency or faith in national currencies, all of which are backed by nothing more than the faith and (ahem) credit of the issuing country.
The globe is one giant Ponzi scheme, in which everybody buys each others currencies, hoping beyond hope that nobody defaults in a messy manner. Thus far, central banking institutions have managed to avoid large-scale default, but there's no guarantee that such benign conditions will avail themselves indefinitely.
On the other hand, with the ability to conjure dollars, euros and yen out of thin air at their whim, the central bankers are holding all the cards, even though they're bluffing into their sleeves. The system may fail at some point, but it's more likely that gradualism will prevail, making the case that the most important aspect of one's finances may not be generation of income or growth, but preservation of what one already owns.
At The Close, Friday, March 9, 2017:
Dow: 20,902.98, +44.79 (0.21%)
NASDAQ: 5,861.73, +22.92 (0.39%)
S&P 500: 2,372.60, +7.73 (0.33%)
NYSE Composite: 11,500.76, +43.12 (0.38%)
For the Week:
Dow: -102.73 (-0.49%)
NASDAQ: -9.03 (-0.15%)
S&P 500: -10.52 (-0.44%)
NYSE Composite: -97.61 (-0.84%)
Investors took Friday's non-farm payroll (NFP) report of 235,000 net new jobs added to the US economy in February as genuine good news, despite the nearly foregone conclusion that the robust figure would make the case for a federal funds rate increase by the FOMC of the Federal Reserve a fait acommpli. The gains snapped a recent string of losing sessions on the major indices.
In reality, the idea of a rate increase of 25 basis points shouldn't be worrying to anybody, especially with the federal funds overnight rate remaining at or below zero for 14 of the past 17 years and the last eight straight.
A 0.25% increase would move the rate to 0.75-1.00, a number that the Fed has been apprehensive of since the Great Financial Crisis of 2008. Since then, they and their fellow travelers in central banking have added trillions in liquidity to the fractured system, saving it from complete collapse.
In the process, however, they have managed to dilute the currencies of most nations, notably those of Japan and the European Union. While rate increases by the US may be a panacea, they could impact other nationas and the global economy in a variety of ways. As the last crisis was liquidity-driven, expect any future crises to be based upon sovereign solvency or faith in national currencies, all of which are backed by nothing more than the faith and (ahem) credit of the issuing country.
The globe is one giant Ponzi scheme, in which everybody buys each others currencies, hoping beyond hope that nobody defaults in a messy manner. Thus far, central banking institutions have managed to avoid large-scale default, but there's no guarantee that such benign conditions will avail themselves indefinitely.
On the other hand, with the ability to conjure dollars, euros and yen out of thin air at their whim, the central bankers are holding all the cards, even though they're bluffing into their sleeves. The system may fail at some point, but it's more likely that gradualism will prevail, making the case that the most important aspect of one's finances may not be generation of income or growth, but preservation of what one already owns.
At The Close, Friday, March 9, 2017:
Dow: 20,902.98, +44.79 (0.21%)
NASDAQ: 5,861.73, +22.92 (0.39%)
S&P 500: 2,372.60, +7.73 (0.33%)
NYSE Composite: 11,500.76, +43.12 (0.38%)
For the Week:
Dow: -102.73 (-0.49%)
NASDAQ: -9.03 (-0.15%)
S&P 500: -10.52 (-0.44%)
NYSE Composite: -97.61 (-0.84%)
Thursday, May 5, 2011
Armageddon Arrives in Commodities; Stocks Next
As has been the ongoing motif of this blog for many months, the grand Bernanke experiment is now experiencing some of the nasty side effects. Today's action in commodities, particularly silver and crude oil, came as a stark reminder that leveraged positions can go very, very badly in very, very short spans of time.
It was just last Friday that silver stood at the precipice of $50/ounce, approaching the all-time high. As of this writing it is now trading on the spot market at $34.76, a drop of 30% over just four days. WTI crude oil futures were at $116 on Monday, and today it closed on the NYMEX at $99.80. All those sheiks and oil robber-barons drooling over $4/gall gas across the USA can now wipe their chins with their sell tickets.
Stocks were also not immune from the liquidity trap. The Dow was down as many as 200 points around midday, but recovered a bit into the close. Still, leveraged bets (margin) on selected stocks have finally begun to display inherent risk and the carnage has only begun.
What set off today's massive selling spree were a number of unrelated events which combined to turn the trading day into an economic tornado, tearing through asset classes like a Midwestern twister. First, a series of margin tightenings on silver speculation that has been ongoing from Sunday night began the unwinding process. Silver had been hammered for three straight days without buyers on the downside. Then, with the 8:30 am release of some truly horrible weekly unemployment claims, the spring was coiled tighter.
Initial claims for the most recent week (last week in April) came in at 474,000, the highest since August of 2010, off expectations for a number around 400,000. So much for Hope and Change, Bernanke's Zero Interest Rate Policy (ZIRP) and QE2. The smart money has made its way out of Dodge and the rest of the pilgrims are scrambling to leave town with whatever they can salvage.
While commodities were being ravaged one after another, stocks were salvaged from the brunt of the storm, though they eventually faced capitulation and will likely be under pressure from the opening bell on Friday, after the April non-farm payroll report goes public at 8:30 am EDT. Following the unemployment number, expectations have been ratcheted lower. The expected number of new jobs created during the month was supposed to be around 200,000, though that's been trimmed to 185,000 and even lower by some analysts. Anything under 185,000 will produce a bloodbath. Even anything over that will likely induce more selling, on a faster pace than today's, because this is a liquidity trap, and economic numbers - good, bad or indifferent - may not matter at all.
The winners on the day were the US dollar, which majestically made its move all the way from a low of 72.81 (about the point at which Mssrs. Bernanke and Geithner were having accidents in their pantaloons) to a close at 74.08, a move of roughly 1.5%, which, in the world of currencies, is enormous. This created a vicious, self-reinforcing virtuous loop, with the dollar's rise causing commodity margin calls, and a risk-off scramble in stocks.
The other winner was bonds, which explains much. Bonds are the lifeblood of the Ponzi scheme between the Treasury, Primary Dealers and the Federal Reserve which gave us the illusion of prosperity against the backdrop of an eroding dollar. Bumping right up to the debt ceiling, the Fed intervened in a very big way today - behind the scenes, of course - to dampen risk appetite and make fixed income investments the choice for the foreseeable future. They had to, being backed into an untenable position.
It was truly a momentous day, one which we've been preparing you for with our reminders all week that the narrative was changing with the (fictitious) slaying of Osama bin Laden. And now, change has come to us all.
Dow 12,584.17, -139.41 (1.10%)
NASDAQ 2,814.72, -13.51 (0.48%)
S&P 500 1,335.10, -12.22 (0.91%)
NYSE Composite 8,397.40, -109.21 (1.28%)
Advancing issued were submerged by decliners overall, 4183-2412. The NASDAQ recorded 48 new highs and 52 new lows, the second straight day of high-low reversal. On the NYSE, there were 100 new highs and 36 new lows, mostly due to the elevated levels reached recently. It's hard to imagine the daily lows not overtaking the highs within the next week. Volume was magnificently higher as sellers sold with both hands.
NASDAQ Volume 2,241,177,750
NYSE Volume 5,510,796,500
Crude oil took an earth-shattering drop of over 8%, losing $9.44, to finish at $99.80. The selling is certainly far from over as the tempering of emotions in the Middle East after the slaying of OBL will surely push prices back to some level of sanity and take out the majority of the risk premium and speculative fever.
Gold, which had been holding up relatively well with respect to other precious metals, finally took a beating, losing $43.40 (nearly 3%), to its current trading level of $1473.10. Silver took the worst of it again, falling another $4.73, to $34.66, but there is a silver lining for the faithful in precious metals. Most of the true believers - who only hold physical metal and use the futures and ETFs only as a hedge - have a cost basis below $20/ounce.
Technically, they've lost nothing, and could still sell right here for a hefty profit. But they won't, and are actually looking at this momentous correction as a buying opportunity, hoping to snatch up more metal at what they perceive as bargain-basement prices. The general strategy is to buy once everything has more or less settled out. Nobody is really worried about catching the absolute volume, and a few days of upwards trending will not entice the hardiest of the breed. They will wait until a bottom is confirmed. Like love, they'll know it when they see it. The same strategy holds more or less true for gold bugs worldwide.
The holders of gold and silver will eventually rule the world as we approach - at breakneck speed - the eventual destruction of the global fiat money regime and the likely collapse of more than a few governments. What has happened in Greece, Iceland, Ireland and Portugal will eventually visit the shores of Japan, the USA, Great Britain, France and even China.
We are still reeling from the catastrophe of the housing bubble and collapse and the general liquidity and solvency crisis of 2008. The measures taken by the Federal Reserve and other central banks has been to throw more money at the credit monster they created, but it has resulted in extreme imbalances everywhere. The thinking at the top of government is focused already on the elections of 2012. The betting is that the US government and the financial community will have a time making it there unscathed.
If this looks anything like 2008 to those wizened enough to learn from history, those people would be on the right track, except, this time, it's likely to be worse and without any magic bullets, because the Fed is all out of them.
It was just last Friday that silver stood at the precipice of $50/ounce, approaching the all-time high. As of this writing it is now trading on the spot market at $34.76, a drop of 30% over just four days. WTI crude oil futures were at $116 on Monday, and today it closed on the NYMEX at $99.80. All those sheiks and oil robber-barons drooling over $4/gall gas across the USA can now wipe their chins with their sell tickets.
Stocks were also not immune from the liquidity trap. The Dow was down as many as 200 points around midday, but recovered a bit into the close. Still, leveraged bets (margin) on selected stocks have finally begun to display inherent risk and the carnage has only begun.
What set off today's massive selling spree were a number of unrelated events which combined to turn the trading day into an economic tornado, tearing through asset classes like a Midwestern twister. First, a series of margin tightenings on silver speculation that has been ongoing from Sunday night began the unwinding process. Silver had been hammered for three straight days without buyers on the downside. Then, with the 8:30 am release of some truly horrible weekly unemployment claims, the spring was coiled tighter.
Initial claims for the most recent week (last week in April) came in at 474,000, the highest since August of 2010, off expectations for a number around 400,000. So much for Hope and Change, Bernanke's Zero Interest Rate Policy (ZIRP) and QE2. The smart money has made its way out of Dodge and the rest of the pilgrims are scrambling to leave town with whatever they can salvage.
While commodities were being ravaged one after another, stocks were salvaged from the brunt of the storm, though they eventually faced capitulation and will likely be under pressure from the opening bell on Friday, after the April non-farm payroll report goes public at 8:30 am EDT. Following the unemployment number, expectations have been ratcheted lower. The expected number of new jobs created during the month was supposed to be around 200,000, though that's been trimmed to 185,000 and even lower by some analysts. Anything under 185,000 will produce a bloodbath. Even anything over that will likely induce more selling, on a faster pace than today's, because this is a liquidity trap, and economic numbers - good, bad or indifferent - may not matter at all.
The winners on the day were the US dollar, which majestically made its move all the way from a low of 72.81 (about the point at which Mssrs. Bernanke and Geithner were having accidents in their pantaloons) to a close at 74.08, a move of roughly 1.5%, which, in the world of currencies, is enormous. This created a vicious, self-reinforcing virtuous loop, with the dollar's rise causing commodity margin calls, and a risk-off scramble in stocks.
The other winner was bonds, which explains much. Bonds are the lifeblood of the Ponzi scheme between the Treasury, Primary Dealers and the Federal Reserve which gave us the illusion of prosperity against the backdrop of an eroding dollar. Bumping right up to the debt ceiling, the Fed intervened in a very big way today - behind the scenes, of course - to dampen risk appetite and make fixed income investments the choice for the foreseeable future. They had to, being backed into an untenable position.
It was truly a momentous day, one which we've been preparing you for with our reminders all week that the narrative was changing with the (fictitious) slaying of Osama bin Laden. And now, change has come to us all.
Dow 12,584.17, -139.41 (1.10%)
NASDAQ 2,814.72, -13.51 (0.48%)
S&P 500 1,335.10, -12.22 (0.91%)
NYSE Composite 8,397.40, -109.21 (1.28%)
Advancing issued were submerged by decliners overall, 4183-2412. The NASDAQ recorded 48 new highs and 52 new lows, the second straight day of high-low reversal. On the NYSE, there were 100 new highs and 36 new lows, mostly due to the elevated levels reached recently. It's hard to imagine the daily lows not overtaking the highs within the next week. Volume was magnificently higher as sellers sold with both hands.
NASDAQ Volume 2,241,177,750
NYSE Volume 5,510,796,500
Crude oil took an earth-shattering drop of over 8%, losing $9.44, to finish at $99.80. The selling is certainly far from over as the tempering of emotions in the Middle East after the slaying of OBL will surely push prices back to some level of sanity and take out the majority of the risk premium and speculative fever.
Gold, which had been holding up relatively well with respect to other precious metals, finally took a beating, losing $43.40 (nearly 3%), to its current trading level of $1473.10. Silver took the worst of it again, falling another $4.73, to $34.66, but there is a silver lining for the faithful in precious metals. Most of the true believers - who only hold physical metal and use the futures and ETFs only as a hedge - have a cost basis below $20/ounce.
Technically, they've lost nothing, and could still sell right here for a hefty profit. But they won't, and are actually looking at this momentous correction as a buying opportunity, hoping to snatch up more metal at what they perceive as bargain-basement prices. The general strategy is to buy once everything has more or less settled out. Nobody is really worried about catching the absolute volume, and a few days of upwards trending will not entice the hardiest of the breed. They will wait until a bottom is confirmed. Like love, they'll know it when they see it. The same strategy holds more or less true for gold bugs worldwide.
The holders of gold and silver will eventually rule the world as we approach - at breakneck speed - the eventual destruction of the global fiat money regime and the likely collapse of more than a few governments. What has happened in Greece, Iceland, Ireland and Portugal will eventually visit the shores of Japan, the USA, Great Britain, France and even China.
We are still reeling from the catastrophe of the housing bubble and collapse and the general liquidity and solvency crisis of 2008. The measures taken by the Federal Reserve and other central banks has been to throw more money at the credit monster they created, but it has resulted in extreme imbalances everywhere. The thinking at the top of government is focused already on the elections of 2012. The betting is that the US government and the financial community will have a time making it there unscathed.
If this looks anything like 2008 to those wizened enough to learn from history, those people would be on the right track, except, this time, it's likely to be worse and without any magic bullets, because the Fed is all out of them.
Monday, March 28, 2011
Late Selling Sends Indices to Losses
Make no mistake about it, something was up when all the major indices did an abrupt about-face in the final half hour of trading.
There was no earth-shattering news, no announcements, nothing, except some of the big players pulling their bids to see what would happen on what turned out to be the lowest volume day of the year.
It didn't take long for the results to be seen: immediate capitulation. There is absolutely no faith in stocks, in this market, in the US economy or the global economy. Everything has been gliding along on top of bank bailout, trillions of dollars in liquidity injections and stimulus, and yet, the economy is still weak, possibly about to roll over into the second phase of the depression, without the backstop of global money-printing by central banks.
Today was a test run. The test revealed what everybody with at least half a functioning cerebral cortex already knew: we're screwed. Once the Fed stops its daily injection of liquidity through POMO and other behind-the-scenes operations, the market crashes. It's exactly why the Fed would not allow Bank of America to increase its dividend from the absurd (.01) to the ridiculous (.02) last week. They're a victim, about to be sucked under by bad debt, never written down properly and put-backs by the various parties to whom they sold the toxic MBS in the first place.
The death of Bank of America will not be a pretty sight, but it is overdue by some two years and is eventually unavoidable. The only question remaining is exactly when the plug is finally pulled and that is something nobody can predict with confidence.
What was truly remarkable about today's 30-minute nuke test was the overall number of decliners as compared to advancers. The ratio was far out of the range expected in such a small decline. Losers led gainers, 3843-2674.
Dow 12,197.88, -22.71 (0.19%)
NASDAQ 2,730.68, -12.38 (0.45%)
S&P 500 1,310.19, -3.61 (0.27%)
NYSE Composite 8,296.52, -25.26 (0.30%)
On the NASDAQ, there were 109 new highs and 22 new lows. There were 114 new highs and 16 new lows on the NYSE. Be prepared for these numbers to converge again and possibly roll over. The falls from the February 18 highs were truncated when buyers stepped in at support levels over the last two weeks. Capitulation never occurred and the market correction of 10-15% turned out to be only a 4-6% decline. Resumption of the correction could have begun late today, but look for any tell-tale signs in the A-D line (like today) and of course volume and the new high-new low readings.
NASDAQ Volume 1,687,059,000
NYSE Volume 3,583,604,000
Crude oil dipped again today, as the ground conditions in Libya seem to be improving, meaning that NATO air strikes have taken their toll on the rogue government's advances and the rebels are gaining an upper hand. WTI crude fell $1.42, to $103.98. Relief at the gas pump would be welcome, but the Middle east situation is still largely unresolved and volatile. Expect crude to trade around $100 per barrel for the foreseeable future with gas prices in the US hovering in the $3.40-3.80 range through the Spring. Summer could witness a complete reversal due to easing tensions and slack demand.
Gold finished slightly lower, losing $6.30, to $1,419.90. Silver gained 4 cents, holding at $37.09.
There are key releases of economic data this week, beginning with the S&P/Case-Shiller 10 and 20-city indices on Tuesday and the BLS non-farm payroll data on Friday. Of course, Thursday is the end of month and first quarter, so portfolio realignment should cause more volatility and another spike in the VIX is more probable this week than over the past two when it was pounded down by Fed liquidity.
Reality is taking a firm footing here and around the world. The containment of the Fukushima Daiichi nuclear disaster is far from over and needs to be handled much more diligently than it has been to this point. It is not under control still and needs to be handled as a global threat because it is.
The news coming out of Japan on all matters related to the nuclear plant that has become now nothing more than a toxic, nuclear dump site leeching radioactive isotopes into the air, into ground water and the ocean. This should have been completely handled at least a week ago. It is now closing in on three weeks since the quake and the situation is still worsening despite what may be reported by major news sources.
There was no earth-shattering news, no announcements, nothing, except some of the big players pulling their bids to see what would happen on what turned out to be the lowest volume day of the year.
It didn't take long for the results to be seen: immediate capitulation. There is absolutely no faith in stocks, in this market, in the US economy or the global economy. Everything has been gliding along on top of bank bailout, trillions of dollars in liquidity injections and stimulus, and yet, the economy is still weak, possibly about to roll over into the second phase of the depression, without the backstop of global money-printing by central banks.
Today was a test run. The test revealed what everybody with at least half a functioning cerebral cortex already knew: we're screwed. Once the Fed stops its daily injection of liquidity through POMO and other behind-the-scenes operations, the market crashes. It's exactly why the Fed would not allow Bank of America to increase its dividend from the absurd (.01) to the ridiculous (.02) last week. They're a victim, about to be sucked under by bad debt, never written down properly and put-backs by the various parties to whom they sold the toxic MBS in the first place.
The death of Bank of America will not be a pretty sight, but it is overdue by some two years and is eventually unavoidable. The only question remaining is exactly when the plug is finally pulled and that is something nobody can predict with confidence.
What was truly remarkable about today's 30-minute nuke test was the overall number of decliners as compared to advancers. The ratio was far out of the range expected in such a small decline. Losers led gainers, 3843-2674.
Dow 12,197.88, -22.71 (0.19%)
NASDAQ 2,730.68, -12.38 (0.45%)
S&P 500 1,310.19, -3.61 (0.27%)
NYSE Composite 8,296.52, -25.26 (0.30%)
On the NASDAQ, there were 109 new highs and 22 new lows. There were 114 new highs and 16 new lows on the NYSE. Be prepared for these numbers to converge again and possibly roll over. The falls from the February 18 highs were truncated when buyers stepped in at support levels over the last two weeks. Capitulation never occurred and the market correction of 10-15% turned out to be only a 4-6% decline. Resumption of the correction could have begun late today, but look for any tell-tale signs in the A-D line (like today) and of course volume and the new high-new low readings.
NASDAQ Volume 1,687,059,000
NYSE Volume 3,583,604,000
Crude oil dipped again today, as the ground conditions in Libya seem to be improving, meaning that NATO air strikes have taken their toll on the rogue government's advances and the rebels are gaining an upper hand. WTI crude fell $1.42, to $103.98. Relief at the gas pump would be welcome, but the Middle east situation is still largely unresolved and volatile. Expect crude to trade around $100 per barrel for the foreseeable future with gas prices in the US hovering in the $3.40-3.80 range through the Spring. Summer could witness a complete reversal due to easing tensions and slack demand.
Gold finished slightly lower, losing $6.30, to $1,419.90. Silver gained 4 cents, holding at $37.09.
There are key releases of economic data this week, beginning with the S&P/Case-Shiller 10 and 20-city indices on Tuesday and the BLS non-farm payroll data on Friday. Of course, Thursday is the end of month and first quarter, so portfolio realignment should cause more volatility and another spike in the VIX is more probable this week than over the past two when it was pounded down by Fed liquidity.
Reality is taking a firm footing here and around the world. The containment of the Fukushima Daiichi nuclear disaster is far from over and needs to be handled much more diligently than it has been to this point. It is not under control still and needs to be handled as a global threat because it is.
The news coming out of Japan on all matters related to the nuclear plant that has become now nothing more than a toxic, nuclear dump site leeching radioactive isotopes into the air, into ground water and the ocean. This should have been completely handled at least a week ago. It is now closing in on three weeks since the quake and the situation is still worsening despite what may be reported by major news sources.
Wednesday, November 10, 2010
Fed Plans Not Going So Smoothly; Harrisburg, PA on the Edge
Since the Federal Reserve announced last Wednesday that they would be injecting $600-900 billion into the monetary system through outright purchases of Treasury bond issuance, the cacophony of protest and derision has been boisterous and unrelenting. Chairman Ben Bernanke's purposeful nuking of the value of the world's reserve currency, the US Dollar, has raised eyebrows and voices from Shanghai to Sao Paulo as global finance leaders attempt to adjust their currencies to meet the expected influx of freshly-printed greenbacks.
Along with complaints from the global financial community, voices inside the United States have also weighed in, mostly condemning the action as unneeded, unwanted and eventually, inflationary.
What's worse, it doesn't seem to be working very well, as evidenced by today's 30-year bond auction, which saw lowered levels of participation and the highest yield in five months, exactly the opposite of what the liquidity tsunami was supposed to accomplish.
It's likely too early to tell, as the Fed has only today set down their Tentative Outright Treasury Operation Schedule, or TOTO, which as we all know, was the name of Dorothy's little dog in the movie, "The Wizard of Oz," an appropriate, if not slightly cynical metaphor for Mr. Bernanke standing behind a curtain pulling the levels and strings of the global economy.
Interested investors may want to print out the Fed's schedule as it should provide some guidance into which days would be better to buy or sell (warning: the Fed does not want you to sell) stocks. Those days with "operations" should be the prime selling days, and those without, opportunities to buy as the market will, no doubt, be on hold or falling. So much for free, fair and open markets. The Fed's interventionist policies have made Wall Street even more of a casino than it already was, and now they're using stocked decks and loaded die.
Things got off to another bad start for Bennie and his buddies this morning, as stocks backslid right out of the open, with the Dow falling 91 points, to its low of the day, shortly after 10:00 am. After that, however, with the banks holding firmly to the silver shorts which torpedoed a wicked rally in the precious metals late yesterday, it was once again off to the races, though the markets' pace more resembled that of a snail than a thoroughbred.
After two days of losses, the markets shrugged off middling new unemployment claims at 435,000 (below estimates, but sure to be revised higher next week), and, having convinced the sixteen suckers still trading via their e-trade accounts that the direction was negative, began the process of fleecing the sheep, all led to slaughter by the Fed-Wall Street money crunching machine.
Dow 11,357.04, +10.29 (0.09%)
NASDAQ 2,578.78, +15.80 (0.62%)
S&P 500 1,218.71, +5.31 (0.44%)
NYSE Composite 7,747.46, +45.15 (0.59%)
NASDAQ Volume 2,023,686,125
NYSE Volume 5,268,140,500
Advancing issues turned the tide on decliners, 4158-2329. New highs numbered only 362, a notable change from the kinds of numbers reported over the past three weeks. Only 49 stocks made new lows. Volume was right about average on a day in which the dollar was up against most other currencies.
So, the Fed may be getting what it wants when it turns on the money spigot on Friday with the first of 18 monetary injections. They'll keep at it every day except the days immediately before and after Thanksgiving, for a total of about $105 billion, through December 9. If that doesn't get stocks flying higher than a redneck on meth, nothing will, and that's just the Fed's point, to make asset values climb, staving off the dastardly deflation, a condition that would suit most Americans just fine. A big THANK YOU VERY MUCH to Mr. Bernanke from the middle class.
Most commodity prices are already much higher than they were just two months ago, when Bernanke first began to whisper loudly about the now-imminent liquidity push. Cotton, corn, wheat and almost all foodstuffs have been on a tear, so much so that the exchanges have been slapping on tighter margin requirements for many.
Crude oil was up $1.09 on the day, to a 2010 high of $87.81. Just in time for Christmas, the Fed's policies are about to send gas prices through the roof. Thanks again, Mr. Ben! After yesterday's drubbing, gold gained $10.70, to $1403.40 at last print. Silver also caught a bid, trading at $27.14, up 19 cents on the day.
Meanwhile in the aftermath of mortgage insurer Ambac's bankruptcy filing Monday (and delisting as of today),the city of Harrisburg, PA, the state capitol, hired the law firm of Cravath, Swaine & Moore to advise on a potential municipal bankruptcy, which has been rumored for many months. with the fall of Ambac, the dominoes may begin tumbling, first among other mortgage insurers, then to municipalities and into credit default swaps mostly in the hands of the nation's largest banks.
Considering the timing of the Fed's dramatic money creation scheme, might these funds be nothing more than a backdoor backstop to the banks again? They certainly were aware of Ambac's condition and that of the handful of other illiquid mortgage insurers. If this were the case, then all bets are off concerning market gains, as the money will never see the light of day. It will be parceled out among the nation's greatest criminals to cover their corrosive and rapidly depreciating swaps and guarantees between each other.
While Ambac's portfolio may be only a few billion short, the forward effect is to cause other defaults along the chain, and once the genie gets out of the unregulated CDS bottle, there's likely no putting her back in. The cascading effect of illiquid assets turning enterprises wholly insolvent could happen within split seconds, without warning, and it's already apparent that the band-aids applied to the insolvent banks thus far have not proved remedial.
Higher interest rates on Treasuries going forward will be a sure sign that the financial structure is about to topple, with over $600 TRILLION of notional exposure ready to come crashing down. This is the conditions under which we watch our financial markets these final days of 2010. If Bernanke's plan does not cause stocks to rise, interest rates to fall and general inflation (bad enough), it's a safe bet that financial reckoning day may come sooner rather than later.
Tracing out the scenario, the Fed would probably not allow everything to simply collapse in a heap. After a few days of severe declines in the stock markets, highlighted by drops in financial stocks, the president would likely call a bank holiday stretching anywhere from a week to a month in an effort toward calmness. Unfortunately, the effect of that would be wide-eyed panic, as most people would be without cash and maybe denied access to credit cards as well.
After that, who knows? Emergency powers? Martial law? A complete overhaul of the Fed and Treasury? The ripples would be worldwide.
It's the nightmare scenario, but in the current climate, the possibility of a massive failure is possible and palpable.
Along with complaints from the global financial community, voices inside the United States have also weighed in, mostly condemning the action as unneeded, unwanted and eventually, inflationary.
What's worse, it doesn't seem to be working very well, as evidenced by today's 30-year bond auction, which saw lowered levels of participation and the highest yield in five months, exactly the opposite of what the liquidity tsunami was supposed to accomplish.
It's likely too early to tell, as the Fed has only today set down their Tentative Outright Treasury Operation Schedule, or TOTO, which as we all know, was the name of Dorothy's little dog in the movie, "The Wizard of Oz," an appropriate, if not slightly cynical metaphor for Mr. Bernanke standing behind a curtain pulling the levels and strings of the global economy.
Interested investors may want to print out the Fed's schedule as it should provide some guidance into which days would be better to buy or sell (warning: the Fed does not want you to sell) stocks. Those days with "operations" should be the prime selling days, and those without, opportunities to buy as the market will, no doubt, be on hold or falling. So much for free, fair and open markets. The Fed's interventionist policies have made Wall Street even more of a casino than it already was, and now they're using stocked decks and loaded die.
Things got off to another bad start for Bennie and his buddies this morning, as stocks backslid right out of the open, with the Dow falling 91 points, to its low of the day, shortly after 10:00 am. After that, however, with the banks holding firmly to the silver shorts which torpedoed a wicked rally in the precious metals late yesterday, it was once again off to the races, though the markets' pace more resembled that of a snail than a thoroughbred.
After two days of losses, the markets shrugged off middling new unemployment claims at 435,000 (below estimates, but sure to be revised higher next week), and, having convinced the sixteen suckers still trading via their e-trade accounts that the direction was negative, began the process of fleecing the sheep, all led to slaughter by the Fed-Wall Street money crunching machine.
Dow 11,357.04, +10.29 (0.09%)
NASDAQ 2,578.78, +15.80 (0.62%)
S&P 500 1,218.71, +5.31 (0.44%)
NYSE Composite 7,747.46, +45.15 (0.59%)
NASDAQ Volume 2,023,686,125
NYSE Volume 5,268,140,500
Advancing issues turned the tide on decliners, 4158-2329. New highs numbered only 362, a notable change from the kinds of numbers reported over the past three weeks. Only 49 stocks made new lows. Volume was right about average on a day in which the dollar was up against most other currencies.
So, the Fed may be getting what it wants when it turns on the money spigot on Friday with the first of 18 monetary injections. They'll keep at it every day except the days immediately before and after Thanksgiving, for a total of about $105 billion, through December 9. If that doesn't get stocks flying higher than a redneck on meth, nothing will, and that's just the Fed's point, to make asset values climb, staving off the dastardly deflation, a condition that would suit most Americans just fine. A big THANK YOU VERY MUCH to Mr. Bernanke from the middle class.
Most commodity prices are already much higher than they were just two months ago, when Bernanke first began to whisper loudly about the now-imminent liquidity push. Cotton, corn, wheat and almost all foodstuffs have been on a tear, so much so that the exchanges have been slapping on tighter margin requirements for many.
Crude oil was up $1.09 on the day, to a 2010 high of $87.81. Just in time for Christmas, the Fed's policies are about to send gas prices through the roof. Thanks again, Mr. Ben! After yesterday's drubbing, gold gained $10.70, to $1403.40 at last print. Silver also caught a bid, trading at $27.14, up 19 cents on the day.
Meanwhile in the aftermath of mortgage insurer Ambac's bankruptcy filing Monday (and delisting as of today),the city of Harrisburg, PA, the state capitol, hired the law firm of Cravath, Swaine & Moore to advise on a potential municipal bankruptcy, which has been rumored for many months. with the fall of Ambac, the dominoes may begin tumbling, first among other mortgage insurers, then to municipalities and into credit default swaps mostly in the hands of the nation's largest banks.
Considering the timing of the Fed's dramatic money creation scheme, might these funds be nothing more than a backdoor backstop to the banks again? They certainly were aware of Ambac's condition and that of the handful of other illiquid mortgage insurers. If this were the case, then all bets are off concerning market gains, as the money will never see the light of day. It will be parceled out among the nation's greatest criminals to cover their corrosive and rapidly depreciating swaps and guarantees between each other.
While Ambac's portfolio may be only a few billion short, the forward effect is to cause other defaults along the chain, and once the genie gets out of the unregulated CDS bottle, there's likely no putting her back in. The cascading effect of illiquid assets turning enterprises wholly insolvent could happen within split seconds, without warning, and it's already apparent that the band-aids applied to the insolvent banks thus far have not proved remedial.
Higher interest rates on Treasuries going forward will be a sure sign that the financial structure is about to topple, with over $600 TRILLION of notional exposure ready to come crashing down. This is the conditions under which we watch our financial markets these final days of 2010. If Bernanke's plan does not cause stocks to rise, interest rates to fall and general inflation (bad enough), it's a safe bet that financial reckoning day may come sooner rather than later.
Tracing out the scenario, the Fed would probably not allow everything to simply collapse in a heap. After a few days of severe declines in the stock markets, highlighted by drops in financial stocks, the president would likely call a bank holiday stretching anywhere from a week to a month in an effort toward calmness. Unfortunately, the effect of that would be wide-eyed panic, as most people would be without cash and maybe denied access to credit cards as well.
After that, who knows? Emergency powers? Martial law? A complete overhaul of the Fed and Treasury? The ripples would be worldwide.
It's the nightmare scenario, but in the current climate, the possibility of a massive failure is possible and palpable.
Monday, August 16, 2010
Equities Remain Stuck in Liquidity Trap
What would you do if you threw a party and nobody showed up?
Well, that's how brokers on Wall Street must be feeling, because there's a serious lack of trading going on these days. For well over a week now, stocks have been stuck within the deafening silence of a liquidity trap, bought about by an overwhelming amount of distrust, absence of investable capital and uncertainty about the future.
Individual investors - and, to a growing degree, some fund managers - have found safety and serenity in the simplicity of cash. Others have opted for money market returns of less than one percent, still more have waded into the refreshing bond waters or ventured into gold or other commodities.
Stocks, for better or worse, have fallen out of favor in the aftermath of the 08-09 meltdown, aided by government programs which were designed to spur demand but instead have only created one-off events, like the cash for clunkers fiasco or the failed stimulus that gave $8000 tax breaks to home owners.
Sure, the people who took advantage of government largesse got their new cars or their new homes, more than likely at inflated prices (we'll know for sure in another 12-18 months), but there was no appreciable overall gain in new buyers. Maybe most folks just like keeping what they have, secure in the fact that - especially in the case of cars - it's paid for or, with a house, knowing what it's roughly worth.
Still others are stuck with properties at inflated values. Recent home-buyers of 2003-2007 vintage are nearly universally upside-down, stuck with payments on outrageous mortgages while the value of their real estate continues a precipitous decline.
In this disheveled state of affairs, the last thing on people's minds is putting more money into the stock market, either by buying individual stocks, mutual funds or increasing the funding of their 401k plan. The average American has gotten the message loud and clear: save and save more. Non-essential purchases are being put on hold more often and investment decisions are based upon more immediate needs rather than with a long-term perspective. Besides, there's a real feeling that Wall Street is rotten and crooked and that stocks, as they have gone nowhere for the past ten years, look more and more like losing propositions.
Trading volumes on the major exchanges have been in a prolonged decline, and even for August, the recent volumes speak of something more sinister and pernicious than simply everybody being on vacation. There's no excitement or impetus for stocks to rise, and Monday's trade was more than likely bolstered by a fresh infusion of cash from the banks and brokerages. The Dow dipped 70 points right at the open before a sudden reversal just minutes into the session.
Once the averages found a more suitable footing, they just churned in a narrow range of about 50 points on the Dow before another minor blip downward and another round of funding from the "masters of the universe" at Goldman Sachs, JP Morgan and Merrill Lynch, BofA's trading arm.
This is a very serious condition which is not going to be solved without another blood-letting in stocks. The absence of confidence has spread all the way from Main Street to Washington to the canyons of Wall Street and now it's locked in place. Until somebody proves that stocks are safe and the economy is really on a rebound (impossible), the direction will be down, down and then down some more. Today's minor gains are overshadowed by the paucity of trading.
Dow 10,302.01, -1.14 (0.01%)
NASDAQ 2,181.87, +8.39 (0.39%)
S&P 500 1,079.38, +0.13 (0.01%)
NYSE Composite 6,871.58, +10.54 (0.15%)
Advancing issues took command over decliners, 3980-2440. There were 311 new highs and 223 new lows, but nobody is really bothering to keep score. Volume reached a new low on Monday, below the abysmal numbers from the previous Monday, which was off-the-charts ugly. People simply aren't interested in stocks right now, and for many good reasons.
NASDAQ Volume 1,636,439,375
NYSE Volume 3,569,886,750
Oil was down again, losing 15 cents, to $75.24, but gold gained $9.60, to $1,224.50. Silver was also up, better by 32 cents, to $18.42.
There was some small economic data, including the NY Fed's Empire Manufacturing Index, which came in with a reading of 7.10 for August after a 5.8 posting in July. The index is stuck at extreme low levels, indicating very modest growth, if any, with falling prices and negative future outlooks. It's not a pretty picture and New York is one of the better-performing areas of the country.
Prior to the open Tuesday, a number of important economic indicators will be released, including July PPI, housing starts and building permits. The numbers are expected to be flat or even down from June, which is just the kind of news Wall Street does not need at this juncture.
The true picture being painted by this low-volume regime is one bereft of confidence and capital. Like just about everything else in the current climate, it is unsustainable for more than a very short period of time, one which will be coming to an abrupt end shortly.
Well, that's how brokers on Wall Street must be feeling, because there's a serious lack of trading going on these days. For well over a week now, stocks have been stuck within the deafening silence of a liquidity trap, bought about by an overwhelming amount of distrust, absence of investable capital and uncertainty about the future.
Individual investors - and, to a growing degree, some fund managers - have found safety and serenity in the simplicity of cash. Others have opted for money market returns of less than one percent, still more have waded into the refreshing bond waters or ventured into gold or other commodities.
Stocks, for better or worse, have fallen out of favor in the aftermath of the 08-09 meltdown, aided by government programs which were designed to spur demand but instead have only created one-off events, like the cash for clunkers fiasco or the failed stimulus that gave $8000 tax breaks to home owners.
Sure, the people who took advantage of government largesse got their new cars or their new homes, more than likely at inflated prices (we'll know for sure in another 12-18 months), but there was no appreciable overall gain in new buyers. Maybe most folks just like keeping what they have, secure in the fact that - especially in the case of cars - it's paid for or, with a house, knowing what it's roughly worth.
Still others are stuck with properties at inflated values. Recent home-buyers of 2003-2007 vintage are nearly universally upside-down, stuck with payments on outrageous mortgages while the value of their real estate continues a precipitous decline.
In this disheveled state of affairs, the last thing on people's minds is putting more money into the stock market, either by buying individual stocks, mutual funds or increasing the funding of their 401k plan. The average American has gotten the message loud and clear: save and save more. Non-essential purchases are being put on hold more often and investment decisions are based upon more immediate needs rather than with a long-term perspective. Besides, there's a real feeling that Wall Street is rotten and crooked and that stocks, as they have gone nowhere for the past ten years, look more and more like losing propositions.
Trading volumes on the major exchanges have been in a prolonged decline, and even for August, the recent volumes speak of something more sinister and pernicious than simply everybody being on vacation. There's no excitement or impetus for stocks to rise, and Monday's trade was more than likely bolstered by a fresh infusion of cash from the banks and brokerages. The Dow dipped 70 points right at the open before a sudden reversal just minutes into the session.
Once the averages found a more suitable footing, they just churned in a narrow range of about 50 points on the Dow before another minor blip downward and another round of funding from the "masters of the universe" at Goldman Sachs, JP Morgan and Merrill Lynch, BofA's trading arm.
This is a very serious condition which is not going to be solved without another blood-letting in stocks. The absence of confidence has spread all the way from Main Street to Washington to the canyons of Wall Street and now it's locked in place. Until somebody proves that stocks are safe and the economy is really on a rebound (impossible), the direction will be down, down and then down some more. Today's minor gains are overshadowed by the paucity of trading.
Dow 10,302.01, -1.14 (0.01%)
NASDAQ 2,181.87, +8.39 (0.39%)
S&P 500 1,079.38, +0.13 (0.01%)
NYSE Composite 6,871.58, +10.54 (0.15%)
Advancing issues took command over decliners, 3980-2440. There were 311 new highs and 223 new lows, but nobody is really bothering to keep score. Volume reached a new low on Monday, below the abysmal numbers from the previous Monday, which was off-the-charts ugly. People simply aren't interested in stocks right now, and for many good reasons.
NASDAQ Volume 1,636,439,375
NYSE Volume 3,569,886,750
Oil was down again, losing 15 cents, to $75.24, but gold gained $9.60, to $1,224.50. Silver was also up, better by 32 cents, to $18.42.
There was some small economic data, including the NY Fed's Empire Manufacturing Index, which came in with a reading of 7.10 for August after a 5.8 posting in July. The index is stuck at extreme low levels, indicating very modest growth, if any, with falling prices and negative future outlooks. It's not a pretty picture and New York is one of the better-performing areas of the country.
Prior to the open Tuesday, a number of important economic indicators will be released, including July PPI, housing starts and building permits. The numbers are expected to be flat or even down from June, which is just the kind of news Wall Street does not need at this juncture.
The true picture being painted by this low-volume regime is one bereft of confidence and capital. Like just about everything else in the current climate, it is unsustainable for more than a very short period of time, one which will be coming to an abrupt end shortly.
Thursday, August 5, 2010
Dead Money Littering Wall Street as Suckers Flee
When you buy into a stock that refuses to go up in a meaningful way (Pfizer over the past five years is a good example) you have what is known among traders as "dead money." It's just sitting there doing nothing, not earning interest, just kind of lying around.
Now, that might be a good thing during a deflationary debacle like the one we're currently undertaking, so, maybe the dead money issue isn't all that earth-shattering a concept, after all, though, if you're used to the usual 15% returns that Wall Street hucksters promise, money lying around isn't your typical bag.
For the rest of us, those smart enough to stick our money in a coffee can or inside a wall safe, it's all well and good, so long as prices don't go ridiculously higher all of a sudden. There are a slew of misconceptions about money and its uses and usefulness, most of them aimed at baby-boomers with excess cash they're supposedly saving for a child's college, or a wedding or retirement, and most of those misconceptions usually involve keeping your money at work and not lazing around in a lounge chair in the back yard getting a tan.
However, based on the trading (in)activity the past few days, the concept of dead money might just be catching on. Stocks have just undergone a pretty significant rally - first, off the lows of March 2009, and more recently, about an 11% move back to where they now have settled, and nobody seems willing to sell, or to buy. Volume has dried up rather abruptly over the past two days, leaving open the question of whether Wall Street is even relevant anymore.
It seems that the majority of Americans who don't really have a whole lot of faith in the publicly-traded equity markets and have moved, over the past two years, into largely bond-related funds, are more than content with just keeping what they have instead of risking it in stocks. With the small investor clearly out of the market, that leaves mostly professionals and the very wealthy to do most of he trading on a day-to-day basis, but even they have become significantly more risk-averse of late, which means that the bulk of the trading has been left in the rather unstable hands of hedge fund managers and high-frequency traders.
Now, when these boys slow down there's really nothing left to keep markets bubbling, creating a sea of dead money, or more in the vernacular of economists, a liquidity crunch, which is precisely what we're staring at today.
It would seem, after the worst weekly unemployment claims figures since April came out this morning, and retail sales from a wide variety of chain stores showed poorly, that stocks would be sold off rather dramatically, and that seemed to be the case early on, but, buyers stepped in midday to soak up some of the losses, leaving the markets in a rather untidy state of affairs, with all indices down slightly, spending the entire session in the red, on volume that has to be one of the lightest five days of the year.
Truly pathetic, it was.
Dow 10,674.98, -5.45 (0.05%)
NASDAQ 2,293.06, -10.51 (0.46%)
S&P 500 1,125.81, -1.43 (0.13%)
NYSE Composite 7,174.27, -7.87 (0.11%)
Market internals showed a different side of the story as declining issues ran rampant over advancers, 3898-2509. New highs managed to maintain their sizable edge over new lows, 372-92.
NASDAQ Volume 1,704,054,000
NYSE Volume 4,089,902,750
In commodities, the September light crude oil futures contract fell by 48 cents, to $82.01. Gold gained $3.50, to finish at $1,197.20. Silver was up 4 cents, to $18.31.
With the July non-farm payroll report out tomorrow prior to the open, one would have expected a little more excitement, especially in light of the dreary economic data that seems to roll onto the street every day, but there was little movement overall, suggesting that these markets are suffering from a lack of interest bordering on apathy, due to a number of factors, but mostly, distrust, fear, uncertainty of the future and having been burned once too often.
It's the same kind of thing that happens with crooked card games. In the early stages, there a pigeons a'plenty. But, once word begins to get around and a few mouthy types get taken to the cleaners, the game dries up, and the cheaters end up playing penny-ante games amongst themselves, wiling away the hours, days and weeks.
We may be witnessing the initial stages of the final collapse of the Wall Street Ponzi scheme. They may have run out of suckers.
Now, that might be a good thing during a deflationary debacle like the one we're currently undertaking, so, maybe the dead money issue isn't all that earth-shattering a concept, after all, though, if you're used to the usual 15% returns that Wall Street hucksters promise, money lying around isn't your typical bag.
For the rest of us, those smart enough to stick our money in a coffee can or inside a wall safe, it's all well and good, so long as prices don't go ridiculously higher all of a sudden. There are a slew of misconceptions about money and its uses and usefulness, most of them aimed at baby-boomers with excess cash they're supposedly saving for a child's college, or a wedding or retirement, and most of those misconceptions usually involve keeping your money at work and not lazing around in a lounge chair in the back yard getting a tan.
However, based on the trading (in)activity the past few days, the concept of dead money might just be catching on. Stocks have just undergone a pretty significant rally - first, off the lows of March 2009, and more recently, about an 11% move back to where they now have settled, and nobody seems willing to sell, or to buy. Volume has dried up rather abruptly over the past two days, leaving open the question of whether Wall Street is even relevant anymore.
It seems that the majority of Americans who don't really have a whole lot of faith in the publicly-traded equity markets and have moved, over the past two years, into largely bond-related funds, are more than content with just keeping what they have instead of risking it in stocks. With the small investor clearly out of the market, that leaves mostly professionals and the very wealthy to do most of he trading on a day-to-day basis, but even they have become significantly more risk-averse of late, which means that the bulk of the trading has been left in the rather unstable hands of hedge fund managers and high-frequency traders.
Now, when these boys slow down there's really nothing left to keep markets bubbling, creating a sea of dead money, or more in the vernacular of economists, a liquidity crunch, which is precisely what we're staring at today.
It would seem, after the worst weekly unemployment claims figures since April came out this morning, and retail sales from a wide variety of chain stores showed poorly, that stocks would be sold off rather dramatically, and that seemed to be the case early on, but, buyers stepped in midday to soak up some of the losses, leaving the markets in a rather untidy state of affairs, with all indices down slightly, spending the entire session in the red, on volume that has to be one of the lightest five days of the year.
Truly pathetic, it was.
Dow 10,674.98, -5.45 (0.05%)
NASDAQ 2,293.06, -10.51 (0.46%)
S&P 500 1,125.81, -1.43 (0.13%)
NYSE Composite 7,174.27, -7.87 (0.11%)
Market internals showed a different side of the story as declining issues ran rampant over advancers, 3898-2509. New highs managed to maintain their sizable edge over new lows, 372-92.
NASDAQ Volume 1,704,054,000
NYSE Volume 4,089,902,750
In commodities, the September light crude oil futures contract fell by 48 cents, to $82.01. Gold gained $3.50, to finish at $1,197.20. Silver was up 4 cents, to $18.31.
With the July non-farm payroll report out tomorrow prior to the open, one would have expected a little more excitement, especially in light of the dreary economic data that seems to roll onto the street every day, but there was little movement overall, suggesting that these markets are suffering from a lack of interest bordering on apathy, due to a number of factors, but mostly, distrust, fear, uncertainty of the future and having been burned once too often.
It's the same kind of thing that happens with crooked card games. In the early stages, there a pigeons a'plenty. But, once word begins to get around and a few mouthy types get taken to the cleaners, the game dries up, and the cheaters end up playing penny-ante games amongst themselves, wiling away the hours, days and weeks.
We may be witnessing the initial stages of the final collapse of the Wall Street Ponzi scheme. They may have run out of suckers.
Thursday, July 2, 2009
Stocks Hammered on Unemployment Data
Taking its queue from another back-sliding non-farms payroll report, stocks sold off right from the opening bell and finished with a loss rivaling the June 15 and June 22 losses of 28 and 22 points, respectively, the difference being that those prior losses occurred on Mondays, opening weeks, whereas this one ended a week, and was leading into a holiday weekend to boot, an ominous sign.
The data from the Bureau of Labor Statistics (BLS), released an hour prior to the market's opening bell, showed a worsening condition in the labor market, with a loss of 467,000 jobs for the month of June. Expectations were for many fewer job losses, in the range of 385,000. May job losses of were revised positively, to -322,000, from -345,000. The unemployment rate rose to 9.5%. True unemployment, including those whose unemployment insurance had expired without securing a new job, was estimated at 16.5%.
First time claims came in at 614,000 for the most recent week, another blow to the recovery crowd.
President Obama called the numbers, "sobering," while many others were calling the increased unemployment predictable and Obama's recovery plans ineffective. The administration is facing increased pressure to right the economy, as most average Americans are not seeing any improvement in their standards of living, better job prospects or assistance meeting mortgage and credit obligations.
Major indices fell for the third consecutive week, confirming beliefs that the market has made a short term negative turn. The Dow, NASDAQ and S&P all finished within support ranges - 8300, 1800 and 900, respectively.
Factory orders were up 1.2% in May after a revised gain of 0.5% in April, but the employment numbers overshadowed those marginally improved results.
Dow 8,284.21, -219.85 (2.59%)
NASDAQ 1,796.52, -49.20 (2.67%)
S&P 500 897.04, -26.29 (2.85%)
NYSE Composite 5,779.64, -174.37 (2.93%)
Losers beat gainers by a huge margin (5206-1155) and new lows overtook new highs, 59-29. Perhaps the most "sobering" figure was that of the day's volume of trade, which hit levels so low as to ring the liquidity alarm. Markets are so turgid and corrupted, that, in addition to the normal summer slowdown, trading volumes have hit multi-year lows. If US markets cannot be relied upon as providing some degree of flexibility and volatility, traders will seek out more pliant markets.
It is quite possible that the low volume levels are reflective of net outflows from US equities into other markets. This was the fear in Treasuries, though the poor liquidity scenario may have struck Wall Street instead. If that is the case, one could hardly blame an investor for seeking safer havens offering better returns. As the new high-new low indicator has been relevant throughout the market's decline, now volume is becoming more intriguing by the day.
NYSE Volume 626,027,000
NASDAQ Volume 1,955,272,000
Sentiment from the unemployment numbers spilled over into the commodity market, where crude oil stumbled badly, off $2.58, to $66.73. Gold slipped $10.30, to $931.00, with silver finishing lower by 35 cents, at $13.41.
Earnings reports will begin to fill the news hole next week. Judging by current data, some expectations may have to be lowered and the start date for recovery pushed back to a more realistic date, some time next year.
Enjoy the 4th, remembering that the holiday is all about FREEDOM.
The data from the Bureau of Labor Statistics (BLS), released an hour prior to the market's opening bell, showed a worsening condition in the labor market, with a loss of 467,000 jobs for the month of June. Expectations were for many fewer job losses, in the range of 385,000. May job losses of were revised positively, to -322,000, from -345,000. The unemployment rate rose to 9.5%. True unemployment, including those whose unemployment insurance had expired without securing a new job, was estimated at 16.5%.
First time claims came in at 614,000 for the most recent week, another blow to the recovery crowd.
President Obama called the numbers, "sobering," while many others were calling the increased unemployment predictable and Obama's recovery plans ineffective. The administration is facing increased pressure to right the economy, as most average Americans are not seeing any improvement in their standards of living, better job prospects or assistance meeting mortgage and credit obligations.
Major indices fell for the third consecutive week, confirming beliefs that the market has made a short term negative turn. The Dow, NASDAQ and S&P all finished within support ranges - 8300, 1800 and 900, respectively.
Factory orders were up 1.2% in May after a revised gain of 0.5% in April, but the employment numbers overshadowed those marginally improved results.
Dow 8,284.21, -219.85 (2.59%)
NASDAQ 1,796.52, -49.20 (2.67%)
S&P 500 897.04, -26.29 (2.85%)
NYSE Composite 5,779.64, -174.37 (2.93%)
Losers beat gainers by a huge margin (5206-1155) and new lows overtook new highs, 59-29. Perhaps the most "sobering" figure was that of the day's volume of trade, which hit levels so low as to ring the liquidity alarm. Markets are so turgid and corrupted, that, in addition to the normal summer slowdown, trading volumes have hit multi-year lows. If US markets cannot be relied upon as providing some degree of flexibility and volatility, traders will seek out more pliant markets.
It is quite possible that the low volume levels are reflective of net outflows from US equities into other markets. This was the fear in Treasuries, though the poor liquidity scenario may have struck Wall Street instead. If that is the case, one could hardly blame an investor for seeking safer havens offering better returns. As the new high-new low indicator has been relevant throughout the market's decline, now volume is becoming more intriguing by the day.
NYSE Volume 626,027,000
NASDAQ Volume 1,955,272,000
Sentiment from the unemployment numbers spilled over into the commodity market, where crude oil stumbled badly, off $2.58, to $66.73. Gold slipped $10.30, to $931.00, with silver finishing lower by 35 cents, at $13.41.
Earnings reports will begin to fill the news hole next week. Judging by current data, some expectations may have to be lowered and the start date for recovery pushed back to a more realistic date, some time next year.
Enjoy the 4th, remembering that the holiday is all about FREEDOM.
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