Stocks took another beating in the US on Monday, with the Dow Jones Industrial Average closing at its lowest level since the coronavirus crisis began in mid February. The close at 18,591.93 was lower than the previous low, but also lower than the intraday low (18,917.46, March 18). Intraday, the Dow was down nearly 1000 points from Friday's close (19,173.98), falling to 18,213.65.
The other indices fall in line for the most part, except the NASDAQ which was above the unchanged line most of the session and finished with a fractional loss. Being more speculative than the more stoic Dow, S&P and NYSE Composite, the NASDAQ is still experiencing some buying activity, though much of that is reserved for grocers and tech stocks.
Once again, the Fed stepped up to the plate prior to the market open, making an emergency statement about an hour prior to the opening bell U.S. to announce that Treasury and mortgage-backed securities (MBS) purchases would be expanded as much as needed. As with last Monday's pre-opening salvo by the Fed, traders were not swayed, sending the major indices into the red right off the bat.
As the trading wore on, there was some relief from the selling midday, as Senate majority leader, Mitch McConnell, and minority leader, Chuck Schumer, hinted that they were close to a deal on the $1.5 trillion relief package that would include a payment of up to $1200 (plus $500 per child) for most Americans making less than $75,000 a year.
When the measure failed to reach cloture on a 47-47 tie, stocks quickly reversed course and headed to the lows of the day. Any bill coming out of the Senate for a COVID-19 stimulus bill will need at least 60 votes to pass. The two parties are far from reaching compromise, especially after House Democrats released their $2.5 trillion plan that was much more generous. The Democrat bill calls for monthly payments of $2000 to nearly all Americans and $1000 per child under 18. It also provides provisions to shelter people who cannot make rent, mortgage, credit card, car leases or loans, or student loan payments, calling for forbearance without penalty for as long as the crisis is deemed a national emergency, plus 120 to 180 days after that.
In what would be essentially a debt jubilee, Democrats' are offering much more to individuals and families than are the Republicans. Their plan has many flaws, however, in that one could, conceivably, buy a new car, rent a swanky apartment, pay for neither and have use of them for up to a year, possibly longer. The bill would make whole all creditors harmed by the measure, presumably at some later date. It's a complete boondoggle that would crush the economy rather than help it.
Legislators will be back at it on Tuesday, looking for a bill that will satisfy both their constituents and their major campaign funders (corporations, banks).
Bonds were bid nearly across the board, with the one-month bill plummeting to 0.01 and the 30-year bond losing 22 basis points on the day, closing out with a yield of 1.33%. Yield on the 10-year note also crumbled, falling form 0.92% to 0.76%.
Precious metals were bid higher. Spot gold ended the day at $1551.20. Silver finished at $13.27 the ounce at the close of trading in New York. However, both were up significantly overnight. Silver adding 97 cents to $14.24, while gold was up $96 to $1647.20, as both metals, quoted in futures contracts, are actually selling far above those prices for physical. Buyers are paying up to 100% premiums on silver and $300-600 more for an ounce of gold and having to wait as much as a month for delivery as major metals dealers are simply overwhelmed with buyers and generally out of stock.
Oil closed at $23.36 per barrel. Gas prices in the USA have been seen as low as 99 cents at one Kentucky outlet. Most states are seeing the price at the pump under $2.00 per gallon and falling.
With trading set to resume in the US in a matter of hours, futures are looking absolutely dashing, suggesting that this Turnaround Tuesday could be one for the record books. Then again, futures have often been optimistic, only to see waves of selling throughout the open trading session.
At the Close, Monday, March 23, 2020:
Dow Jones Industrial Average: 18,591.93, -582.07 (-3.04%)
NASDAQ: 6,860.67, -18.85 (-0.27%)
S&P 500: 2,237.40, -67.52 (-2.93%)
NYSE: 8,777.38, -355.78 (-3.90%)
Showing posts with label stimulus. Show all posts
Showing posts with label stimulus. Show all posts
Tuesday, March 24, 2020
Friday, August 12, 2016
Stock Market Losses Will Not Be Tolerated
In a world which is prodded, directed, managed, and ultimately controlled by central banks and government authoritarians, the narrative is often more important than the reality of life under the thumb.
A case in point comes today - a day after the NASDAQ, S&P 500, Dow Industrial Average each set new all-time highs - in which actual economic data diverged from the preferred narrative of "everything is peachy-keen."
Two important data sets were released prior to the opening of US equity markets, July PPI and July retail sales. Both were disappointing.
PPI came in at -0.4% and retail sales posted a sluggish 0.0% (zero) growth, with the core - ex-autos - down 0.3%. These figures not only suggest deflation, but are actually indicative of a deflationary environment, the sole condition which can awaken central bankers from sound sleep in cold sweats and is, at the same time, a relief for cash-strapped, income-stagnant workers and consumers.
According to the book of central bank policy, should one actually exist, the wants and needs of the average working Jane or Joe is to be disregarded in such an instance, preference given to fat-cat Wall Street types who do no work, produce nothing of value, but rake in billions of dollars in fees, profits, and commissions for their trading activities in the stock market casino.
So it came to be that since stocks had just made all-time highs, a major setback could not and would not be tolerated. The major indices slumped most of the session, but were boosted higher going into the close, with losses trimmed on the Dow and S&P, the NASDAQ actually closing positive, as deemed appropriate by the masters of the the universe.
The rigging of markets is never going to work out long term. Massive mis-allocation of capital has been taking place since the last financial crisis, setting the global economy up for a colossal, catastrophic, cataclysmic collapse. Maybe it won't be as bad as our alliterative case suggests, if only because ordinary people have had time to adjust and prepare, but, for anyone owning stocks at current altitudes, losses are nearly a certainty. That is, unless the entire world remains in a state of suspended animation, normalcy bias, and cognitive dissonance, and the wild-eyed central bankers of the world are allowed to continue their insane policies of negative interest rates, naked purchasing of equities (already a de facto policy of the BOJ and ECB, still a clandestine operation by the US Fed), stimulus, and maybe, if we're really lucky, helicopter money.
The week ended well for the titans of Wall Street. Have a (few, lots of, keg of) beers, enjoy the weekend, and sleep on it.
Friday's Figures:
Dow Jones Industrial Average
18,576.47, -37.05 (-0.20%)
NASDAQ
5,232.89, +4.50 (0.09%)
S&P 500
2,184.05, -1.74 (-0.08%)
NYSE Composite
10,820.79, -15.26 (-0.14%)
The weekly figures weren't all that impressive, though the NASDAQ recorded its seventh consecutive weekly gain.
For the Week:
Dow: +32.94 (+0.18%)
NASDAQ: +11.77 (+0.23%)
S&P 500: +1.18 (+0.05%)
NYSE Comp.: +37.92 (+0.35%)
A case in point comes today - a day after the NASDAQ, S&P 500, Dow Industrial Average each set new all-time highs - in which actual economic data diverged from the preferred narrative of "everything is peachy-keen."
Two important data sets were released prior to the opening of US equity markets, July PPI and July retail sales. Both were disappointing.
PPI came in at -0.4% and retail sales posted a sluggish 0.0% (zero) growth, with the core - ex-autos - down 0.3%. These figures not only suggest deflation, but are actually indicative of a deflationary environment, the sole condition which can awaken central bankers from sound sleep in cold sweats and is, at the same time, a relief for cash-strapped, income-stagnant workers and consumers.
According to the book of central bank policy, should one actually exist, the wants and needs of the average working Jane or Joe is to be disregarded in such an instance, preference given to fat-cat Wall Street types who do no work, produce nothing of value, but rake in billions of dollars in fees, profits, and commissions for their trading activities in the stock market casino.
So it came to be that since stocks had just made all-time highs, a major setback could not and would not be tolerated. The major indices slumped most of the session, but were boosted higher going into the close, with losses trimmed on the Dow and S&P, the NASDAQ actually closing positive, as deemed appropriate by the masters of the the universe.
The rigging of markets is never going to work out long term. Massive mis-allocation of capital has been taking place since the last financial crisis, setting the global economy up for a colossal, catastrophic, cataclysmic collapse. Maybe it won't be as bad as our alliterative case suggests, if only because ordinary people have had time to adjust and prepare, but, for anyone owning stocks at current altitudes, losses are nearly a certainty. That is, unless the entire world remains in a state of suspended animation, normalcy bias, and cognitive dissonance, and the wild-eyed central bankers of the world are allowed to continue their insane policies of negative interest rates, naked purchasing of equities (already a de facto policy of the BOJ and ECB, still a clandestine operation by the US Fed), stimulus, and maybe, if we're really lucky, helicopter money.
The week ended well for the titans of Wall Street. Have a (few, lots of, keg of) beers, enjoy the weekend, and sleep on it.
Friday's Figures:
Dow Jones Industrial Average
18,576.47, -37.05 (-0.20%)
NASDAQ
5,232.89, +4.50 (0.09%)
S&P 500
2,184.05, -1.74 (-0.08%)
NYSE Composite
10,820.79, -15.26 (-0.14%)
The weekly figures weren't all that impressive, though the NASDAQ recorded its seventh consecutive weekly gain.
For the Week:
Dow: +32.94 (+0.18%)
NASDAQ: +11.77 (+0.23%)
S&P 500: +1.18 (+0.05%)
NYSE Comp.: +37.92 (+0.35%)
Thursday, August 23, 2012
Stocks Fall Across the Board as Fed Stimulus Hopes Fade
This is a seriously perverse stock market.
One of the primary reasons stocks took a beating today was that many in the investment community are awakening to the idea that the Federal Reserve isn't going to do another round of QE before the elections because, get this, the economy isn't "bad enough."
That's right, because the economy is just limping along and not falling off a cliff into recession, the Fed is reluctant to enact any bold policy actions, thus putting the proverbial lid on stocks. Besides, with the all-important presidential election upcoming in a little more than two months, the Fed doesn't want to do anything to improve the economy, being that they are so, so, apolitical.
At least that's the story they're trying to sell.
The truth is that the last two rounds of QE were massive money-dumping busts which enriched only the well-connected and already wealthy. Those dwelling in the middle and lower classes of society are still awaiting the over-hyped "trickle down," another canard dreamt up by political and economic hacks who believe to have bamboozled the entire global population in service to their wealthy masters.
It's twisted logic at its very finest, the kind of thinking that only sleazy politicians and interest parasitic bankers could command.
Next, they'll be telling us that raw chicken is fine to eat or that eight percent unemployment is "natural."
In effect, the politicos and central bankers are out of bullets. All they can do now is pile up more debt on what's already outstanding until the whole edifice of corruption and funny money collapses upon itself.
Of course, the rich will be hurt the least, if at all. The middle class will take it standing up, lying down or whichever way the government-controlled media spoon-feeds it to the unsuspecting masses.
Not to worry. When stocks continue their slide into and through Labor Day and Americans wake up one morning and find that they are actually European, or worse, when it comes to national monetary and fiscal policy, we'll all make do with less, because the last twenty years, we'll be told, were a mirage of our own making for spending too much, wanting too much and not paying attention.
At least there's a tiny nugget of truth there. Americans haven't been paying attention for so long, the government is now responsible for nearly half of GDP when one adds in transfer payments (welfare, social security, state and federal pensions, etc.) and the once proud American economy is a shadow of its former self, controlled largely by a handful of corporations which pay little to no tax.
That's OK. The economy isn't "bad enough," right?
Meanwhile, the advance-decline continues bleeding negative and new highs, new lows compress further, advancing toward equilibrium.
Gold and silver were off like rockets. This is rotation from risk assets to hard assets, and it's gathering momentum.
Dow 13,057.46, -115.30 (0.88%)
Nasdaq 3,053.40, -20.27 (0.66%)
S&P 500 1,402.08, -11.41 (0.81%)
NYSE Composite 8,011.44, -62.79 (0.78%)
NYSE Volume 3,019,112,000
Nasdaq Volume 1,392,715,500
Combined NYSE & NASDAQ Advance - Decline: 1743-3759
Combined NYSE & NASDAQ New highs - New lows: 82-47
WTI crude oil: 96.27, -0.99
Gold: 1,672.80, +32.30
Silver: 30.46, +0.90
One of the primary reasons stocks took a beating today was that many in the investment community are awakening to the idea that the Federal Reserve isn't going to do another round of QE before the elections because, get this, the economy isn't "bad enough."
That's right, because the economy is just limping along and not falling off a cliff into recession, the Fed is reluctant to enact any bold policy actions, thus putting the proverbial lid on stocks. Besides, with the all-important presidential election upcoming in a little more than two months, the Fed doesn't want to do anything to improve the economy, being that they are so, so, apolitical.
At least that's the story they're trying to sell.
The truth is that the last two rounds of QE were massive money-dumping busts which enriched only the well-connected and already wealthy. Those dwelling in the middle and lower classes of society are still awaiting the over-hyped "trickle down," another canard dreamt up by political and economic hacks who believe to have bamboozled the entire global population in service to their wealthy masters.
It's twisted logic at its very finest, the kind of thinking that only sleazy politicians and interest parasitic bankers could command.
Next, they'll be telling us that raw chicken is fine to eat or that eight percent unemployment is "natural."
In effect, the politicos and central bankers are out of bullets. All they can do now is pile up more debt on what's already outstanding until the whole edifice of corruption and funny money collapses upon itself.
Of course, the rich will be hurt the least, if at all. The middle class will take it standing up, lying down or whichever way the government-controlled media spoon-feeds it to the unsuspecting masses.
Not to worry. When stocks continue their slide into and through Labor Day and Americans wake up one morning and find that they are actually European, or worse, when it comes to national monetary and fiscal policy, we'll all make do with less, because the last twenty years, we'll be told, were a mirage of our own making for spending too much, wanting too much and not paying attention.
At least there's a tiny nugget of truth there. Americans haven't been paying attention for so long, the government is now responsible for nearly half of GDP when one adds in transfer payments (welfare, social security, state and federal pensions, etc.) and the once proud American economy is a shadow of its former self, controlled largely by a handful of corporations which pay little to no tax.
That's OK. The economy isn't "bad enough," right?
Meanwhile, the advance-decline continues bleeding negative and new highs, new lows compress further, advancing toward equilibrium.
Gold and silver were off like rockets. This is rotation from risk assets to hard assets, and it's gathering momentum.
Dow 13,057.46, -115.30 (0.88%)
Nasdaq 3,053.40, -20.27 (0.66%)
S&P 500 1,402.08, -11.41 (0.81%)
NYSE Composite 8,011.44, -62.79 (0.78%)
NYSE Volume 3,019,112,000
Nasdaq Volume 1,392,715,500
Combined NYSE & NASDAQ Advance - Decline: 1743-3759
Combined NYSE & NASDAQ New highs - New lows: 82-47
WTI crude oil: 96.27, -0.99
Gold: 1,672.80, +32.30
Silver: 30.46, +0.90
Monday, April 30, 2012
Window Dressing Day Spoiled by Chicago PMI; Fantasy Economics Meets Reality
Normally, the last day of the month is marked by incessant buying of momentum stocks by fund managers and other hucksters hoping to impress clients by owning shares of the most popular companies, but today's shopping spree was truncated by a terrible Chicago PMI report, which weighed down markets, sending all of the major indices into the red.
The PMI report, which was released to the public just fifteen minutes into the session, printed at 56.2, the lowest number since November, 2009, missing expectations of 60.0 by a country mile.
Despite any and all opinions to the contrary, this number was just another in a string of disappointing economic data, highlighted by last week's first estimate of first quarter GDP of 2.2% annualized growth. While commentators have thus far downplayed the importance of the GDP figure, the evidence is stark, especially when reinforced by the PMI today.
Not wishing to face the bitter truth that the US - and by many measures, the global - economy has stalled out once again, Wall Street refuses to set about the arduous task of taking profits and marking stocks down to reasonable valuations, whatever those might be. Stocks have been trading far from fundamentals and investors haven't paid heed to the undercurrents of decline in Europe, Asia and here in the Western Hemisphere, though that line of thinking may be changing soon.
Sell in May and Stay Away goes the timeless adage. Why stocks should encounter such a seasonal variation is of questionable veracity, but if oil prices (which declined today) remain elevated as they have been through the summer, the banking and investing goons and their paid servants in Washington DC might get a dose of bad medicine courtesy of Mr. Market, delivered by Adam Smith's fabled invisible hand that routinely cycles in and out of market dynamics and pays special attention to bubbles and irrationality.
Beyond high oil prices, the US housing industry is still in a shambles, despite the clarion call to investors rushing in to snatch up foreclosed properties with the intent to turn them into rentals. This current calamity-in-the-making ignores the most basic tenet of community: home ownership is an issue of pride. Taking what were once owner-occupied dwellings and turning them into rentals (to whom and at what price we do not know) is a basic destructor of neighborhoods and communities. The dwellings fall into disrepair, the neighborhood deteriorates and eventually, the fine "rental investment" becomes a rat hole and drug house, surrounded by wary neighbors who decry their falling property values and eventually abandon the area.
Once a neighborhood changes from owner-occupied to rental status, the changes, though subtle, are irreversible, the tipping point likely reached when at least 40% of the properties assume rental status. The changes may take years or even decades in normal times, though in the current situation, in which home values have already been whacked for a loop, buying at bargain basement prices, while alluring to investors and productive of cash flow, may turn out to be just the beginning of a non-virtuous cycle. Renters move in, neighborhoods decline, property values continue to fall and recouping the original investment may never materialize. The next step in the process is that of the investors walking away, having milked the value from the properties via rental income, the community destroyed by their ravenous profit appetite. That's why neighborhoods become ghettos in the first place and stay ghettos, ever after. Wash, rinse, repeat.
Beside the ill-conceived notion that the real estate market has bottomed (a laughable and lamentable idea if ever there was one - it was the topic of a one-page feature in the current issue of Esquire, so there's that canard), the Fed is stalling on plans for more stimulus, which is apparently needed, even though it doesn't work long run, and Europe is fast-falling into recession. China's growth is being internalized, austerity policies haven't done squiddly-doo to revamp broken sovereign balance sheets and the debt bubble continues to expand.
Some day, the Keynesians in and out of government and the policy houses will finally be outed by forces of markets which are stronger than any academic noise and nonsense. The real world doesn't always cooperate with economic theory and we are seeing it played out at breathtaking pace.
There's truly only one solution for an overhang of malinvestment and debt: loss. And it will surely visit those who have the most to lose.
Mark down April as the worst month for stocks thus far, but lay bets that there will be worse to come.
Dow 13,213.63, -14.68 (0.11%)
NASDAQ 3,046.36, -22.84 (0.74%)
S&P 500 1,397.91, -5.45 (0.39%)
NYSE Composite 8,118.95, -32.96 (0.40%)
NASDAQ Volume 1,585,325,125
NYSE Volume 3,379,976,250
Combined NYSE & NASDAQ Advance - Decline: 2056-3568
Combined NYSE & NASDAQ New highs - New lows: 190-40
WTI crude oil: 104.87, -0.06
Gold: 1,664.20, -0.60
Silver: 30.96, -0.39
The PMI report, which was released to the public just fifteen minutes into the session, printed at 56.2, the lowest number since November, 2009, missing expectations of 60.0 by a country mile.
Despite any and all opinions to the contrary, this number was just another in a string of disappointing economic data, highlighted by last week's first estimate of first quarter GDP of 2.2% annualized growth. While commentators have thus far downplayed the importance of the GDP figure, the evidence is stark, especially when reinforced by the PMI today.
Not wishing to face the bitter truth that the US - and by many measures, the global - economy has stalled out once again, Wall Street refuses to set about the arduous task of taking profits and marking stocks down to reasonable valuations, whatever those might be. Stocks have been trading far from fundamentals and investors haven't paid heed to the undercurrents of decline in Europe, Asia and here in the Western Hemisphere, though that line of thinking may be changing soon.
Sell in May and Stay Away goes the timeless adage. Why stocks should encounter such a seasonal variation is of questionable veracity, but if oil prices (which declined today) remain elevated as they have been through the summer, the banking and investing goons and their paid servants in Washington DC might get a dose of bad medicine courtesy of Mr. Market, delivered by Adam Smith's fabled invisible hand that routinely cycles in and out of market dynamics and pays special attention to bubbles and irrationality.
Beyond high oil prices, the US housing industry is still in a shambles, despite the clarion call to investors rushing in to snatch up foreclosed properties with the intent to turn them into rentals. This current calamity-in-the-making ignores the most basic tenet of community: home ownership is an issue of pride. Taking what were once owner-occupied dwellings and turning them into rentals (to whom and at what price we do not know) is a basic destructor of neighborhoods and communities. The dwellings fall into disrepair, the neighborhood deteriorates and eventually, the fine "rental investment" becomes a rat hole and drug house, surrounded by wary neighbors who decry their falling property values and eventually abandon the area.
Once a neighborhood changes from owner-occupied to rental status, the changes, though subtle, are irreversible, the tipping point likely reached when at least 40% of the properties assume rental status. The changes may take years or even decades in normal times, though in the current situation, in which home values have already been whacked for a loop, buying at bargain basement prices, while alluring to investors and productive of cash flow, may turn out to be just the beginning of a non-virtuous cycle. Renters move in, neighborhoods decline, property values continue to fall and recouping the original investment may never materialize. The next step in the process is that of the investors walking away, having milked the value from the properties via rental income, the community destroyed by their ravenous profit appetite. That's why neighborhoods become ghettos in the first place and stay ghettos, ever after. Wash, rinse, repeat.
Beside the ill-conceived notion that the real estate market has bottomed (a laughable and lamentable idea if ever there was one - it was the topic of a one-page feature in the current issue of Esquire, so there's that canard), the Fed is stalling on plans for more stimulus, which is apparently needed, even though it doesn't work long run, and Europe is fast-falling into recession. China's growth is being internalized, austerity policies haven't done squiddly-doo to revamp broken sovereign balance sheets and the debt bubble continues to expand.
Some day, the Keynesians in and out of government and the policy houses will finally be outed by forces of markets which are stronger than any academic noise and nonsense. The real world doesn't always cooperate with economic theory and we are seeing it played out at breathtaking pace.
There's truly only one solution for an overhang of malinvestment and debt: loss. And it will surely visit those who have the most to lose.
Mark down April as the worst month for stocks thus far, but lay bets that there will be worse to come.
Dow 13,213.63, -14.68 (0.11%)
NASDAQ 3,046.36, -22.84 (0.74%)
S&P 500 1,397.91, -5.45 (0.39%)
NYSE Composite 8,118.95, -32.96 (0.40%)
NASDAQ Volume 1,585,325,125
NYSE Volume 3,379,976,250
Combined NYSE & NASDAQ Advance - Decline: 2056-3568
Combined NYSE & NASDAQ New highs - New lows: 190-40
WTI crude oil: 104.87, -0.06
Gold: 1,664.20, -0.60
Silver: 30.96, -0.39
Tuesday, May 5, 2009
The Never-Ending Rally
Stocks took a bit of a breather on Tuesday, but, in the larger scheme of things, it amounted to nothing more than a rounding error.
Dow 8,410.65, -16.09 (0.19%)
NASDAQ 1,754.12, -9.44 (0.54%)
S&P 500 903.80, -3.44 (0.38%)
NYSE Composite 5,770.76, -29.46 (0.51%)
In an environment in which the Dow Jones Industrials have gained nearly 2000 points over the past two months, today's marginal loss was about as insignificant as normal intra-day noise. Not only was the decline hardly noticeable, but the range - less than 100 points on the Dow - indicates that all volatility has been wrung out of the market. The VIX, which measures market volatility, closed today at its lowest level since September of last year, prior to the Lehman Brothers failure and various market dislocations that touched off wave after wave of selling.
It's amusing, to say the least, that investor sentiment has quieted down so much, especially with Fed Chairman Ben Bernanke testifying on Capitol Hill and the results of the bank stress tests due out on Thursday. One can credit the mainstream media for selling the government line that the economy is "bottoming out" and recovery on the horizon. In fact, Bernanke actually made comments to the congress to that effect, saying that the economy should begin to turn upwards in the second half of 2009.
That Americans still believe in Bernanke and the general wisdom of congress and the president in dealing with the economy is alarming in itself. Remember that it was Ben Bernanke, along with Treasury Secretary Hank Paulson, who said that the subprime breakdown was "well contained" in 2007, and that financial institutions and the underlying economy was strong early in 2008. Are we now supposed to put faith in his prognosis that the economy will be in better shape later this year? Americans are easily duped. The billions of dollars stolen by Bernie Madoff is proof enough of that. Also playing into the equation is the oddly-American optimism in the face of certain doom which, in its simplest forms, merely reduces all negative arguments to sheer pessimism, regardless of the veracity of such doom-and-gloom claims.
Thomas E. Woods, author of various books on economics and the markets including "Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse," offers some insight, channeling Austrian school economists Henry Hazlitt and F.A. Hayek, in his article at the Daily Reckoning, "No, the Free market Did Not Cause the Financial Crisis."
Regardless of Woods' penchant for lengthy titles, his analysis mirrors what's been said on these pages many times, that the tinkering and intervention by the government and the Fed are more likely to make matters worse, rather than better, simply because they continue to prop up failed institutions and companies, casing good money to be continually thrown down a black hole to prop up insolvent banks and failed corporations.
And, though Woods does not address the condition, it is my belief that throwing money away shortly after it is created out of thin air won't readily induce inflation, because the money just gets wasted. How could anyone believe that printing dollars and then burning them would produce anything other than some flames and smoke? It is for that reason that I have resisted the alarms of runaway inflation. The Fed has created a good deal of money, however, almost none of it has gone into productive activities. Price inflation is caused by money chasing a dwindling volume of goods, and, at this time, there seems to be more of a glut of everything - from cheeseburgers to steel girders - than scarcity.
Maybe that's the case in other countries, but here in America, there's plenty of everything for everybody. The one troubling trend that has developed from "talking up" the economy and relentless government stimulation is that there is no downward pressure on prices, as would be the case under normal circumstances. The more "free money" being thrown around, the more difficult it is to create new businesses because the ones that are broken are being kept alive via government largess. For instance, dinner at Old Country Buffet, a marginal eatery at best, is $12, hardly cheap, and two Egg McMuffins at McDonald's go for over $5.00, another example of the lack of downward price pressure.
For instance, should Burger King go out of business due to lack of demand for their morning offerings, one would expect a similar scenario at McDonald's to develop. with less demand for eggs, cheese and ham, one would expect McDonald's to lower their prices to match market conditions. However, since Burger King isn't failing, and the flow of money is being kept constant with increases to unemployment, welfare and social security recipients, plus all the other bailout and stimulus measures, the natural consequences of a free-falling economy have failed to materialize.
The problem with this scenario is that it's completely and utterly doomed to failure. The moment the government closes off the spigot to free money at 0% interest is the moment business begins to deteriorate. The Federal Reserve and the federal government have painted themselves into a debt-driven corner: they have to keep supplying cheap money or else the economy goes back into the tank. Obviously, they cannot borrow and spend their way out of this mess, though that's exactly what they're trying to do. The natural result, no matter what they believe, is deflation, until prices and actual earned wages come back into equilibrium.
The government and the Fed can pump as much money as they like into the economy, but they will not be able to spark inflation, which is their desire. Most of the money is either being wasted, saved or used in paying down debt, none of which are particularly productive uses of capital. In the interim, the economy will look like it's improving, but it's a mirage. Corporations will be profitable, but they will not be able to maintain their margins once the government cuts off the easy money. This is why stocks have rallied and why people believe the economy is improving. It feels good, but the underlying economics are a complete fraud.
It's why Ben Bernanke has seemed less than fully confident of late. One the one hand, he wants to reassure the American public that the economy isn't dead, but he knows there are more potholes and pitfalls on the road to recovery. He is not certain that his policies have been the correct ones because he's tried to keep the economy afloat without pain, when it is the actual pain - business closings, shutdowns and bankruptcies - that is at the root of real recovery. He's also been less than candid about the condition of the banks, because he knows they are nearly just as leveraged and unregulated as before the crisis that hit last fall.
Here is an article outlining why stimulus money is going unspent, underscoring the concept that the stimulus is nothing more than a band-aid and won't spur recovery.
On the day, declining issues surpassed advancing ones, 3514-2985, and there were more new lows than new highs, 81-48. Volume was average.
NYSE Volume 1,534,299,000
NASDAQ Volume 2,562,924,000
Oil closed down 63 cents, at $54.09. Gold continued its climb, gaining $2.10, to $904.30. Silver galloped ahead of the pack, picking up 31 cents, to $13.42 per ounce, approaching the melt price at which American silver coins are worth 10 times their face value ($13.81).
Tomorrow, the market will face a little bit of reality, as ADP releases it's monthly private sector employment report. The firm's numbers come as a precursor to the government's monthly nonfarm payrolls report, which is released Friday. ADP's numbers are quite reliable and are likely to show that another 610,000 jobs were lost in April. Noting the massive number of job losses since October of last last year and the extensions of unemployment insurance real misery won't being until late this year, exactly when the government mouthpieces say the economy is due to turn around.
Irony. It just isn't funny anymore.
Dow 8,410.65, -16.09 (0.19%)
NASDAQ 1,754.12, -9.44 (0.54%)
S&P 500 903.80, -3.44 (0.38%)
NYSE Composite 5,770.76, -29.46 (0.51%)
In an environment in which the Dow Jones Industrials have gained nearly 2000 points over the past two months, today's marginal loss was about as insignificant as normal intra-day noise. Not only was the decline hardly noticeable, but the range - less than 100 points on the Dow - indicates that all volatility has been wrung out of the market. The VIX, which measures market volatility, closed today at its lowest level since September of last year, prior to the Lehman Brothers failure and various market dislocations that touched off wave after wave of selling.
It's amusing, to say the least, that investor sentiment has quieted down so much, especially with Fed Chairman Ben Bernanke testifying on Capitol Hill and the results of the bank stress tests due out on Thursday. One can credit the mainstream media for selling the government line that the economy is "bottoming out" and recovery on the horizon. In fact, Bernanke actually made comments to the congress to that effect, saying that the economy should begin to turn upwards in the second half of 2009.
That Americans still believe in Bernanke and the general wisdom of congress and the president in dealing with the economy is alarming in itself. Remember that it was Ben Bernanke, along with Treasury Secretary Hank Paulson, who said that the subprime breakdown was "well contained" in 2007, and that financial institutions and the underlying economy was strong early in 2008. Are we now supposed to put faith in his prognosis that the economy will be in better shape later this year? Americans are easily duped. The billions of dollars stolen by Bernie Madoff is proof enough of that. Also playing into the equation is the oddly-American optimism in the face of certain doom which, in its simplest forms, merely reduces all negative arguments to sheer pessimism, regardless of the veracity of such doom-and-gloom claims.
Thomas E. Woods, author of various books on economics and the markets including "Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse," offers some insight, channeling Austrian school economists Henry Hazlitt and F.A. Hayek, in his article at the Daily Reckoning, "No, the Free market Did Not Cause the Financial Crisis."
Regardless of Woods' penchant for lengthy titles, his analysis mirrors what's been said on these pages many times, that the tinkering and intervention by the government and the Fed are more likely to make matters worse, rather than better, simply because they continue to prop up failed institutions and companies, casing good money to be continually thrown down a black hole to prop up insolvent banks and failed corporations.
And, though Woods does not address the condition, it is my belief that throwing money away shortly after it is created out of thin air won't readily induce inflation, because the money just gets wasted. How could anyone believe that printing dollars and then burning them would produce anything other than some flames and smoke? It is for that reason that I have resisted the alarms of runaway inflation. The Fed has created a good deal of money, however, almost none of it has gone into productive activities. Price inflation is caused by money chasing a dwindling volume of goods, and, at this time, there seems to be more of a glut of everything - from cheeseburgers to steel girders - than scarcity.
Maybe that's the case in other countries, but here in America, there's plenty of everything for everybody. The one troubling trend that has developed from "talking up" the economy and relentless government stimulation is that there is no downward pressure on prices, as would be the case under normal circumstances. The more "free money" being thrown around, the more difficult it is to create new businesses because the ones that are broken are being kept alive via government largess. For instance, dinner at Old Country Buffet, a marginal eatery at best, is $12, hardly cheap, and two Egg McMuffins at McDonald's go for over $5.00, another example of the lack of downward price pressure.
For instance, should Burger King go out of business due to lack of demand for their morning offerings, one would expect a similar scenario at McDonald's to develop. with less demand for eggs, cheese and ham, one would expect McDonald's to lower their prices to match market conditions. However, since Burger King isn't failing, and the flow of money is being kept constant with increases to unemployment, welfare and social security recipients, plus all the other bailout and stimulus measures, the natural consequences of a free-falling economy have failed to materialize.
The problem with this scenario is that it's completely and utterly doomed to failure. The moment the government closes off the spigot to free money at 0% interest is the moment business begins to deteriorate. The Federal Reserve and the federal government have painted themselves into a debt-driven corner: they have to keep supplying cheap money or else the economy goes back into the tank. Obviously, they cannot borrow and spend their way out of this mess, though that's exactly what they're trying to do. The natural result, no matter what they believe, is deflation, until prices and actual earned wages come back into equilibrium.
The government and the Fed can pump as much money as they like into the economy, but they will not be able to spark inflation, which is their desire. Most of the money is either being wasted, saved or used in paying down debt, none of which are particularly productive uses of capital. In the interim, the economy will look like it's improving, but it's a mirage. Corporations will be profitable, but they will not be able to maintain their margins once the government cuts off the easy money. This is why stocks have rallied and why people believe the economy is improving. It feels good, but the underlying economics are a complete fraud.
It's why Ben Bernanke has seemed less than fully confident of late. One the one hand, he wants to reassure the American public that the economy isn't dead, but he knows there are more potholes and pitfalls on the road to recovery. He is not certain that his policies have been the correct ones because he's tried to keep the economy afloat without pain, when it is the actual pain - business closings, shutdowns and bankruptcies - that is at the root of real recovery. He's also been less than candid about the condition of the banks, because he knows they are nearly just as leveraged and unregulated as before the crisis that hit last fall.
Here is an article outlining why stimulus money is going unspent, underscoring the concept that the stimulus is nothing more than a band-aid and won't spur recovery.
On the day, declining issues surpassed advancing ones, 3514-2985, and there were more new lows than new highs, 81-48. Volume was average.
NYSE Volume 1,534,299,000
NASDAQ Volume 2,562,924,000
Oil closed down 63 cents, at $54.09. Gold continued its climb, gaining $2.10, to $904.30. Silver galloped ahead of the pack, picking up 31 cents, to $13.42 per ounce, approaching the melt price at which American silver coins are worth 10 times their face value ($13.81).
Tomorrow, the market will face a little bit of reality, as ADP releases it's monthly private sector employment report. The firm's numbers come as a precursor to the government's monthly nonfarm payrolls report, which is released Friday. ADP's numbers are quite reliable and are likely to show that another 610,000 jobs were lost in April. Noting the massive number of job losses since October of last last year and the extensions of unemployment insurance real misery won't being until late this year, exactly when the government mouthpieces say the economy is due to turn around.
Irony. It just isn't funny anymore.
Wednesday, February 11, 2009
Wall Street Still Waiting on Washington
Markets were mildly optimistic on Wednesday, awaiting word from Washington on the proposed $800 billion stimulus bill in Senate-House negotiations, which appeared close to a deal.
Having investors focus on anything other than issues regarding US banking interests was likely preferable, following yesterday's massive sell-off on the heels of Treasury Secretary Timothy Geithner's sketchy bank plan announcement.
Following the initial shock, players in the financial field are beginning to flesh out possible scenarios, each of them fraught with peril as economists delve into the unknown. Preeminent are the individual balance sheets and books of the banks in question, primarily bank of America and Citigroup, the two which seem to be most at risk, though the books of Wells Fargo, JP Morgan Chase and others will surely require the close scrutiny of government fixers before any steps toward a working solution are attempted.
Like an alcoholic with serious addiction issues the major money center banks have not yet taken the serious step of actually disclosing the size of their losses and may never do so, publicly, as the sheer size of the numbers would panic most ordinary people. It's essential to any kind of recovery that the banks confess their shortfalls to the government, so that an appropriate solution can be delivered.
As for the bank plan being devised at Treasury and the Fed, there is some agreement, that, considering the broad outlines, banks will be merged and/or downsized in coming months.
Trading in very narrow ranges, all of the major indices finished on the upside, though only marginally. Much of the trade was tied to hope for quick passage of the stimulus bill or recovery from yesterday's drama. As for a dead cat bounce, today's action barely merited notice, though most traders seemed relieved that the markets didn't devolve into indiscriminate selling.
Dow 7,939.53, +50.65 (0.64%)
NASDAQ 1,530.50, +5.77 (0.38%)
S&P 500 833.74, +6.58 (0.80%)
NYSE Composite 5,252.65, +37.94 (0.73%)
Much of the bounce-back on the Dow was due to the financials, as Citigroup (C) and Bank of America (BAC) each rose by more than 7%, and JP Morgan, another Dow component, lifted to a 4% higher close.
Internally, the market sent a mixed message, one to which traders have become accustomed over the past 18 months. Advancing issues outnumbered decliners, 3669-2769, though new lows sailed past new lows, 232-14, increasing by both raw number and the overall divergence.
NYSE Volume 5,977,889,500
NASDAQ Volume 2,206,760,750
Crude futures took a severe hit after US inventories were reported to be close to 16-year highs. Oil for March delivery fell $1.61, to $35.94.
Gold finished with strong gains for the second straight day, as the flight to safety continues. Gold was up $30.50, to $944.50, with the magic $1000 mark clearly in sight. Silver also showed strong gains, picking up 39 cents to finish at $13.52 in New York.
In yet more good news for consumers, natural gas lost a penny and all food stock futures were lower. After Citigroup analysts downgraded supermarket chain operators Safeway (SWY) and Kroger (KR) on Tuesday, warning of a protracted "price war," shoppers should expect stable to lower prices on grocers' shelves over the near term.
Considering the dark cloud over the stock markets and the number of layoffs occurring in the past few months, cheaper food and fuel are providing the silver lining.
Having investors focus on anything other than issues regarding US banking interests was likely preferable, following yesterday's massive sell-off on the heels of Treasury Secretary Timothy Geithner's sketchy bank plan announcement.
Following the initial shock, players in the financial field are beginning to flesh out possible scenarios, each of them fraught with peril as economists delve into the unknown. Preeminent are the individual balance sheets and books of the banks in question, primarily bank of America and Citigroup, the two which seem to be most at risk, though the books of Wells Fargo, JP Morgan Chase and others will surely require the close scrutiny of government fixers before any steps toward a working solution are attempted.
Like an alcoholic with serious addiction issues the major money center banks have not yet taken the serious step of actually disclosing the size of their losses and may never do so, publicly, as the sheer size of the numbers would panic most ordinary people. It's essential to any kind of recovery that the banks confess their shortfalls to the government, so that an appropriate solution can be delivered.
As for the bank plan being devised at Treasury and the Fed, there is some agreement, that, considering the broad outlines, banks will be merged and/or downsized in coming months.
Trading in very narrow ranges, all of the major indices finished on the upside, though only marginally. Much of the trade was tied to hope for quick passage of the stimulus bill or recovery from yesterday's drama. As for a dead cat bounce, today's action barely merited notice, though most traders seemed relieved that the markets didn't devolve into indiscriminate selling.
Dow 7,939.53, +50.65 (0.64%)
NASDAQ 1,530.50, +5.77 (0.38%)
S&P 500 833.74, +6.58 (0.80%)
NYSE Composite 5,252.65, +37.94 (0.73%)
Much of the bounce-back on the Dow was due to the financials, as Citigroup (C) and Bank of America (BAC) each rose by more than 7%, and JP Morgan, another Dow component, lifted to a 4% higher close.
Internally, the market sent a mixed message, one to which traders have become accustomed over the past 18 months. Advancing issues outnumbered decliners, 3669-2769, though new lows sailed past new lows, 232-14, increasing by both raw number and the overall divergence.
NYSE Volume 5,977,889,500
NASDAQ Volume 2,206,760,750
Crude futures took a severe hit after US inventories were reported to be close to 16-year highs. Oil for March delivery fell $1.61, to $35.94.
Gold finished with strong gains for the second straight day, as the flight to safety continues. Gold was up $30.50, to $944.50, with the magic $1000 mark clearly in sight. Silver also showed strong gains, picking up 39 cents to finish at $13.52 in New York.
In yet more good news for consumers, natural gas lost a penny and all food stock futures were lower. After Citigroup analysts downgraded supermarket chain operators Safeway (SWY) and Kroger (KR) on Tuesday, warning of a protracted "price war," shoppers should expect stable to lower prices on grocers' shelves over the near term.
Considering the dark cloud over the stock markets and the number of layoffs occurring in the past few months, cheaper food and fuel are providing the silver lining.
Friday, February 8, 2008
Not Such a Good Week; Stocks Continue to Tank
Friday capped off another ugly week for stocks, as the late January rally - built on the back of a whopping 1 1/4% in federal funds rate cuts - has proven to be nothing but a mirage. That's not surprising, considering the historical impact of rate cutting in the face of a depressed business cycle, which happens to be little to none.
On the other side of those rate cuts inevitably sits inflation, which will become the next bogey man to confront the balding and bespeckled geniuses at the Fed. The natural reaction to inflation is to raise rates, and since the Fed won't be doing that soon, expect to pay more for just about everything as the value of the US dollar on world markets continued to erode.
At the final bell, the Dow lost 551 points for the week; the S&P gave back 64; the NASDAQ dropped 99 and the NYSE Composite fell 454. It certainly wasn't pretty, but investors are beginning to get the idea that the US is already in a recession and the only reasonable thing to do is to sell stocks and get out of the way until some safe bottom forms.
Dow 12,182.13 -64.87; NASDAQ 2,304.85 +11.82; S&P 500 1,331.29 -5.62; NYSE Composite 8,823.12 -35.92
That bottom could be a distance off, as our brilliant leaders in congress decided to pass a stimulus package that will cost roughly $168 billion - money that will produce a deficit - in rebates to a large swath of individuals and families.
The plan is ridiculous. Consider a family I know well. Husband and wife both work, and have three kids in school, ages 10, 11 and 12. The kids go to public schools and both earners are making upwards of $45,000. They're pretty comfortable. This plan gives them $1200, plus another $900 for the kids ($300 per child) for a total of $2100. They don't absolutely need the money and much of it will likely go directly into the bank or to investments for the future (read: retirement or college funds). Nice country. Free money.
How an additional $168 billion of borrowed money is going to save the nation from the ravishes of recession is a good question, one which nobody in congress bothered to ask. After all, it's an election year and the incumbents saw an easy path to more votes for themselves. Hoo-rah!
Market internals were expectedly in-line with the headlines. Declining issues bettered advancers, 3679-2611. New lows topped new highs, 226-75.
The recession is here, and normally, I'd say there's nothing to worry about as it's just part of the normal business cycle. However, this one looks rather ominous and has rough edges to it, especially considering the dearth of leadership in Washington. Whomever inherits the White House in the fall, they'll be getting a very, very raw deal in an economy that's retreating quickly from 8 long years of wild excess.
Be sure to read the story directly below this for a better understanding of why US equity markets were not another 2-4% lower this week, as they should have been.
NYSE Volume 3,768,491,500
NASDAQ Volume 2,275,363,250
On the other side of those rate cuts inevitably sits inflation, which will become the next bogey man to confront the balding and bespeckled geniuses at the Fed. The natural reaction to inflation is to raise rates, and since the Fed won't be doing that soon, expect to pay more for just about everything as the value of the US dollar on world markets continued to erode.
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In any case, stocks fell for the 4th day out of 5, with the notable exception of the NASDAQ, which managed to finish marginally positive two days this week.Forex Foreign Currency Exchange Trading Beginner's Resource Center.
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At the final bell, the Dow lost 551 points for the week; the S&P gave back 64; the NASDAQ dropped 99 and the NYSE Composite fell 454. It certainly wasn't pretty, but investors are beginning to get the idea that the US is already in a recession and the only reasonable thing to do is to sell stocks and get out of the way until some safe bottom forms.
Dow 12,182.13 -64.87; NASDAQ 2,304.85 +11.82; S&P 500 1,331.29 -5.62; NYSE Composite 8,823.12 -35.92
That bottom could be a distance off, as our brilliant leaders in congress decided to pass a stimulus package that will cost roughly $168 billion - money that will produce a deficit - in rebates to a large swath of individuals and families.
The plan is ridiculous. Consider a family I know well. Husband and wife both work, and have three kids in school, ages 10, 11 and 12. The kids go to public schools and both earners are making upwards of $45,000. They're pretty comfortable. This plan gives them $1200, plus another $900 for the kids ($300 per child) for a total of $2100. They don't absolutely need the money and much of it will likely go directly into the bank or to investments for the future (read: retirement or college funds). Nice country. Free money.
How an additional $168 billion of borrowed money is going to save the nation from the ravishes of recession is a good question, one which nobody in congress bothered to ask. After all, it's an election year and the incumbents saw an easy path to more votes for themselves. Hoo-rah!
Market internals were expectedly in-line with the headlines. Declining issues bettered advancers, 3679-2611. New lows topped new highs, 226-75.
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The oil barons apparently grew tired of not making so much money over the past couple of weeks and drove crude for March delivery up $3.66 to $91.77. Traders were so busy selling off stocks, they barely noticed. Gold leapt another $12.30, closing at $922.30. Silver gained 34 cents to $17.11. There's still time to buy before the metals really take off.Stocks go up and down. Make money in both directions with exclusive options advisor.
dtmagazine.com/optionsadvisor.php
The recession is here, and normally, I'd say there's nothing to worry about as it's just part of the normal business cycle. However, this one looks rather ominous and has rough edges to it, especially considering the dearth of leadership in Washington. Whomever inherits the White House in the fall, they'll be getting a very, very raw deal in an economy that's retreating quickly from 8 long years of wild excess.
Be sure to read the story directly below this for a better understanding of why US equity markets were not another 2-4% lower this week, as they should have been.
NYSE Volume 3,768,491,500
NASDAQ Volume 2,275,363,250
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