Showing posts with label stress test. Show all posts
Showing posts with label stress test. Show all posts

Tuesday, November 22, 2011

Zombie Earth: IMF Steps Into Euro Fray; US 3Q Growth Lowered

The day was full of economic news that kept market participants awake and jumping at every byte of information that crossed the trading desks.

Morning began with the Commerce Department's second revision to third quarter GDP, originally quoted at 2.5%, but today lowered to 2.0%. The news sent some jitters across the futures trading complex, but, by the opening bell the effect on the major indices was minimal.

Still, stocks took a bit of a header in early trading, extending almost to the noon hour, when the IMF announced a couple of liquidity lending facilities which boosted stocks for a few hours, until everyone realized that 17% of the money would be coming from the US, in the form of money printed out of thin air and exported to Europe to keep the inflationary ball rolling.

The IMF foray is only a small step forward, another can-kicking exercise to get Europe through the holidays with a minimum of stress. It is in nobody's best interests to mess up the Christmas shopping season, so Christine Legarde and her IMF goon squad set the wheels in motion officially with about $80 billion available immediately, though, as we are all well aware, these numbers usually don't stop growing until the money outstanding has reached the trillions. Give it six months and the IMF will own most of what they don't already in Italy, Spain and Portugal. The Global Zombie Ponzi has reached epic and no-turning-back proportions.

Greece? Nobody really wants it. They'll be printing drachmas in six to eight months time and trading goats for Ouzo and other necessities.

After the market closed the session in the red, again, the Federal Reserve announced that 31 financial institutions, all with assets (that's a joke right?) of more than $50 billion, will undergo stress tests, with the six largest banks - JP Morgan, Bank of America, Citi, Wells-Fargo, Goldman Sachs and Morgan Stanley - having to undertake a more severe test, that of a “hypothetical global market shock,” based upon conditions from the Fall of 2008. Results of the stress tests (which every bank will surely pass with flying colors, as they always do) will be announced on January 9th, 2012. Happy New Year.

With all the macro-news making the rounds, it was no surprise that traders and speculators (the stock markets are now devoid of "investors" except for the suckers stuck with 401k plans or mutual funds) have trimmed their exposure significantly over the past few days. There are just too many headwinds and too much money being thrown at sovereign states for anyone to rationalize in an investment scenario.

The new world order of global kleptocratic Ponzi economics has the IMF (backed significantly by US suckers, i.e., taxpayers) at the top of the chain, filtering down to the oligarch families of Europe with all the people of the world underneath. And we thought Feudalism was dead?

Briefly, Bank of America made a new closing low at 5.37 (they're solvent, right?) and the 5-year note was sold at a record low of 0.937% as the Treasury sold $35 billion at auction today. Demand was 3.15 times the amount offered.

Here's how the chips fell:

Dow 11,493.72, -53.59 (0.46%)
NASDAQ 2,521.28, -1.86 (0.07%)
S&P 500 1,188.04, -4.94 (0.41%)
NYSE Composite 7,094.89, -39.58 (0.55%)
NASDAQ Volume 1,798,916,500
NYSE Volume 3,926,789,750
Combined NYSE & NASDAQ Advance - Decline: 2043-3490
Combined NYSE & NASDAQ New highs - New lows: 60-220
WTI crude oil: 98.01, +1.09
Gold: 1,702.40, +23.80
Silver: 32.95, +1.84

Friday, July 15, 2011

Last Hour Rally Salvages Gains, Though Markets Down for Week

A tumultuous week came to a very anti-climatic conclusion on Friday, as the President issued a challenge to congress to come up with the "framework" of a deal within the next 24 to 36 hours to solve the wrangling over the debt ceiling and budget issues.

President Obama's 11:00 am new conference did little to move the matter in a more positive direction, and stocks languished throughout the day, finally putting together a half-hearted momentum rally in the final hour of trading.

In Europe, 82 of 90 banks passed the European banking Authority stress tests, but eight failed - four of them in Spain - and 12 more received barely passing grades.

Citigroup posted better-than-expected second quarter results, but still finished in the red for the day. Taking its cue, Bank of America (BAC), which reports on July 19, fell below $10 per share, finishing exactly at 10.00, after trading as low as 9.88, the lowest in more than two years.

The entire day was rather disjointed and purposeless, as stocks drifted around until the ramp-up at the close.

For the week, the Dow shed 177 points, the NASDAQ fell 70, the S&P gave back 27 and the NYSE composite dropped 183 points.

The late rally made little sense, unless one gives credence to the thought that it was a positive sign from the markets that a debt ceiling deal would be hatched by Monday.

Dow 12,479.73, +42.61 (0.34%)
NASDAQ 2,789.80, +27.13 (0.98%)
S&P 500 1,316.14, +7.27 (0.56%)
NYSE Composite 8,227.04, +35.91 (0.44%)

Advancers led decliners, 3945-2570. The NASDAQ offered 40 new highs and 34 new lows, while the NYSE had 62 stocks make new 52-week highs and 51 reach new lows. The combined total of 102 new highs and 85 new lows is cutting the margin rather closely and is reflective of the choppiness inherent in current markets.

NASDAQ Volume 1,825,291,125
NYSE Volume 4,370,969,000

A swath of economic data points offered no suggestion of improvement. The CPI fell 0.2%, the Empire Index returned a -3.76, industrial production and capacity utilization were both stagnant at 0.2% and 76.9%, and the Michigan consumer sentiment fell from 71.5 in May to 63.8 in June.

Crude oil continued on its zig-zag path, gaining $1.55, to $97.24. Gold hit another record, up 80 cents, to $1,590.10. Silver was up 38 cents, at $39.07 per ounce.

The NFL lockout continued, but both sides seem intent on reaching a deal, saying they would continue working over the weekend in order to conclude talks as early as possible without jeopardizing the preseason or regular season.

Maybe congress should take a hint from the players and owners. The American people have had about as much stalling and posturing as they can handle.

Friday, July 23, 2010

Euro Stress Tests a Joke and Wall St. Loves Them

Apparently, according to the central bankers of the world, and especially those in the US and Europe, banks are well enough capitalized to easily survive any kind of future monetary event.

That was the official word from Europe, where it was announced today that only seven of 91 banks in the region failed the European Union's stress tests. The other 84, for the most part, are not only well-capitalized, but strong, vibrant and growing.

After much hand-wringing and posturing over the past four months and with the goading and encouragement of not only Treasury Secretary Tim Geithner, but Fed Chairman Ben Bernanke (who, incidentally is currently on a visit to Europe), Europe followed the lead set down by its American counterparts in 2009 and conducted their own rather flimsy and opaque tests to determine how the largest banks in the region might fare under certain - supposedly bad - economic conditions.

The tests, as in America, revealed very little about banking in the Eurozone. Except for giving European leaders and banking executives a little more breathing room by taking media focus off of them, the stress tests were designed wholly to persuade the general population that all is well in the world of global finances, which begs the question, "why all the fuss in the first place?"

In the broadest, most general terms, what the conduct of the combined central banks of the nations of Europe and the US, plus the mega-banking operations scattered around those countries shows is that the entire financial calamities of the past two years were either made wholly of flimsy cloth or that the economies of many of these nations, and the USA, are in perilous conditions.

Choose whichever poison suits you best, but keeping the banking system and sovereign debt structures at status quo is probably grand for bankers - for now - and pretty much meaningless - for now - for the general populations. Later on, within months, most likely, the truth shall be exposed for all to see, that the nations and their central banks have been painted into a liquidity corner from which many cannot escape without severe austerity measures or default on scads and scads of debt.

With an entire global structure built upon fiat money with nothing to back it except a nation's good word, the eventuality of final collapse is assured, the only remaining question being a matter of timing. The politicians, bankers and associated ruling class participants will keep the charade going for as long as they can. In the meantime, in towns and cities and states across America and across Europe, the dismantling of the middle class will continue apace. Credit cannot and will not be extended to anyone with less-than perfect credit histories and sufficient collateral. Major corporations will continue to flourish at the expense of smaller rivals. Stocks will head up, and then down, and then repeat the pattern. Slowly, almost imperceptibly, the structure of governance and the prosperity of individuals will fall prey to the ravenous appetites of massive governments and business structures working hand-in-hand.

All that one can hope for under these conditions is for a continuance of the deflationary spiral which has been fought at every chance by the central bankers, though mostly in vain. Some of the largest economies in the world continue to limp along with interest rates at or near zero and credit choked off to the general public. Obfuscation and new regulations will only serve to exacerbate the situation until the populations finally give up or rise up.

In Europe, surrender is not so easily assumed. In the United States, it is almost certain, except for a very small percentage who will fly under the radar of the government, skirting the laws and rules, until they too are caught in the widening liquidity trap.

It's not a pretty picture going forward and it may take years to fully play out, but the absolute scurrilous nature of Europe's attempt to mollify the public is handwriting on the wall, writ small, but with larger implications.

As for Wall Street's role in the continuing dance of fools, stocks waited patiently on Friday, hugging the unchanged mark until after the stress test results were released. Once assured there would be no serious blow-back, the major indices took off on a tear toward and beyond their 200-day moving averages, as presaged right here on these pages in yesterday's post.

After the results were announced, traders took a few breaths, some supposedly went out onto their terraces for a smoke, and when they resumed trading, about 12:45, proceeded to take stocks higher in a hurry, pushing the Dow Jones Industrials up more than 100 points in the nest 45 minutes. The die already cast, the trades were executed.

All closed higher, and especially important, the S&P 500 finished the week above the 1100 mark, yet another sign that there's absolutely nothing to be concerned about. Your jobs are safe, your pensions in good hands, with the government and the Masters of the Universe on Wall Street continuing to monitor the health of your and your children's portfolios.

If it wasn't for all of this being so neatly wrapped up on a glorious summer Friday afternoon, one might presume that it was all preordained, completely organized right down to the final neat detail.

Dow 10,424.62, +102.32 (0.99%)
NASDAQ 2,269.47, +23.58 (1.05%)
S&P 500 1,102.66, +8.99 (0.82%)
NYSE Composite 6,965.11, +63.20 (0.92%)

Advancing issues led decliners, as expected, by a healthy margin, 4992-1425. New highs exceeded new lows, 298-80. Volume was at almost the exact same level as that of the previous two sessions; not surprising, since these days it's just the same people moving the same stocks back and forth, to and fro.

NASDAQ Volume 2,263,999,250
NYSE Volume 5,161,690,500

Commodities markets were a bit more rational, with oil closing down 22 cents, at $78.98; gold losing $7.80, to $1,187.70; and silver dipping two cents, to $18.10.

With the indices all closing above their 200-day MAs, one might assume that the bulls are off and running once again, but I purport that it is only a temporary condition, based entirely on strong earnings reports (notwithstanding everything else, a very positive sign, but wholly in contraction with economic reality) which will come to a sudden end next week. This looks every bit like a temporary summer rally, which end as quickly as they begin.

Wednesday, July 7, 2010

... And Now, the Rally That Was... a Real Phony

Viewing the market over the past two trading sessions, a comparison to an olympic athlete might be apropos, say, that of a high-jumper, like Dwight Stones back in the day, sailing over the bar at 7'1", but then failing at the next height, and again, until finally getting his steps and takeoff and velocity all right on the third attempt, at which point he flies into Olympic history.

That's what the market appears to have done, after failing badly on Tuesday, finally getting the commitment and the volume and the lack of bad economic data points and the short sellers all lined up in the proper order to propel the Dow back over the 10,000 bar, taking the antecedent indices along for the joyful ride.

With the level of short interest in the marketplace, there's no doubt that the push higher in the final minutes of trading on Monday continued into Tuesday on the backs of the shorts, who, like it or not, have been having their way for the past two months running. Anybody getting squeezed here was either in too late or was already well in the money and made profits when they covered their bets. Worse yet, many of the same players who profited today on the upticks were the same people making hay on the way down. It's just the way Wall Street works these days, now that the buy and hold investment strategy (the one which our fathers and grandfathers used to make money slowly and honorably) have been relegated to the dustbin of market history in favor of "quant" trading and electronic push-button charting and graphing which the investment houses are now all shoving down our throats.

Sure, you can trade right from your iphone, computer or other electronic instrument, as though it's a race to see who squeeze the last few pennies on execution, but is that any way to treat your money? Not really, though the masters of the universe running the funds and brokerages are generally using OPM (other people's money), so who cares? And that's why today's rally pushed higher and higher. The money masters flicked the switch at the open in the US, abruptly turning around all of the European markets - which were suffering severe declines until late in their respective trading days - and sending US stocks soaring.

One can only be amused by the cheerleading nature of the financial press, despite mountains of data that not only suggest, but verify, that the "recovery" was something of a chimera, and that global markets are still fundamentally unsound. Reading a headline like, "European bank stress tests and U.S. retail sales lift the Dow" gives one reason to probe deeper, as we come to find out that the stress tests to be performed on European banks haven't actually been started, but that a few details about what they may entail were released. Also, we find out that the esteemed group known as the International Council of Shopping Centers reported same store sales in the ICSC-Goldman Sachs (hmm, those guys again) weekly index, which is "constructed using sales-weighted geometric average growth rates to preserve long-term consistency and is statistically benchmarked to a broad-based monthly retail industry sales aggregate" (in other words, it's bull-$^%#), was up 3.9% year-over-year, the best level since May.

Well, that being only two months ago, why did the market go straight down then? Also, one may recall that retail sakes a year ago were pretty dismal, so, being up nearly 4% is not even back to what anyone would consider "good," though it apparently works for the fraudsters and con men who populate the equity trading markets.

And, by the way, that ICSC-Goldman Sachs index excludes restaurants and vehicle sales, which, unless you have consumers who neither eat nor drive, seems to be an important element in tracking retail sales performance. They have plenty of other modifiers with which they can interpret the data seemingly any way they like, such as the "Piser Method, which was popular in the early 1930s." I guess they tried lying to people back in the Great Depression, too, and we all know how well that worked out.

One should not overlook - though everybody trading stocks apparently did today - that vacancies at large malls in the top 80 U.S. markets rose to 9 percent in the second quarter and open-air center is now at 10.9%, that data coming from the same web site as the cheery same-store sales index.

So, the market cleared the bar of 10,000, but only until maybe tomorrow, when initial unemployment claims for the most recent week are released. Maybe the government can fudge those numbers a bit, as they've been downright depressing lately. Of course, this rally could go on for another few weeks, especially since earnings begin flowing to the street in short order, and, of course, options expire on Friday of next week. Getting the picture yet?

The real kicker to the whole "rally" story is what happened to Family Dollar (FDO) after it released its earning report. Quarterly profit jumped 19%, but earnings guidance disappointed as the CEO said consumers remained wary. No surprise there, but the stock lost 8% on the day, down 3.18 to 36.26. And you thought retailers were doing well.

Dow 10,018.28, +274.66 (2.82%)
NASDAQ 2,159.47, +65.59 (3.13%)
S&P 500 1,060.27, +32.21 (3.13%)
NYSE Composite 6,685.78, +199.66 (3.08%)

Internals told a mixed story. Advancers eviscerated decliners, 5351-1212, but new lows led new highs, 205-121. Volume was at average levels for the second straight session, another indication that this was more a relief rally or a knee-jerk reaction to oversold conditions, or a combination with short-covering mixed in for good measure.

NASDAQ Volume 2,190,606,000
NYSE Volume 5,861,473,500

Crude oil for August delivery rose $2.06, after falling for six consecutive sessions, to $74.07. Gold snapped back to life, gaining $3.80, to $1,198.60, with silver adding 15 cents, to close at $17.98.

Considering that financial and energy stocks (including, notoriously, BP) - the two most beaten down groups over the past few weeks were the rally leaders, one shouldn't put too much trust in this one-day wonder rally, as it appears to be contain more bark than bite, more reflection than reality, and no fundamentally good reason to have happened at all except for a one-day dearth of economic reporting.

Thursday, May 7, 2009

Ponzi Would Be Proud On Stress Test Results

First, let's not confuse Charles Ponzi (that's him on the left) with Arthur Herbert Fonzarelli (otherwise known as actor Henry Winkler in the role of "Fonzie" or "the Fonz" on 70s hit TV show "Happy Days" - shown at right). Sure, the names sound familiar, but that's where such familiarity ends.

Charles Ponzi was a swindler extraordinaire, who paid investors outlandish profits by continually bringing in fresh capital from other investors (or "suckers" as the case may be). Ponzi never actually invested any money in anything; he simply churned what seemed to be - at the time - a never-ending supply of money from pigeons to keep the appearance of a grand investment going. Thus, the term "Ponzi scheme" became popularized for this kind of endeavor, also known as a pyramid or airplane scheme.

Alfred Fonzarelli was a fictional character who exuded the hip and cool of a 50's greaser. His trademark leather jacket and slicked-back hair were elements of his persona. But Fonzie was honest, though arguably crude. Ponzi, a real person, was a cheat, and a great one. Some believe Bernie Madoff is the present-day embodiment of Charles Ponzi.

Now that we have the introductions out of the way, let's get to the core issue: that of the government's bank stress tests, which results are finally going to be released to the public, today, at 5:00 pm EDT. After months of nail-biting anticipation, it appears that 10 or 11 of the nation's largest 19 financial institutions are actually not in very good health. Here is a nice capsule of the results. Here is a NY Times article offering some rather scathing reviews on the entire stress test process from some very well-respected economic heavyweights.

Finally, here is a story and video from Yahoo! Tech Ticker which explains how Bank of America needs $34 billion of additional capital, and how they plan to get that by converting the TARP funds ostensibly "loaned" from the government (taxpayers) from preferred stock into common stock, resulting in a surplus of $11 billion with which they can then begin paying back the TARP funds. Yes, you read that right, BofA will use TARP funds to pay back TARP funds.

Only in America can bankers and politicians steal in such plain view from taxpayers. Certainly Charles Ponzi would be proud. Fonzie, for his part, might say, "Heeey, that's no way to treat people." Naturally, the truth-loving Fonzie is right. The US taxpayers are being taken to the cleaners on this one.

Maybe there's a silver lining in all of this hanky panky. Stocks were pounded down pretty well for most of today's session, on relatively strong volume. Could it be that some of the fund managers and top investors are seeing this for what it is - outright fraud - and calling an end to Wall Street's wild rally? Could be, but, considering the length and size of said recent rally, it's going to take more than a day or two of declines to straighten out the newest mess, that of stocks being wildly overvalued again.

As I've been saying all along (and I have plenty of company in my opinions, too), the banks aer not in good health. The stress tests were just a smoke screen, the PPIP is a bad joke at best, almost none of the various illiquid assets held by these banks have been disposed of, rather, they have been revalued using mark-to-model rather then the more accurate (and honest) mark-to-mark accounting, the Fed is now monetizing the national debt in addition to taking on all sorts of toxic waste, and, to top it all off, Thursday's Treasury auction of 30-year notes was a resounding failure, poorly received, with 30-year bond yields hitting 4.309%.

It's a mess of even more gigantic proportions that before the government began its meddling nearly eight months ago. Now, stocks will have to compete with higher bond yields, as will mortgage rates, which the government hoped to keep low, while the banks try to raise a cumulative $65 billion from private sources, in direct competition with the enormous Treasury sales to finance the burgeoning US debt, which will cost more and more to service if yields continue to climb.

So, a good number of investors took today's sloppy news flow and decided it was time to take some of their quick profits off the table. Not such a bad idea, despite the growing consensus that the economy is on the upswing (maybe, but probably not) with the Labor Dept. due to release nonfarm payroll data for April on Friday - tomorrow.

While the estimate is for job losses to total only 490-590,000, certainly less than March's 663,000, it's hardly cause for celebration, in light of the fact that the US economy needs to create 150,000 jobs per month just to keep pace with population increases and new entrants into the labor force. The calculations of the Labor Dept. also do not account for the 54,000 Chrysler employees being furloughed for 30 to 60 days, nor the 200,000 GM employees who will be idled for as many as 9 weeks this summer. Nor does the government count workers who have exhausted their unemployment insurance, those who are working part time instead of full time in their estimate of the unemployment rate of 8.9%. Others, including economists at the University of Maryland, put the figure at closer to 17%.

Add to the malaise that LA Dodger Manny Ramirez has been suspended by MLB for 50 games for violating their banned substance policy. He will not be paid roughly a third of his $25 million salary. So there's another $8.5 million not being spent into the economy right there! Yikes!

So, maybe today was a good time to get out of stocks. After all the major indices have risen by more than 30% over the past 8-9 weeks.

Dow 8,409.85, -102.43 (1.20%)
NASDAQ 1,716.24, -42.86 (2.44%)
S&P 500 907.39, -12.14 (1.32%)
NYSE Composite 5,800.15, -90.40 (1.53%)

Declining issues took the advantage over advancers, 4255-2281; new lows surpassed new highs once more, 95-52, and volume was stupendous, higher even than yesterday's. There certainly is no lack of trading going on as the economic wheels turn, or, grind, whichever case you prefer.

NYSE Volume 1,969,476,000
NASDAQ Volume 3,274,508,000

Commodities were bounced around by conflicting data, but oil managed a gain of 37 cents, to $56.39. Gold rose another $4.50, to $915.50, continuing the recent trend of gains, as did silver, which crossed the $13.80 threshold - the price at which melt value of US coins equals 10X their face value - with a rush, gaining 32 cents, to $14.03.

Most of the news flow for the week complete, investors will have until tomorrow morning's opening bell to weigh all the factors, including the nonfarm payroll figures, due out at 8:30 am. It's anyone's guess which way they'll turn, but one thing's for sure: the economy is not in as rosy shape as the news and pundits would have us believe. The recent bout of "green shoots" and "semi-positive" readings were more of the nature of falling at a less-pronounced pace than earlier this year or last fall. The US economy is still weakening, though not quite as quickly as before.

It's like saying a man clawed and chewed a lion only losing one arm and one leg is good news. He's still alive and he's got one of each type of limb left. Really, how many people would call that "good" news? Seriously, folks, it's not a matter of perception. The reality is not that the glass is half full or half empty, it's that the glass has a hole in the bottom.

Monday, May 4, 2009

The Grand Deception Continues as Stocks Soar

Regular readers of this blog will note that I have been completely wrong about the current stock market rally for more than a month. I apologize for any disservice I may have done to otherwise level-headed investors, but my position remains the same. This is a bear market rally, and, as such, any gains are subject to being wiped out at a moment's notice.

That said, I have and will try my level best to temper my opinion with facts and the facts should be sufficiently clear by now that the economy is far from any real recovery. It is also my opinion that the bottom reached in March was not the absolute bottom and that there are further hurdles ahead for stocks and the general economy.

One of those hurdles was pushed back a bit further, for a second or third time. I am talking about the release of the government stress test results on 19 of the nation's largest banking institutions. The release of this information has been pushed back to Thursday of this week. They were originally to be made public today.

The government's continued coddling of the banks and closeness to them is disconcerting, not only to me, but to a good number of economists and especially to Senator Dick Durbin, who last week announced that the banks "own the place," that place being the US congress.

So, just to be clear, I am mistrustful of Wall Street's ways and will continue to proclaim this rally as false. For more interesting reading on how corrupt the government and the banks have become, check out Rob Kirby's Market Observation from April 20, called "The Big Lie" in which he points out that foreign investors have already stopped buying US Treasuries and that the Federal Reserve likely has been engaged in more buying of Treasuries than the American public is being told.

With that information in hand, we may be witnessing the beginning of a great reflation of the economy. with stocks going up, commodities, and then, everything else (except wages, of course) will rise in price. Such a scenario - which the Fed is actively promoting - will signal the death knell of America as we once knew it. You will need to own more stocks at higher and higher prices just to keep up with the gallop of inflation. It is the worst of my fears. I would much rather see deflation take firm hold because at least it keeps food, fuel and other necessities of day-to-day living affordable.

Stocks were sent soaring on Monday after data showed construction spending and home sales both higher from the previous month.

While the pair of data sets were encouraging to many on Wall Street, closer inspection of the construction spending data showed that most of the increases were in commercial and government spending, not residential. The increase was likely the result of the nearly $1 Trillion federal stimulus bill, passed in February and now hitting the mainstream and Main Street. Despite the rise, construction spending - up a whopping 0.3% in March - is still 11.1% below 2008 levels.

And while more people may be buying existing homes, they are buying them for lower prices, with investors scooping up foreclosed properties as investments.

Nonetheless, investors looked the other way on any bad news, as they have for the past 8 weeks and sent stocks soaring to 4 month highs. Of the major indices, the NASDAQ and S&P 500 are now in positive territory for the year, though the dow is getting closer, having closed at 8776.39 on December 31, 2008.

Dow 8,426.74, +214.33 (2.61%)
NASDAQ 1,763.56, +44.36 (2.58%)
S&P 500 907.24, +29.72 (3.39%)
NYSE Compos 5,800.22, +231.46 (4.16%)

For the session, advancing issues far exceeded decliners, 5333-1261. New lows retained their edge over new highs, however, 101-66. Volume ticked up somewhat from last week's subdued levels, and it remains to be seen if investor interest will remain strong at such lofty levels. The odd characteristic of this rally is that there has been no significant pull-back at any juncture, somewhat difficult to believe in the current economic environment.

NYSE Volume 1,714,092,000
NASDAQ Volume 2,554,642,000

Commodities plowed ahead as well, with oil gaining $1.27, to $54.52. Gold rose $14.00, to $902.20, with silver adding 61 cents to settle at $13.11. Foodstuffs were mixed, but all energy-related commodities shot higher.

So, Wall Street has sounded the "all clear" once again and investors have responded like sheep instead of thinking, rational beings.

Here's Art Cashin on CNBC, talking about low volume rallies in bear markets and whether or not the markets are about to "roll over."

Friday, April 24, 2009

NASDAQ Ends Week With Overall Gain, Dow, S&P End Streak

The markets roared into positive ground again on Friday, with all major indices finishing off the week on a positive note. However, only the NASDAQ continued the string of weekly gains, as the S&P and the Dow both could not overcome severe losses from Monday.

Dow 8,076.29, +119.23 (1.50%)
NASDAQ 1,694.29, +42.08 (2.55%)
S&P 500 866.23, +14.31 (1.68%)
NYSE Composite 5,468.41, +96.31 (1.79%)

Overlaying the entire trading complex was the release of a government report which outlined the methodology of the banks' "stress tests." While the government will keep everybody on the edge of their seats until May 4, when the results of the tests on 19 of the nation's largest banks are released, today's report did little to tip their hand.

For the most part, nobody has a clue as to which banks will pass or fail, though various sources keep suggesting that none of the banks will actually fail.

With that lack of information in hand, investors continued bidding share prices higher, giving somewhat of an indication that the stress tests will probably amount to much ado about nothing. May 4 will come and go, and the government will continue to maintain that banks like Citigroup, Bank of America and JP Morgan Chase are "sufficiently capitalized" to weather any financial storm. In general, waiting for the stress test results is like watching paint dry - boring and anticlimactic.

On the day, advancing issues pummeled decliners, 4814-1652. New lows outnumbered new highs, 85-24. Volume was strong, as it has been all week, though Monday's was by far the highest volume of the week.

NYSE Volume 1,733,499,000
NASDAQ Volume 2,592,196,000

Oil gained $2.69 to $51.54. Gold was up $7.50, to $914.10. Silver finished up 17 cents, to $12.95 per ounce. Foodstuffs were mostly down, and natural gas has bottomed out at $3.40 per 1000 btu.

Aside from Monday's post-option expiration scare, the markets enjoyed another solid week. The NASDAQ stretched its winning streak to 7 straight, though the Dow and S&P are at or approaching solid resistance points.

Thursday, February 26, 2009

Treasury's Stress Test is Not a Plan at All

Editor's Note: I've had to break today's market coverage into two parts due to a need to provide some clarity on what the administration is planning to do with the nearly-insolvent banking sector. This entry will cover that issue, while the usual post - after 4:00 pm - will cover the day's market activity.

We've been hearing about Treasury Secretary Tim Geithner's "stress test" for the nation's largest banks in shrouded tones for over a week. Finally, late yesterday, some details of the plan emerged - in an exclusive interview with Jim Lehrer on the PBS Newshour - and elsewhere.

What the stress test will entail is having the banks examine their ability to function under a variety of very broad circumstances - first, a "moderate" scenario, in which unemployment

This commentary, by Adam S. Posen, Dep. Director, Peterson Institute for International Economics, lays out some guidelines which the Obama administration is conveniently avoiding.

And here's Paul Krugman opining in the New York Times that nationalization - in other words, having the federal government take over some banks, clean them up and resell the new, functioning, properly-capitalized entities to private investors.

Geithner and the Obama administration isn't listening, despite Krugman having won the Nobel Prize for Economics and other, similarly spot-on economists and commentators urging the government to make the appropriate hard choices, as opposed to the current piecemeal approach which hasn't - and isn't likely to - work.

The assumptions in the stress testing offers banks to look at two different sets of scenarios, a baseline and an extreme, or worst case outlook.

Under the baseline scenario, unemployment is at 8.4% in 2009 and 8.8% in 2010, housing prices decline by 14% in 2009 and another 4% in 2010, and the nation's Gross Domestic Product (GDP) falls by 2.0% in 2009 and rises by 2.1% in 2010.

In the worst case set-up, the assumptions are that unemployment reaches 8.9% in 2009 and 10.3 in 2010, housing prices fall 22% in 2009 and another 7% in 2010, and the nation's GDP falls by 3.3% in 2009 and gains 0.5% in 2010.

The banks will have about six weeks to report back to Geithner with either a confirmation that they're "OK" or a request for more funding from the government. That it will take six weeks to complete what is essentially nothing more than the testing of a theoretical set of circumstances against real world assets and liabilities suggests that the entire plan is nothing more than a politically-motivated cover-up for the banking giants which actually control the government.

This Bloomberg article suggests that the "worst case" scenarios laid out by the government are not severe enough, and that the banks will not not then be looking at what possibly lies ahead for the US economy.

The assessments may indeed be less severe than what's ahead, though the housing price assumptions appear somewhat on the money. Suppose GDP falls by 5% this year and another 2% next? What if unemployment hits 10.2% this year? Then the stress tests won't be testing the banks for reality and the entire plan will fail, meaning we will be sunk into a deeper recession for a longer time by supporting zombie banks which are at the heart of the problem.

In Geithner's interview with Lehrer, a the Treasury Secretary voiced a number of interesting comments, including, on the solvency of the banks involved:
"These banks now have very substantial amounts of capital relative to what you would have seen in the US economy going into previous recessions."

In other words, Geithner seems to be wanting to tell us that the banks are sound, despite what's been reported concerning trillions of dollars worth of bad loans, even more toxic credit default swaps and continuing credit-creation issues.

Geithner would have us believe that all of these pre-existing conditions have suddenly, magically, vanished. It's not a believable scenario.

On "nationalization", Geithner opined, "it's the wrong strategy for the country and an unnecessary strategy." Again, Geithner would have us believe that what's always worked for smaller, insolvent institutions, that being take-over by FDIC, recapitalization and an eventual return to a functioning entity on the other side, is not acceptable for the largest banks in the nation.

This is the kind of thinking which inspires skepticism in the banking system and the government's remedies. This approach would allow the likes of John Mack, Lloyd Blankfien, Vikram Pandit and Kenneth Lewis to continue to run their failed institutions - the same ones which caused the crisis in the first place - with only a limited amount of scrutiny and accountability.

This would allow the same excesses in the securitization of loans and largely unsupervised lending and investing activity to continue, while failing to address the toxic loans and swaps at the root of the problem.

There will be no accountability for what's already occurred, no civil or criminal charges brought against the bank and finance executives whose institutions already have benefited from taxpayer capital infusions. The same executives who nearly brought the world's financial system to its knees will remain at the controls of their now-defunct banks.

Naturally, the banks have lined the coffers of both the Obama administration and all members of congress with campaign contributions, so there will be no opposition from any government official - elected or otherwise - to this plan whatsoever.

The stress test and Geithner financial band-aid plan should be recognized for exactly what it is: further denial of the root of the crisis and a sure recipe for disaster.