Credit Crunch

The continuing downfall of Wall Street's fanatical credit ponzi scheme is unmistakable. The housing sector implosion is spreading like wildfire, into corporate junk bonds, credit cards (have you gotten your "notice" yet? The one that says your interest rate is going up?), and mainstream mortgage lending.

The plain fact is that we're on the verge of a complete economic meltdown - caused by loose credit and regulatory policies - that not even the Secretary of the Treasury and his cohorts in the Working Group on Financial Markets (aka, the PPT, Plunge Protection Team) are powerless to stop it.

Dow 13,211.99 -146.32; NASDAQ 2,546.27 -37.01; S&P 500 1,455.27 -18.64; NYSE Composite 9,554.50 -68.68

Add to that over-arching concern the idea that the United States has been under the control of a gang of half-cocked thugs who have raided the Treasury, destroyed our military (to say nothing of the irreparable damage done to the nation of Iraq) and broken laws with impunity. The Congress has been unwilling to take the necessary action to remove these treasonous criminals from office and the media has been complicit in undermining the will of the people by simple avoidance of real news.

We're in one heck of a mess and even the titans of Wall Street are afraid. Well they should be. They stood by, taking profits and looking the other way for the past 6 years.

With the markets down another day - make that 6 of the last 10 - the unwinding has only begun. Anyone with any smarts is already 50-60% in cash or other liquid assets (a case of booze does count) or short or buying puts on the CBOE. Playing the downside is the only reasonable way to make money right now.

The damage was evident in our two key metrics: Decliners led advancers, 7-5 and new lows checked in at 657 to 133 new highs.

On top of all of this, oil futures for September delivery were up $1.38 to $78.21, an all-time high. Like salt in the wound, you have to pay more to get nowhere at any speed.

Gold was up $2.30 to $679.30; silver rose 11 cents to $13.02. From the looks of things, it might be the absolute right time to invest in the metals. The markets are a wreck and the books have been cooked.

Impeach or die.

Dead Cat Bounce

Investors shook off last week's monumental declines and searched for bargains amid the wreckage on Monday. All the major indices showed decent gains on relatively strong buying. There was certainly some resolve to Monday's rally, but whether or not it will last is another question altogether.

Dow 13,358.31 +92.84; NASDAQ 2,583.28 +21.04; S&P 500 1,473.91 +14.96; NYSE Composite 9,623.18 +114.95

Make no doubt about it, there's a big, big problem inside the sub-prime mortgage mess and it's leaking over into corporate borrowing and mainstream mortgage lending. The simplistic reassurances of people like Ben Bernanke and Hank Paulson are masking a problem that goes to the heart of the world banking systems.

Money and credit has expanded worldwide at an astonishing rate and there's payback on the way. For a clue, watch merger and acquisition (M&A) activity over the next few weeks and months. It's already slowed down after a rash of big deals earlier in the year. Private capital has gone soft and conservative, and these people know what they're doing - it's their money, after all. CNN Money has a particularly propitious story on stalled funding for some big buyouts.

Over the next month and a half, expect more fallout, because drops like we witnessed last week do not occur in a vacuum. There's more to the story and it's a good bet that the invisible hand of the Plunge protection Team (PPT) was again at work today. Shortly after the markets opened, they took an unhealthy dip, but quickly bounced back to the positive. All of the indices hugged the flatline until just after noon, when all of them took off into positive territory for the remainder of the session, trademark market manipulation by the usual suspects.

As is the fashion of the market manipulators of the secretive Working Group on Financial Markets, they prefer small losses over long periods of time rather than big, spectacular, headline-grabbing declines.

Their unseen actions in the markets cause a sheep-like follow-along response, as evidenced today. Advancing issues gained the upper hand over decliners by a 3-2 ratio, though the new lows were still holding sway in a rather ponderous manner, with 746 bottom-outers to just 93 new highs. That's still out of balance and augurs ill for stocks going forward.

One-day rallies are not a cure-all, and the same conditions that contributed to last week's sell-off still exist. Without the PPT, the markets may very well have finished lower again today. The stated goals of the so-called PPT are:

Recognizing the goals of enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation's financial markets and maintaining investor confidence

Keep an open mind and an open eye on how the markets - and, to a lesser degree, individual stocks - move in relation to events and non-events.

Since most companies have now already reported 2nd quarter earnings, the next six weeks will be a function more of emotion than fact and since the overall mood is still rather dubious about the future, sharp sell-offs may occur out of thin air. More likely are days of small double-digit-Dow losses, followed by some recovery, then the pattern repeating again. As it is, the Dow has traded lower 5 of the last 9 sessions and that measure bears close scrutiny. Should we actually be in a new bear market - which some analysts have suggested - the ratio of up days to down, in addition to the volume and point movements, will be a key divining tool.

Oil priced lower on the NY Mercantile Exchange, losing 19 cents to $76.83. Gold and silver both edged higher and continue to herald a breakout, though that's happened so many times in the past 18 months, nobody's giving it much credence.

Triple Bottom Breakdown

With no impetus to the upside, not even the shadowy Plunge Protection Team (the government's Working Group on Financial Markets headed by Treasury Secretary Hank Paulson) could quell the selling on Wall Street as dissatisfaction with corporate earnings and the implosion of capital markets sent the Dow to another 200+ point loss, hauling down the other major indices with it.

The week, which began with a 92-point gain on the Dow on Monday, turned considerably uglier as earnings reports and bad economic news - primarily from the housing and credit sectors - sent Wall Street into spasms of cynical, unstoppable, selling. The week was one of the worst ever for the Dow, losing 735 points, with losses of more than 200 points on Tuesday and Friday, and a 311-point loss on Thursday.

Dow 13,265.47 -208.10; NASDAQ 2,562.24 -37.10; S&P 500 1,458.95 Down 23.71; NYSE Composite 9,508.23 -146.15

The other major indices - the S&P, NYSE Composite and NASDAQ fared equally poorly in the paroxysm of panic selling. The Dow on Friday confirmed (and broke through support) a triple bottom breakdown at 13,265.47, with similar recent closes on June 7th (13,266.73) and June 12th (13,295.01).

The pertinent questions at this juncture are, 1. How much worse can it get?; 2. Is there an interim support level?; 3. Can the PPT finally staunch the ebb by buying overvalued shares (and will they)?; and, 4. Is there any safe haven for investment dollars?

The quick answers are that it can get much worse, interim support exists in the 12,100-12,300 area, nobody really knows exactly what the PPT can or will do, and as for a safe haven, cash is looking mighty good right now.

There is really no magic bullet to change the outcome of the massive unwinding of a near-decade-long credit and asset binge. Government policies have created a system so fragile and fraught with risks - seen and unseen - that a financial disaster seems to be the most likely occurrence at this juncture.

The obvious truths are that the market was severely overbought (the Dow was up nearly 30% from a year ago at the start of the week), mortgage failures will continue to proliferate due to an complete lack of oversight by regulators, and the contagion from mortgages will likely become systemic, spreading into all manner of credit instruments.

The key consumer is tapped out, the middle class is shrinking and afraid, and the trickle-down economic policies of the past 20 years have created a monstrous economy with a super-rich class, an impoverished middle and a growing, teeming bottom. America has gone from the world's greatest creditor state to the worst debtor nation in a span of just 50 years.

In a few words, we're pretty much screwed and it's beginning to show up in our markets. A good start would be to impeach all the top officials of the current administration and begin imposing some new standards of conduct for banks and other financial institutions to restore confidence in our capital markets.

A change in government isn't going to be a cure-all - far from it - but the numbskull liars currently in charge likely have more of a vested interest in overseeing the destruction of capital rather than the creation of it.

Next week and during the month of August, when the next wave of selling begins in earnest, officials of the NASDAQ and NYSE may consider closing the markets for a week, allowing for some time to contemplate next moves and reassure a frightened public.

This is no time to be giddy. This market has been overstretched - the bull market is something of the order of 57 months old - and in a very, very precarious condition. The US economy is also an extremely sick patient. Extreme actions may be the best medicine.

Surprisingly, market internals were not nearly as dismal as yesterday's. Declining issues beat advancers by an 11-5 ratio. There were few bright spots as new lows submerged new highs, 706-85.

Just to make matters even more cheerless, oil futures rose $2.07 to close at $77.02, close to an all-time high. Gold and silver continued to decline, oddly, as market manipulation is running rampant. The precious metals should be showing strength at a time like this. instead they are dropping along with all other asset classes.

Get ready for a long, long downturn, similar to Japan's 20-year deflationary cycle. It's been predicted and the stock market is telegraphing it.

There were a good number of earnings reports issued on the day, none of them of much consequence considering the overall tenor of the markets.

Have a great weekend.

Dark Thursday, Black Friday?

Anyone who was surprised by today's dramatic sell-off simply has not been paying attention. The signs were everywhere: weak second quarter corporate earnings, an outright implosion in the US housing market, sub-prime defaults beginning to leak over into mainstream mortgage loans and corporate lending, a market soaring (the Dow was up 30% in just the past year) over and beyond 50 and 200-day moving averages.

Everything was in place for a selling spree of monumental proportions and on Thursday, it all came to fruition.

Dow 13,473.57 -311.50; NASDAQ 2,599.34 -48.83; S&P 500 1,482.66 -35.43; NYSE Composite 9,654.43 -275.93

The day began badly with ExxonMobil (XOM) announcing - prior to the open - that it had fallen short of analyst expectations for the 2nd quarter. Boo hoo, the largest corporation in the world and the company held widely responsible for causing people so much pain for US motorists only booked $10.26 billion, or $1.83 a share, from $10.36 billion, or $1.72 a share, a year earlier. Analysts were hoping for $1.96 per share. They were sorely disappointed and the stock lost more than 6 % on the day.

At 10:00, with the Dow already down more than 100 points, the Commerce Department provided more proof that the US housing collapse was getting even worse than anticipated. New home sales were down 6.6% to 834,000 units, the biggest percentage drop in 6 months. Sales are 22.3% lower than they were a year ago. Additionally, the median price dropped to $237,900, down 2.2% from a year ago.

As the day progressed, the selling intensified. From noon through 2:30 p.m. the Dow fell by more than 200 points as volume reached historic levels.

So powerful was the downdraft, that even oil traders were scared. Crude, up to $77 earlier, fell through the afternoon, eventually closing down 73 cents at $75.15. Gold dropped another $11, with silver closing 20 cents lower.

The Dow bottomed at 13,335.30, a loss of nearly 450 points. Then, something strange happened, just like yesterday. The Dow jumped nearly 90 points in a matter of minutes. It was either the invisible hand of Maynard Keynes, but more likely the clandestine hand of the Plunge Protection Team (PPT), otherwise known as the working group on financial markets, created by Ronald Reagan to prevent a repeat of the Wall Street meltdown in October 1987.

As usual, the foreign press - in this case the London Telegraph - had the story more than a year ago.

Nevertheless, not even Treasury Secretary Henry Paulson and his able team of financial commandos could stem the tide. By days end, the markets were in tatters, with advancers swamped by declining issues by a ratio of 7-1. New lows hit a number I have heretofore never witnessed - 1110 - to only 104 new highs.

And whatever the interlopers did to spike the market, it broke the feeds to Yahoo Finance and CNN Money. The volume figures on Yahoo Finance were totally knocked out (see the chart at right).

Judging by the late figures, the volume was the highest of the year, surpassing the mark of 4.283 billion shares, set yesterday. The overall Dow drop of 311 points was second only to the China rot on February 27 of this year.

There were over 400 stocks reporting on the day, but the biggest stories belonged to ExxonMobil (XOM), Apple (AAPL, beat estimates, +8.74), 3M (MMM, beat estimates), Black & Decker (BDK, beat estimates on lower profit, lowered guidance, -6.88), Office Depot (ODP, met on lower profits, -1.79) and Dow Chemical (DOW, beat, -2.22).

There will be more tomorrow, as investors digest earnings after hearing the government's preliminary figures for 2nd quarter GDP prior to the market open. The so-called "experts" - who haven't been remotely close lately - are predicting 3.2% growth. After Q1's horrific 0.7% gain, anything short of that number will likely precipitate even more selling.

Make no doubt about it, without the interference from government insiders, today's loss could have easily been 500 or 600 points. This slide certainly isn't over. In fact, it's probably only the beginning of a long, painful unwinding of an equally-long credit binge.

The fear is not in the second quarter results, but in the future, with an interest rate drop now becoming more and more of a distinct possibility as the US lags behind other countries - developed and emerging alike.

Rigged Rally

Any doubt that the US stock markets have been, are being or can be manipulated was put to rest today at precisely 3:00 p.m. Eastern time. It was at that moment that the Dow Jones Industrials climbed an extraordinary 50+ points in just over one minute. There was no news, no report issued that would move the market, only the covert actions by groping, free market fondlers.

Briefing.com called the 3:00 jump a "technical trade," which is a good substitute for "we don't know," and the Fed's Beige Book was released at 2:00, not 3:00, but maybe it took a while to digest.

In any case, the final result was a healthy gain for the Dow, with the other indices tagging along.

Dow 13,784.50 +67.55; NASDAQ 2,648.17 +8.31; S&P 500 1,518.09 +7.05; NYSE Composite 9,930.36 +20.41

Other than the faux late-day rally, it was really a see-saw session with the markets initially buffeted by stellar earnings reports from Amazon (AMZN) and Boeing (BA), then battered by the National Association of Realtors' (NAR) existing Home Sales for June, which came in well below estimates, suggesting that, considering the current malaise in the housing market, those estimates might want to be a little less optimistic going forward.

It was the worst showing for housing in roughly 4 1/2 years, though that in itself should not have been much of a surprise.

Elsewhere, companies were churning out 2nd quarter earnings reports, and some actually weren't all bad.

• Xerox (X) beat estimates by a penny, but was pounded lower by 1.10 (nearly 6%).


• Colgate-Palmolive (CL): Excluding restructuring charges, net income in the most recent quarter was $457.5 million, or 84 cents per share. Analysts expected earnings per share of 84 cents.


• ConocoPhillips (COP) posted income, excluding extraordinary items, of $4.8 billion, or $2.90 a share, compared with $5.2 billion, or $3.09 a share, during the second quarter of 2006. The results were well above the $2.68 analyst expectations.


• Freeport-McMoRan Copper & Gold (FCX): On the acquisition of rival Phelps Dodge in March and increased metal pricing, net income after paying preferred dividends rose to $1.10 billion, or $2.62 per share, from $367 million, or $1.74 per share, a year ago. Revenue surged to $5.81 billion from $1.43 billion last year. Analysts surveyed by Thomson Financial were looking for profit of $2.71 per share on revenue of $5.27 billion.
• GlaxoSmithKline (GSK): Pretax profit was flat at £1.896 billion -- compared with £1.897 billion a year earlier -- and was ahead of analysts' consensus expectations of £1.833 billion. Net profit rose to £1.36 billion from £1.34 billion a year earlier.


• Apple (AAPL): (After the close) For fiscal 2007 third quarter ended June 30, 2007, posted revenue of $5.41 billion and net quarterly profit of $818 million, or $.92 per diluted share. These results compare to revenue of $4.37 billion and net quarterly profit of $472 million, or $.54 per diluted share, in the year-ago quarter.

The story beyond the headline numbers was in stark contrast. Decliners beat advancing issues by a 3-2 ration, and new lows swamped the market, beating new highs by 630-134 (no, that's not a misprint).

Oil posted huge gains on the NY Mercantile Exchange, with crude up a massive $2.32 to $75.88. So, square those facts and numbers with a nearly 70-point rise on the Dow... really, try it.

Gold was hammered down $11 to $673.80, with silver losing 29 cents to close at $13.15.

More hijinks are in store for certain tomorrow, as new home sales figures for June are released and another 400+ companies roll out earnings reports.