The Chairman and His Golden Stick

Stocks took the path of least resistance on a lazy Wednesday afternoon, rising gently most of the day as investors, traders and analysts await the all-important speech from Fed Chairman Ben Bernanke at the Jackson Hole confab on Friday.

Last year, Jackson Hole was the scene for the chairman's announcement of QE2, and many in the financial community are expecting a repeat performance, though considering how the markets have behaved this week - gaining in a somewhat orderly fashion - those who believe Bernanke will embark on further money printing may, in fact, be disappointed.

Since QE2 didn't work very well and created a rash of inflation in many commodities, and while most banks have pretty much stabilized their balance sheets over the past two-and-a-half years, there may not be a need for further stimulus. Besides, QE1, 2, and all the rest of the Fed-inspired fixes didn't put Americans back to work, nor solve the housing decline.

So, this little ramp up on the prospects of more easy money (isn't money easy enough already, with the 10-year note below 2.5%?) may be a serious head fake.

Dow 11,320.71, +143.95 (1.29%)
NASDAQ 2,467.69, +21.63 (0.88%)
S&P 500 1,177.60, +15.25 (1.31%)
NYSE Composite 7,273.13, +63.54 (0.88%)

Advancing issues smothered decliners, 4272-2269. There were 7 new highs and 54 new lows on the NASDAQ, and 16 new highs with 31 new lows on the NYSE, making the combined total 23 new highs and 85 new lows, still a slightly negative bias. Volume was lame, back to mid-summer levels.

NASDAQ Volume 1,859,268,750.00
NYSE Volume 5,275,260,000

WTI crude oil dropped 28 cents, to $85.16.

The only major development of the day was the wipe-out in the price of precious metals, another signal that Bernanke may not be plotting the further destruction of the dollar with more quantitative easing.

Gold was pounded down with incredible speed, losing $67.90, to $1761.30. Silver got whacked as well, dropping $2.10, to $39.70. Margin hikes and the departure of hot money (profit-taking) caused the steep sell-off.

One commentator put it into perspective, saying, "gold should go back to being a store of value, instead of a risk asset played for quick profit."

Following yesterday's late afternoon exchange over the future prospects of the Bank of America, I actually laid out a strategy on a message thread over at another financial blog. Here, in all it's simple glory, is my strategy for the next six to eight weeks:

While not exactly ludicrous, a JPM takeover of BAC is a long shot. I would be more inclined to see a Latin American or Far East involvement in a forced sale, liquidation or major buyout. Gotta figure that there's real money out there in less-developed nations who might see a move into BAC as a nice grab, maybe even China, as a hedge against their ugly UST position.

Since the rumor mill is so strong and the denials even more pronounced than ever, it looks like a matter of less than a month we'll see BAC taken out. It's been in the plans for a long time. Everybody from Bernanke on down knew CW was crap, Merrill was another boatload of shit and they'd throw money into it until it no longer made economic sense.

That said, look for major volatility (the VIX is still around 40 last I checked) beginning with Bernanke's non-eventful Jackson Hole speech and continuing through October.

The timeline goes something like:

Friday, Aug. 26 - Bernanke offers no QE, markets sell off, Dow down 300.

Monday, Aug. 29 - More fear, but some stability into end of day.

Friday. Sept. 2 - With a three-day weekend ahead and another poor jobs report behind (range: -25K - +35K NFP) nobody wants to hold, sell off, Dow -200-400 points.

After that it just gets worse as BAC is destroyed, Europe goes through another round of crisis, sending markets lower.

My personal positions haven't changed in four years. I'm out of everything except cash, silver and tools of trades. However, I am strongly considering a short market position, my favorite trade being the DIA, which tracks the Dow.

I see Dow 10,200 by October 5 at the latest, confirming a bear market. So, I'm seriously considering putting on some OCT DIA 102 and/or 98 puts before Friday. May even consider SPY puts on more volatility.

I seldom make calls, but this one is lining up nicely for late summer - early fall carnage.

Huge Gains on Oversold Conditions for Stocks; BofA Near-Death Experience?

Like overeager rookies who ignore the third base coach's stop sign and instead bowl headlong towrd home plate only to be thrown out, traders today simply looked past negative economic data and piled into stocks on the grounds that the market was oversold.

Sure, stocks have hit the skids of late, but for good reasons, like the debt contagion in Europe, the weak and stinking banking system in the US, continuing unemployment woes and the threat of a double-dip recession, but the old "oversold" mindset was front and center on this day, despite new home sales checking in for July at 298,000 units on a consensus of 310,000 and last month's figures revised lower, from 312K to 300K.

According to the logic of traders, housing doesn't really matter, and neither did that rare Northeast earthquake just after 2:00 pm, or the Richmond Fed's Factory Index, which fell from a reading of -1 in July to -10 in August.

Nope. Market's oversold, despite all recent data and expert opinion pointing at a weak second half at best and a full-blown deflationary depression at worst. Maybe somebody tipped then all off that the chairman, Ben Bernanke, will simply announce, in his Jackson Hole speech on Friday, that he will print more greenbacks if the economy continues to slide towards insolvency and desperation.

Then again, the primary players in this little financial drama are mostly momentum-chasers and day-traders, so maybe it all makes perfect sense. After all, the Wall Street of 2011 is not for investing, it is for immediate profit and self-gratification. Kum-bye-yah! It's a new age phenomenon.

While stocks were quickly eviscerating last week's losses, not all of them were going skyward, especially Bank of America, which touched down at a new 2 1/2 year low of 6.01 before mid-day. The mighty BofA is beset on all sides by questions over the veracity of its own numbers, the grinding legal costs associated with faulty mortgage dealings and a surprising shortage of capital - after being bailed out and getting preferential, secret treatment from the Fed during the financial crisis of 2008-09 - which may force the lender to sell off whatever good assets it has remaining and/or still need to make a secondary offering in the market in order to satisfy new, more stringent capital requirements a few months down the road. Bank of America (BAC) closed down 12 cents at 6.30, a new, 2 1/2-year, closing low.

Let's face it. Bank of America looks more like a shabby slumlord than a quality mortgage lender and it's only a matter of time before they go belly up or are taken over by the government and broken up in pieces to rivals like JP Morgan, Wells Fargo and Goldman Sachs.

Not that those banks are any more secure or trustworthy. In fact, Goldman Sachs (GS) has troubles of its own, despite following the market and posting a measly 0.35 gain today, closing at 106.86. The stock peaked in January at 175. Simple math says that's a nasty loss since then.

Whatever. The market is oversold, people. Buy more.

Dow 11,176.76, +322.11 (2.97%)
NASDAQ 2,446.06, +100.68 (4.29%)
S&P 500 1,162.35, +38.53 (3.43%)
NYSE Composite 7,209.59, +228.97 (3.28%)

Advancers smacked down declining issues, 5440-1239. The NASDAQ finished the day with seven (7) new highs and 146 new lows, while the NYSE posted 13 new highs and 169 new bottoms. The combined, 317-20 edge for new highs over new lows reiterates the strong sell signal the market has been blaring for three weeks. Yes, it may be oversold, but a today's gains were more the knee-jerk, dead cat bounce variety rather than a solid gain on fundamentals, which would be sustainable, should such fundamentals ever appear.

The trouble with investors and this market in particular is that nobody wants to face the undeniable fact that although most companies are lean, mean and posting solid profits, new quarter and next year's numbers will be up against some strong results, those provided by artificial stimulus and excessive monetary easing. Additionally, the bear market rally that began in March of 2009 is getting a bit long in the tooth. At 30 months, it may be time for a long term change of direction and sentiment.

Volume, on such a big run as today's, would have been much more robust if there was deep, underlying commitment by traders and investors. Maybe the traders have commitment or should be committed. Real investors are in cash, gold, silver and hard assets these days. What substitutes for a real equity market is all hype and subterfuge, devoid of substance.

NASDAQ Volume 2,129,302,500
NYSE Volume 5,913,402,500

Today was also a banner day for "gold is in a bubble, but we're running out of oil" preachers. WTI crude was up $1.02, to $85.44, and if you don't think gas has come down with the price of oil, you're right, though CBS news offered some blatant propaganda (likely prepared right from a press release by the American Petroleum Institute) as to why that is the case. It was pure bunk, delivered with the straight-faced lie that gas could drop another 40 cents by Christmas. Geez, Louise, thanks, we'll keep that in mind as we all go broke well before December.

As for gold, no "silver-slap-down" margin hikes were required (correction: the Shanghai Gold Exchange lifted gold margins for forward contracts the second time this month to 12% beginning on Friday - tip of hat to Tyler Durden at Zerohedge.com) to send the yellow stuff down $68.70, to $1829.40, after it had breached the $1900 level (hitting a peak of $1917.90) in Asian trading. Silver was also trampled by the fiat-leverage folks, losing $1.83, to $41.89. So much for the safety of hard assets, eh?

Don't be dissuaded by one-off moves prompted by the evil fornicators of the global banking cartel. Hard assets will outshine, out-gain and outperform all paper assets in the long run, and already have for the past 11 years running. Paper money, backed by nothing but ungodly, unpayable levels of indebtedness are going to die an awful death and the grim reaper is already sharpening his scythe. Either that, or all the paper money in the world buys less than it did yesterday, for eternity.

Finally, for those with a morbid fascination or those who know the meaning of the apocryphal acronym TEOTWAWKI (look it up), here's our old pal Henry Blodget expounding on why Bank of America's real capital needs may be more in the $100-200 billion range than the controlled-media's claims of $20-30 billion and Bank of America's response that he is making "exaggerated and unwarranted claims."

US Banking Sector Flattened as Secret Fed Loans Are Revealed

If you're fond of following foreign markets (and who isn't in today's meltdown environment?), the oddest of patterns emerged as planet Earth spun East to West.

Most Asian markets opened with gains, though ended up sporting losses by the end of their trading sessions. As the focus turned to Europe, gains were seen across the board early, though those faded late in the day, with the German DAX finishing slightly in the red.

When it was America's turn, the futures pointed to a bright open following a dismal end to the prior week and the Dow burst to an early 200-point gain. After that initial boost of enthusiasm, with the major indices hitting their highs of the day in the opening minutes, it was mostly downhill as investors sold the rally and the markets ended essentially flat for the week's opening session.

To the surprise of almost nobody, financial stocks were hard hit again, led downward by old, reliable Bank of America (BAC), which is facing a serious liquidity/solvency/honesty/continuity crisis after announcing on Friday that it intended to cut 3,500 jobs in the third quarter, with perhaps as many as 10,000 job cuts by the second quarter of 2012. Bank of America closed down 55 cents, at 6.42. The funeral dirges should begin any moment for the nation's largest bank by deposits.

While that news was certainly a disheartening blow to the non-productive paper-shufflers in the financial cesspool sector, a story that has gone largely unreported by the mainstream media was quite possibly the underlying cause for much of the weakness in the banking business.

Bloomberg reports that the Federal Reserve secretly doled out as much as $1.2 trillion to US banks, foreign banks and other financial and non-financial firms - including McDonald's and Caterpillar - from 2007 to 2010. Not of word of the story was spoken on CNBC, though the news spread rapidly through the blogosphere and the web's alternative media.

Reactions ranged from disgust to contempt, with a healthy dose of outrage from most astute followers of the Fed's financial foibles. It is unprecedented that the Fed would stoop to such lows as to attempt to conceal transactions from the prying eyes of the press and the American public, though it is hardly unexpected.

What may be worse than the contemptible actions by the Fed is the depth of the subterfuge within the halls of congress and the White House. The bulk of these secret loans were being made while the public was languishing over the absurdity of TARP and the Obama stimulus in early 2009. How many congressional members and presidents - Bush and Obama - knew of the skullduggery while it was being undertaken are questions to which the American people deserve answers, though judging by how many firms received loans over such a long period of time and with a Justice department that is loathe to issue subpoenas to anyone connected in any way with the financial services industry, the wait for such answers may be a long time in coming, if ever.

The information was obtained by Bloomberg through a Freedom of Information Act request that was continually blocked, challenged and evaded by the Fed. Now that it is out, it's evident that most of the popular media wants no part of the story, focusing instead on the fall of Tripoli and the end of the reign of Colonel Gaddafi in Lybia. The implications of tis story are breathtaking in scope and what it means for democracy and freedom, not only in America, but in the rest of the world, against an increasingly desperate global banking oligarchy.

Of course, with the media hitting the ignore button on the story and most Americans less-than-concerned with the fate of their own country, it's likely that the thievery and secrecy will continue unabated without even a hint of impropriety at the highest levels of the government.

One more story caught the attention of traders late in the day, that being reported first by Reuters with about 20 minutes remaining in the session. Apparently, Goldman Sachs CEO Lloyd Blankfein - yes, the very one who equated the business of Goldman Sach's with "doing God's work" - has hired, along with other executives at the firm, attorney Reid H. Weingarten, a partner with Steptoe & Johnson in Washington D.C. amid accusations that his firm acted fraudulently leading up to and during the 2008 financial crisis.

Goldman Sachs (GS) ended the day off 5.25 points (nearly 5%) on the day, with all of the losses occurring in the final fifteen minutes of the session.

Speculation will almost certainly run rampant with this news, but it could be yet more evidence that the global banking system has run completely afoul of the totally-corrupt political system and the long knives are about to be unsheathed. Should Blankfein and others from his firm be criminally charged, the end of fiat money could be at hand in short order with many undetected and unknowable circumstances to follow.

Corruption at the highest levels of government has been a feature in America for many years. The only remaining question is when Americans will finally have had enough of it.

Dow 10,854.65, +37.00 (0.34%)
NASDAQ 2,345.38, +3.54 (0.15%)
S&P 500 1,123.82, +0.29 (0.03%)
NYSE Composite 6,980.62, +10.52 (0.15%)

On a day in which volume was repulsively weak, declining issues led advancers, 3562-3027. New highs on the NASDAQ numbered just nine (9), with 244 stocks reaching new 52-week lows. On the NYSE, a similar story, with just 13 new highs and 247 new lows. The combined tally of 22 new highs and 491 new lows is a screaming sell signal.

NASDAQ Volume 1,983,095,500
NYSE Volume 5,436,260,000

While it was expected that oil prices would decline upon the fall of Lybia, since that nation's supply would soon go back online again, Brent crude fell, though the other oligarchy - that of the oil barons - managed to tighten its grip on the American consumer a bit, raising WTI crude futures $1.86, to $84.12 per barrel.

The largely unguided public is fighting back against the perception of fraud and debauchery and the failure of the global economy by buying precious metals with gusto. Gold set yet another record, rising $39.70 on the COMEX, to $1,891.90, though being reported at kitco.com at $1907.20. Silver gained 89 cents, to $43.32, but, as of this writing, was quoted at $43.85.

Events are moving a breakneck speed, despite Wall Street attempting to cool off prior to Fed Chairman Ben Bernanke's Jackson Hole speech on Friday. While many pundits await the all-clear signal from the chairman for another round of quantitative easing (money printing), the evidence is clear that the first two rounds - QE1 and QE2 - did more harm than good in the overall scheme of things, plus, in light of the breaking news by Bloomberg, the chairman and his cronies in the banking business and politics will do as they please, the public be damned.

This is the environment in which we must now tread. It is one of complete disregard for laws, principles of economics or even the most simple forms of common decency, honesty and principle.