Rally Fades After Euro Rift is Exposed; Prepare for Third Quarter Earnings Bloodbath

US markets for equities and commodities have been held captive for the better part of the past three years - by high frequency traders, insiders with more knowledge (and money) than the general public, uninterrupted meddling by the PPT or other quasi-government agencies, but mostly, for the past nine to twelve months, by news from the Euro-zone.

It seems like every day there is a different story coming out of Europe concerning the debts of various nations and how the ECB, EIB, EFSF or any of a multitude of alphabet-soup acronyms react and intend to dispose of or attempt to solve the problem of the day. Today was no different as a late-session story from the Financial Times killed off a perfectly good short-covering, end of month window dressing rally inspired by absolutely nothing.

Stocks had been rolling along after a massive gap-up at the open, with the Dow ahead by as many as 325 points, but everything did an abrupt about-face when news erupted from Europe around 3:00 pm EDT over a rift between the nations aligned to bail out Greece - again.

According to the Wall Street Journal's story:

Stocks pared gains in the final trading hour after the Financial Times reported a split has opened in the eurozone over the terms of Greece's second bailout package. As many as seven of the bloc's 17 members are arguing for private creditors to swallow a bigger writedown on their Greek bond holdings, the FT said, citing senior European officials.

That was enough to finish off all the naked enthusiasm for the day and send stocks reeling into reverse. Though the averages finished the day with healthy gains, the froth at the top - and middle - were blown off by one story concerning something everybody already knows is a financial disaster, the continuing struggle over whether Greece should be allowed to fail or, by keeping it afloat, potentially take down the entire EU and maybe the rest of the global economy with it. The central banking powers and politicians around the globe are about at wit's end over the crisis in Europe, and are seemingly capable of saying or doing just about anything to stave off the eventual collapse of the Euro as a viable currency.

Sadly, for them and for the rest of us, eventualities do occur despite the best efforts of bright people to change the course of reality. It's so obvious to everyone now that Greece has to go, and soon, and they will take down untold numbers of European-based banks and spread the default contagion far and wide. Welcome to the 2008 redux.

For those who make a living trading, this environment is conducive to massive profits if one is nimble, smart and engaged, though at the end of the day all the swaps, hedges and protection aren't going to matter one whit when the financial tsunami crests upon first Greece's pristine shores and continues along the Mediterranean to Italy, Spain and Portugal. Once it races through the Straits of Gibraltar, all nations will be at risk, though the most isolated may be the best-insured. Countries out of the way, like Russia, India, Indonesia and Canada, may be spared the brunt of the blows, though general commerce will be affected globally.

It's coming. Everybody knows it. Most are in denial. That's how we get miracle rallies out of the blue and smashing declines on real news.

What to watch for are waves of large bankruptcies, like that of Saab, recently, sure to be followed by smaller suppliers and next by maybe a Chrysler or General Motors, which has traded below its IPO price for a solid six months after being bailout out by the US taxpayer. Nobody is buying new cars, and they're especially steering clear of GM (aka Government Motors) models. We are in the final stages of financial collapse, the first wave coming in 2008 and truncated by massive capital injections by the Federal Reserve, other central banks and governments from Paris to Beijing.

The financial paradigm of debt-issued money being created out of thin air, fractional reserve banking and crony capitalism has been broken and will soon find itself in complete and utter chaos. Events such as today's turnaround on Wall Street serve as apt reminders that the system is broken beyond human repair. It will take an act of God or an invasion from outer space to fix the mess and neither of those potentialities are on the horizon.

Adding insult to injury, analyst Meredith Whitney cut her third quarter earnings estimates on Goldman Sachs and Morgan Stanley late in the day. Whitney, a highly-respected banking analyst, cut Goldman Sachs (GS) from 3.39 per share to a mere 31 cents, a 90% haircut. Morgan Stanley (MS) was cut from 53 cents to 28, so it would be best to be prepared for a third quarter earnings bloodbath, not only for banking stocks, but for a host of other well-known names. Results from the previous quarter and year-ago will be hard to match for many firms, with the 4th quarter looking even more devilish.

Dow 11,190.69, +146.83 (1.33%)
NASDAQ 2,546.83, +30.14 (1.20%)
S&P 500 1,175.38, +12.43 (1.07%)
NYSE Composite 7,043.12, +102.31 (1.47%)
NASDAQ Volume 2,109,385,500
NYSE Volume 5,515,045,000
Combined NYSE & NASDAQ Advance - Decline: 5195-1451
Combined NYSE & NASDAQ New highs - New lows: 37-102
WTI crude oil: 84.45, +4.21
Gold: 1,652.50, +57.70
Silver: 31.54, +1.56

Nothing Has Changed Except Prices of Stocks; Silver, Gold Still Being Punished

The start of the week was another one of those sessions that made little sense in the grand theme of things, unless you're one of those poor, misled types who believe the Fed and central bankers are working for your benefit, not their own, and can magically pull rainbow-belching unicorns from their nether parts.

The rest of us just marvel at the machinations of the market amid the worst economic crisis since the Great Depression and laugh or cry, depending on our moods and personal situations.

Volatility is the trader's friend, but an investor's nightmare. Stocks jumping around, up and down, without regard to fundamentals - exactly what's been happening in US equity markets since mid-July - does not make for a friendly investment environment. Your money is just as easily chewed up whether you are long or short. Only the best investors, or those with inside knowledge, like our hedge fund and banking friends running the computer algos on Wall Street, will survive. The small investor literally has no chance of turning trades into profits as the deck is stacked against him or her by the big money players.

So, we watch and wait for Europe to implode, the US government to shut down, or the massive federal debt to either be defaulted upon or paid off (yeah, that's a good one!). Sooner or later, all the debt will bury all the assets of stocks and investors will be left with worthless paper. Or it won't. One never knows what Fed Chairman Ben Bernanke, President Obama or the insipid, asinine congress will do next, but one thing's for sure, if it's the congress or the president, it's not likely to amount to anything, and even Bernanke's magic touch seems to be a little less deft these days. Confidence is what makes markets, and almost all confidence has been destroyed by decades of borrowing and spending without control, lying to the American people (it happens in Europe, Japan and China too) about the state of the economy while the ringleaders of the criminal banking cartel walk freely.

One item from the weekend was interesting. It seems the Federal Reserve has put out a RFP for a Social Media monitoring system. This is nothing less than an attempt to quell negative public opinion (maybe they can start with Rep. Ron Paul) about the workings and dealings of the Fed. Since the Fed is a private bank, their snooping and interloping is pretty scary stuff, considering they are running the ship that creates monetary policy for the US, and, to a degree, the entire planet. You can read the RFP here.

From the Salon article linked above:

Federal Reserve Bank of New York has issued a "Request for Proposal" to suppliers who may be interested in participating in the development of a "Sentiment Analysis And Social Media Monitoring Solution". In other words, the Federal Reserve wants to develop a highly sophisticated system that will gather everything that you and I say about the Federal Reserve on the Internet and that will analyze what our feelings about the Fed are. Obviously, any "positive" feelings about the Fed would not be a problem. What they really want to do is to gather information on everyone that views the Federal Reserve negatively. It is unclear how they plan to use this information once they have it, but considering how many alternative media sources have been shut down lately, this is obviously a very troubling sign.

Are you worried? You shouldn't be, so long as you say nice things about the Fed, like, "they're the greatest central bankers ever!"

See, not so bad.


Dow 11,043.86, +272.38 (2.53%)
NASDAQ 2,516.69, +33.46 (1.35%)
S&P 500 1,162.95, +26.52 (2.33%)
NYSE Composite 6,940.81, +170.08 (2.51%)
NASDAQ Volume 2,018,322,875
NYSE Volume 4,553,576,500
Combined NYSE & NASDAQ Advance - Decline: 3898-1762
Combined NYSE & NASDAQ New highs - New lows: 16-431
WTI crude oil: 80.24, +0.39
Gold: 1623.50, -33.70
Silver: 30.73, -0.20

Note that the New highs - new lows are still screaming "SELL" every day. We are in a trough and the stocks can't seem to get out of this range. The best guess is that the next move is down and into bear market territory, at least that's what "old reliable" new high - new low data is saying.

The precious metals were shoved all over the map again today. In Thailand, the silver futures exchange was shut down via a circuit breaker when the metal traded down more than 10% in the opening minutes. The CME announced higher margin requirements on both metals. Odd, because they are already down so much over the past week. This is the global banking cartel at its worst.

Precious Metals Mayhem; Gold Down $100; Silver Slammed

There are plenty of theories on what took place in precious metals markets over the past few days, but the best possible explanations really don't hold up to closer scrutiny.

Some say that there were margin calls in stocks and that traders trundled out of gold and silver, though that would not explain why the biggest hits were today, unless there were some overnight desperation calls.

Others suggest that this is all a coup by central banks in anticipation of a major monetary event, such as a Greek default or a major Euro-zone banking collapse, or possibly even the shutdown of the US government, which, if our nitwit congress-people have it in their power (and they do) may just occur as early as October 1 (nice that it falls on a weekend, too).

That maybe makes more sense, as anyone with half an interest in current geopolitics knows the central banks are working in a coordinated fashion these days, knowing that the time left for successful fiat money may be measured in days or months, no longer in years. With the Fed turning 100 in 2013, that would seem a fitting date to implode the entire global ponzi fractional reserve scheme, smack dab in the first year of a new president's term.

Of course, there is still the famous short silver position of the fabled Blythe Masters of JP Morgan, which could explain quite a bit, especially in terms of the solvency of that fine financial institution, in particular.

Whatever the case, haters of real money are having a field day, supposedly impressed that gold has fallen back to levels last seen at... hmm, the beginning of August (yes, less than two months ago) and silver is currently where it was at the start of 2011. These short-sighted individuals should bear in mind that all of the major indices of US stocks are BELOW where they began the year.

The public lovers and hoarders of silver and gold have been making "back up the truck" references all day long, seeing this latest price movement as either a liquidity or solvency event and are prepared to scale in buying at these levels while hoping the price foes even lower. With them, there is overall agreement that whatever is causing the price of the precious metals to shudder over the past 48 hours has more to do with the sustainability of current political and monetary factions rather then the intrinsic values of two metals which have stood the test of time as currencies for the past 5000 years.

Whatever the cause, it should be seen as a buying opportunity, with caution to purchase only physical metal, not ETFs or mining stocks, and to scale in according to your risk perspective. With the weekend on hand, prices should firm up in a few short hours, and the metals are currently well off the lows of the day, when gold was down my more than $100 briefly and silver had printed - for a short time - at a $29-and-change handle.

That was where all the action was today. Stocks were essentially flat, which is something of a surprise, following a day-and-a-half of vicious selling pressure.

A good idea would be to head to your local precious metal outpost and make the best deal you can on gold or silver, bars or coins, take your pick, because there is going to be a break between the paper prices of the EFTs and the physical market, which is splintered amongst thousands of coin and bullion dealers scattered around the globe. The CFTC has done nothing to protect PM investors from raids like these, allowing big outfits (like HSBC, JPM and central banks) to run naked shorts in violation of position limits without so much as a quiet "no, no." And, when the fiat currency regime ends, as have all paper currencies backed by nothing but "trust" which has now been broken a thousand times over, gold and silver will re-emerge as "real" money.

Precious metals prices may go even lower in a deflationary environment, but, as the central banks engage in more easing, money printing and currency debasement, gold and silver will take on their own lives as legitimate currencies and soar in value. Any way you look at it, this is a godsend for anyone underinvested in precious metals, because, unlike stocks, currencies or bonds, they are not debt-based instruments and there is no counter-party risk.

God Bless Ron Paul!

Happy Friday!

Dow 10,771.48, +37.65 (0.35%)
NASDAQ 2,483.23, +27.56 (1.12%)
S&P 500 1,136.43, +6.87 (0.61%)
NYSE Composite 6,770.73, +44.11 (0.66%)
NASDAQ Volume 1,987,216,125.00
NYSE Volume 5,639,933,500
Combined NYSE & NASDAQ Advance - Decline: 4195-2340
Combined NYSE & NASDAQ New highs - New lows: 11-477
WTI crude oil: 79.85, -0.66
Gold: 1655.00, -81.50
Silver: 31.15, -4.69