Turning the screws slowly

Every day, the US equity markets get one day closer to implosion. Repeated interventions - overt and covert - by members of the Fed and the PPT (President's Working Group on Financial Markets) merely delay the inevitable bust. US stocks are still, by almost any measure, horribly overvalued, puffed up by mountains of debt, and ripe for collapse.

When the "reckoning day" does finally come, it may be spectacular. On the other hand, the Fed's management of the market may result in a long, slow, painful, tortuous decline over time, such as what we've been seeing lately. Monday, the market was down; Tuesday, down even more; Wednesday we witnessed a remarkable one-day rally the came from out of the blue, Thursday, down again. Friday's direction, nobody knows, but the general path is toward the bottom - of that, most of us who entertain to study such events are sure.

Thursday was pretty much a non-event as far as movement was concerned. The main US indices were down throughout most of the session and ended that way, except for the NASDAQ, which made a remarkable 45-point move early in the day and remained in positive territory through the close. PPT fingerprints were all over that particular market oddity.

Dow 13,238.73 -50.56; NASDAQ 2,565.30 +2.14; S&P 500 1,457.64 -6.12; NYSE Composite 9,456.64 -52.28

Volume was pathetic once more, as traders attempt to wring a last bit of sunshine out of the summer. Internally, the numbers revealed more of the same. Declining issues beat out advancers by a 4-3 margin. New lows beat out new highs, 166-84.

Oil futures took a moderate decline of 15 cents on the day to close at the absurd figure of $73.36. Gold and silver also were down on the day by marginal amounts. Silver lost a nickel to fall to $11.98. Gold was off $1.50 to $673.20.

Two pieces of news were noteworthy. As expected, Q2 GDP was revised higher. The preliminary read came in at 4.0% versus the advance estimate of 3.1%. Investors barely noticed, especially when news appeared that Sears Holding Co., which operates Sears and K-Mart stores, saw 2Q profit fall by 40%.

Much of Sears' problems are internal, though no doubt their results were partially colored by declining consumer interest in spending every last dollar. The retreat of the consumer is a vexing issue which will only exacerbate the ongoing credit and cash squeeze.

Tomorrow, Fed Chairman is scheduled to speak at the annual shindig of financial big-wigs at Jackson Hole, Wyoming. The event is usually a watershed for bluster and Fed policy mouthings, though why anyone will be even marginally interested is a good question. Bernanke's not about to tip his hand regarding internal Fed policy. Most of what he says will be gloss and devoid of substance.

Ho-hum. Friday's likely to be a really slow day in advance of the Labor Day holiday. Take a break, have a barbecue and some cold beer and get back to the depressing stock market on Tuesday. It will surely be more interesting then.

One-day wonder

1:45 pm Eastern, the Dow was up about 75 points. By the end of the day the geniuses who dropped it 280 just yesterday decide to tack on another 170 or so and send it soaring into the close. Naturally, all other indices followed diligently along.

This is textbook volatility in a decidedly bear market. It's not unusual for traders to act like sheep when the market makes bold moves one way or another. Usually the only winners are day-trading experts at brokerages and a few plucky individuals who play the market for a living. These moves to the upside are nothing more than knee-jerk responses to momentum. If one is really nimble and smart, one can make a bundle of cash on these moves. Unfortunately, most investors aren't constantly trading on momentum, and that's probably for the good.

Dow 13,289.29 +247.44; NASDAQ 2,563.16 +62.52; S&P 500 1,463.76 +31.40; NYSE Composite 9,508.92 +219.43

Advancing issues did an about-face from the previous day, with nearly 5 gainers for every loser. However, the rally on Wednesday failed to kill off the one supreme indicator of the bear. New lows buried new highs, 169-65, a measure that's been giving a bearish reading since the first major pullback on July 24, a span of 27 straight sessions. Until there are more new highs than lows, this market is going to be the haven of hucksters and day-traders, and there will be plenty of losing trades. Practically anything bid up will come down.

Volume was also somewhat on the moderate side. There simply is not a lot of serious activity in the markets. More people are afraid to take risks now than ever in the past 4 1/2 years and many are wondering how long they can ride along without selling whatever gains they have and/or paring their losses.

With stocks moving higher, it didn't take long for the oil traders to jump on board, boosting crude futures for October delivery by $1.78, to $73.51, citing supply shortages, which magically appear out of nowhere whenever the greedy bastards want to make more money. It's simply absurd to believe that oil is actually controlled by any kind of supply-demand cycle. The reality is that the entire market is rigged for the benefit of the major oil companies.

Gold was up $1.90 to $675.40 and silver added 8 cents to close at $12.01. The mini-moves in the metals, in relation to oil, were somewhat akin to a curtsy and a bow. In reality they mean little. All commodities are about to get sunk as the fallout from the credit miasma continues to eviscerate businesses around the world.

Little by little, the credit woes are creeping forward, silently. Eventually, they come into public view and everyone is shocked that Americans could not continue to borrow and spend indefinitely. It's just the way the world works.

How dumb can investors be?

Watching the recent activity on the stock market - especially today - offers a glimpse into the mind of the investor. When the Fed released minutes from their last meeting, stocks, which were already down, again, as usual, as they should be - fell even further as investors didn't cozy up to the idea that the FOMC was not seriously considering cutting the federal funds rate.

Hello! Earth to investors! The Fed isn't going to cut rates at this juncture because that would only exacerbate the conditions which afflict this sick market. The Fed is not about to bail out people who lost money on derivatives, packaged sub-prime mortgages, stocks, mutual funds or any other financial instrument.

The idea that supposedly "smart" individuals trading stocks would wait to hear the official word from the Fed that they weren't about to apply essentially what amounts to a band-aid to the economy. The economy will fail or succeed without help from the Fed. It always does, despite the weight people put on the actions of the beloved Federal Reserve.

Plainly, the people working on Wall Street are overpaid mimicking morons who follow, sheep-like, every movement (or non-movement) of the Fed instead of focusing on fundamentals in the stocks they are trading. If it wasn't so sad, the attitude of traders these days would be laughable.

Dow 13,041.85 -280.28; NASDAQ 2,500.64 -60.61; S&P 500 1,432.36 -34.43; NYSE Composite 9,289.49 -239.44

The Dow lost nearly 100 points in just the last hour - after the release of the Fed minutes. It doesn't really matter when the market moves lower, it is simply enough to know that it will and that there's little, if anything, the Fed or anybody else can do about it. Conditions in the credit markets are so entirely warped and information so sketchy that nobody is really sure of how bad the damage is and how severe the fall of the economy will be.

Suffice it to say that when the market - that being made up of mostly clueless traders - is unsure, it will not perform well. The credit markets are of vital importance to businesses and consumers alike and they are in a condition of complete disarray. As I've said here before, a crash is almost a certainty, it's only the exact timing that isn't known.

For every advancing issue today, there were five that were declining in price. There were 58 stocks making new highs and 150 making new lows. The stage has been set for some time now. Shortly, probably after the Labor Day holiday - or maybe just before it - all of the actors will take their places and deliver a hammer blow to stocks, not just in the US, but worldwide. It's going to be a sobering situation.

Oil and gold declined by marginal amounts. Silver was unchanged at $11.92 per ounce. Commodities are now acting as a proxy for the economy. Lower prices mean slack demand and there's a trend forming, though the oil markets, in particular, are still very much detached from reality. When oil falls, it will be a large drop. We could see oil prices down to levels that may actually stimulate the economy instead of acting as a hidden tax. Gas at the pump may be below $2.50 per gallon by Christmas, if not sooner.

The carnage on Wall Street is magnificent and we're just getting started. The next shoe could drop at any moment. Stay tuned and be nimble... and not stupid.

Blue Monday

The markets opened on a lower note and were pushed further into the red by another in a continuing series of bad reports from the housing sector, today's detailing a further decline in existing home sales and lower prices for existing homes.

The actual numbers have now become somewhat irrelevant.

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Anybody with a pulse knows that the housing market has been fractured, though nobody really wants to admit to how badly it is broken and how serious the effect will be on the general economy.

Allow me to be the bearer of bad news. As bad as you think it might be, multiply that by 3 and you may come close. The coming recession will likely be the deepest and longest of the post-war era. Banks, mortgage finance companies, Wall Street brokerage houses, private equity managers the Federal Reserve and various elements of the federal government have unwittingly colluded in producing a near-catastrophic financial environment rivaled only by the crash of 1929 and the ensuing Great Depression.

Dow -56.74, 13,322.13; NASDAQ -15.44, 2,561.25; S&P -12.58, 1,466.79; NYSE Composite-78.11, 9,528.93

I cannot state with any more urgency than to say that the American banking and credit markets are in a liquidity crisis unmatched by anything most people under the age of 80 can remember.

A few points to ponder:

• The US equity (stock) markets were so close to a complete crash at various points over the previous three weeks that not only our own central bank - the Federal Reserve - had to intervene, but so too did the Bank of Japan and the European Central Bank.


• Countywide Financial (CFC), the nation's largest mortgage issuer, faced a liquidity crisis so severe that they were within days of declaring insolvency. Only by tapping a monstrous $11.5 billion line of credit and receiving interim funding of $2 billion from the Bank of America were they able to stave off complete catastrophe.


• Wells Fargo (WFC) had a two-day outage of their online banking and ATM machine network which the company blames on a "computer glitch." The real cause for this shutdown or closure of their banking operations may never be known.


• Citigroup and Bank of America, last week, requested and received an exemption from the Federal Reserve, allowing them to loan more money to their brokerage affiliates which were bleeding cash from bad mortgage loans and a meltdown in derivative positions.


• The price of gold sank $22 in one day as nervous financiers sold the metal in order to raise cash.


• The Federal Reserve lowered the discount rate - the rate at which member banks can borrow - 50 basis points, from 5.75% to 5.25% and also extended the repayment period from one day to 30 days. That window of liquidity opportunity will begin to close within 3 more weeks. At that point, Fed banks will be forced into a position of having either to borrow more or shut down some operations.


• A number of financial institutions - mostly hedge funds and mortgage financing interests - have already been shuttered due to a failure to meet ongoing obligations.

All the while, Congress and the president have been on vacation. There has been only cursory lip service paid to the situation, though anyone who understands finances, and especially debt, knows that the condition of the US economy is grave.

Volume on the NASDAQ today was 1,285,962,361 shares, the lowest figure of the year. Traders are actually afraid to commit to this market. We are approaching a condition of inertia and illiquid markets which could shut down much of the world economy.

Declining issues outdid advancers by a better-than 2-1 margin. There were 130 new lows to 109 new highs, numbers that reflect the serious shortage of both buyers and sellers in the market.

Oil futures continue to be completely detached from reality, gaining 88 cents to close at $71.97, a price that cannot be justified or supported at any juncture in the supply chain. Regular gas has been declining over recent weeks, an unprecedented event during the usually-busy summer driving season. The decline in gasoline prices is an indicator of the general welfare of the US economy. People are driving less - much less in some cases - reducing demand on a current oversupply.

Gold and silver declined by marginal amounts again as the commodity markets continue their slow price disintegration.

There are crossed signals coming from all manner of sources - economic, political, military - that the world is on the verge of a major upheaval event. If recent history - the past 200 years - is any kind of guide, our world, as we know it, is about to be shredded by a combination of various forces of oligarchies, secret societies, ill-conceived government actions and tyrants.

If you are not yet afraid, you should at least be concerned. If you are afraid, your fear has good reason to manifest itself.

Spinning bad news into good (and withholding the worst)

Headlines can be misleading.

Today's big news, courtesy of the AP, is a case in point:

Home Sales, Factory Orders Both Rise in Encouraging Signs for Economy

It's only half true, or maybe less. The part about factory orders is pretty much spot on. Companies spent freely in July. Of course, that was before credit woes hit Wall Street and Main Street like a sledgehammer in August.

As far as those new home sales figures are concerned, there's a real double edged sword in play. Sure new home sales were up 2.8% in July - from June, when they were down 4% - so, isn't that still a net loss?

Additionally, the headline writers took the more optimistic of views concerning housing. Sales of new homes are off 10.2% in 2007 versus 2006.

The bit about "Encouraging Signs for Economy" is nothing more than an editorial, which, in strict journalistic terms, is out of place and out of bounds.

A more realistic headline might have been, "Factory Orders Up, New Home Sales Remain Down as Investors Await August Data."

Dow 13,378.87 +142.99; NASDAQ 2,576.69 +34.99; S&P 500 1,479.37 +16.87; NYSE Composite 9,607.04 +128.42

The financial press is as guilty as the mainstream for spinning news stories to suit a political agenda. Nobody wants the economy to falter, just like we don't want more bloodshed in Iraq, but that doesn't give the AP or any other news outlet carte blanche to adjust the headlines. Facts are facts, and they should be reported as thus, without embellishment. If the AP wants to mold the psyche of the American public, maybe they ought to start up a blog, where the rules are less well-defined.

Nevertheless, putting the smiley face on the news did lift investor spirits somewhat on Friday. Those reckless enough to be buying stocks faced little resistance in the market. Sellers were all too happy to give up their shares at a premium as the market advanced. Volume on the the Big Board was downright anemic. Over on the NASDAQ it was just another sluggish session.

Meanwhile, signs that the worst may not yet be over for the nation's largest mortgage firm, Countrywide (CFC), continued, as traders sent shares lower by 1.02 to close at 21.00, on heavy volume. 60 million shares of the stock changed hands. Average volume for the equity is 25 million.

Advancing issues clobbered decliners by nearly a 3-1 margin. New lows continued to hold sway over new highs, however, 125-87, and that metric is troublesome for bulls.

A commodities shot up on the day as well. Oil caught a bid and rose $1.26 to $71.09. Gold gained $9.10, with silver tagging along with a 30 cent gain.

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The commodity moves are foolhardy, just like today's stock market. Within weeks - if not days - these gains will be wiped away as the bad news in the credit sector dribbles out.

The Dow advanced just about 300 points for the week. Despite the impressive move, it should be noted that it was done on slim volume and the index is still more than 600 points below the highs reached in July.

There's a wall of worry to climb, and this market is just getting to the steep part.

Naturally, at 4:40 PM EDT, after the markets had already closed, came news that the Fed had bent their own rules to help member banks in the liquidity crisis.

According to the article, both Citigroup and Bank of America, earlier this week, requested and received an exemption allowing them to loan more money to their brokerage affiliates who were bleeding cash from bad mortgage loans.

Both the timing of the release of this information and the rule-breaking by the Fed and its members smell to high heaven. As usual, the American public is kept in the dark until after the fact. The liquidity crisis, as I've said over and over again, is the most serious financial situation the US has faced since the Great Depresssion.