Let the selling begin!

Since the Fed sought to rescue markets and savage the US dollar with a 50 basis point cut in the federal funds rate last week, US indices have floundered, and Monday displayed in clear view, the handwriting on the wall. Stocks struggled between positive and negative most of the morning until finally succumbing to selling pressure in the afternoon.

Dow 13,759.06 -61.13; NASDAQ 2,667.95 -3.27; S&P 500 1,517.73 -8.02; NYSE Composite 9,946.42 -35.41

Once again, the financial sector was front and center in the selling front as banks, mortgage lenders and brokerages variously took hits in advance of Tuesday's key reading on new home sales (10:00 am).

The credit markets are still unstable, though a little improved since the calamitous days of July and August. Still, deals are not being done in the M&A departments of major brokerage houses, dampening third quarter profits. With earnings due out for the majority of the market in the coming 3-5 weeks, analysts are busy revising estimates accordingly.

While most stocks outside the housing, building and financial sectors may fare reasonably well, the overhang from the housing, mortgage and credit situations will not make for a pretty earnings season.

The walkout and strike of 73,000 UAW workers at GM plants also acted as a damper on Monday and may become to a considerable drag on the economy if the strike is not settled quickly.

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That doesn't seem to be in the cards, as union leaders say they and GM negotiators (acting as the lead for Ford and Chrysler) are far apart on a number of considerations, not the least of them being how much GM and other automakers will contribute to a UAW-managed health care fund.

Monday's trading saw declining issues take the lead over advancers by better than a 3-2 margin. New highs remained temporarily afloat over new lows, 266-171. That gap is narrowing, boding ill for bulls, again.

Oil eased 67 cents to $80.95, while gold and silver added negligible amounts. Gold is poised to break through multi-year highs should the markets (equity and/or credit) begin to rupture.

Tomorrow's reading on new home sales will likely send equities into a tailspin, along with the understanding that the UAW strike will be an extended experience lasting weeks and maybe months, instead of days.

Dead Money?

The US greenback has taken a major hit in the currency markets since the Fed rate cut on Tuesday. Incredibly, there's actually some debate over whether a weaker dollar is good for the US. It's not. Our currency is being devalued so rapidly that we risk becoming a third world economy. Since we import nearly everything, and have negative trade balances with just about every country in the world, expectations for inflation run rampant.

Dow 13,820.19 +53.49; NASDAQ 2,671.22 +16.93; S&P 500 1,525.75 +7.00; NYSE Composite 9,981.83 +45.36

That doesn't matter to Wall Street, or so it appears. The stock market, continues to cruise along as though nothing unforeseen is occurring. All the time, the value of the dollar is being eroded - and rapidly.

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Bernanke's rate cuts may have been a potent tonic for stocks, but it's been toxic acid for the currency.

On Friday, there was some limited buying on solid volume, with advancers outpacing decliners by a 3-2 margin. New highs totaled 286, to 131 new lows.

Oil and gold eased modestly, while silver rose 15 cents to 13.62. With options expiring, a tumultuous week ended on a somewhat positive note, though many inefficiencies still need to be wrung out. Monday and Tuesday may offer more direction.

Working off Excess

One of the functions of an efficient market is to work off excesses. Though the US equity markets are far from perfectly efficient, that process began yesterday and continued, though somewhat fitfully, today.

Dow 13,766.70 -48.86; NASDAQ 2,654.29 -12.19; S&P 500 1,518.75 -10.28; NYSE Composite 9,936.47 -34.43

The excessive buying and short-covering from Tuesday and Wednesday morning were being dutifully expelled on Thursday. As soon as options expire on Friday, the market will regain its senses and continue back down. There simply isn't a meaningful catalyst to send the markets any higher. In fact, they are already overvalued.

Declining issues held a 5-2 edge over advancers, though new highs remained ahead of new lows for now, 221-122.

The absurdity in the oil business certainly isn't a positive. Crude for October delivery leapt to another all-time high of $83.32, gaining $1.39 on the day. Also showing signs that the economy is a serious mess, gold gained $10.40, approaching the interim high at $739.90. Silver was also up 37 cents to $13.47.

Credit markets are still in a shambles worldwide and many more homeowners will face foreclosure the rest of this year and through 2008. Stocks are being kept afloat by inflation and fear alone. Soon, the true direction will be found as the economy flounders into recession, despite the jawboning and rate cuts from the Fed.

The close of the week should bear witness to late-day selling as investors are still not convinced that US equities are all they're supposed to be. Earnings season is less than two weeks away. Get ready for some major movements.

Party Crashers

There is usually a lot of hot air circulating around the caverns of Wall Street, but between yesterday and today, the gum flapping and effusion of carbon dioxide was absolutely stifling. Stocks and mutual funds were talked up as though the magic of Ben Bernanke's federal funds rate cut actually made them worth more. The word genius was bandied about.

In other circles, words such as idiot, traitor and appeaser were heard spoken near the Chairman's name. Not everyone was equally enamored with the re-ignition of easy credit.

Holders of dollars - which would be just about every American citizen - were sullen as the dollar sank to new depths against other, more stable, currencies. Only the debt-ridden corporate culturalists were really in a celebratory mood, and by the end of the trading session, the market had cooled considerably.

Dow 13,815.56 +76.17; NASDAQ 2,666.48 +14.82; S&P 500 1,529.03 +9.25; NYSE Composite 9,970.90 +61.87

By the end of the day, the NASDAQ and S&P had pared earlier gains by more than half, the Dow lost 2/5ths of the morning advance. Cooler minds had crashed the party and were prevailing late in the day. Wall Street's cheap credit rally was fizzling.

Nonetheless, Advancing issues outpaced decliners by a healthy 2-1 margin and new highs at last put some distance over new lows, 411-107.

While Wall Street was partying, signs that the underlying economy was in tatters were everywhere.

Oil gained 42 cents to close at $81.93, another record. Banking bellwether Morgan Stanley (MS) missed their quarterly estimate by 16 cents and took a beating. Housing starts fell to their lowest levels in 12 years. The dollar was being sold off against the Euro, hitting a new low of .7162 or an exchange rate of $1.3963 dollars per Euro. Less than a decade ago, one Euro cost 87 cents. The value of the greenback has fallen by more than 40% in just 8 years.

Gold rose $5.80 to $729.50. Silver added 18 cents to $13.11. All aboard the commodities train. It's about to leave the station.

Bernanke gave away the house to save the pretty front porch. His rate cuts will certainly be tonic for Wall Street, and toxic for the US economy. The liquidity crisis continues apace. There will be major bank failures within the next 18 months as the credit cycle spirals ahead without anyone, including the Chairman of the Federal Reserve, the Treasury Secretary, Congress and the President, acting responsibly.

Ben Bernanke, Golden Goose

The FOMC of the Fed pleased all of Wall Street by cutting the federal funds rate by a full 50 basis points on Tuesday - from 5.25 to 4.75% and investors responded with the biggest single-day gains of the year.

Dow 13,739.39 +335.97; NASDAQ 2,651.66 +70.00; S&P 500 1,519.78 +43.13; NYSE Composite 9,909.03 +301.28

Stocks were already higher on the day (the Dow was up about 90 points) when Bernanke unleashed his first real policy directive onto the market. The response was impressive, though highly predictable. Buyers were running over each other to buy stocks which just a few days ago they shunned. It was everything Wall Street wanted and then some, though the cuts signal that there are indeed deep, troubling technical conditions in the US economy which needed this kind of kick-start.

Among the issues facing the US economy are a continuing credit crisis, stemming from loose policy in mortgage markets and hedge funds, a stalled-out employment market, the twin deficits - the government's and the trade imbalance - high oil prices and a weakening dollar.

Today's 1/2-point cut did nothing to salve any of those wounds, yet Wall Street found the news to be encouraging enough to go headlong into an outright exuberant shopping spree.

Bernanke, supposedly a cautious sort, showed that he could and would take decisive action to spur markets. Many expected him to only cut rates 25 basis points, but this decision showed him to be as loosey-goosey as his predecessor, the wily Alan Greenspan.

How long the excitement will last on the Street remains to be seen. The Dow is now less than 300 points from its all-time closing high and the NASDAQ, which had been sluggish of late, threw in a 70-point gain on the day. Much of today's gains were surely short covering, as those betting against the market were shocked into buying up borrowed shares.

Bernanke also cut the discount rate by the same number, to 5.25%, a move to keep liquidity in the banking and brokerage sectors.

Internals were stunningly one-sided. Advancing issues outdistanced decliners by a 6-1 margin, and new highs finally had a positive day, trouncing new lows, 268-170.

Oil continued to rise unnoticed through the euphoric atmosphere, gaining 88 cents to another all-time record high of $81.45 a barrel. As expected gold and silver were silent, both posting negligible gains.

Bernanke may be the Golden Goose today, but the question of whether he will be able to deliver more golden eggs and guide the economy through a rough time, remains an open question.