I See a Bottom

Actually, that's what somebody posted on a message board about 3:15 pm this afternoon. That was before the Dow dropped another 150 points into the close.

I don't see a bottom. Maybe in three to six months my powers of prognostication will be improved, but the next stop is somewhere in the range of 12,800 on the Dow - the August lows. And it probably isn't going to stop there.

Today's US equity markets were roiled by a massive, $39 billion 3rd quarter loss by General Motors, spiking oil prices (why wasn't the market tanking when oil hit $75, or $85?) and continued deterioration in the credit markets.

There's a lot of talk these days about the credit markets. Let's be clear. Banks are in deep, deep trouble and they aren't about to lend money to just anyone. If you're an individual, you need absolutely perfect credit. Companies need AAA ratings, loads of solid repayment history and still they're going to pay through the teeth. It's very tight and scary in financial markets right now. There is talk not only of recession, but depression, though we're still far removed from that possibility at this juncture.

Fortunately, there will be more signs - ominous though they may be - before banks begin to fail. Small businesses will close first because they are the most prone to catastrophe in economic downturns. That would happen on a regional basis, most likely in smaller communities. Of course, the level of personal bankruptcies is already alarming.

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Next, larger firms would go belly up. Mostly, those would be private concerns, which is why the boom to "take private" public companies has been suddenly and irrevocably reversed course. There is no M&A activity to speak of. When public companies go under, then the handwriting is already on the wall, so, if you take a look at some of the mortgage firms and hedge fund operations which have gone under recently, it looks like we're quite a bit closer to economic meltdown than the ordinary, uninformed citizen would assume. And we probably are.

Dow 13,300.02 -360.92; NASDAQ 2,748.76 -76.42; S&P 500 1,475.62 -44.65; NYSE Composite 9,830.15 -272.26

There have been 13 days this year in which the Dow lost 200 or more points. 11 of them have occurred within the last 4 months. Today was the 5th worst decline of the year. Obviously, we are not living in an economic utopia.

If we're headed for a recession, or even a prolonged depression, how do we get out of it? First, it should be understood that some will fare better than others. Some entire communities will barely feel the effects. Others will be devastated. The poor and the lower levels of the middle class will be hardest hit. Some say they have already been hit. How we get out of financial distress depends on the wisdom and actions of our elected officials, which, considering the current crop, means we're pretty much screwed.

Anybody who has money invested in the stock markets, in mutual funds, retirement accounts, IRAs, etc. is going to feel a great deal poorer a year from now. That's almost a certitude. But, we do have a financial infrastructure that is deeply-rooted in government employment. Teachers, postal workers, public works workers will not see any declines in their rates of pay.

But the private sector can only survive if it is itself vibrant and growing. It is not. If you work for anyone other than a government entity, you'd be wise to prepare for the worst because the stock market is telling you, loud and clear, that it's coming. And it's not going to relent. The level of economic destruction about to be unleashed upon the United States of America will be unprecedented unless - again - our elected leaders take action that is sound and correct and broad-based.

The initial actions taken by the Federal Reserve, of lowing interest rates, has been a disastrous beginning. Rates should be raised to reflect the realities of the marketplace. Money should be tight. It should be well-guarded and every dollar respected. The Fed has sent exactly the wrong message so far, but that's what we get from a central bank that fomented the largest credit expansion in the history of the world and a government that cannot restrain itself from overspending.

Back to today's market. The 5,500 declining issues dwarfed the 897 advancers. New lows ravaged new highs, 776-203.

Oil actually took a breather, losing some 33 cents to close at $96.37. That price is artificially high, unsustainable, illusory and about 30-40 dollars too high. It's a price that will bankrupt entire nations.

Gold closed at an all-time high of $833.50 with no end in sight. Silver took a little off the top after a massive run-up, losing 6 cents to $15.33.

We're all in for a world of hurt and the blame can be firmly placed on the elected "leaders" in Washington and the corrupt media and their selective reportage. They - except for a chosen few - are no better than common crooks and they have traded on the nation's wealth to enrich themselves. May they all burn in hell for what they have wrought.

NYSE Volume 4,301,055,000
NASDAQ Volume 2,561,720,500

The Quiet Rally

There was no hoopla, no blockbuster story. No, there was little more than a murmur over the outsize gains in US equities today. Strange.

Dow 13,660.94 +117.54; NASDAQ 2,825.18 +30.00; S&P 500 1,520.27 +18.10; NYSE Composite 10,102.41 +143.59

The major averages gained in the range of 1% - usually an occasion for cheering - but the only sound was that of one hand clapping, as the price of oil grabbed headlines once again. Crude was the news, as a barrel of the slippery stuff went for $96.70 at the close of trading at the NY Mercantile Exchange, a gain of $2.72 over the previous day.

Oil at nearly $100 a barrel would normally cause markets to reel in terror, but this is no ordinary market here in the good old US of A, this is a market that's been held in abeyance by the dual forces of sub-prime mortgage fallout and a related crippling credit crisis.

So, it was a surprise to many that stocks did so well today. Well, some stocks. As expected, ExxonMobil (XOM) was the big winner on the Dow, gaining 2.72 to 90.38 at the close. 23 of 30 Dow components were in the green.

On the broader exchanges, advancing issues beat decliners by a 13-8 margin, though new lows continued to hold sway over new highs, 536-276. That's not a good sign, for now, though the margin is better than it was yesterday.

But the market gains were not embraced by investors. Rather there was an uneasy skepticism, especially since the markets creaked eerily into the red just after 11:00 am. After that, though, it was all uphill, for the rest of the day, especially in the final hour, when the Dow tacked on 70 points into the close, with heavy buying in the final few minutes. It was an oddly quiet day for such a dramatic rise.

Were it simple to discern the behind-the-scene activities of the Fed, the Treasury, the serendipitous PPT, the brokers, dealers and underwriters, this game would be to easy. But there was no driver today, no mover, no shaker. Just buying for the sake of buying.

Maybe people were just tired of selling. One would expect an urge to sell stocks might appear sooner rather than later, as the markets have been stuck in a range for some time now, and the downside still makes more sense than new highs.

The gains in gold (+13.00, $823.80) and silver (+0.60, $15.38) were also outlandish and indicative of the crumbling status of the dollar.

US stocks are surely struggling, but today served notice that without direction, people still have some degree of faith.

NYSE Volume 3,893,849,000
NASDAQ Volume 2,545,161,000

Wall Street's Ponzi Scheme Blowing Up

What's really going on with Wall Street?

We keep hearing news that the economy is OK, but then, a day later, there's more disturbing data from the housing sector, or some consumer confidence poll. GDP is strong (+3.9% in the 3rd quarter), labor markets are solid, but stocks seem to be dawdling along and November is usually a good month.

The bottom line truth is that nobody really knows, or those who do aren't saying, and matters were made muddier last week when the Fed lowered the federal funds rate, then more sub-prime fallout at CitiGroup, then stocks took a nosedive without warning.

On Monday, it looked like a meltdown in progress right out of the gate, then a slight recovery, another slump and a recovery into the close. Same old broken record with this kicker, Fed Governor Frederic Mishkin spoke extensively on the economy and the Fed, saying that the recent cuts could be reversed.

How about that monkey wrench? How would Wall Street react to a 25 basis point increase after celebrating the last two cuts of a combined 75 basis points. If you want to see turmoil, just wait and see.

Dow 13,543.40 -51.70; NASDAQ 2,795.18 -15.20; S&P 500 1,502.17 -7.48; NYSE Composite 9,958.82 Down 93.44

The internals shed more light. Today's decline was more broad-based than most other run-of-the-mill -50 point declines on the Dow. Declining issues led advancers by a nearly 3-1 margin. New lows continued to dominate new highs, 633-165. That's a pretty large gap and signals again that the market is in for more downside pressure.

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The selling pressure is coming from everywhere because stocks have been so magnificently overvalued while returns from the 3rd quarter were shoddy in most sectors.

Gas prices took another huge rise over the weekend, up nearly 12 cents in most areas. Naturally, this has much to do with politics in the Middle East, especially with Pakistan now under what amounts to martial law. What's interesting is that Western democracies are more concerned than Pakistanis themselves, by and large, probably because most Pakistanis aren't accustomed to real democratic rights, they've only recently experienced some of them.

The price of crude actually eased off a bit on Monday, dropping $1.95 to $93.98, which is really not any kind of relief. Meanwhile, gold gained another $2.30, to $810.80 and silver priced 19 cents higher to $14.79.

So, what's really the matter? I continue to hold to the theory that credit markets are frozen, lots of money is being lost on a daily basis, there are no merger and acquisition deals going forward and companies are paying with their eyeteeth for expansion funding. Private equity deals, all the rage over the past few years, are about to blow up in the faces of the funders and bank failures are not far in the future.

While the day-to-day wheels of industry grind on, wealth is no longer being created, but rather destroyed in a vicious cycle of bad loans, tight credit, a falling dollar and excessive pricing in energy. It's an absolute mess that has no other final resolution but a massive re-valuation of just about everything, including stocks, and that means we're going to be stuck in a bear market for some time to come.

Sentiment is turning from unsure to surely ugly and price gains are going to be few and far between. Tech is still the best bet, but only in companies with solid balance sheets and earnings that are growing and are predicted to continue doing so.

I reiterate, anything exposed to finance, banking or money is going to get crushed over the next six to nine months. And when the fall comes to the banking sector, the layoffs in that sector and everywhere else are going to be mammoth. A recession should be a foregone conclusion as government figures have proven, over and over again, to be unreliable and untrustworthy.

If the sub-prime disease that has crushed the credit markets continues unabated - and it will - the effects to the general economy will be long-lasting and severe. Believe whomever you like, but from this corner, the massive Wall Street Ponzi scheme seems to be headed for a watershed event.

NYSE Volume 3,819,302,500
NASDAQ Volume 2,147,749,000

Stocks Take a Breath

After the battering stocks took on Thursday, Wall Street braced for the worst Friday, and early on, it looked as though the bears were going to have another fun day, and, to a large extent, they did.

Just after 10:00 am, the Dow slumped to its low of the day, 13,446, a 121-point decline. Twice, the index struggled into positive territory, for a brief period after 1:00 pm, and for the final twenty minutes of trading, which is where it closed.

Naturally, a see-saw ride such as Friday's is suspicious, and no doubt the President's Working Group, the Plunge Protection Team, was hard at the wheel, boosting all the averages, and the Dow by 120 points in the final 45 minutes.

Dow 13,595.10 +27.23; NASDAQ 2,810.38 +15.55; S&P 500 1,509.65 +1.21; NYSE Composite 10,052.26 +30.18

The internals tell the real story. Losing issues led advancers by a slim margin, 11-10, while new lows swamped new highs, 552-190. That's the largest number of new lows in at least three weeks and augers ill for the rest of the quarter. Even with the Labor Dept. reporting new job creation at the rate of 166,000 for October, nobody was impressed, and skepticism regarding the veracity of the numbers is abundant.

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Meanwhile, the destruction of the dollar continued apace, highlighted by action in the commodities pits. Oil ballooned another $2.44 a barrel, closing at $95.93. Gold broke through the $800 barrier, gaining $14.80 to $808.50. Silver caught a bid as well, adding 27 cents to close at $14.60.

It was somewhat of a disjointed week in equities and finance. Nobody quite understood why the Fed was cutting rates again if the economy was so good. The two main reports of the week, the aforementioned October labor report and the preliminary 3rd quarter GDP data (+3.9%), were both very positive.

The fallout from the sub-prime mortgage debacle continues to cast a long shadow over everything, however, and credit markets worldwide continue in near-panic mode. There's scant M&A activity, another sign that something's just not right, and some of the heavy bets made over the past three years by private equity firms may be on the verge of blowing up. There are literally billions of dollars to be lost should some of the high-profile leveraged buyouts not work out as expected, and a slowing economy is seen as harmful to breakups, IPOs and turnarounds.

It's going to be an interesting November and December, with, no doubt, more shocks from the housing, banking and finance centers.

NYSE Volume 4,338,039,000
NASDAQ Volume 2,485,408,500

Banks Under Severe Pressure as Markets Crack

One day after a 25 basis point reduction in the federal funds rate, Wall Street implodes.

This is not supposed to happen in healthy markets, and it's becoming more and more apparent that the US Equity markets are anything but healthy. Conventional wisdom would assert that investors took the Fed's policy statement - accompanying the rate reduction - to mean that there would be no more rate cuts to follow this year, and also doesn't expect the economy to continue growing at a level pace, despite yesterday's report of 3.9% growth in 3rd quarter GDP.

Dow 13,567.87 -362.14; NASDAQ 2,794.83 -64.29; S&P 500 1,508.44 -40.94; NYSE Composite 10,022.08 -289.53

Considering the massive trading volume, it was more like a rush for the exits rather than an orderly retreat. Stocks were hammered as two major Dow components, CitiGroup (C) and ExxonMobil (XOM) were the bearers of bad news.

CitiGroup was downgraded by CIBC from Sector Outperform to Sector Perform, which was actually somewhat kind, considering that the basis for the shift. In a related note, the analyst reported that CitiGroup would have to raise nearly $30 billion in capital to reach par with its peers in terms of their capital-to-equity ratio.

ExxonMobil, meanwhile, missed estimates for 3rd quarter earnings by 4 cents, at $1.70 per share. One can hardly shed a tear for the company that boasted record profits as oil prices rose dramatically over the past 5 years.

Declining issues trounced advancers by a better than 5-1 ratio, while new lows ruled the day over new highs, 444-194. It was a dramatic reversal of market conditions, which just a day ago, looked bullish.

The question on everyone's lips apparently is, "what's the problem?" Fed chairman Bernanke and Treasury head Paulson have jawboned the market for months concerning the housing situation. What they have not been completely open about is the condition on banks and credit markets, which are in serious straits.

The credit conundrum stems from the toxic paper issued by mortgage lenders, packaged as investments and sold at various face values as SIVs (Structured Investment Vehicles). Many of these packaged offerings were loaded with sub-prime and otherwise non-performing loans and today some are worthless or valued at only pennies on the dollar.

The major banks, such as Citibank, Wells Fargo, Bank of America and countless other smaller lenders were both buyers and sellers of these "investments" through their brokerage and hedge fund subsidiaries and these losses simply cannot be written off quickly enough. What's worse is that there are more of these sloshing around everywhere, and as more homeowners default, more of the investments holding the notes blow up. The bulk of these have not yet hit the market and the banks are suffering the impact.

Today's market action is not one which occurred in a vacuum. The condition of credit markets is deteriorating by the day and astute individuals are getting out of banking stocks and most other equities before the stampede engulfs them all.

Making matters worse is the high price of oil, which actually slipped a bit today, down $1.04 to $93.49, though the move higher was largely the result of the Fed's rate reductions in September and October.

Gold and silver followed suit, losing marginally on the day.

Economic conditions in the United States are terrible, to put it lightly. Between the Fed's constant interest rate tinkering and the government's refusal to curb deficit spending, the value of the dollar has shrunk considerably over the past 6 years. we are paying the price for rampant credit expansion under Greenspan, off-budget expenditures for the conflicts and occupations in Iraq and Afghanistan, lack of regulatory control in mortgage and credit markets and a wickedly overpriced stock market.

A return to a strong dollar standard would be the best and most rational approach, but the Fed and Washington politicians aren't interested in the painful truths of serious fiscal and monetary restraint. The Fed's combined 75 basis point reduction in rates has only exacerbated the problem and Wall Street's crying for more isn't helping.

There's going to be a lot of pain to be doled out and the longer officials saddled with the charge of managing the economy wait to act, the worse the downfall will be.

Tomorrow, non-farm payrolls for October will be reported before the open, though it may simply be a sideshow to the ravages inflicted on the markets by investors with better things to do with their money than to see it slowly, inexorably evaporate.

We may see a dead cat bounce or another day like today, where everyone and anyone is selling just about anything and everything.

If the Democrats had moved for impeachment last winter, and the Republicans in congress actually had a conscience, we may have avoided some of this. But now, with the most incompetent president in the history of the nation still sitting for another 15 months, we may be seeing the beginning of the 21st century's reprise of the Great Depression. God save us all.

NYSE Volume 4,328,372,500
NASDAQ Volume 2,626,966,750