Credit Concerns, but What Keeps Stocks Up?

In case you haven't noticed, there's a rather large concern in the banking community over what's being described as a credit crunch.

For the uninformed and misinformed (no shame there, it's a complex matter), here is a good article outlining the details. Banks and associated financial firms are about at their breaking point, with more bad news coming out of the sector every day.

Today's gems came first from Bear Stearns (BSC), which posted a $859 million loss after paying preferred dividends, or $6.90 per share for its fiscal 4th quarter. It was the first quarterly loss in the company's 84-year history. The firm took a $1.9 billion writedown in the quarter on mortgage-backed securities.

The second credit-related story was from the world's largest bond insurer, MBIA, Inc. (MBIA), which revealed the company's exposure to various collateralized debt obligations (CDOs) stood at more than $30 Billion, greater than the company's net value. Shares plunged 7.07 to 19.95, off more than 26% at the close.

Despite the continuing flow of discouraging news, the major indices all held on for small gains.

Dow 13,245.64 +38.37; NASDAQ 2,640.86 +39.85; S&P 500 1,460.12 +7.12; NYSE Composite 9,622.27 +36.20

Advancing issues actually scored ahead of decliners for a change, 3707-2676, though new lows continued to dominate new highs, 589-119.

Oil and gold moved down marginally; silver ended up 12 cents at $14.34.

Today's smallish gains were still within the range I mentioned on Monday (12,950-13,300 on the Dow) and stocks traded in their narrowest channel of the week.

Investors may be holding out for some good news, though it's difficult to discern from where any happy notes may be sounded other than from the street urchins playing Christmas tunes. The market is set up once again for a Friday splashdown, though heading into a pre-holiday weekend, it's dicey to predict such things. However, there doesn't seem to be any underpinnings to the market at this juncture. The only good news was that the government pegged 3rd quarter GDP at 4.9%, but that number is suspect and overshadowed by initial unemployment claims jumping up to 346,000 for the preceding week.

Further troubling was the Philadelphia Fed General Economic Index, which slumped to a figure of -5.7 when forecasters were expecting a reading of 7.0. The number was the worst since April of 2003.

Still, stocks hang on, investors hope for the best, but there's an overwhelming feeling that a major sell-off could occur at any moment. What the exact time and trigger will be is still a matter of speculation, but there's more and more certainty that selling stocks will be all the rage sometime soon.

NYSE Volume 3,451,063,250
NASDAQ Volume 1,960,417,875

Only NASDAQ Goes Green

Stocks zig-zagged through another directionless session on Wednesday, with only the NASDAQ finishing in positive territory. Volume was sluggish, suggesting that this market and the traders on Wall Street are simply worn out. Without any economic news to push ahead of the endless droning on about the sub-prime mortgage mess, credit crisis and looming recession, the market finds itself in somewhat of a desperate condition.

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There doesn't seem to be an overwhelming willingness to give up on stocks for the season and the year, nor is there any catalyst for buying at this juncture. Naturally, when the market seizes up like this, it's usually not a very positive sign. Otherwise, gains would be sustained, rather than seeing nearly every uptick met with a slew of sell orders, as has been the case for the better part of the past five months.

As the credit and banking crisis continues to drippingly unfold (the mainstream media hasn't a clue to the depth of the damage already done with more to come, while the financial media is also a step slow to the beat) not a day seems to go by that some finance-related matter is reported. Today was no exception as Morgan Stanley (MS) took a $9.5 Billion writedown, posted a loss for the quarter and sold a $5 Billion stake in the company to China.

The market reaction to what would be devastating news on a good day, was roughly equivalent to a yawn.

Dow 13,207.27 -25.20; NASDAQ 2,601.01 +4.98; S&P 500 1,453.00 -1.98; NYSE Composite 9,586.07 -16.48

As expected, declining issues took a slight edge over advancers, 3386-2961. There were 527 new lows to just 83 new highs.

In commodity trading, crude oil gained $1.16 to close at $91.24. Gold was off $2.00 to $805.40; silver added 6 cents to $14.22.

All of the markets looked to be winding down prior to the Christmas holiday. The exchanges will be closed on Tuesday, December 25 and will close at 1:00 pm on Monday, December 24, Christmas Eve. The following Monday, January 31, will be a full session.

NYSE Volume 3,359,298,000
NASDAQ Volume 1,884,918,000

Bear Market Gains

Stocks staggered to small gains Tuesday, as the major indices weighed current conditions versus future expectations, taking strategic positions three days prior to options expiration on Friday.

Trading in narrow ranges, the major indices opened higher, withstood midday selling pressure and gained into the close, complementing two straight days of solid losses with a technical bounce.

Dow 13,232.47 +65.27; NASDAQ 2,596.03 +21.57; S&P 500 1,454.98 +9.08; NYSE Composite 9,602.55 +73.88

Markets were buoyed at the open by news that the European Central Bank (ECB) made $500 billion available to banks in a 16-day funding. While Wall Street may think an additional 1/2 Trillion in cash is a holiday treat, more sober observations declare concern:

"This clearly signifies some worries," said Gabriel Stein, an economist at Lombard Street Research. "They can't keep doing this forever and ever."

What the ECB (and in the background, the US Fed) is attempting is to avoid a major liquidity crisis before the end of the year. Commercial banks have been reluctant to lend to each other, citing one or the other parties financial stability as the rationale.

The general public doesn't know that this banking crisis has been in play since August and likely won't until some big bank rolls over and depositors are stuck dealing with regulators from to government in order to retrieve their funds.

It should be very clear to anyone witnessing this unfolding financial drama that serious bank failures are only one bad loan or misguided investment away. Unfortunately, our news media keeps the lid on serious news such as banking problems in order to avoid a "panic" in the general population.

For their parts, Wall Street and the foreign exchanges have put on their best smiles in spite of it all, but there's an undercurrent of thought that an economic calamity is not just possible, but likely inevitable. Repeated liquidity injections and interest rate cuts by central banks have yet to solve the burning banking questions: Who is vulnerable and when will they fail to meet obligations?

Stocks, the amusing side-show for now, showed some resilience, with advancing issues holding sway over decliners, 3819-2429. New lows continued to outdistance new highs by a wide margin, 725-71. The indications are such that stocks will remain rangebound with a negative bias.

Oil closed slightly lower, down 14 cents to $90.49, while gold gained $8.10 to close at $807.40 and silver ended at $14.17, up 19 cents.

CNN/Money reports that US demand for gas has fallen in five of the last seven weeks, begging the question of how long high fuel prices can be maintained.

As mentioned in this blog ad nauseum the concern that high fuel prices could push the economy into a recession may be coming to fruition. As consumers feel the pinch at the pump crimping their lifestyle, changes in spending habits are inevitable. Smaller cars, shorter trips and environmentally-sensible measures should begin to take hold, though it's probably already too late to avoid some mid-course disruptions.

NYSE Volume 3,723,687,000
NASDAQ Volume 2,038,324,500

Stocks on Sale: Dow Sinks Another 172 points

After reaching an interim peak just a week ago at 13,727.03, the Dow has dropped back into a trading range between 12,950 and 13,300 which may prove to be the area in which the index closes for the year. Unless there's some dramatic news - positive or negative - or a lot more tax-related selling to be done before putting the wraps on 2007, there's little to move the markets, though the unrelenting selling pressure could yet take a few more bites and turn the year into an overall loser for all the major indices.

With those caveats firmly in hand, Monday's trade was no doubt a continuation of the selling that commenced in the latter part of last week. Apparently, investors are not through dumping stocks, and while the poor condition of the economy becomes clearer each trading day, there isn't much passion in buyer's eyes.

Dow 13,167.20 -172.65; NASDAQ 2,574.46 -61.28; S&P 500 1,445.90 -22.05; NYSE Composite 9,528.67 Down 169.70

The majors are all close to break-even for the year, based on closing prices December 29, 2006. On that date, the S&P stood at 1418.30; the Dow was 12,463.15; the NASDAQ was 2415.29 and the NYSE Comp. was 9.139.02. Clearly, whatever gains the markets made in 2007 were marginal, ranging between less than 3% (S&P) and just about 7% (NASDAQ).

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Internal indicators showed a somewhat heavier bearish bias than previously. Decliners held a substantial edge over advancing issues, 5163-1233, a better than 4-1 edge, and among the largest margins seen this year. New lows continued to widen their gap over new highs as well, expanding to a 718-74 advantage, also a figure well outside any "average" range. More downsliding is to be expected in coming days.

What's of particular concern at this juncture are two factors: 1. On Friday and again on Monday, not a single industry sector showed a gain; and 2. The Dow is less than 400 points away from the 2007 lows, reached just last month.

Further, the Fed has few weapons left in its arsenal not already deployed to stave off further declines, so the market must fend for itself, seemingly, for the remaining nine trading days of the year.

Commodity prices barely budged, with oil slightly lower, gold inching up and silver unchanged.

NYSE Volume 3,526,140,750
NASDAQ Volume 1,932,222,875

Friday's Stocks: All Red, All Day

As I pointed out yesterday, stocks were set up for a week-ending dive and the major indices took little time confirming my prediction, as all traded lower from the very first minute of trading. What made Friday even more interesting is that all the major indices spent all day in the red, with the exception of the NASDAQ, which spent a few moments above water, but it was a very short-lived peek at the positive side of the ledger.

What set the markets in motion was the CPI figures released prior to the bell. It wasn't difficult to predict the direction of the index, fast on the heels of the most-inflationary reading for the PPI in 35 years, on Thursday. The CPI was up 0.8%, topping even the dire expectations of 0.6. It was the highest one-month increase since the post-Katrina reading in September 2005.

We have inflation. We have a significant slump in housing. We have a Fed that lowered federal funds rates three times consecutively and an investor class that doesn't think it's enough. What we really have are all the ingredients for a good, old-fashioned bear market.

Dow 13,339.85 -178.11; NASDAQ 2,635.74 -32.75; S&P 500 1,467.95 -20.46; NYSE Composite 9,698.37 -165.91

Consumers may hold up through the holidays, but after that, with the home equity ATM shut off, banks tightening lending standards and a worldwide liquidity crisis, it's nearly a sure bet that stocks will head in the direction opposite to what most investors would like.

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The process has already begun and it's gaining momentum. There's a double bottom in place, but the levels reached in August and November on all the indices will likely be tested and broken through to the downside in the first quarter of 2008. The catalyst will be earnings, already expected to be the kind that signal weakness in almost every sector.

If you haven't already, now would be a good time to shift a sizable portion of your portfolio into cash, gold, silver, and bonds, or a defensive fund, or a combination of all of them, or maybe move to another country with better growth prospects.

Market internal indicators were expectedly bearish: Declining issues trounced advancers, 4806-1501. New lows expanded their edge over new highs, 493-109. Metrics such as these are hardly useful on a day like Friday. They just add to the string of similar readings, confirming the trend.

Commodities fell in unison. Oil shed 98 cents to close at $91.87. Gold was off $6.00 to $798.00; silver was down 0.25 to %13.98. (Hmmm... just in time for Christmas... 1 oz. silver dollars make great stocking stuffers. I'd love a stocking full of them.)

With a huge snowstorm expected to hit most of the Northeast on Sunday, holiday sales may be crimped on what should have been one of the busiest shopping days of the year in major cities such as Boston, Philadelphia, New York, Washington and Baltimore. The storm is already wending its way through the Midwest.

While the foul weather may be bad for brick and mortar businesses, internet sales should soar. Amazon, anybody?

NYSE Volume 3,401,047,750
NASDAQ Volume 1,954,963,625