Wall Street Imploding over Credit Concerns

Wall Street was in retreat mode from the opening to closing bells on Friday as investors sold stocks amid an ongoing credit and banking crisis.

Today's headliners were American Express (AXP) and Merrill Lynch (MER), both of which were seen suffering the consequences of an eroding US economy.

American Express was down more than 10% as the company warned that it would miss first quarter analyst estimates due to having to bolster reserves for delinquent credit card users. Stocks of other credit card companies such as Discover, MasterCard and CapitalOne also suffered losses on Friday as panic selling took hold of virtually anything even rumored to be close to a financial, banking or credit company.

Merrill Lynch joined a growing number of banking/brokerages that are having to write off billions of dollars worth of near-worthless credit-backed paper, due to the unwinding of subprime mortgages and a gnawing mortgage meltdown which is showing no signs of abating. The company reportedly will have to write down as much as $15 billion in the most recent quarter alone. More losses may be forthcoming for Merrill and other banking/finance concerns.

There was no doubt about the direction of stocks on Friday, as the selling began at the opening bell and did not relent all day long. Investors are finally awakening to the depth and seriousness of the credit crisis engulfing the entire world economy.

Dow 12,606.30 -246.79; NASDAQ 2,439.94 -48.58; S&P 500 1,401.02 -19.31; NYSE Composite 9,347.47 -143.29

While Fed head Ben Bernanke has pretty much promised more interest rate cuts, it's becoming increasingly apparent that the Fed and

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other central banks can do little to prevent consumers from falling behind on everything from mortgage payments to credit card bills as the most basic of necessities, food and energy, continue to rise in price and eat away at family budgets. Easy credit, from 2000 though 2006, is the culprit and easing interest rates to make money even more affordable is clearly not the answer.

In the most obvious indicators that are tracked here, declining stocks beat back advancers by 4344-2020. New lows, which have consistently led new highs since November 1, 2006, expanded the bulge once again, 516-96.

From a technical standpoint, all the major indices closed at or near new lows for the new year, all within the closing bottoms put in on Tuesday of this week. The late-day Wednesday PPT-led closing rally and Thursday's Bernanke bounce were nearly completely repudiated on Friday.

Although 2007 will go down as a positive-return year for US stocks, those gains have all but been eviscerated in the first 8 trading days of 2008, and the worst may yet be forthcoming. According to the steadfast January Barometer, which is 85% accurate, the direction of stocks in January carries a strong correlation to the direction for the remainder of the year. 2008 currently looks like an iron-clad lock to be a negative one for investors, though Bernanke and Co. will have the final say when they will almost surely announce a rate cut of somewhere between 50 and 100 basis points on January 30.

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All of this has somewhat of a snowball effect. As homeowners default and banks and mortgagors suffer losses, equity investors also take a hit. When homeowners and consumers are squeezed, they liquidate assets, including stock portfolios, in order to pay for necessities. Outflows from funds accelerate and there's less money to go into stocks. A declining market is inevitable as is recession.

What's worse, our uninspired leaders in government and finance show little wherewithal in extracting us from this morass. Taking a cue from the political debate, if there ever was a time for change - and we're talking about major changes in policy and implementation - now is the time.

NYSE Volume 4,438,587,500
NASDAQ Volume 2,355,680,750

Bernanke Engineers Bullish Bolstering

After yesterday's "surprise" rally off the 12,500 mark on the Dow, today's action was a little more predictable, as apparently the fate of the US economy hangs on every word uttered by Federal Reserve Chairman Ben Bernanke.

At 1:00 today, Bernanke gave a speech at the Women in Housing and Finance and Exchequer Club Joint Luncheon in Washington, D.C. The full text of the speech was posted to the Federal Reserve web site, here.

The key points, in my view, can be boiled down to the following italicized phrases with my comments following in plain text:

More-expensive and less-available credit seems likely to impose a measure of financial restraint on economic growth.

Banks aren't being so loose with lending. Expanding a business or buying a new house? Unless you have perfect credit, forget it.

...notwithstanding the effects of multi-billion dollar write-downs on the earnings and share prices of some large institutions, the banking system remains sound.

Thanks to our friends in Aub-Dhabi, Singapore, China and Dubai, Citibank, Merrill Lynch, Bank of American and other big national banks have avoided shutting down completely.

Thus far, inflation expectations appear to have remained reasonably well anchored...

There's no inflation unless you buy gas, home heating oil or food.

...we stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks.

Are we going to cut interest rates and destroy the dollar? You bet we are.

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So there you have it. According to Chairman Ben, the Fed will cut, inflate and keep Wall Street happy until the 2008 elections. Then when we select another Republican president, we can allow everything to go to hell in a hand basket because we'll have four years to fix it, lie about it, blame it on Congress, etc. If you are a middle class wage earner. you lose. Rich investors will win. Good night.

The reaction on Wall Street wasn't exactly as the Fed had planned, though the volume was extraordinarily strong. After yesterday turned in the highest volume of the new year, today's was the best in terms of shares traded since November 8, when the Dow went on a 462-point round-trip journey.

Stocks actually struggled before, during and after Bernanke's speech, so the PPT apparently was called to action about 2:15, engineering a 200-point spike over the next hour. After that, things settled down, closing about 73 points below the day's high.

At around 2:30 news emerged that Bank of America (BAC) was in talks to buy troubled mortgage lender Countrywide Financial (CFC). Stocks took off on a tear at that point. Well, timing is everything.

Dow 12,853.09 +117.78; NASDAQ 2,488.52 +13.97; S&P 500 1,420.33 +11.20; NYSE Composite 9,490.76 Up 66.07

So, the Dow is up 350 points in just one day and two hours of trading. That's perfectly normal, but hardly indicative of either a bottom or a turn around. It's a bounce and a fairly technical one at that, though in a completely unrestricted market, the downside would have been greater and the upside less abrupt and smaller.

On Thursday, advancers took the lead from declining issues, 4060-2294. New lows contracted considerably from yesterday, though still besting new highs, 531-111.

Oil was down again, suggesting that futures traders are responding to expected slack demand in months ahead, losing $1.96 to close at $93.71. Gold, however, exploded to another new high, gaining $11.90 per ounce to $893.60. Silver went along for the ride, rising 44 cents to $16.48. Fed head Ben can downplay inflation all he likes, but don't tell that to the gold bugs. They're in the midst of a major bull run.

The next policy meeting of the FOMC is January 29/30, so expect another bounce when they decide to cut rates by at least 25 basis points, possibly 50. Until then, prepare for some serious choppiness, with a downward bias. Corporate earnings reports will be heaviest from the 16th to the 25th, and they're expected to manifest the overall sluggishness in the economy. In other words, they're not going to inspire much buying of stocks.

NYSE Volume 5,132,203,000
NASDAQ Volume 2,640,165,500

Plunge Protection Team Rescues Stocks

Take a good look at the chart on the right because you're sure to see similar examples in the near future. It is a classic example of sad, clueless, old Republican money attempting to rescue the stock market from a certain death. These are largely the same people who stole the presidency in 200 and 2004 and just last night stole the New Hampshire primary for Hillary Clinton (yes, the Clintons are nothing but brutal, slow, decadent Republicans wearing Democrat's clothes, and Hillary is far easier to defeat than a black man named Obama).

This is what happens when fascism takes hold in a country, in a stock market, in a people. The patterns become unmistakable, yet no one but the truly enlightened dare to even question. And then they are characterized as bizarre, weird, strange, deranged.

With any luck, the Dow Jones Industrials would have closed below 12,500 on Wednesday, but luck had little to do with the outcome of the day's trading. Old money, Fed money, your money was spent to make it appear that all is well, that the economy is just chugging along quite well, thank you.

Dow 12,735.31 +146.24; NASDAQ 2,474.55 +34.04; S&P 500 1,409.13 +18.94; NYSE Composite 9,424.69 +98.61

The opposite is closer to the truth. More voices, including that of Goldman Sachs senior economist Jan Hatzius, are beginning to sing in the chorus that the US may already be in a recession. Today, he joined the crowd, which already includes voices from Merrill Lynch, Morgan Stanley, Earnings Whispers, and former Bush administration economist (and one of the authors of the Bush tax cuts) Martin Feldstein, who thinks the economy may still be able to avoid a full-blown recession.

Compare and contrast that sentiment with that of St. Louis Fed President William Poole, who said that 2008 looked to be a year of rising growth and that low inflation expectations give the Fed "breathing room.

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Poole may actually be mouthing some truth, as he failed to mention any specifics. Certainly, if the 4th quarter of 2007 shows negative growth of say, -1% and the 1st quarter of 2008 is another negative -2%, if the economy actually grows by 1% in each of the succeeding quarters, then he's technically right, though Q4 '07 and Q1 '08 would still qualify as a recession.

As for "low inflation", it's apparent that Mr. Poole neither does the family grocery shopping nor fills up the family car with gas. In other words, he's nothing short of a liar.

I'm not just whistling in the dark about the Plunge Protection Team (PPT), less known as the President's Working Group on Financial Markets. This group, which includes the Chairman of the Federal Reserve, the Treasury Secretary and other top administration officials, uses real money (printed on government printing presses), channeled through brokerages such as Goldman Sachs, Merrill Lynch and others, to pump index futures when stocks are poised to collapse, such as happened today.

To get a better understanding of how dire the situation as at 2:30 pm today, declining issues were leading advancers by a 2-1 margin, but after the pumping, finished with a slight edge for the advancers, 3458-2957. The real story was in the new highs/new lows measure, where new lows expanded to an alarming 1384, to just 97 new highs. In other words, about 1 in 4 stocks recorded a new 52-week low today.

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The price of crude eased a bit today, shedding 66 cents to $95.67, while gold and silver recorded marginal gains. The close of $881.70/ounce was another record for gold.

The stakes are high in the perception game and the powers that be will stop at nothing to obfuscate the all-too-obvious truths about the general welfare of the economy. Pumping billions of dollars into markets to avoid orderly selling is only one of their weapons. There will be more jawboning from the Fed, mushy statistics, rate cuts and maybe, if they become desperate enough, a terrorist attack or war with Iran to divert attention away from the failing economy.

Eventually, however, even central bankers cannot stop the forces of the global economy and the markets will either erode slowly and quietly or in a massive, sudden catastrophic collapse. For now, it seems, the manipulators in the government prefer the latter.

NYSE Volume 5,351,031,000
NASDAQ Volume 2,894,973,500

Bear Market Confirmation (Again)

Well, if November's market collapse wasn't enough to convince you, today's massive sell-off is unmistakable.

We are officially in a bear market. And we're either already in a recession or close to being in one. In any case, the Dow Jones dropping another 238.42 points (much of it in the last hour) and closing at 12,589.07, is proof positive that the grizzlies are in complete control and we are in phase two of a major trend bear market.

Here's why:
On August 16 the Dow closed at 12,845.78.
On November 26 the Dow closed at 12,743.44.
On January 8, 2008, the Dow closed at 12,589.07.

The fact that the Dow recovered to set an all-time high (14,164.53) between the August and November lows is immaterial, because, though the index rallied in December, the high was well below the October record and now the new low is well below the November bottom.

Dow 12,589.07 -238.42; NASDAQ 2,440.51 -58.95; S&P 500 1,390.19 -25.99; NYSE Composite 9,326.08 Down 136.16

So, you can slice it any way you like, but it certainly looks like the bear market began in August, confirmed itself in November and now has reconfirmed. We are six months in and the questions now become, how low will we go and when will it end?

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Bear markets generally last 18 to 30 months, and this one is likely to be a little on the deep side. Expect the Dow and other averages to shed 34-50% of their value. A 34% decline on the Dow puts the bottom at around 9,350. It's perfectly possible, especially considering that the Dow was the least affected of all the major indices during the last bear market, which ran from March 2000 until March 2003 (36 months).

The saving grace for this bear is that while it may be deep and steep, it may not last long, though much of that is sheer luck of timing. With the presidential and congressional elections 10 months off, Americans may finally get rid of the people who caused the imbalances in the economy in the first place (the Bush administration and a compliant Republican congress) and replace them with people who may restore some fiscal and monetary sanity.

By mid to late-2009, we may be bouncing off the bottom of the abyss.

Just in case you're keeping score (and who isn't?), the Dow has lost 962 points in just the last 8 sessions and is off just more than 5% for the year. Unless there's a technical rally, or the Fed decides on emergency rate cuts soon, or corporate earnings come in better than expected, the January barometer is going to forecast 2008 as an ugly year, profit-wise.

The internals were expectedly sad. While declining issues pounded advancers, 4279-2074, the ratio was only a little more than 2-1. New lows continued to expand the disparity over new highs, 961-124. The advance-decline line was not more pronounced due to the nature of the news driving stocks down, as it was focused on the financials once again.

Bloomberg reported that Countrywide Financial (CFC), poster child for the sub-prime meltdown, was about to file bankruptcy, though the rumor was once again dispelled by the company. Still, investors took the battered mortgage bank to task, dropping it by more than 2 points to a multi-year low of 5.57.

Moody's downgraded a bunch of Bear Stearn's (BSC) CDOs and Morgan Stanley slashed its bond insurers profit outlook. MBIA (MBI) dropped 22% and Ambac (ABK) lost 17%. This was just more of financial sector eating its own, a recurring and troubling pattern.

In response to the wicked selling on Wall Street, commodities took up the slack. Oil rose $1.24 to $96.33 a barrel. Gold closed at a record, up a whopping $18.30 to $880.30. Silver also priced higher, up 53 cents to $15.83.

Amid all the pain of the last six months, a caveat and some silver lining: We are only in the beginning of this downturn and may just be entering a recession now; the good news is that fortunes will be lost while others will be made. There are certain to be incredible opportunities in both beaten down and unnecessarily-punished stocks.

NYSE Volume 4,638,535,000
NASDAQ Volume 2,563,689,500

Plunge Protection Team (PPT) Saves Stocks

The markets bounced around the even line all day, with the Dow crossing no change a minimum of 12 times, but eventually, the market manipulators won out, pumping the Dow 100 points in the final 20 minutes, magically turning a losing session into a winning one.

These kinds of moves have been seen before and are somewhat old hat. They indicate the desperate straits the markets have been in since the sub-prime crisis was uncovered back in August '07.

Since that time, the indices have bounded up and down, jostled by the conflicting forces of poor economic news and massive capital injections (over $500 billion) by the Fed and the EU central bank plus a couple of remedial interest rate cuts. Still, stocks are struggling near seasonal lows with important 4th quarter earnings on tap.

Dow 12,827.49 +27.31; NASDAQ 2,499.46 -5.19; S&P 500 1,416.18 +4.55; NYSE Composite 9,462.25 Up 30.22

This is a frightened market with little to no upside potential. The Fed tried again today to jawbone about further rate cuts, but talk of a looming recession (if not already in one) continues to dominate market and economic predictions. Interest rate cuts can only do so much, and while they may encourage lending and spending by corporations, they are seen as inflationary and damaging to the already weakened US dollar.

Monday's market ups and downs were reflected in the advance-decline line, with higher issues eking out a win over decliners, 3289-3076. The persistence of new lows dominating new highs, however, remained in place and shows no sign of a turnaround soon. There were 799 new lows and an even 100 new highs.

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While stocks were see-sawing all day, commodities traders took a breather. Crude oil for February delivery fell $2.82 to $95.09. Gold was off $3.70 to $862.00, while silver sliced off 17 cents to $15.29. The metals may have gotten a little ahead of themselves, while oil prices are responding to unusually warm weather in the Northeast, which will tamper down demand for at least this week.

While the headline on the news wires and nightly newscasts will recognize the split decision at the close, few true market watchers will doubt that more down days are in the immediate future. At some point, technicians will point out the triple bottom being put in and when traders finally capitulate - ostensibly, later this month - the second leg of this young bear market will be apparent to all.

NYSE Volume 4,136,662,250
NASDAQ Volume 2,505,137,500