The Bizarre World of Wall Street

Evidence of market and media manipulation is rampant these days along with counter-trend trading patterns on the exchanges.

After the MBIA fiasco on Thursday (see yesterday's post), Friday morning brought more bad news to investors when the Labor Dept. reported that the US economy shed 17,000 jobs in January.

Mindful of yet another set of painful numbers indicating the decline of the American economy and an all-but-certain descent into recession, traders would have been deemed prudent had they made a timely exit from equities of all kinds.

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But what they did on Friday - alas, most of the past two weeks - defies any reasonable explanation. Once again, traders engaged in another day of incessant buying, exactly the opposite of what one might expect. Believe me, there are more than just a few analysts out there scratching their heads and pulling out what little hair they may have left.

Dow 12,743.19 +92.83; NASDAQ 2,413.36 +23.50; S&P 500 1,395.42 +16.87; NYSE Composite 9,277.58 +151.42

The 1240-point rally off the January 22 intraday low should be hailed as a marvel of modern engineering - of the markets and the media. It's almost as though investors actually believe that a 1.25% emergency cut in the federal funds rate over an 8-day period is some sort of signal that nothing but smooth sailing lies ahead.

In fact, the rate cuts, while possibly stimulative to the wild boys on Wall Street, are nothing short of disastrous for the average American consumer, a persona inconveniently left out of the mix, apparently. The eventual inflationary pressures and continuing weakening of the dollar should prove critical to the continued viability of two standards: that of living in America and the dollar as reserve currency. Both are under severe assault and the Fed has done nothing to prevent further erosion.

What's really occurring on Wall Street and in the offices of the Fed and at Treasury is a concerted, continuing bailout of a failed banking system. Today, the Fed announced two more February auctions for bankers in distress and promises of more to come. Under Ben Bernanke, who earned the moniker "Helicopter Ben" for his metaphoric dropping of dollars from flying machines, the Fed has indicated that loose credit policies - the exact same ones which got us into this banking seizure to begin with - will reign supreme.

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No doubt the government is in compliance with this policy and will commence bombing the capitol of any central bank which attempts to call in any US debt, no matter how worthless it is or how shaky our ability to pay. We're a bankrupt, third world nation now. Get ready for runaway inflation for essentials (food and energy), combined with stagnation and eventual deflation, without any way out.

The recent moves of the Fed and Treasury and Wall Street's response signals something much more sinister at work than a mere "down" portion of the business cycle. America is headed for the worst recessionary period since the Great Depression and maybe even worse than that.

Buy gold and silver, get your passport and get out of the country before the borders are closed. Remember what America was like in the 1950s and 60s, when we were truly a great nation. America, in its current configuration, is a failed state being run by an international criminal cabal. Market prices for US stocks are not rooted in reality. Wall Street has morphed into the most perverse, disrupted Bizarro World imaginable.

Heaven help us.

On the day, advancing issues held sway over decliners by nearly a 3-1 margin, 4650-1688. However, for three months running, with the exception of two days in early December, 52-week new lows have outpaced new highs and they did so again, 149-110.

In response to Wall Street's curious trading, commodities sold off. Oil priced $2.79 lower, closing at $88.96. Gold fell $14.50 to $913.50. Silver dropped 13 cents to $16.87. Could we be witnessing the beginning of a deflationary trend? It's far too early to tell, but readings from the labor market indicate a growing tidal wave of layoffs and workforce reductions on the horizon.

Enjoy the Super Bowl (maybe that was the real message from the market: can't have a crash just before the biggest game of the year). Take the Giants and Vegas' generous 12-point spread.

NYSE Volume 4,609,755,500
NASDAQ Volume 3,094,480,750

The Brink of Economic Collapse

Today's rigging of the major stock indices - pushing stocks higher on one of the most potentially calamitous days ever - is one for the history books.

A little background is necessary to understand the measures taken to prevent a disastrous marketwide sell-off.

Prior to the market opening, MBIA (MBI) announced that they had taken serious writedowns due to the mortgage-backed securities that have imploded due to foreclosures. The company, a single line insurer, which only insures financial instruments, primarily municipal and corporate bonds, lost $2.3 billion, or $18.61 per share, in the fourth quarter. There were also murmurings of the company's AAA rating being cut by Standard & Poors.

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This was no run-of-the-mill insurance company. This is the company which has underwritten a large portion of the subprime loans, repackaged as collateralized debt obligations (CDOs) that have been blowing up all over the place. This was serious business.

Two articles cover the importance of MBIA and the weight of a potential ratings cut:

Mike Whitney, writing for Counterpunch has an excellent overview in his recent article, The Great Credit Unwind of 2008 in which he quotes CNBC stock guru Jim Cramer in an interview with Chris Matthews:

"...there are a group of insurance companies which insure all these bad mortgages and, Cris, I think they are all about to go belly-up, and that will cause the Dow Jones to decline 2,000 points."

Then there is Bloomberg's exclusive report, by Christine Richard and Katherine Burton, on hedge fund manager William Ackman, who ran up a $109,000 photocopying bill studying MBIA's business in 2002: Ackman Devoured 140,000 Pages Challenging MBIA Rating.

With that news in the hopper along with an "unexpected" rise in unemployment filings, when the bell rang on Wall Street Thursday morning, the index slumped an immediate 192 points but suddenly stopped in its tracks. For the rest of the day, it was nothing but roses, as all the indices gained, uninterrupted, for the remainder of the session.

What happened? The principals of MBIA came out and vociferously defended their AAA rating, saying they have met all of the requirements.

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Chief Executive Gary Dunton said in a conference call, "Our own conclusion is that the market has overreacted to the real and obvious problems that we've had, as well as to the fear-mongering and intentional distortions of facts about our business that have been pumped into the market."

Naturally, Dunton could not say just who was doing the fear-mongering or distorting facts about MBIA's business (likely because nobody is), but armed with these reassurances and a helping hand from the omnipresent, of late, Plunge Protection Team (PPT), a/k/a the President's Working Group on Financial Markets, it was nothing but blue skies and apple pie for investors in US equities all day.

Interestingly, with five minutes left in the session, S&P announced that it had cut its "AAA" ratings on FGIC Corp's bond insurance arm, and placed its top ratings on the bond insurance arm of MBIA on review for downgrade.

How inconvenient for investors who sent MBIA up 11% (+1.54, 15.50) on the day and dutifully bought all manner of other equities. All of that money "invested" in the bond insurer and elsewhere may just go "poof" when the market opens on Friday.

Consider that over the past two days, we learned that GDP grew by a mediocre 0.6% in the fourth quarter, unemployment claims are rising (the Labor Dept. laughably argued that Thursday's figures were somehow skewed higher by Martin Luther King's day, though they declined to say just how a day off would affect people filing for unemployment benefits), personal spending in December rose by the slowest pace since June, a tail-dragging 0.2%, yet stocks, somehow, continue to price higher.

Before the opening bell tomorrow, at 8:30 am, the non-farms payroll numbers - or labor report - for December will be released. Experts expect to see an increase of a meager 80,000 new jobs created in the month.

Dow 12,650.36 +207.53; NASDAQ 2,389.86 +40.86; S&P 500 1,378.55 +22.74; NYSE Composite 9,126.16 +131.71

Meanwhile, the number of new lows expanded again in comparison to new highs, 251-83, while advancing issues unsurprisingly held the advantage over decliners, 4567-1800.

Oil fell 58 cents to $91.75, while gold gained $1.70 to $928.00. Silver reached $17.00, up 24 cents on the day.

If the December jobs data is dull and there's more evidence of the US slipping into a recession, don't worry. The way the market is currently being manipulated, your stocks are almost certain to go up. (Please, don't take that advice seriously.)

NYSE Volume 5,369,650,500
NASDAQ Volume 2,925,491,250

Bears Spoil Wall Street Party; Bernanke Rebuffed

It didn't matter that 4th quarter GDP checked in at an anemic 0.6% growth.

It didn't matter that a couple trillion dollars have simply evaporated between housing foreclosures and the blowup of mortgage-backed securities and even more was eviscerated in the recent market downturn.

It didn't matter that the house and senate plan to give away another $150 billion from an already unbalanced budget.

All that mattered was that the Fed made money easier to borrow and spend, borrow and spend, borrow and spend.

But in the end, after a spectacular run, the market regained its senses, turned the tables on the perma-bull cult and sent Fed Chairman a chilling rebuke.

With the second major federal funds rate cut in 8 days - this one 50 basis points, in addition to the 75 basis points last Tuesday - Wall Street partied like it was... well, like it was 1999, all over again.

Dow 12,442.83 -37.47; NASDAQ 2,349.00 -9.06; S&P 500 1,355.81 -6.49; NYSE Composite 8,994.46 -51.56

The major indices spent all of the day - up until precisely 2:15 pm - in the red, but tacked on an immediate 150 points once the Fed announcement was official. Like so many Polaris rockets at launch, the indices went straight up, leaving behind a cloud of volume.

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Trading, which was sluggish before the rate cut, literally exploded. Shares began changing hands at a rate of 10 million per minute, a level of activity that persisted into the close.

By 3:15 the Dow was up 200 points. It was then that the bears took their revenge for the 1170 point intraday move between Jan. 22 and today (11,508.74-12,681.41), blowing off more than 240 Dow points of froth and setting the market up for a resumption of the equity carnage that has been January's signature.

The reversal was a stunning repudiation of Fed policy and Bernanke personally. The market, left to its own devices, is seldom wrong, and today it indicated that nothing would save the economy from the perils of a downturn.

The bear's trap worked to perfection and the message of the market is now crystal clear: we are deep into the wilderness and the bear is hungry, angry and large.

As expected, advancing and declining issues battled to nearly a stand-off, with decliners winning the day, 3559-2802. New lows checked in at 194. There were only 69 new highs.

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In earnings news among Dow components, Altria Group (MO 76.57 +0.45) saw 4th quarter profit fall 26 percent and announced a spin-off of tobacco company Phillip Morris; drug-maker Merck (MRK 46.47 -1.54) earned 80 cents a share in the fourth quarter, on sales of $6.2 billion, a 3% year-over-year increase; Boeing (BA 82.87 +1.91) posted net earnings of $1.03 billion, or $1.36 a share, up from $989 million or $1.29 a share, in the year-earlier quarter.

Tomorrow, all eyes will turn to Google (GOOG), as the search and advertising company reports 4th quarter results after the close. On Friday, prior to the open, the December labor report will be the main mover. Employment is in the market cross-hairs now that the flames of recession are being fanned.

Oil was up 11 cents to $91.75; gold traded $4.50 lower to $926.30; silver lost 4 cents at $16.76.

NYSE Volume 4,404,828,500
NASDAQ Volume 2,565,181,250

Stocks Trade in Narrow Ranges

The Dow Jones Industrials traded in a narrow, 50-point range for most of the day - between +30 and +80 points - while the NASDAQ carried on a day-long flirtation with the unchanged line.

Despite more disheartening news from the housing sector, investors were content to play wait-and-see on the Fed, whose Federal Open Market Committee (FOMC) began a two-day meeting. On Wednesday at 2:15 the committee will deliver their policy recommendation. Most analysts are calling for a 50 basis point reduction in the federal funds rate, though of late more see a 25% cut a distinct possibility.

The argument is that the Fed may send more of a message with a smaller rate cut, that the economy is not as bad as many fear, and that the Fed has matters under control.

While that may be provide some short-term, superficial salve to open wounds in the markets, the consensus that the economy will fall into recession (or already is in one) is gaining traction, along with the belief that such a recession will be long and deep, extending for as long as 18-24 months.

Dow 12,480.30 +96.41; NASDAQ 2,358.06 +8.15; S&P 500 1,362.30 +8.33; NYSE Composite 9,046.02 Up 67.61

Much of the angst centers around the housing crisis, which continues to dole out pain on a near-daily basis.

In a report issued by RealtyTrac Inc., the number of foreclosure filings in 2007 reached 2,203,295, up 75% from 2006. While the 2007 figures are serious, more troubling is that the trend appears to be accelerating.

A total of 215,749 foreclosure filings were reported in December, up 97 percent from December 2006 and bringing the fourth-quarter total to 642,150 filings on 527,740 properties — up 1 percent from the previous quarter and up 86 percent from the fourth quarter of 2006.

In earnings news, US Steel (X) saw profits trimmed significantly in the 4th quarter due to acquisitions and layoffs. Investors punished the world's 5th largest steel producer with a 7% haircut, pushing shares lower by 7.49 to 102.58.

Naturally, no bad news could derail the PPT-manipulated market from tacking on gains in advance of more money created out of thin air by the Fed. At 3:00, the Dow surged an additional 50 points, briefly piercing the 12,500 resistance ceiling. The other indices followed along dutifully.

Volume, for the second straight day, was laughably light, as prudent bears sat back and watched the unsustainable rally unfurl.

Advancers bettered decliners once more, 3914-2379, and the gap between new lows and new highs tightened considerably, with new lows still on top, 152-71.

Crude oil gained 65 cents to $91.64. Gold lost $2.00 to close at $930.80. Silver gained five cents to $16.80.

NYSE Volume 4,001,153,250
NASDAQ Volume 2,150,718,000

Stocks Rise on Pathetic Volume

To say that the volume of trade on Monday was low would be a serious understatement. Following a week of extreme volatility, investors apparently were willing to sit out today's session - and maybe tomorrow's and most of Wednesday's - in anticipation of the next move by the Fed.

Monday's volume was roughly 3/5ths of the average day last week. This is the exact gut response to extreme volatility and unexplained "bounces." Continued meddling by the Plunge Protection Team (aka President's Working Group on Financial markets) will eventually lead to something resembling a gran mal seizure in the markets. The Fed will be trading with itself and itself only.

Dow 12,383.89 +176.72; NASDAQ 2,349.91 +23.71; S&P 500 1,353.97 +23.36; NYSE Composite 8,978.41 +150.91

On Tuesday of last week, Fed Chairman Ben Bernanke proclaimed a 75 basis point reduction in the federal funds rate in an "emergency" move designed to stabilize markets. The previous day, which was a holiday in the US, markets tumbled worldwide in apparent response to rampant recessionary fears in the US.

Bernanke and his henchmen managed to keep the Dow Jones and other indices from melting down, but at a significant credibility expense. With the Fed's knee-jerk response to global markets, the onus is clearly on the Chairman to make a policy statement of import on Wednesday, as the FOMC concludes two days of meetings.

With the Fed poised to act in some manner - most expect another 50 basis point cut - a report that may have even more impact will be released before the markets open on Wednesday. That would be the Commerce Department's Bureau of Economic Analysis release of preliminary GDP for the 4th quarter.

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Best expert guesses are that the US economy grew by anywhere from 1.2 to 2%, and while those figures are a far cry from the robust 4.9% reported for the 3rd quarter, anything above zero will be welcome news on Wall Street. The fear is that the economy has already fallen into recession and any indication reinforcing that belief will have a significant cooling effect.

Also this week, a huge number of S&P 500 companies will be reporting earnings, as well as 9 Dow components, including American Express, (AXP) which after the close today reported a 6% decline in earnings from a year ago, 71 cents versus 75 cents in the 2006 4th quarter.

McDonald's (MCD), the world's largest restaurant chain, reported profits for the full year fell 32% to $2.4 billion, or $1.98 per share, from $3.5 billion, or $2.83 per share in 2006. 4th quarter profits were marginally higher, but the company advised that same-store sales in the US were flat for the October-December period.

Also reporting after the close was another Dow component, Verizon (VZ), which earned $1.07 billion, or 37 cents per share, in the 4th quarter, compared to $1.03 billion, or 35 cents per share, a year earlier.

Other Dow components reporting this week are 3M Company (MMM) on Tuesday, Altria Group (MO), Merck (MRK) and Boeing (BA) on Wednesday, Procter Gamble (PG) on Thursday and ExxonMobil (XOM) on Friday.

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Tech bellwethers, Yahoo (YHOO) and Google (GOOG), report on Tuesday and Thursday, respectively.

Advancing issues slaughtered declining ones on the day, 4593-1775. New lows surpassed new highs, 200-67.

Crude oil gained 28 cents to $90.99. Gold soared $16.40 to $927.10. Silver was up another 26 cents to $16.75.

If you're getting the feeling that something just isn't right about soaring gold, beaten down foreign markets and a 176-point rise on the Dow, you may just be on to something.

Tonight, the world will cheer President Bush's State of the Union address... because it will be his last. The US is in for a world of hurt, though the media and markets aren't giving us full disclosure as of yet. As usual, the American public will be the last to know when the curtain falls.

NYSE Volume 3,763,495,750
NASDAQ Volume 2,020,705,750