Not Such a Good Week; Stocks Continue to Tank

Friday capped off another ugly week for stocks, as the late January rally - built on the back of a whopping 1 1/4% in federal funds rate cuts - has proven to be nothing but a mirage. That's not surprising, considering the historical impact of rate cutting in the face of a depressed business cycle, which happens to be little to none.

On the other side of those rate cuts inevitably sits inflation, which will become the next bogey man to confront the balding and bespeckled geniuses at the Fed. The natural reaction to inflation is to raise rates, and since the Fed won't be doing that soon, expect to pay more for just about everything as the value of the US dollar on world markets continued to erode.

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In any case, stocks fell for the 4th day out of 5, with the notable exception of the NASDAQ, which managed to finish marginally positive two days this week.

At the final bell, the Dow lost 551 points for the week; the S&P gave back 64; the NASDAQ dropped 99 and the NYSE Composite fell 454. It certainly wasn't pretty, but investors are beginning to get the idea that the US is already in a recession and the only reasonable thing to do is to sell stocks and get out of the way until some safe bottom forms.

Dow 12,182.13 -64.87; NASDAQ 2,304.85 +11.82; S&P 500 1,331.29 -5.62; NYSE Composite 8,823.12 -35.92

That bottom could be a distance off, as our brilliant leaders in congress decided to pass a stimulus package that will cost roughly $168 billion - money that will produce a deficit - in rebates to a large swath of individuals and families.

The plan is ridiculous. Consider a family I know well. Husband and wife both work, and have three kids in school, ages 10, 11 and 12. The kids go to public schools and both earners are making upwards of $45,000. They're pretty comfortable. This plan gives them $1200, plus another $900 for the kids ($300 per child) for a total of $2100. They don't absolutely need the money and much of it will likely go directly into the bank or to investments for the future (read: retirement or college funds). Nice country. Free money.

How an additional $168 billion of borrowed money is going to save the nation from the ravishes of recession is a good question, one which nobody in congress bothered to ask. After all, it's an election year and the incumbents saw an easy path to more votes for themselves. Hoo-rah!

Market internals were expectedly in-line with the headlines. Declining issues bettered advancers, 3679-2611. New lows topped new highs, 226-75.

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The oil barons apparently grew tired of not making so much money over the past couple of weeks and drove crude for March delivery up $3.66 to $91.77. Traders were so busy selling off stocks, they barely noticed. Gold leapt another $12.30, closing at $922.30. Silver gained 34 cents to $17.11. There's still time to buy before the metals really take off.

The recession is here, and normally, I'd say there's nothing to worry about as it's just part of the normal business cycle. However, this one looks rather ominous and has rough edges to it, especially considering the dearth of leadership in Washington. Whomever inherits the White House in the fall, they'll be getting a very, very raw deal in an economy that's retreating quickly from 8 long years of wild excess.

Be sure to read the story directly below this for a better understanding of why US equity markets were not another 2-4% lower this week, as they should have been.

NYSE Volume 3,768,491,500
NASDAQ Volume 2,275,363,250

Swimming Upstream with the Plunge Protection Team

Editor's Note: I wrote the following piece on the morning of Friday, Feb. 8, watching with considerable frustration a number of usual, obvious, upward spikes of 70, 50 and 40 points on the Dow, which I usually assign as the work of the Plunge Protection Team. Considering that very few investors and even fewer members of the general public even know of the existence of this group (officially, the President's Working Group on Financial Markets), it is my duty as a proponent of free markets and the Austrian school of economics, to expose them and explain how their interference caused more harm than good.

I have written about them before, and readers can check the tags or labels on this blog for PPT or Plunge Protection Team. It is also advisable to search the same and acquaint oneself with the workings of this group. They are not fictional, but sadly, oh, so real and a better understanding of their role and intentions may bring about some needed changes in our financial markets.

Being neither a zealot nor a fool, I understand that my proposal to the heads of the Federal Reserve, Treasury and other members of the PPT may lead nowhere, but I am hopeful that a robust, open discussion of their actions may lead us all to a better tomorrow.

Coincidentally, shortly after writing this piece, the Dow began an earnest descent. Maybe there is power in thought and force in words. In the end, all we have are faith, hopeful dreams, our good natures and desires.


As I watch the US equity markets gyrate in their long, slow-motion decline to some eventual oblivion, I cannot escape the intransigent maneuverings of the Plunge Protection Team (PPT) in their daily attempts to rescue the markets from their certain swoon.

Their actions are more and more transparent every day. As stocks decline in the somewhat orderly, time-honored tradition of bear markets, the PPT is at odds with the natural forces at work. In effect, they are swimming upstream against a logical, sensible tide of selling. Like salmon returning to their roots, the PPT believes the markets should return to glory days of all-time highs.

They are wrong. They are foolish. They will fail. Their actions speak of desperation, unlike the glorious salmon, which are guided by instinct and propagation, the PPT is swimming blindly into waters neither friendly nor where they are welcome.

A complete, final flushing of the markets is inevitable and preferable to the constant tinkering of these fondlers, who seek to govern what is known and what will be. While they think it right and good to prevent markets from tumbling - lest they incite an already angry public - they do more harm by the day. Their meddling reduces confidence in the fairness of the markets, to say nothing of the massive distortions created by their utterly false intentions.

No good or honest trader is accepting of sharp vertical ascents in the markets. They know what evil hands are at play, goosing the futures, bidding up the blue chips and pampering the investment community with talk of soft landings, strength in the economy and sustainable growth.

Poppycock. Rubbish. Nonsense.

It is time for the PPT, the Fed and Treasury to step back and cease open market operations. Allow the markets to function as they were intended - free and open, without interference - which, in the current environment more than likely means a crash, or at least a long, sustained recession and diminution of equity assets.

It is time for the Fed and their lackey PPTers to stop trying to fix what they themselves have broken, admit defeat and stabilize the situation. Set the federal funds rate at an acceptable 4 1/2-5%, allow the banks that have gorged on risky investments to pay their dues and liquidate their assets and let the American public breathe the clean air of a bottomed-out business cycle.

It would be a refreshing change from the eternal dithering and blathering to which we have become so accustomed. Let those which should fail, fail. Let the market decide. Let the indices fall to where they may, so that companies once again can be accountable and that investments actually start behaving like the fickle instruments of wealth that they are.

Surely, this would be a painful lesson for all, but no less painful than having to endure the uncertainty and unease associated with contrived markets and the grubby molestation of the PPT.

Capitulation Day Forestalled

When push came to shove, the bulls proved to have a little more energy at the end of the day, but it wasn't for any lack of trying by determined bears.

The indices see-sawed their ways to positive closes, though the gains were negligible and narrow.

The day began on a sour note when Wal-Mart (WMT) reported disappointing January sales and Cisco Systems (CSCO) warned of slowing orders, adding to recession fears.

Wal-Mart, the world's largest retailer posted January sales from stores open at least a year below Wall Street's estimates.

Adding to the malaise nearing mid-day, the Wall Street Journal reported Ranks of Economists Forecasting Recession Grow - an article highlighting the call from forecasting firm Global Insight, which joined economists from Merrill Lynch, Goldman Sachs, UBS, Morgan Stanley and others, in saying the economy is already in recession.

Citing the National Bureau of Economic Research, the private outfit that dates recessions, “a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”

That certainly seems to be the case on Main Street, while Wall Street attempts to figure the best way forward. The Dow is just 276 points above the recent closing low of 11,971.19.

At 3:00, Consumer Credit for December was reported to have contracted sharply, to $4.5 billion, from $17.1 billion in November. This seemed to squelch one of the day's mini-rallies, each of which was met with resistance and spirited selling.

Dow 12,247.00 +46.90; NASDAQ 2,293.03 +14.28; S&P 500 1,336.91 +10.46; NYSE Composite 8,859.04 +40.93

Stocks barely ended a three-day skid, though sentiment remains bearish and gloomy. Even though stocks closed the day on a positive note, the mark is still near the low end of the recent trough and a retest of the lows from two weeks ago seems all but certain.

Advancing issues took the edge over decliners, 3747-2519, though new lows continued to dominate new highs, 282-58.

Commodities also gained on the periphery. Oil rose 87 cents to $88.11, below the key $90 mark. With Winter nearly half over, a spell of early warm weather may mark a turning point for motorists suffering through a season of over-$3-a-gallon gas and are due for a break. We can only hope.

Gold edged up $5.00 to $910.00 and silver added 23 cents to $16.78. The buying opportunity is still available. Six months from now, gold should easily have surpassed the $1000 mark and silver should be $18+.

Friday can't come soon enough for wrangled floor traders. While volume has been somewhat on the light side this week, volatility has everyone on their toes. It may turn out to be one of the tamer sessions of recent vintage as there are no significant economic reports or companies reporting earnings.

Then again, this market doesn't need much to get excited one way or the other. We could see another roller coaster session with no clear direction heading into the weekend.

NYSE Volume 4,279,469,000
NASDAQ Volume 2,952,824,000

Early Rally Crumbles on Recession Fear

One thing equity investors cannot escape in this discontented winter of 2008 is the overwhelming fear - bolstered by uniform economic reports and anecdotal examples of doom and gloom - that the US economy is headed for recession and that stocks will take a serious beating later this year.

That is the kind of environment that dominated the emotional trade on Wednesday as stocks struggled in the first half-hour, but eventually found their way to higher ground during the morning session.

By 11:30, the Dow was up 125 points, but that proved to be the high of the day as the hopeful rally fizzled and stocks headed south once more.

Shortly after 2:00 pm, all major indices slipped into negative territory, but it wasn't until an hour later that capitulation became the clear choice and the rout was on. All major indices recorded their third losing session in a row.

The Dow is already down 543 points for the week.

Dow 12,200.10 -65.03; NASDAQ 2,278.75 -30.82; S&P 500 1,326.45 -10.19; NYSE Composite 8,818.11 -56.39

Volume was on the pathetic side once more, which seems to indicate that there is a lot of money on the sidelines, waiting until this current downdraft subsides. That inference may be true, though investors wanting to put capital to work may have already opted for bonds (even though they are currently paying a negative return when measured against inflation), emerging markets or precious metals.

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The last of those is the obvious choice for many as a hedge against inflation, though both gold and silver have met some resistance at their recent highs and have backed off considerably, though many gold bugs view such pull backs as buying opportunities.

Such was the case today, as gold rose $14.70 to $905.00 and silver gained 21 cents to $16.55. Oil, on the other hand, fell another $1.27 to $87.14, as the outlook for demand continues to weigh along with the recessionary calls.

Declining issues beat advancers once more, 4018-2287. New lows ballooned the separation over new highs, 208-57. The number of stocks making new highs remains dismally low, a sign of the times.

After the close, Cisco (CSCO) reported earnings per share before unusual items of 38 cents per share versus 33 cents a year ago. Revenue rose to $9.8 billion from $8.4 billion. Those numbers were in line with analyst expectations.

NYSE Volume 3,861,878,500
NASDAQ Volume 2,362,025,750

Dow -370, Worst Loss of 2008; Top Ten Declines of the Year

This is how it goes n bear markets: sharp rallies followed by devastating declines. As New Yorkers toasted the Super Bowl champion Giants with a ticker-tape parade, Tuesday's action on Wall Street was nothing short of a bloodbath.

By the time the closing bell rang, the Dow had registered its worst performance in what's turning out, so far, to be a very difficult year for bullish investors.

On the Dow, stocks opened 100 points below the previous close and slipped 200 points within the first 20 minutes. From there, all the indices drifted lower for the remainder of the session without even a hint of a rally.

What set the markets on their collective ears was the January reading by the Institute for Supply Management's (ISM) Services index, which drooped to 41.9, from a revised 53.2 the previous month. A reading below 50 indicates contraction; the unexpected decline reignited recessionary fears.

The ISM noted that its new non-manufacturing index measured 44.6% using a new methodology. Nevertheless, the number was devastating no matter how it was computed.

Dow 12,265.13 -370.03; NASDAQ 2,309.57 -73.28; S&P 500 1,336.64 -44.18; NYSE Composite 8,874.50 -327.61

As the day wound to a close, volume accelerated and the indices closed at, or very close to, their lows of the day. Though the weight of trade was somewhat moderate, there was absolutely no doubt as to the direction.

All 30 of the blue chips closed in the red, an indication of the carnage. Leading the way was beleaguered Cititgroup (C) -2.12 (-7.43), with 8 other Dow stocks down more than 4%. The only standout was McDonald's (MCD), which closed only 0.04 lower.

Here's a list of the ten largest losses on the Dow so far in 2008:

Feb. 5: -370 points
Jan. 17: -307
Jan. 15: -277
Jan. 4: -256
Jan. 10: -247
Jan. 9: -238
Jan. 2: -221
Jan. 25: -171
Jan. 22: -128
Feb. 4: -108

Bear in mind, there have only been 24 trading sessions thus far into the new year.

Losing issues beat back gainers, 5022-1275. New lows expanded the gap over new highs, 180-61.

Commodity traders were equally discouraged. Oil futures slipped $1.61, to $88.41. Gold was hammered down $19.10, to $890.30, while sister silver fell 44 cents to $16.35.

After a 1300+ intra-day point run on the Dow, the index has given back nearly 500 points in the past two sessions. All indicators are lining up in favor of a recession. The only people not yet convinced are the hopelessly clueless and the dead.

In a related issue, Downtown Magazine's (parent publication of Money Daily) new Misery News Index showed gains of between 10 and 20% week over week for most of the referenced terms. The Misery News Index tracks news stories containing one of twelve search words, such as inflation, layoffs, recession and homeless.

NYSE Volume 4,142,740,000
NASDAQ Volume 2,435,409,000