Bleakness, Misery and Despair

When will it end? When will investors find enough confidence and selected bargains to forge back into the market and begin buying stocks?

From the looks of things, it's going to be a while.

The Dow is off 17.12% from its high of 14164.53 close on October 9, 2007. According to widely-accepted guidelines, we're not even in a bear market. That, supposedly, occurs when an index is down 20%. Seems that the Dow is close enough and the charts ugly enough to call a bear a bear.

Dow 11,740.15 -153.54; NASDAQ 2,169.34 -43.15; S&P 500 1,273.37 -20.00; NYSE Composite 8,534.37 -141.90

Only four of thirty Dow stocks delivered gains on the day: Intel (INTC), IBM (IBM), Microsoft (MSFT) and McDonald's (MCD). Financial stocks took the biggest hits. Citigroup (C) fell nearly 6%, losing another 1.22 to close at 19.69. On a split-adjusted basis, Citigroup has not closed below 20 since 1998.

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The impetus for today's decline was once again the financial sector. Fitch Ratings took negative ratings action on eight US-based banks on mortgage loan exposure. Washington Mutual, Citigroup, Wachovia and Bank of America were among those put under ratings watch or downgraded.

There were also various unfounded rumors concerning financial firms Lehman Brothers (impending layoffs) and Bear Stearns (liquidity problems).

What's becoming more and more apparent every day is that the economy is in severe crisis due largely to the collapse of the banking industry, which underpines the entire system. The largest and most influential banks in America are stressed to the breaking point due to mismanagement and a near-total lack of regulation. As a nation, we are about to be plunged into total economic darkness.

While some economists are worried about the country heading into a recession, more serious heads are wondering how we escape the complete destruction of our financial system.

Wall Street types are guessing whether the Fed will cut rates 50 or 75 basis points at the next FOMC meeting, March 18. It should be pointed out to those who still have faith in the Fed (a number, that, like the stock indices, has taken quite a recent fall), that the 2.25% reduction (from 5 1/4 to 3%) in the federal funds rate since September has done roughly nothing to ease the pressure on stocks, banks, the economy or improve the general condition.

The Fed can ease all the way down to zero if they like, but the inescapable conclusion is not about avoiding recession, it's about survival of the fittest in the face of mounting, inevitable bank failures. Once the banking system completely implodes, the misery will be widespread, bankruptcies will explode and today's 2% foreclosure rate will expand to something more like 10%, if not higher.

The future is very unpretty and I am loathe to be one of the few reporting the truth, but all evidence continues to indicate nothing but bleakness, misery and despair.

Declining issues overwhelmed advancers again, 5104-1228. New lows expanded to 839, while new highs contracted to a mere 52 stocks.

Oil rose $2.70 to an all-time closing high of $107.85 per barrel. Even precious metals investors were taking money off the table. Gold fell $2.40 to $971.80. Silver lost 47 points to $19.79.

NYSE Volume 4,196,839,500
NASDAQ Volume 2,137,205,750

Labor News Gloomy; Stocks Lose Value

The word best fit to describe the current US labor situation is "grim."

Nonfarm payrolls fell by 63,000 in February, the worst monthly decline since March 2003 and well below the expected creation of 25-35,000 jobs. Further, January's payroll decline of 17,000 was revised lower to 22,000.

Meanwhile, the geniuses at the Federal Reserve, those brainy masters of all things economic, have no clue how to stem the rising tide of foreclosures, credit strangulation and runaway inflation. Instead, they're content to "milk" their way out of a serious liquidity and confidence crisis that has only worsened since August of last year. The Fed is increasing the amount of securities it will acquire from banks – via its Term Auction Facility (TAF) – to $100 billion this month vs. the previously announced $60 billion.

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Since December, the Fed has loaned $160 billion to banks via the TAF and the results thus far have been nil, excepting, of course, the fact that certain financial institutions have been precluded from sheer liquidation by borrowing more money.

The Fed's actions can be viewed as somewhat futile considering the depth and scope of the overall economic condition in the US. Americans have saved nothing for 20+ years, the banks went on borrowing and lending - often to individuals and corporate entities that hadn't a shred of good credit standing - and now the defaults are piling upward and onward.

All the Fed is doing is extending the time the banks have until they themselves admit their wrongdoings, take their losses and - for some - close up shop. The short list of major banks on the brink of failure include Wells Fargo, Citibank, Bank of America, JP Morgan Chase, Wachovia and Merrill Lynch. Smaller, regional banks may begin failing sooner as their access to credit markets continues to be impaired. Within 3-6 months, bank failures will be making daily headlines.

Here's a handy list of the 150 largest US banks which will serve as a scorecard later this year.

The early reaction by investors to the labor report ensconced in a shroud of other bad economic news, was, in a word, implausible.

After the expected opening dive, the indices all turned positive by 10:00 am and less than an hour later were sporting healthy gains. The NASDAQ was up a full percentage point and the Dow had tacked on more than 50 points.

Naturally, the artificial euphoria couldn't and didn't last, and by 11:00 am nearly everything was heading lower, the averages continuing their journey of the down slope.

Dow 11,893.69 -146.70; NASDAQ 2,212.49 -8.01; S&P 500 1,293.37 -10.97; NYSE Composite 8,676.24 -89.17

Considering the depth of the labor report, the losses were somewhat contained by the usual late-day upticks, which boosted the Dow more than 100 points off the intraday low. Still, the Dow recorded its lowest close of the year, and the worst since October 12, 2006.

These kinds of comparisons to the past are useful for a little bit of perspective, since life in the USA was a little bit better in 2006. At least gasoline and food prices were lower, the economy was creating new jobs (albeit not good ones, but jobs nonetheless) and home prices were still rising.

Of course, that last caveat is what caused most of the disaster we face today, so the perspective is useful for market trackers, but the conditions are vastly different. Stocks were rising in 2006, as they generally did since the Spring of 2003.

The next support area to be tested on the Dow is a range between 11,635 and 11,670, the near-term intraday low and a top from May 11, 2006, respectively. After that, there's an area of congestion between 10,250 and 10,750, which will likely be where the Dow settles in for the summer of '08.

During that period, we will surely hear plenty of calls for a bottom, though it's unlikely that the bear market will be played out in just 10-12 months. Expect a short term respite during the middle of the year with a resumption along a major decline line following the release of third quarter earnings in October. By that point, comparisons will be easier to make, a change in the presidency and in Congress may offer some relief, and by the end of '08 there may be some reasonably encouraging news. It's unlikely that we'll be out of the woods as a nation and in the stock markets before the first or second quarter of '09 - and that prediction may be overly optimistic.

How soon the economy is righted depends largely on a wide swath of factors, but the most important are the Fed, the fall elections and how quickly America purges both the corrupt practices in the government and on Wall Street and the gargantuan losses incurred by the decrepit banking system.

On the day, declining issues trounced gainers, 3959-2307. New lows widened their edge over new highs, 844-62. Since the number of advancing issues was still somewhat respectable, the obvious direction is lower still. Not until stocks are completely hammered down, when advancing issues only account for 10% of all shares traded will we begin to comprehend how severe the recession (the one we're either already in or about to enter) will be. Until then, investors, economists and analysts remain largely in denial.

Oil backed off 32 cents to close at 105.15. Gold finished down $2.90 at $974.20. Silver gained 3 cents to $20.25. Pre-1965 quarters (90% silver) are now worth roughly $18.00. The smaller, lighter quarters jangling around in your pocket are still worth 25¢, but that value is dropping fast.

It wasn't a good week to own stocks. The Dow, for instance, lost 372 points, but investors can take heart in the knowledge that some weeks ahead will probably be worse.

Peace. Out.

NYSE Volume 4,216,124,500
NASDAQ Volume 2,332,342,000

Stocks Hit the Skids

It took more than a month, but the major indices dove back to where they were on January 22-23, when the first signs of the economy in crisis really were becoming apparent.

Dow 12,040.39 -214.60; NASDAQ 2,220.50 -52.31; S&P 500 1,304.34 -29.36; NYSE Composite 8,765.41 -197.01

The Dow managed to close above the previous low of 11,971.19, though not by much, and the indication is that the intraday lows - in the 11,500 range - are certain to be tested.

On the S&P it was worse. That index closed below the Jan. 22 low of 1310.50. The NASDAQ, which had already cracked its low of 2292 on February 29, fell to a level not seen in 17 months.

The broad-based NYSE composite has fared the best of all, still, it is only 100 points above its prior closing low.

The declines were caused by the usual, persistent problems: housing, credit, inflation. There was a major mortgage financier default, but that's getting to be old news. The plunge toward total darkness continues.

There was no avoiding the cascade of stocks. Declining issues outnumbered advancers, 5327-976. Obviously, this is a tough market in which to pick winners. New lows surpassed new highs, 644-77.

Artificially high crude closed at another new high of $105.47, up 95 cents. Oil and gas prices are seriously out of control, though the higher the price goes, the more serious becomes the search and deployment of alternative energy supplies.

Gold dropped $14.20 to 974.30 and silver lost 56 cents to $20.23.

In one small smidgen of good news, Wal-Mart boosted its annual dividend. America apparently will keep shopping.

Tomorrow, the government's February employment report is released prior to the market open. It's difficult to envision a condition in which cooler heads will prevail if the labor situation is even better than anticipated, a paltry 35,000 new jobs created, and that's optimistic.

Look out below.

NYSE Volume 4,323,458,500
NASDAQ Volume 2,246,466,500

Stocks on Roller Skates

US equities were buffeted around on Wednesday amid another flurry of generally disheartening news, finishing the day with modest gains.

According to the ADP National Employment Report (a privately-run survey of more than 500,000 businesses), private sector employment declined by 23,000 in February, with the majority of the losses occurring in businesses with more than 500 employees.

The report detailed that small businesses with less than 50 employees added 15,000 jobs in February, while those with over 500 employees lost 34,000. The difference was made up by medium-sized businesses which lost 4,000 jobs during the month.

According to Joel Prakken, Chairman of Macroeconomic Advisers, LLC, "employment among small-size businesses, defined as those with fewer than 50 workers, advanced just 15,000 during the month. While this employment growth contrasts with employment declines among medium- and large-size businesses, it is the smallest gain in employment among small-size businesses since November 2002."

An average of 3,960 bankruptcy petitions were filed per day nationally in February, up 18% from January and up 28% from the same period in 2007, according to Automated Access to Court Electronic Records, a bankruptcy data and management company.

At noon, shares of Ambac Financial were halted on reports that a deal to salvage the failing monoline insurer were imminent. An hour later, AP reported: "A group of banks was close to sewing together a rescue plan to keep Ambac from faltering under a weight of bad debt. However, an official announcement might be postponed as to not disrupt the markets, according to a person close to the talks who spoke on the condition of anonymity because the deal wasn't final." [emphasis mine]

So much for that idea. At 1:45, the AP reported that Ambac would issue up to $1 billion in new stock to raise funds to cover losses associated with their subprime mortgage exposure. Stocks tanked immediately on the news, turning all indices from positive to negative in a matter of minutes.

Ambac, which was trading around 11.30 when it was halted at noon, reopened at 9.54 around 1:35 pm.

Stocks wavered around the break-even line until just before 4:00 pm, when a late buying surge boosted all indices at the close.

Dow 12,254.99 +41.19; NASDAQ 2,272.81 +12.53; S&P 500 1,333.70 +6.95; NYSE Composite 8,962.42 +70.97

Advancing issues actually chalked up a win over losers, 3535-2699. New lows prevailed once again over new highs, however, 335-92.

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Meanwhile, the dollar sank to new lows against the Euro.

Oil took another great leap forward, gaining a full $5.00 to close at yet another record high of $104.52. Gold blasted ahead $21.40 to $988.50 (record) and silver set another record at $20.79, gaining 95 cents (5%) on the day.

Wall Street and whomever is pulling the very long strings in the markets seem content to remain in denial about the state of the US economy, inflation and the wisdom of investing in stocks while all the evidence points to a crumbling, systemic failure.

Of course, like everything else the government has its fingers in, the markets are completely corrupted and have lost the confidence of many serious investors. Too bad, because the party in charge used to stand for free, open and trustworthy markets.

Friday's "official" non-farms payroll report from the Labor Dept. is likely to be fudged and massaged to show something positive, as opposed to the "unofficial" private ADP figures released today. Since the experts are only looking for gains of 25-35,000 jobs, anything better than that can be hailed as victory by the malignant financial press and prevent stocks from falling into a black hole.

Remember, keeping the economy on an even keel or at least presenting the case in a positive manner despite the facts is paramount to the designs of the fascist power regime in this election year. A new president will be elected and it must be either Hillary Clinton or John McCain, either of whom will keep the country "safe."

That's the plan and the world is being royally screwed by the process.

NYSE Volume 3,808,456,750
NASDAQ Volume 2,208,738,000

Market Dips Disguising Systemic Woes

For the second straight day, US equity markets mostly erased earlier losses and avoided facing the reality everyone owning stocks already knows: we're doomed.

High oil and gas prices continue to fuel unrelenting inflationary pressure which is putting pricing pressure on all manner of finished goods. From flooring to pastries, everything produced requires energy and transportation, and costs are spiraling out of control.

At the root of the dilemma is a stubborn Federal Reserve, which adamantly refuses to hold the line on interest rates in the face of screaming, double-digit inflation, instead focusing on "restoring growth" or "preventing recession" as its main objective.

Speaking before a banking group in Florida today, the Chairman expressed a need for banks to do more to prevent foreclosures. "Reducing the rate of preventable foreclosures would promote economic stability for households, neighborhoods and the nation as a whole," he said.

Bernanke went on to provide a solution that would be seemingly unpalatable to bankers in particular, saying, "Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure.''

In other words, Bernanke is asking the banks to forgive a portion (principal) of loans made to shaky buyers in the first place. Considering the sheer naivete of making such a remark to an audience of bankers, it's amazing that the chairman wasn't laughed out of the room.

One would imagine the normal response from any banker worth his salt would fall somewhere between "fat chance" and uncontrollable laughter.

On the other side of the ledger are responsible Americans who view such a bailout for delinquent homeowners a reward for bad behavior.

Underscoring the Chairman's remarks is the growing understanding that the housing predicament is not going to resolve itself and that it remains a considerable drain on the economy.

Meanwhile, the dollar continues to sink against other currencies, and especially against the price of oil, which oil ministers say is not their fault, but due more to the shaky US economy. It's a viscous cycle, and the evidence suggests Bernanke - and his henchman at Treasury, Hank Paulson - has no viable solution.

Dow 12,213.80 -45.10; NASDAQ 2,260.28 +1.68; S&P 500 1,326.75 -4.59; NYSE Composite 8,891.45 -78.94

Stocks sank on the news, then miraculously regained 3/4 of their losses by day's end. The continuing cycle of trimming losses late in the session has just about run its course. Not even the most adroit trader can fight the headwinds blowing against US stocks right now. Another significant downturn is currently more certain than ever.

While the headline closing prices may not be startling at all, the internals are eroding at a quickening pace. Declining issues thumped advancers again, 4058-2227. New lows New lows expanded the gap over new highs, 592-79.

Commodity traders took profits, sending oil lower by $2.93 to $99.52. Gold dropped $17.90 to $966.30. Silver shed 34 cents to $19.84.

The Dow, down more than 200 points at 2:00 pm, touched an intraday low of 12,032, its lowest point since January 23, another sign that capitulation is not far removed from the minds of burdened investors.

Those same investors will have plenty of data from which to extract any fragment of hope. ADP Employment, revised 4th quarter productivity numbers, factory orders, ISM Services Index and crude inventories are all on Wednesday's economic calendar. At 2:00 pm, the Fed's Beige Book, with minutes from the February meeting, is released.

And the week isn't even half over!

Hint: Friday prior to market open is the release of the monthly US labor report.

NYSE Volume 4,757,187,000
NASDAQ Volume 2,692,600,500