Now It's Commodities Turn to Dance with Stocks

Following Tuesday's spirited rally, stocks quickly gave up the ghost in a broad retreat which ended up with stocks closing at their lows of the day.

Dow 12,099.66 -293.00; NASDAQ 2,209.96 -58.30; S&P 500 1,298.42 -32.32; NYSE Composite 8,549.50 -276.94

In what has been already a tumultuous week, the bears on the Street seem to have finally exerted themselves on the market while behind the scenes there may have been some serious liquidation of assets which resulted in a major sell-off in gold. Reports were circulating that a number of hedge funds had margin calls to meet, prompting the gold rush, but others pointed to more central bank and government intervention aimed at propping up the US economy.

A key was the a release by Federal Housing Enterprise Oversight to allow Freddie-Mac and Fannie-Mae to relax excess capital requirements, which would free up more than $200 billion into the US housing market. The dollar also broke a string of declines with a strong rally against the Yen and Euro.

It certainly seems the government and the Federal Reserve have taken off the kid gloves and are prepared to fight a downturn in the economy with every weapon at their disposal, and they have plenty with which to inject further liquidity into the general economy.

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Of course, while such actions may be politically expedient for the administration in power, the longer term effects are difficult to gauge.

Like the stock and commodities markets this week, we may be seeing the very early signs of disruptions in an economy being ripped from its economic moorings. Volatility is usually emblematic of uncertainty, and markets certainly won't accept uncertainty for long, but we are a a point of maximum doubt and a crisis of confidence which is only now getting underway.

Declining issues took back the leadership positive over advancers, 4467-1846. New lows buried new highs yet again, 308-69.

The real story was in commodities, especially gold. While oil fell $4.94 to $104.48, gold dropped more than 6%, losing $59.00 to close at $945.30. Silver also was battered, dropping an unprecedented $1.52, to $18.45, a 7.5% loss.

It seems, just a day after the Fed cut rates and two days after Bear Stearns, a major investment bank, was rescued by the Fed, the action is about to get hotter than ever. Just keeping up with the changes to come will be a challenge for the average American, to say nothing of the economic punditry which likely will be wrong more often than right.

Use short stops, try to stay at least 60% in cash and stay tuned. This party's just getting started.

NYSE Volume 5,499,307,000
NASDAQ Volume 2,327,522,250

Market Love From Fed, Goldman, Lehman

Investors were treated to an unusually heavy dose of good news today, as two investment banks Goldman Sachs and Lehman Brothers, reported better than expected earnings and the Fed cut the federal funds rate by 3/4s of a percent, to 2.25, the lowest rate since December, 2004.

Wall Street, desperate for short-term gains, rode stocks higher at the open and maintained a buying posture throughout the session. Markets dove shortly after the Fed announcement in apparent dissent that the Fed didn't cut rates a full point, but that was quickly overcome by more buying and some expected short covering, which likely contributed to much of the day's gains.

Dow 12,392.66 +420.41; NASDAQ 2,268.26 +91.25; S&P 500 1,330.74 +54.14; NYSE Composite 8,826.44 +337.06

What the market chose to ignore were a pair of pre-open economic reports which portrayed the economy in a much more sober and realistic vein.

Housing starts in the U.S. slumped in February and building permits fell to the lowest level in more than 16 years. The PPI (Producer Price Index) rose another 0.3% in February, and core PPI - which excludes food and energy - rose an unprecedented 0.5%, signaling that inflationary pressures from rising energy prices have infected the rest of the economic landscape.

Contributing to the rampant inflation is the Fed itself, by its de facto devaluation of the currency through a cumulative 3% cut in the federal funds rate in just the last six months.

What the Fed should have fully understood in gauging their various actions, was that inflation will eventually lead to lower demand, precipitating and aggravating a deflationary cycle that is largely manifested in the housing crash.

Unfortunately, the Fed is a very active political participant, dead set on keeping the economy and the stock markets afloat near term at all costs. Their actions, when viewed in retrospect, will surely be seen to be largely reckless and short-sighted. Long term, they are causing more distortions and damage in markets than acting as a stabilizing force, weakening their own influence.

Because of yesterday's dramatic salvation of Bear Stearns dominating the news, some other key economic reports were largely ignored.

On Monday, the NY Empire State Index fell to -22.2 in March, a record low. Industrial production fell 0.5%, while capacity utilization for February fell 0.6% to 80.9%.

Separate or together, those are not rosy figures.

Tuesday's outsize gains are likely to be short-lived. A significant resistance level exists at Dow 12,450, and the market nearly met that today. Obviously, the nature of the Fed's recent actions speaks to the severity of the credit crisis and it's unlikely that just one large investment bank failure is the end of it.

Lehman Brothers (LEH 44.88, +13.13), Bear Stearns (BSC 6.38, +1.57), Fannie Mae (FNM 28.18, +5.97) and Countrywide (CFC 5.07, +0.97) posted their record one day percentage gains. That's particularly interesting because two of the companies - Bear Stearns and Countrywide - have already lost more than 95% of their value and are both in the midst of takeovers.

As expected, advancing issues soared past decliners, 5289-1084. New lows, however, continued to dominate new highs, 345-62.

While the Fed may be helping out its banking buddies with lower interest rates, don't expect any relief at the gas pump. Oil soared another $3.74 to $109.42 on the NY Merc. Gold rose another $1.70 to $1004.30. Silver continued to pare back recent gains, falling 34 cents to $19.96.

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NYSE Volume 5,458,751,000
NASDAQ Volume 2,351,646,250

Bear Stearns Fire Sale; PPT Goes Into Overdrive

US stock markets get stranger and stranger every day. On Monday, the strangeness just went completely off the charts into new areas of weirdness.

Prior to the markets opening on Monday, the Federal Reserve took some specific actions. First, they lent tacit approval to the fire sale of Bear Stearns (BSC) to JP Morgan for $2 per share by announcing that the Fed would guarantee up to $30 billion in Bears' debt. Second, they lowered the discount rate a quarter point (25 basis points) to 3.25%; third, they extended the term of "discount window" lendings from 30 to 90 days, and fourth, they opened the discount window to brokerages and securities dealers.

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This last maneuver was the real cake-taker. The discount window has always been reserved to borrowing by member banks. All others were excluded. By opening the discount window to brokerages, the Fed has now become not just the lender of last resort, but the ultimate bailout arbiter for all the corrupt practitioners in the brokerage business.

With that, the Fed is telling the American public that the health and welfare of Wall Street is more important than the actual value of the currency.

In other words, Americans can kiss their dollars good bye. Already worth less than half of what they were 10 years ago, US greenbacks will soon be worth almost nothing in comparison to other established currencies such as the Euro, Yen, Yuan and Swiss Franc. Anyone close to the Canadian border would be well advised to convert all US treasury notes into Loonies, and soon.

Essentially, the Fed has no plan to save the nation from falling into recession other than to prop up failed Wall Street brokerages. We should all be reminded that the Federal Reserve, the nation's central bank, issues nothing but scrip, or fiat money, backed by nothing more than good will and blind faith.

The Fed has acted as the nation's bank since 1913, before the Great Depression, and since it wasn't summarily discarded during that fiasco, the Fed has been allowed to act illegally as the main minter of money ever since.

The US Constitution, Article 1, Section 8 clearly defines the powers of Congress (not the Federal Reserve): "To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;"

The dollar fell to historic lows against the Euro and the Yen. Officials from Japan and at major banking interests called the dollar's decline "concerning, dangerous and unwelcome."

Foreign markets were battered well before the US stock exchanges opened, and when the US exchanges did open, they collapsed immediately. The Dow tumbled nearly 200 points within the first ten minutes, marking the last "normal" move of the day.

By 11:00 am the Dow was at the unchanged mark and it crisscrossed the break even line until finally closing positively.

Dow 11,972.25 +21.16; NASDAQ 2,177.01 -35.48; S&P 500 1,276.60 -11.54; NYSE Composite 8,489.38 -146.54

No matter how you slice and dice the news, when the NYSE Composite is down nearly 150 points, there's no way the Dow should be up at all. It's completely ludicrous and suggestive of more manipulation by the Fed and their clandestine agents to prevent what we all know is imminent: a crash.

Volume raged today as declining issues submerged advancers, 4993-1300. New lows swamped new highs, 1183-57. Just about one in five stocks hit a new 52-week low today. But those 30 Dow stocks are still safe bets, right? Sure.

With so much negative news concerning global economics, oil finally began selling off on demand concerns, losing $4.53 to $105.68. The distress only bolstered gold's price, which gained $3.10 to another new record close of $1002.60. Silver, which had been rising at an unprecedented pace, was slowed due to its use in industry, falling 36 cents to $20.30, still a remarkable figure.

After today's flamboyant Dow Jones display by the Wall Street crowd, stocks should be expected to fly tomorrow when the Fed announces yet another cut in the federal funds rate of anywhere from 50 to 100 basis points, which will lower that key rate from 3% to 2.50 or even a flat 2%.

The Fed is trying to borrow its way out of a credit crisis, which is like saving drowning victims by pouring more water upon them. It's a complete and utter mess, and sadly enough, the very same people who created the problems are now being called upon to right it. They can't, they won't and they are living and working on borrowed time and borrowed money. All of this is going to end very, very badly, and sooner rather than later.

NYSE Volume 5,783,798,000
NASDAQ Volume 2,381,058,250

Bear Stearns Blows Up, Stocks Slide

For the past week, the denials had been adamant. Officials at Wall Street brokerage Bear Stearns contended that their business was sound and their liquidity position stable.

On Friday, all of the bluster was gone, replaced by admissions that the company was in the throes of a severe credit squeeze and a bailout plan was devised by JP Morgan and the Federal Reserve.

For its part, the Fed trotted out Chairman Ben Bernanke, who once again warned that home foreclosures were damaging to neighborhoods and to the overall economy. Naturally, what the Chairman failed to delineate was the utter failure of the Fed and the banking community to provide safeguards against defaults all through the explosion in risky mortgage vehicles during the past decade.

Now that the banks themselves have their necks in the guillotine, Bernanke and his friends want reforms. How quaint. How reactive and how completely artless are the supposed "rescues" and "solutions" promoted by the Fed.

Bear Stearns typifies the kind of hubris and delinquency rampant in the banking and finance sector of the economy. Bear Stearns, which traded for as much as 159 per share as recently as May of last year, closed down 26.15 (-45.9%) at 30.85. Surely, the financial services firm is facing dire times ahead.

Essentially, Bear Stearns, like many other major players on the Street, is currently unable to finance their ongoing operations because nobody will loan them any more money. They've mismanaged their business and now the Fed is promising to hold their worthless paper. Sadly, the burden will eventually fall upon every living American. For years we will be plagued with higher taxes, lower living standards and price disruptions in everything from mortgages to loaves of bread.

That will only erode the value of the dollar even further. We are witnessing the evisceration of the US dollar as the de facto reserve currency of the world. Foreign central banks and large financial dealers are increasingly wary of buying our debt or valuing deals in dollar-denominated amounts due to its rapidly-declining value.

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What Bear Stearns, the Fed, the banking community and most of America fails to admit is that years of rampant credit expansion, massive government deficits and a wickedly-lopsided trade imbalance has at last destroyed the value of the currency and shattered confidence worldwide.

The complete failure of the US economic system will have ramifications far and wide throughout the worldwide floating fiat-money system. When the top dog yelps in pain, the smaller dogs whine along in time.

Bear Stearns' condition is nothing new. Bankers, all the way up to the level of the Federal Reserve, haven't managed the wealth of the nation well at all. The most obvious manifestation of their mismanagement is the ever-rising rate of inflation, though stagnation in real wages runs a close second. Wealth, in America, is a fleeting thing. At this very moment, some of the wealthiest individuals in the country are literally losing millions every day.

Bear Stearns marks neither the beginning nor the end of this crisis. We are, by most accounts, still in the early phase of what promises to become a long, drawn-out dramatic collapse.

Dow 11,951.09 -194.65; NASDAQ 2,212.49 -51.12; S&P 500 1,288.14 -27.34; NYSE Composite 8,635.92 -191.24

Stocks followed the lead of Bear Steams in hammering prices lower once again. Tuesday's meteoric rise (over 400 points higher on the Dow), was nearly wiped out by Wednesday and Friday's losses. For the week, the Dow was up less than 60 points, the S&P lost five points, while the NASDAQ finished unchanged, to the penny.

The dollar index continued its relentless decline, off more than 15% since January 2007.

Declining issues hammered advancers on the day, 5064-1213. New lows outnumbered new highs, 527-96. Volume was very high signaling that the selling has not only resumed, but likely will carry on for some time.

Oil backed off an entire 1 cents today, closing at $110.21. Gold finally met the expectations of investors closing at an even $1000 per ounce, up $6.20. Silver also closed at a new record high, $20.66, up 24 cents.

Surely, next week and the months ahead will be difficult ones for investors. There is more and more bad news to come, piled atop an already mountainous heap. Our leaders, both in government and the financial community have failed the US population, and badly.

It is long past time for change. Unfortunately, those in power will not go away quietly.

NYSE Volume 5,344,189,500
NASDAQ Volume 2,574,493,500

Laugh (or lie) of the Day: End in Sight for Subprime Writedowns

Today's word from Standard & Poors that the "end is in sight" for the massive subprime writedowns taken by major financial institutions, is as ludicrous and bittersweet as news can become.

The ratings agency issued word that the subprime losses had reached the "halfway point" amidst yet another spate of bad news that had markets reeling early in the trading session.

Prior to the opening bell, the Commerce Department reported that retail sales fell by 0.6 percent in February, while analysts had been expecting a gain of 0.1%.

Chiming in, the Labor Department noted that first time applications for unemployment benefits was unchanged, at 353,000. Import prices also registered a gain of 0.2% in February.

With that news in hand, investors quickly sold off stocks, sending the averages to intraday lows, with the Dow down more than 200 points in the first hour of trading.

With the manufacture of positive news the latest weapon in the arsenal of attacks against falling equity prices, the S&P ploy was just what the spin doctors ordered. Stocks eventually turned positive, with the Dow registering a 100-point gain just after 2:00 pm.

Dow 12,145.74 +35.50; NASDAQ 2,263.61 +19.74; S&P 500 1,315.48 +6.71; NYSE Composite 8,827.16 +45.93

Of course, the hot air eventually was mostly blown out, and the session ended with stocks holding onto marginal gains.

Advancing issues managed to beat back decliners, 3706-2535, though new lows stayed ahead of new highs, 497-84.

Over in the commodities pits, the morning's dismal economic news brought out the best, with gold, silver and oil all reaching all-time highs. Oil gained 41 cents to close at $110.33. Gold soared, briefly trading at over $1000 per ounce, before backing down to finish at $993.80, up $13.30. Likewise, silver added 43 cents to end up at $20.42.

What's interesting, sad and funny all at once about the markets is that any small sliver of good news is magnified far beyond its importance, while bad news is simply taken in stride. While the markets continue to wriggle and writhe their way toward some kind of bottom (probably 12-18 months away), the merchants of happiness on CNBC and at the brokerages have consistently under-appreciated the depth of the downturn.

It's not only too bad for them, but for small investors who have neither the expertise nor keen market understanding to make rational decisions regarding their holdings.

Simply put, anybody who hasn't already taken their 10% penalty and the associated tax bite by at least partially emptying their retirement account has missed the boat. The sad news is that most accounts such as these are already down 15-25% from their summer 2007 highs. The even sadder news is that many baby boomer types are still holding on for dear life (and many happy years in their 60s and 70s), though the chances of regaining their former valuations are slim and nil.

Too bad for them too. The age of 70 is still 15 years away for more than 2/3rds of the boomer generation.

NYSE Volume 5,001,790,500
Nasdaq Volume 2,471,754,250