Bernanke Spoils the Party

After Tuesday's enormous gains on Wall Street, trading became a bit more realistic on Wednesday, especially after Fed Chairman Ben Bernanke's testimony to a Joint Economic Committee of congress, in which he cautioned about the economy falling into recession and boldly stated that the deal to save Bear Stearns from default was not a "bailout."

Parsing his words carefully, Bernanke said the deal to essentially liquidate the assets of Bear in a forced sale to J.P. Morgan was engineered to ensure the "integrity and viability of the American financial system..."

It sure sounded like a bailout to most of the congressional members and looked like one to even the most casual observer on the street.

Investors took a look at yesterday's prices and took a little bit of a pause, not only because of the Fed Chairman's words, but with March labor figures out on Friday and corporate earnings for the first quarter coming soon, many felt more like watching rather than participating as the indices delivered a split decision.

Dow 12,605.83 -48.53; NASDAQ 2,361.40 -1.35; S&P 500 1,367.53 -2.65; NYSE Composite 9,104.46 +15.97

Volume was moderate, and stocks were generally split, with advancing issues garnering a narrow win over decliners, 3525-2690, though new lows finished ahead of new highs, 117-105.

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Also spooking the markets was another spike in the price of oil, which had been moderating over the past week. Crude was higher by $3.85, to close at $104.83. Gold also regained some of its recent losses, adding $12.40 to close at $900.20. Silver, also beaten down in recent days, gained 29 cents to $17.18.

All the street talk seems to be of the "we've hit the bottom" variety, which is really off the mark. There's been no bottoming, and the banking sector still has billions of dollars worth of bad paper to yet discard. The condition of the real estate market is still deteriorating and we've yet to see unemployment figures in line with general economic conditions.

The "powers that be" game plan continues to pitch the "all clear" signal and will likely attempt to do so until the November elections. It's a tough act, and there's more than just a little skepticism about the overall health of the US economy. Chances are that stocks will have to shed more value before all of the excesses of the past 10 years are fully flushed out of the system.

Consumers continue to be tapped out and higher fuel and food prices are certainly not helping matters. While the weak dollar abroad is helpful to the multi-nationals, business conditions in the USA continue to deteriorate at a moderate pace and the credit markets remain virtually frozen, with no respite on the horizon.

NYSE Volume 4,320,442,000
NASDAQ Volume 2,060,430,875

April's Fools Rush In, Stocks Scream

Today's running of the bulls could better be described as a "running of the fools" as investors plowed money into beaten down stocks in hopes of a dramatic turnaround from a dismal first quarter.

While stocks put on a fantastic show, the outsized gains are likely to be short-lived. There's little doubt that the economy is tanking, the market's a verified bear, and banks are still taking massive writedowns from bad loans, the latest casualties being foreign banks. Swiss-based UBS reported that it would take a $19 billion writedown, and Deutsche Bank of Germany anticipated a smaller, but still significant, writedown of $3.9 billion.

The general understanding on the street is that the banks are nearing a bottom and it's time to buy back in. Oh, how wrong can these fools be? If that were so, the current and continuing credit and banking crisis would qualify as one of the greatest and shortest-lived hoaxes of all time. Stocks are not even down 15% from their August highs, yet all we've heard from the Fed and economists is that this is one of the most troubling periods since the Great Depression.

Dow 12,654.36 +391.47; NASDAQ 2,362.75 +83.65; S&P 500 1,370.18 +47.48; NYSE Composite 9,088.49 +291.20

One would have to assume that Wall Street's euphoria is a bit premature. The bear market is barely 8 months old, while most last 18-32 months, and government figures have not officially confirmed that the economy is in a recession. While 4th quarter GDP checked in with a gain of 0.6%, GDP would have to be negative for two consecutive quarters to meet the classic definition of a recession. We're not there yet.

For chartists, today's move was nightmarish, though the bear case can still be made by virtue of a major voided area between 12,500 and 13,500 on the Dow. That area could be occupied without disturbing the primary trend, though a move beyond 12,750 is still in doubt, today's massive upside rise notwithstanding.

As expected, gainers outnumbered losers by a wide margin, 5020-1264. New lows retained their edge over new highs, though not by much, 120-78.

Commodities were whacked again. Oil slid 68 cents to $100.98, the lowest price in three weeks. Gold tumbled a frightening $33.70, to $887.90. Silver lost another 42 cents to $16.89. Two weeks ago it was over $20 per ounce.

The trouble with the metals, especially gold, is beginning to attract undue attention as it is sending some troubling signs of an overt deflationary trend as the full blown seizure in credit markets has banks and investors scrambling for cash.

Today's rally was a fool's rush. Primary trends remain unchanged and dire. In a week or a month, these gains will be nothing but memories of better days.

NYSE Volume 4,809,849,500
NASDAQ Volume 2,176,482,750

First Quarter Not Good for Stocks

The markets wound their way through the final day of the first quarter on Monday, trying in vain to freshen up an otherwise pig-ugly three months.

For the record, the Dow lost just over 1000 points, the NASDAQ shed 372 points and the S&P dropped 146. Overall, it was not as bad as the worst levels of the quarter, which in general were another 2-3% lower than the March 31 close.

Dow 12,262.89 +46.49: NASDAQ 2,279.10 +17.92; S&P 500 1,322.70 +7.48; NYSE Composite 8,797.29 +35.17

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The indices actually finished higher for the day, mostly in a rejiggering of portfolios and in somewhat of a tepid response to the government's call to overhaul federal regulatory structures. The plan, largely promoted by Treasury Secretary Henry Paulson, calls for more oversight by the Federal Reserve, in the belief that they can somehow cure banks and other financial institutions from acting badly or stupidly or irresponsibly.

We would love to believe that the great and magnificent Federal Reserve Bank can also end poverty, cure cancer and rid people of the shame of psoriasis.

It's a sham, and, thankfully, the congress isn't about to enact sweeping regulatory reform this year, or next, at least.

Stocks mostly meandered in slightly positive territory most of the day, and the internals were similarly dull. Advancing issues outdid decliners, 3806-2453. New lows beat new highs for yet another session, 193-51.

What is remarkable is the abysmally low number of stocks making new highs. Even in the worst of times - like now - there are usually more than just a paltry few dozen every day. Economic conditions are abnormally severe with no real change on the horizon.

Commodities took it on the chin today, with oil down $4.04 to $101.58, gold off an even $15.00 to $921.50 and silver lower by 63 cents at $17.31.

While it may not be exactly the best time to be buying the metals, such a move could prove prudent, if only for the long term value. The temporary setback for gold and silver is not likely to last long, though long-term asset deflation is a looming problem that nobody really wants to notice or discuss.

The markets will adjust as needs. A crucial quarter for the US economy is about to get underway.

NYSE Volume 4,192,029,750
NASDAQ Volume 1,828,315,875

The Big Give-Back

After rocketing ahead early in the week, the markets gave back all of the gains and then some. The Dow, which closed Monday at 12,548.64, lost ground four consecutive sessions, finishing 145 points lower for the week.

Dow 12,216.40 -86.06; NASDAQ 2,261.18 -19.65; S&P 500 1,315.22 -10.44; NYSE Composite 8,762.12 -55.05

Volume was on the very low end of the scale, indicative of an end-of-month wait-and-see attitude all around, though Monday's final day of the quarter could prove significant.

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It seems that no matter what moves the Fed makes and how much happy talk the Fox News and CNBC pundits produce, nothing can stop stocks from falling. Just glancing at the charts of the major indices shows that they are still in a holding pattern above recent lows and retests and retreats are inevitable.

Declining issues overwhelmed advancers once again, 4120-2075. Only 39 stocks made new 52-week highs, while 165 made new lows. The string of days with more new lows than new highs stretches back to October 31 of last year, except for two days in December. That's a very long run and the streak is now unlikely to be unbroken until we reach the original falling-off point in August.

Commodities continue to trade very uncertainly, with oil down $1.96 to $105.62, gold off $17.50 to $936.50, and silver down 61 cents to $17.94. Deflation is taking hold in a big way, which is expressly what the Fed sought to avoid with its interest rate cuts and interventions into the credit markets.

Obviously, it's not working.

NYSE Volume 3,610,889,000
NASDAQ Volume 1,739,376,375

Another Dose of Volatility

In the absence of any more devastating financial news, stocks took the path of least resistance and put on healthy gains on Thursday.

Dow 12,361.32 +261.66; NASDAQ 2,258.11 +48.15; S&P 500 1,329.51 +31.09; NYSE Composite 8,717.56 +168.06

While the unemployment figures delivered this morning prior to the opening bell showed more people applying for benefits, investors chose to overlook that and point to the idea that the Fed is allowing the banks to put up shaky collateral for its Term Securities Lending Facility (TSFL) loans in the form of CMOs (Collateralized Mortgage Obligations).

In other words, the Fed is going to swap good liquid money for toxic, illiquid assets. Those mortgage loans are the same structured vehicles that started the entire mess. Now the Fed is willing to accept these bad investments as collateral.

With any luck, other central banks around the globe will not want to trade with the Fed or hold dollars, since the Fed is wiling to risk its own credit standing and confidence in exchange for bailing out the banks and investment houses which made the ill-advised investments in the first place.

Bernanke's desperate solutions are bound to make matters even worse, albeit further down the road.

As for equities investors, what buyers at these levels must not comprehend is that there is hard resistance at 12,450 on the Dow and the market is very close to attaining that point, meaning that in all likelihood today's gains will have been made in a vacuum and will soon be swept away by more waves of selling.

Advancing issues swamped decliners by a 4406-1895 margin. New lows beat new highs once again, 374-48.

Commodities were in the spotlight once again as recent gains continued to unravel. Oil traded below $100 before closing down just 70 cents at $101.84. The metals were under more severe pressure. Gold fell $25.30 to $920.00, while silver took its second significant tumble in as many days, losing $1.60 to $16.85.

So-called "hot" money is being diverted from the metals into stocks. Fools rush in where angels dare to tread, and there are more than this market's fair share of fools out there.

NYSE Volume 6,158,374,000
NASDAQ Volume 2,652,208,500