Consumer Credit Reading Stalls Market

Wall Street was giddy this morning after hearing the Washington Mutual, another beleaguered big-name bank, was about to receive a fresh $5 billion in equity funding from outside investors. The greed patrol on the street absolutely loves fresh cash. They seethe over it like wolves drooling over the blood of an exquisite kill.

With that, the Dow was quickly in the green and up by over 100 points before 1:00, taking the rest of the indices along for the ride. Hitting a wall of resistance in the 12,700-12,750 range, the markets cooled in the afternoon and really took a hit around 3:00 when news crossed the wires that February consumer credit fell to $5.2 billion from a prior reading of $10.3 billion. Expert economists expected a reading of $6.0 billion.

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Not only was consumer credit off dramatically, it was lower than even the more bearish forecasts, giving more credence to the argument that tight credit conditions are spilling over from banking and big business, all the way down to the basic consumer level. Banks aren't loaning money and consumers are loathe to borrow. Caught in the middle are businesses which need financing in order to expand, launch new products, and, in the worst of cases, meet payroll.

That last item - borrowing to meet payroll demands - is going to become a major worry over the next few months should the general credit conditions persist. Companies short on cash are going to be hard-pressed to find funding sufficient to meet current obligations. It's barely on the radar now, but watch for small firms laying off employees and some even shutting down, citing lack of capital or access to it as the main cause for failure.

In other business news, Yahoo head Jerry Yang and Microsoft CEO Steve Balmer spent the weekend tossing barbs back and forth about Microsoft's $31/share buyout offer. Yang insists he's open to negotiation, but at a higher price. Balmer believes Yahoo's value continues to deteriorate and says that if their original offer isn't met within three weeks, the company will embark upon a hostile takeover which would last months and could wreck Yahoo whether successful or not.

The general thinking among investors is that Yang is holding out against the odds, calling Balmer's bluff, and seeking somewhere in the range of $38-40 per share. Wishful thinking on Yang's part, likely, as Balmer and Microsoft have a cash hoard that's the envy of the world and with it could swallow Yahoo whole.

Time seems to be running out on Yang and Yahoo's Board of Directors along with Balmer's patience. A hostile bid would sink the stock into the low 20s and possibly lower. Yahoo ended the day down 66 cents at 27.70.

Dow 12,612.43 +3.01; NASDAQ 2,364.83 -6.15; S&P 500 1,372.54 +2.14; NYSE Composite 9,184.72 +27.19

Getting back to macroeconomic issues, volume on the major exchanges was dull for the third straight session due to a number of factors. First, the market has been witness to a remarkable gain of late and is technically overbought. Second and third, there are few economic reports on which to trade and corporate earnings are just around the corner. Investors are taking a wait-and-see approach as first quarter results dribble out this week and then explode over the next two.

Gainers showed a slight edge over losers on the day, with 3306 stocks advancing and 2986 losing value. New highs bettered new lows for the second straight session, 138-95, a two-day trend that's not likely to last through the week.

Oil gained again, adding $2.86 to close at $109.09. (Keep driving, Americans!) The metals seem to have caught lightning in a bottle again, as gold rose $13.60 to $926.80 and silver pushed ahead 37 cents to $18.12 the ounce.

It's been a very sluggish time over the past three sessions and a pervasive sense of foreboding is enveloping parts of the street. While few still doubt that the US is headed for recession if not already in one, investors are still wary of capital and credit markets which have completely seized up over the past six months.

With home equity largely tapped out, consumers turning to credit cards to meet general obligations is not a healthy sign. Slowing demand will kill corporate profits and stop the wheels of industry (what's left of them in the USA) from turning altogether.

The economy is still in a vulnerable position and signs of recovery remain an illusion. Sooner or later, investors will begin tapping out and the great deluge of selling which began last August and gained tempo in January will resume, resulting in a large thud as traders' jaws hit the floor simultaneously. Forewarned is forearmed.


NYSE Volume 3,700,481,750
NASDAQ Volume 1,778,706,250

Stocks in Limbo

With the release of the monthly non-farms payroll report for March on Friday morning, investors were struck with yet another sign of a failing US economy as US employers handed out 80,000 pink slips during the month.

It was the third consecutive monthly decline in the US labor force and solidifies the argument that the economy is already in a recession, the worst aspects of which have yet to be felt.

In response, stocks fell out of the gate, but recovered, and by midday were sporting a healthy gain. Late in the day, however, a reality check sent the Dow back below the break even line, though the other indices managed to carve out modest gains.

Dow 12,609.42 -16.61; NASDAQ 2,370.98 +7.68; S&P 500 1,370.40 +1.09; NYSE Composite 9,157.53 +16.89

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There was more evidence of a change in direction as advancers held a slim edge over declining issues, 3312-2862. And for the first time since early December, new highs edged new lows, 127-89. That is a significant change, but it's not likely to last. The last time there were more new highs than lows, it was for only two days before the markets beat a hasty retreat.

Considering the depth of the banking and housing crises and the unmistakable signs of recession, stocks have barely budged and are floating on rarefied air with unrealistic valuations.

Those seeking a quick turn-around for the US economy are in for a surprise. These job losses are spreading and are likely the tip of an unemployment iceberg that's about to bust a big hole in the titanic US revenue machine. The economy is stagnant at best and the solutions by the government are sorely lacking in scope and vision.

Oil priced another $2.40 higher, to close at $106.23, while gold tacked on $3.60 to $913.20 and silver added 28 cents to $17.76.

Wall Street and most investors are in serious denial. The market is sure to hand them some sad news shortly. Tax time looms, always a down period for the markets.

NYSE Volume 3,703,311,250
NASDAQ Volume 1,981,811,875

Stocks Poised for a Fall

The follow-up to Tuesday's massive rally has been less than impressive. For the past two days, stocks have wallowed around the flatline in anticipation of Friday's March non-farm payrolls report.

That report is due out prior to the opening of the markets and analysts are not very encouraged following Thursday's reading on initial jobless claims for the week ended March 29, which jumped to 407,000 from 369,000, and was the largest number of claims in 2 1/2 years.

Forecasts are for a loss of between anywhere from 50,000 to 70,000 jobs in the domestic workforce, and that comes on the heels of three consecutive months of similarly poor results. With the economy shedding jobs in such an expedient manner, the levitation act that the Fed has orchestrated on Wall Street is unlikely to last.

Dow 12,626.03 +20.20; NASDAQ 2,363.30 +1.90; S&P 500 1,369.31 +1.78; NYSE Composite 9,140.64 +36.18

Advancing issues edged decliners, 3348-2875, but new lows beat out new highs once again by a narrow margin, 119-85.

Oil backed off 98 cents to $103.85 per barrel, while gold gained $9.40 to $909.60. Silver tagged along, rising 30 cents to $17.48 per ounce.

There's plenty on the minds of investors right now and some of it will be revealed tomorrow at 8:30 am. The news is unlikely to be positive, but the market's response will be vitally important going forward into 1st quarter earnings season.

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