The Folly of Fed Policy

Today, the Federal Open Market Committee (FOMC) of the Federal Reserve determined to leave federal funds rates without change, at 2%.

If the previous statement sounds like a lot of words to say essentially nothing, then count yourself among the lucky few who have learned not to pay too much attention to the moves, machinations and pronouncements of the Federal Reserve.

Essentially, the Fed took two days this week to decide to do... nothing. It's nice work if you can get it, but some of us who have to endure the anticipation of and reporting upon the 8 scheduled meetings a year wish they would do nothing more often, because nothing is usually what they - in the long run - accomplish.

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Consider today's decision to be the end of a sometimes dramatic cascade of interest rate reductions, which took the federal funds rate from 5.25 to the current 2.00% from September, 2007 through the present in a series of 10 statements, four of which were unscheduled.

Since September, 2007, the stock markets have done nothing more than deteriorate, prices have gone up (oil and gas have doubled in price) and the US economy is in no better shape than 9 months ago. By many accounts, we are worse off, and the value of the US dollar, measured against almost any other currency, has weakened.

So, excuse me for thinking that the Fed is full of nothing more than a lot of hot air.

Still, they have many followers and believers that they can accomplish much, when, in fact, the complexity and nuances of the global economy are far beyond their control.

They really ought to just set a rate and leave it relatively unchanged for long, long periods of time. 5% ought to be about right for what member banks charge other institutions. It shouldn't waver too far from that point, providing stability and security to markets. A policy along those lines would be far more improved and safer than the up-and-down we've come to know and loathe since the Volker years.

Dow 11,811.83 +4.40; NASDAQ 2,401.26 +32.98; S&P 500 1,321.98 +7.69; NYSE Composite 8,865.80 +62.46

Stocks were mostly higher prior to the announcement at 2:15 pm, and lost ground thereafter, which was somewhat expected, considering that the Fed is essentially saying, "We're done cutting rates for now, as that didn't work, so we're going to sit back and wait and watch." Actually, the markets should have exploded upward as the Fed admits powerlessness. It was, after all, pretty good news.

Markets responded in a fairly positive manner overall, or maybe they were just in a technically oversold condition, short term. Advancing issues finally took command over decliners, 4225-2059, while new lows continued to track ahead of new highs, but not by as large a margin, 376-69.

Commodities were lower, with oil down $2.45, at $134.55. Gold fell $9.30, to $882.30, while silver lost 13 cents, at $16.61 the ounce.

The decline in commodities continues unabated, with the notable exception of oil, but even that may have topped out already. A further slowdown in commodities markets may be signs that the recession is real and growing globally.

CNBC analyst Jim Goldman opined today about the Yahoo-Microsoft merger rumors which resurfaced, rather suspiciously, yesterday. Yahoo finished at 22.00 today, but it should be noted, especially by federal investigators and regulators, that it was trading at 20.70 before the latest rumor surfaced. Neither Yahoo nor Microsoft has confirmed that talks are back on, making this episode mighty questionable.

The markets are still highly unstable. The Dow lost 112 points in just the final hour, once all the gyrations following the Fed decision had played out.

NYSE Volume 1,261,685,000
NASDAQ Volume 2,135,660,000

The Most Corrupted Markets in History

There are always shenanigans and manipulations involved in any kind of market, be it a food store, commodities exchange or those with which we are most familiar, equities.

The equity markets in the United States have to be some of the most corrupted places on the planet, far worse than those in so-called less-developed nations, mostly because both the regulation and the corruption is done by the very same entity - the government.

Not that the crude oil futures markets aren't any less subject to manipulation and distortion by a consortium of big-money players, but the trading today on the major US indices gives a small window into which we can see the depths and depravity of government-inspired and controlled manipulation.

Tuesday's markets opened with a spate of bad news.

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First a pre-earnings announcement by UPS that the high cost of gas had soured their second quarter expectations, then the Conference Board reported Consumer Confidence hitting another low, down to a June reading of 50.4, from 58.1, in May. It was the fifth-lowest reading ever.

Shortly after the announcement, stocks on the Dow Jones Industrials fell off by more than 100 points.

But, at 10:40, stocks began a miraculous recovery, and, by 11:20, the Dow had reached positive territory, with the other indices tagging along.

This was, without a doubt, the handiwork of the Plunge Protection Team (PPT), a/k/a, the President's Working Group on Financial Markets, by far the most powerful market intermediaries ever invented, blessed with the unbridled power of the presidency, the US Treasury, the Federal Reserve and heads of various other official and regulatory commissions, with its stated sole purpose to provide stability to financial markets.

The function of the PWGOFM is primarily to shore up flagging stock markets, to prevent panic, or, as is usually the case, to solidify the administration's case that the economy is sound - thus, the nickname, Plunge Protection Team.

What made today's activity so obvious was that the PPT swing into action as soon as the Dow reached 11,750, exactly the low point from March's swoon. It was evident that the powers-that-be (in this case the most corrupt politicians on earth) could not stomach a decline below that level, for that would have indeed confirmed the bear market with all its attendant consequences. Bouncing off it, as it did so obediently, makes the case for a re-test of the lows and a confirmation that we are "out of the woods," when, in fact, investors are totally lost in them.

Stocks have been heading lower for weeks and the sudden turn-about at precisely the closing low which every chartist worth his/her salt is watching, smacks of outright fraud at the highest levels of government.

As it is, even the powerful Plunge Protection Team, backed with monies from the Federal Reserve, cannot prevent the eventual bottoming out of US financial markets. They can only delay the process somewhat, in hopes that their fraud candidate - the flip-flopping John McCain - can make some phony case that all is well in America.

What a total and complete scam!

Dow 11,807.43 -34.93; NASDAQ 2,368.28 -17.46; S&P 500 1,314.29 -3.71; NYSE Composite 8,803.34 -38.55

Despite the best efforts of the PPT, stocks still took it on the chin again, though not quite as badly as they should have. That will come another day, as sure as the sun rises in the East.

Along the same lines, a series of unconfirmed reports from anonymous sources sent shares of Yahoo back up, after hitting multi-month lows. The so-called "rumors" that the company is back in talks with Microsoft, turned a 3/4-point loss into a more than 1/2-point gain. It was nothing more than continued manipulation by people with big money to lose or gain, notably "wildcat investor" Carl Icahn, who is heavily invested in Yahoo and faces a potential no-win situation without Microsoft.

On the day, declining issues held sway over advancers, 4412-1863, and new lows once again finished ahead of new highs, 768-90, a trend dating back to October 31, 2007. Since then, there have been more new highs than new lows on only a handful (less than 8) of days.

Crude oil for August delivery finished 26 cents higher, at $137.00. Gold was up $4.40, to $891.60 and silver declined 16 cents to $16.74. Once more, signs that the commodities boom is over are being telegraphed by the sluggish trade in precious metals.

Additionally, congress moved today to regulate oil futures trading more stringently than ever before, a move that many say could lead to prices of less than $89 per barrel and gas at $2.00 to $2.50 per gallon. Wishful thinking, indeed, but also well-timed, politically.

Tomorrow, the Fed issues a policy statement at 2:15. investors will collectively hold their breath in anticipation of the Fed leaving the federal funds rate unchanged at 2%.

How horribly stupid, and how easily fooled, investors are!

NYSE Volume 1,328,610,000
NASDAQ Volume 2,191,484,000

Sleepy Trade Ahead of Fed Meeting

Equity markets hugged the flatline for the better part of the trading day as investors awaited word on the direction of interest rates from the Federal Reserve.

Due to make a policy statement on Wednesday, the FOMC of the Federal Reserve is widely expected to leave rates unchanged after a series of cuts which began last August and have dropped the key federal funds rate to a multi-year low of 2%.

However, even the absolute lack of any economic news didn't help the indices from taking a negative turn during the last hour of the session, but recovering in the final ten minutes, thanks to some creative buying by the PPT.

Dow 11,842.36 -0.33; NASDAQ 2,385.74 -20.35; S&P 500 1,318.00 +0.07; NYSE Composite 8,841.89 +12.64

The NASDAQ took the brunt of the selling, as it has lagged the other indices on the way back down lately, but is catching up quickly. Tech stocks, of which many are on the NASDAQ, have been more immune to the housing and finance mini-panics which characterized trade in August of '07 and January and March of this year.

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After the massive downturn last week, Monday served as a bit of relief for harried traders, though there's little doubt that the US economy is in a very tough spot. Once again, political powers in control (Republicans) are doing all they can to deny the recessionary environment prior to the important November elections, though there's not much they can do about it except contain losses or pump prices into the close, like today.

Oil dipped just a little, losing 34 cents, to $136.40, following a weekend conference of oil-producers and users which failed to accomplish anything of substance. More hearings were held on Capitol Hill surrounding the issue of oil and gas prices, though there too will likely not have any impact. Laughably, congress is trying to blame oil speculators (partially correct) instead of placing the blame where it belongs, on the worldwide cartel of major oil companies which have conspired effectively to raise prices beyond any reasonable level.

Gold dipped 20 cents to $887.00 and silver lost a penny, to $16.78. It was a slow day everywhere.

Despite the somewhat ambivalent headline numbers, internals told a distinctly different - and negative - story. Decliners led advancers by a healthy 5-2 margin, 4326-2012, while new lows expanded their margin over new highs, 639-132.

Volume, however, was dismal - lower even than last week's pitiful efforts.

NYSE Volume 1,040,348,000
NASDAQ Volume 1,907,013,000

Bottom Falling Out of Market

In a fitting finale to a truly horrible week for US equity investors, all major indices bottomed out the week with their largest losses. The Dow, S&P and NYSE all closed more than 1.75% lower on the day. The NASDAQ was down more than 2.25%.

The final print on the Dow today was within 100 points of the March 10 low of 11,750. The NASDAQ and NYSE still have cushion from the March 10 bottoms. For the NASDAQ, that mark is 2169. On the same day, the NYSE Composite Index closed at 8534. The S&P 500 is much closer to its low of 1273.

Dow 11,842.69 -220.40; NASDAQ 2,406.09 -55.97; S&P 500 1,317.93 -24.90; NYSE Composite 8,829.25 -159.59

To make matters worse, volume was unusually high, owing partly to the phenomena known as a "triple witching day", in which stock index futures, stock index options and equity options all expire on the same day. With the prevailing sentiment decidedly negative, there was nothing to halt the all-day selling spree that occurred on Friday.

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Declining issues, as expected, far outnumbered advancers, by a better-than 3-1 margin, 4864-1424. New lows soared past new highs, widening the margin to 554-97.

Not unexpectedly, oil rose another $2.76, to $135.36. Gold lost 50 cents to close at $903.70. Silver fell 7 cents to $17.40. While the rally in oil continues, it seems to be over for the metals.

The headline numbers were confirmed by the breadth shown in the internals. The bottom is truly falling out of the market.

This should come as no surprise to anyone trading stocks, holding down a job or putting gas into an automobile. Life in the USA has been heading downhill for average Americans for years and the ineptitude, cowardice and corruption of politicians in Washington, corporate executives and market insiders has only exacerbated the condition.

If we are not nearing a complete collapse of the financial system, then the reaction on Wall Street would be a complete canard. Sadly, it is not. The US, and to a large extent, the world economy is being brought to its knees by absolute corrupted power at the very top of the heap. The rich are squeezing every last drop of blood and money from the middle and lower class and there seems to be no end to their rapacious appetites.

The problem with so much wealth being held by such a small minority - roughly the top 1 or 2 per cent of the population - does hold a certain level of risk for all parties. In a complete rendering of the economic and social fabric, the elites must worry for their very lives. History is replete with examples, from the fall of Rome to the French Revolution. We are approaching a time in which only those with money and/or weapons will be able to survive.

It's a stark statement on the human condition, but a close inspection of the mega-state environment reveals that we are no further away from feudalism than were inhabitants of Europe in the 15th century. The world is being shaped and defined by a contrived and often patently false mass media while huge governments with uncontested power lord over the classes and force their taxes and dictums upon all of the citizenry.

Freedom and liberty are fleeting ideals, even in these once-proud United States. Civil liberties are being challenged daily and the rights of the individual pales in comparison to the absolute power and overwhelming force of the government apparatus.

Stocks will continue to decline for the time being. There is a bottom, somewhere, though the depths plumbed already are merely prologue.

Our politicians preen and strut, presenting images of well-being while doing nothing. Corporatists continue their theft and exploitation of the public, with a focus on home, food and fuel, the basics of human existence. Meanwhile, an ignorant, misinformed public carries on as best it can without a champion or a clue.

We are hurtling headlong into a cataclysmic future and it is closer than most wish to believe.

NYSE Volume 2,018,469,000
NASDAQ Volume 2,601,664,000

Fizzled Rally Syndrome

Stocks traded in lazy fashion on Thursday, buoyed by news that China's government would cut some of its subsidy on gasoline, thus raising prices at the pump in the People's Republic.

This was generally viewed as good news while the US media focused on the phony issue of off-shore drilling and exploration. The truth is that a rise in the price of gas in China is better news than any off-shore drilling would supply over the next 5 years.

Since the price of oil - and gas - is largely out of the control of supply-demand economics and more the function of speculation, the only likely beneficiaries of new drilling or lowering subsidies are oil companies, and we're stuck with them for the foreseeable future.

Dow 12,063.09 +34.03; NASDAQ 2,462.07 +32.36; S&P 500 1,342.83 +5.02; NYSE Composite 8,988.86 -10.72

On the whole, trading was somewhat suspect, with the major indices trading in a tight range tilted only slightly to the positive. In fact, all of Thursday's gains on the Dow could have been made between 2:00 and 3:00 pm. Before and after that was more or less noise and stocks fell noticeably after 3:00 pm.

On the day, advancing and declining issues played a tug-of-war, resulting in a meager victory for the gainers, which ended ahead, 3304-2914. New lows beat new highs again, 444-151.

The tone of investing over the past four sessions indicates a general lack of enthusiasm which almost always results in either outright declines or what I like to call fizzled rally syndrome.

In the latter instance, stocks rise on some - any - kind of positive news, then topple over like an unstable pile of bricks, leaving marginal gains for some, and losses for many. That was today. Tomorrow may be different, but probably, it will be more of the same, low-volume, disinterested kind of trade.

Oil ended happily lower by $4.57, a rather large loss, settling at $132.60. Gold broke over a key psychological barrier, finishing the day $10.70 higher, at $904.20. Silver rose in sympathy, up 13 cents to $17.47.

Following today's scant economic news (Philly Fed -17.1, -15.6 prior month; leading indicators up 0.1%; initial claims -5K), there's nothing on the calendar for Friday, so investors should expect the week to end with the same dull thud with which it began.

In the immortal word of the Mogambo Guru, "ugh."

NYSE Volume 1,199,263,000
NASDAQ Volume 2,274,517,000