United States: Too Big to Fail?

We are a nation of inattentive spendthrifts, overseen by morons, liars and crooks, all driven by greed, envy and fear.

There is little doubt that today's action to salvage what little credibility is left of Fannie Mae and Freddie Mac, spelled out in some detail by Treasury Secretary Henry Paulson, are nothing more than parlor games designed to dupe the masses into the false belief that our nation's financial condition is not imperiled.

We're screwed, we're heavily in debt and our future prospects are about as bright as a high school dropout's chances of getting hired to an executive position.

Both Freddie and Fannie were fractionally lower on the day.

The simple formula is that both entities, which package and resell mortgages as bonds to investors, will now be able to borrow at the Federal Reserve's discount window at the low, low rate of 2.25%.

Isn't that lovely? Shouldn't we all simply spend at will, run up debts larger than we can repay and then allow the federal government (in other words, taxpayers) to bail us out? Is this the new path to the American dream?

Dow 11,055.19 -45.35; NASDAQ 2,212.87 -26.21; S&P 500 1,228.30 -11.19; NYSE Composite 8,287.76 -59.48

As for the markets themselves, investors were hardly amused. Stocks took their usual path to a lower close: higher at the open, then much lower, with the usual post-3:00 pm short-covering bounce back to break even, before ending down a bit.

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This sluggish behavior in the markets will persist until the manipulating brokerages and government interlopers feel they have squandered more than enough paper money than they can reasonably afford, and then stocks will really sink, like back to 1998 levels, or lower.

The plain truth is that, as a nation, we have gone from being the world's greatest creditor - replete with industrial, financial and military might - to being the world's largest debtor. Sadly, all we have left in the might department is the military, and we use that to bully and bludgeon lesser nations for their resources.

We are a deteriorating nation, and it is happening much faster than anyone ever assumed it would.

On the day, declining issues outpaced advancers by a wide margin, 4623-1769. There were 1053 new lows to just 77 new highs. Volume was on a scale of 4-1, favoring the down side.

Oil was up 12 cents to finish at $145.78, while the metals made a strong showing. Gold gained $13.10 to $973.70 and silver added 43 cents to $19.25. Both are approaching recent highs.

Buying stocks now, as it has been most of the last 12 months, is a fool's game. If you're not out of the market completely, the only place to be is on the short side.

NYSE Volume 1,419,180,000
NASDAQ Volume 2,037,816,000

The Fannie and Freddie Show

Anyone who still believes that US equity markets are either safe, fair or honest, needs to take a look at today's charts. All of the major indices were down massively at 2:30 pm. The Dow was down 250, the NASDAQ, down 55, the S&P down 32. Just before 3:00 pm all of them turned positive.

Somehow, that kind of move does not make any sense. There are nefarious forces at work, and they are likely those of the government, in the form of the Plunge Protection Team (PPT), or the President's Working Group on Financial Markets.

Only they have the power to make markets move massive in one direction over very short periods of time. And by the way, they're the same group of people who are likely behind the current mess we're in, having stolen most of Freddie Mac and Fannie Mae's assets years ago.

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Speaking of those two near-insolvent GSEs (Government Sponsored Entities), stocks were lower largely because most of the people who know a little about this stuff think they're going to go under, meaning that $5 Trillion worth of real estate loans will no longer be guaranteed by our wise and beneficent federal government. (It's probably for the best. They can't pay their bills as it is, so why not just default on everything?)

What will happen is a sharp rise in interest rates and a further deterioration of already seized up credit markets. The US economy is on the verge of complete catastrophic collapse, and those at the top of the heap - politicians, CEOs and mainstream news media - don't want us to panic. That's why the stock indices were only don their piddling amounts today, and not double or triple that.

But those losses are coming.

Sooner or later all manipulation schemes fail, and this one has run its course. Look for 10,000 on the Dow within 60 days and 8,500 or lower by year's end. There isn't enough good news around to save us. Even capturing Osama bin Laden (a good bet by November if the markets are down and the Republicans are down in the polls) will only boost stocks a little bit. Maybe 1000 points on the Dow, and even that won't last long.

Dow 11,100.54 -128.48; NASDAQ 2,239.08 -18.77; S&P 500 1,239.49 -13.90; NYSE Composite 8,347.24 -88.70

This is all about debt. Our banks are deeply in debt, to the point at which they have been selling off assets to raise capital. So are brokerages, investment banks, the Federal Reserve and the US government, and nobody has figured out a way out of debt.

Try reducing military spending by $500 billion a year, ending the war in Iraq and getting out of Afghanistan for starters. Too tough? Too bad, then. You lose all your assets.

Declining issues overwhelmed advancers again, 3793-2514. New lows beat new highs, 1210-77. Nearly 1 in 5 stocks on the NASDAQ and NYSE hit new lows today. No two ways about it, that's just plain ugly.

Oil finished up $3.33 at $145.66. Gold was up $18.60, to $960.60. Silver added 50 cents to $18.82. All of those prices are close to record - and unsustainable - highs.

Soon enough, everything is going to crash in price. Houses already have, and commercial real estate is beginning to crack. Stocks are down more than 20% from their year-ago highs. Commodities will be the last to go, but when they do, the losses on Wall Street will be enormous.

Remember Gordon Gecko, from the film Wall Street? He said, greed is good.. Well, allow me to paraphrase, as our so-called leaders try to avoid you and I panicking over our economic conditions. Panic is good.

Have a nice weekend. Enjoy it as best you can, because next week earnings reports begin flowing to market in earnest and they're going to be bad, very, very bad.

NYSE Volume 1,734,346,000
NASDAQ Volume 2,386,000,000

Wall Street Getting, Sending Mixed Signals

In yet another volatile session for stocks, the major indices ended slightly higher, amid worries over the solvency of mortgage underwriters Fannie Mae and Freddie Mac, and continuing focus on the price of oil.

While Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson spent the better part of the day testifying to Congress on the state of the economy, equity, bond and currency markets gyrated wildly, seemingly hanging on every word and nuance from the pair.

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In the end, the dollar was higher, then lower, against the Euro and Pound, but higher against the Yen and Swiss Franc. Dow stocks took an up-and-down round trip of 180 points, eventually ending higher by less then 1%.

Bonds rallied then sold off, as the final word from Bernanke was that the credit crisis - which has gripped financial markets since last August - appeared to be easing, with banks borrowing less and investment firms not borrowing at all in the most recent week.

That news came to the markets at the very end of the day, but managed to move the equity indices off break-even or negative to reasonably solid gains.

Dow 11,229.02 +81.58; NASDAQ 2,257.85 +22.96; S&P 500 1,253.39 +8.71; NYSE Composite 8,435.94 +64.31

Signals being sent by the Fed and Treasury were mixed, as were movements on the stock markets. On the one hand, Bernanke wanted broader powers with which to handle financial crises, like the Bear Stearns blow-up in March, while his counterpart at Treasury, Paulson, urged a plan that gave the Fed less control.

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Stocks, difficult to read even in the best of times, were simply impossible today, spending equal parts of the day both over and under the flatline.

Looking at the internals, gainers outnumbered losers by a small margin, 3387-2885. The spread between new lows and new highs, however, was still startlingly high, with 811 new lows to just 55 new highs. This elevated spread between the new low and new highs has been a persistent factor for more than a week now, though it should be pointed out that, with the exception of a handful of days, there have been more new lows than new highs every day since October 31 of last year.

In the way of good news, there simply wasn't much today. Warnings that the nation's mortgage underwriters - Freddie and Fannie - were in danger of default acted as an anchor on the financial sector and the entire market, as did concern over the continued viability of investment banking house, Lehman Brothers.

Fannie Mae (FNM) finished the session down 2.11 at 13.20, while Freddie Mac (FRE) closed 2.26 lower, at 8.00. Stock prices for both firms were at their lowest levels in 17 years.

Recession fears resurfaced in a number of widely circulated opinion pieces and most notably in Great Britain, where expectations of an economic downturn are beginning to look a lot like those in the US, where we are already in a recession, even though official government statistics belie the fact.

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Meanwhile, commodity markets marched higher. Oil reversed the losses of the past few days by adding another $5.61 to the price of a barrel of crude, closing at $142.33. Gold shot up $13.40 to $942.00, while silver gained 15 cents to finish at $18.32.

Finally, RealtyTrac, Inc. reported that foreclosure filings skyrocketed 53% in June while bank seizures were up a whopping 171%.

For what was supposed to be a slow news day prior to the start of earnings season next week, there certainly was a load of data and information for the markets to absorb.

If the United States is going to avoid a complete financial collapse, it won't be by much, and there seems to be more evidence that the rest of the world will suffer a slowdown as well. Some Far East nations may escape the clutches of full-blown recession, but they are few and far between.

NYSE Volume 1,534,140,000
NASDAQ Volume 2,300,481,000

Bears Exact Their Revenge

Following Tuesday's suspicious late-day, short-covering rally (yes, now we know for sure, that it was more short-covering than actual buying interest), bears mauled the market in a merciless attack at stocks of all kinds.

Regardless of the cause - be it the price of crude, fires in California, rotten tomatoes or worsening credit conditions worldwide - nobody was very interested in buying stocks, nor will they be for some time. Today's close on the Dow was a 23-month low, the lowest point since August of 2006.

Dow 11,147.44 -236.77; NASDAQ 2,234.89 -59.55; S&P 500 1,244.68 -29.02; NYSE Composite 8,371.63 -144.16

With second quarter earnings due out over the next three weeks, July promises to be as ugly, or even moreso, than June, a month in which the blue chip index lost nearly 1300 points. Thus far - over the span of just 6 trading days, the Dow has given back more than 200 points. The other major indices fared equally as poorly, though, somewhat amazingly, the NASDAQ still has not fallen below its March 10 closing low, of 2169.

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The S&P 500, however, today closed well below the March 10 close of 1273. The NYSE Composite is well beyond the March 10 close of 8534. These are historic bear market finishes and it's obviously far from over.

Declining issues roared past advancers, 4266-2035, while the gap between new lows and new highs was somewhat muted, with 440 new lows to just 60 new highs. Volume was moderate, though most of it (over 80%) was to the downside.

Oil finished higher by a mere one penny, at $136.05 on the NYMERC. Gold gained $5.30 to $928.60, while silver added 22 cents to $18.18.

NYSE Volume 1,488,884,000
NASDAQ Volume 2,259,971,000

Short Squeeze Bounce

We all knew it was coming, didn't we?

Surely stocks could not continue to fall precipitously into the financial abyss as they have over the past month. Sooner or later there would be a Bear Trap, and that trap was sprung at 2:25 pm today.

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The Dow was sitting at break-even at that moment. From there to the close, it gained 152 points, as all indices finished solidly in the green.

There was ample reasoning for both the bullish and bearish case, though in the end, the plummeting price of crude oil took the market along for a merry ride upwards.

Dow 11,384.21 +152.25; NASDAQ 2,294.44 +51.12; S&P 500 1,273.69 +21.38; NYSE Composite 8,515.79 +115.58

Earlier in the day, the National Association of Realtors (NAR) produced another horrific report on the housing collapse, showing pending home sales for May down 4.7%, nearly 2% worse than expectations. The news was enough to send all the indices briefly into negative ground before noon.

Wholesale inventories were slightly improved, at 0.8%, better than last month's reading of 1.4%. When inventories are high, which they are now, it is a sure sign of sluggish business conditions. No surprise there or to any investors paying attention.

On the day, the internal numbers were a bit brighter than has been the norm. Advancing issues outperformed decliners, 4336-1995, a ratio of better than 2-1. New lows continued to dominate new highs, 806-52, and though that number is highly out of balance, it is better than yesterday's dismal reading.

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All of that makes sense in light of today's gains. The market had hit a temporary bottom, with new lows burying new highs. It was high time for a relief rally. The Dow actually put in a quadruple bottom in the 11,160-11,200 range. The key question is whether today's rally was more short-covering or speculation and whether it has legs to continue tomorrow. Judging by the strong close, the next few days could be troubling for short-sellers.

By the end of the week, however, the market could easily revert to protracted losses as earnings season gets into full swing. There have been warnings sounded and the high price of crude is likely to drag down profits all around.

Speaking of earnings, what had the market spooked was the traditional first company to report - Alcoa - which did so after the close. Skeptics were disappointed as the company said profits slid 24%, but still met expectations. Alcoa (AA) earned 66 cents as compared with the second quarter of '07, in which it earned 81 cents. The stock, battered during the regular session, beat expectations by .02.

As for commodities, crude oil took a major spill on Tuesday, losing $5.33, to close at $136.04. Oil is off nearly $10 since the high last Thursday, which coincided neatly with the busiest driving weekend of the year in the USA. Gold lost $5.50, to $923.30, while silver added 4 cents to $17.96. More evidence that the commodity boom is coming to a hasty conclusion.

As the balance of the week offers little in the way of either economic reports or corporate earnings releases, there may be some bottom fishing before the weekend. All bets are off after that, however.

NYSE Volume 1,728,487,000
NASDAQ Volume 2,499,119,000