Big Sucker Rally on Oil Price Drop, Wells Fargo Earnings

Well, since Fannie Mae and Freddie Mac didn't fall over and die - though they will need much help from the Federal Reserve and the US Treasury to stay afloat - and the price of oil dropped for the second straight day, US equity investors got the relief rally many of us were looking for last week.

Also contributing to the general euphoria was second quarter earnings from Wells Fargo bank, which actually beat estimates and was rewarded with a 32% gain. The rest of the financial sector followed the lead and the market followed and piled on the gains.

Naturally, while stocks were soaring from legitimate investment purchases, there had to be more than a fair share of short covering which boosted stocks even more. Sentiment, which has been decidedly negative in recent days and weeks, does not change overnight.

There are still many unanswered questions and hurdles for the US economy to clear.

The horrific credit conditions in the USA have not simply vanished because the Fed and Treasury averted a collapse of two major institutions. In case anyone cares, interest rates - especially those covering residential mortgages - have been rising and banks are still loathe to lend to anyone but the most stable, less risky companies and buyers.

Meanwhile, home prices are still falling, and, as the CPI figures released prior to the market's opening this morning showed, inflation is still raging right along. CPI for June jumped 1.1%, with core CPI up 0.3%. Those are hardly encouraging figures, though they mask the real problem, which is, oddly enough, deflation.

If the US economy continues to sputter and stall and credit conditions do not improve, very simply, there is going to be less spending, and according to the most rudimentary economics rules, less money chasing the same amount of goods equals lower prices.

Now, the rest of the world may not be in the same dire straits as the USA, but they certainly are feeling a bit pinched in most parts of the planet. Since lower prices usually result in companies' turning lower profits, this scenario is not at all good for stocks.

That's the next position we'll be in. First, housing falls, then stocks fall (where we are now), then, as the fundamental security of and confidence in the currency and the financial institutions begins to erode (also current), consumers pull back. What's prevented this from happening were those billions of dollars in checks sent to millions of Americans. They've been sent, and spent, and now comes the real test, as the US economy tries to muddle through without artificial stimulus.

I'm betting that conditions will worsen before they improve, regardless of what will likely be a follow-through rally the remainder of this week on any positive earnings news.

Dow 11,239.28 +276.74; NASDAQ 2,284.85 +69.14; S&P 500 1,245.36 +30.45; NYSE Composite 8,332.82 +175.02

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Don't get me wrong. It's nice to see plus signs in front of numbers for a change. I just don't think we're anywhere close to being out of the woods. We are getting closer to a bottom, however, and while I may not paint the rosiest of pictures, mine is at least realistic and based upon some experience from the past 30+ years.

I do believe that the final capitulative move to the bottom will occur this year, and that the US will be in recovery while other nations will be just beginning their downturns.

On the day, internals were a far cry from the dismal figures of the past month. Advancing issues outperformed decliners handily, 4877-1529, though new lows were still well ahead of new highs, 615-73. It's important to note that there were about 1000 fewer new lows today than yesterday. Bottom fishing, anyone?

Oil played a pivotal role in the market's one-day success, pricing lower by $4.05, closing at $135.32. As expected, the metals confirmed, with gold losing $16.00, to $962.70, and silver falling 21 cents to $18.81.

The good news is that everything, stocks, gold, gas, food, clothes, video games, rents and homes is going to be less expensive. The bad news is that it will be that way because there are so many people unemployed with no money to buy anything.

The fallout from the recession we're in (and we are in a recession, despite all the "official" measurements out there) haven't been fully manifested throughout the economy. Those include lowered corporate earnings and layoffs, which are certain to follow.

So, the lesson for today is simple: Chew before you swallow.

NYSE Volume 1,731,048,000
NASDAQ Volume 2,466,144,000

Market Turmoil Abounds

With Fed Chairman Ben Bernanke pleading with Congress for unlimited powers to fund failing mortgage lenders/underwriters Fannie Mae and Freddie Mac, US equity markets are nearly in panic mode.

After early steep declines on Tuesday, markets advanced in unison until the final hour of trade, then sold off rapidly.

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Bernanke, testifying before the Senate Banking Committee along with Treasury Secretary Henry Paulson, disclosed and discussed a plan that would allow the United States Treasury to purchase an equity stake in both Fannie and Freddie and give the Fed wide-ranging ability to make loans to the troubled GSEs (Government Sponsored Enterprises).

Prior to the Senate dog-and-pony show, the market was treated to another in a series of troubling PPI reports, this one showing PPI up by a staggering 1.8% and core PPI (which excluded energy and food) up by 0.2% in June.

That sent the indices reeling into the red, as more and more bad news comes over the wires in a seemingly-unending stream. And second quarter earnings are just beginning to hit the Street.

Dow 10,962.54 -92.65; NASDAQ 2,215.71 +2.84; S&P 500 1,214.91 -13.39; NYSE Composite 8,157.80 -129.96

Market internals were severely tilted to the negative. Losers crunched gainers by 4330-2091. New lows hit an extreme high of 1720, to just 68 new lows. Once again, the persistence of a high level of new lows (now nearly 1 of every 4 stocks) is indicating the possibility of a cataclysmic event at any time and the news continues to confirm that the US economy is in its worst state since the Great Depression of the 1930s.

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Oil fell $6.31, to $137.39, while the metals were mixed. Gold gained $5.00 to $978.70, while silver fell 24 cents to $19.01. Sooner or later, these prices are all going to plummet. The US - and to a large extent the world - economy is in dire straits.

A massive one-day decline in now in the cards, probably within the next two weeks.

Warning! The US is a Falling Stock Zone.

NYSE Volume 1,747,139,000
NASDAQ Volume 2,774,362,000

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