Despite Freddie's Failure, Some Follow-Through for Stocks

Wednesday paled by comparison to the Fed-induced euphoria yesterday. Stocks were battered early on by news that Freddie Mac, the beleaguered mega mortgage aggregator, had fallen on some very lean times in the second quarter of 2008.

Freddie (FRE) posted its fourth consecutive loss and set aside more money for bad loans while announcing that its dividend may be cut by up to 80%. Shares fell sharply, as did those of Fannie Mae (FNM) and most financial sector stocks.

Financials, along with transportation and services were the only three of twelve sectors to register a loss on the day.

The news from Freddie sent another shock wave across the trading spectrum, however. With the GSEs - Fannie and Freddie - in deep trouble and near default, investors are peeling away from the market in droves. Volume has been limited of late, moreso than usual during the normally slow summer months.

Dow 11,656.07 +40.30; NASDAQ 2,378.37 +28.54; S&P 500 1,289.18 +4.30; NYSE Composite 8,501.44 +29.59

Nevertheless, all major indices showed gains on the day, and, at this point, the Wall Street bankers, brokers, moguls and magicians will take what they can get.

Advancing issues outperformed decliners, 3548-2716. Those pesky new lows ranged ahead of new highs, for roughly the 200th time out of the last 210 trading days (the better part of the last full year), 186-109.

$100 Car Payments
Edmonton, Vancouver, Bad Credit, Divorced, Bankruptcy OK. Apply online.
secondchancefinance.ca

Crude oil slipped another 59 cents, closing at 118.58. The metals continued their precipitous decline, with gold off $3.10, to $883.00, and silver down 7 cents to $16.51.

The non-stop drops in the precious metals continue to flash signs of a long, coming recession, along the lines of the Japanese lost decade of the 1990s. There has been significant pricing pressure on commodities and products of all kinds of late - a sideshow of globalization - from clothes, to rents, to silver and gold coins. This is a very troubling trend, and yesterday's Fed decision to leave rates unchanged, plays right into the scenario.

More than inflation, the Fed fears deflation even more, because there is no generally-accepted remedy except liquidation, stagnation and financial pain. Falling prices are rarely mentioned in the financial lexicon because they are anathema to Keynesian economic principles.

Well, maybe the Austrian school would argue along with me that deflation is a mechanism for cleaning the system. But our financial system is so overweighted with safeguards and interjected with government interference that Austrian school conjecture would barely register on the minds of even the brightest Harvard or Chicago school of financial dunces.

Life is getting cheaper by the day and that's not a good sign for macro-economics.

NYSE Volume 1,200,198,000
NASDAQ Volume 2,262,848,000

Stocks Soar as Fed Leaves Rates Unchanged

I really would love to be a Governor of the Federal Reserve, more specifically, a member of the Board of Governors of the Federal Open Market Committee (FOMC) of the Federal Reserve.

Why, you ask?

Well, outside of being a fictional character like Santa Claus or the Easter Bunny or Tooth Fairy, nobody can make more people happy simply by doing nothing, which is exactly what the FOMC did today - they left the federal funds rate alone, at 2%, and stocks went straight up.

Forex Beginner's Resource Website
Forex Foreign Currency Exchange Trading Beginner's Resource Center.

forexforexforexforex.com

Brokers are happy, investors are happy, fund managers and options traders are happy. Thank you Fed Governors. Thank you, thank you, thank you.

Actually, it's probably the best they could do. Oil prices have cooled. Inflation isn't a huge, out-of-control problem. Banks are still making mortgages - fewer than a year or two ago - but, they're mostly still in business.

Raising rates would have been a mistake at this juncture. Business conditions are not very robust, and prices should continue to fall due to decreased demand. Interest rates, for what they're worth, should be about 5-6% for mortgages, business loans, CDs, just about everything. For now, with their ovrnight rate at 2%, the Fed is still far from the proper mark.

Now, if they would just leave it alone. Take a vacation, boys, and let the market work itself out. Really, I mean it. Take six months off.

Dow 11,615.77 +331.62; NASDAQ 2,349.83 +64.27; S&P 500 1,284.88 +35.87; NYSE Composite 8,471.85 +203.20

Lest I leave the wrong impression, I should point out that big, one-day moves are clear indications of bear markets, which we are in, and will continue to be in, until the primary trend changes. There are more bank failures and another round of Alt-A mortgage defaults on the horizon, plus the next issue will be government deficits, such as states, counties and cities, unable to derive needed tax revenues in a time of devaluation.

Substantial Wealth and Riches Creation
The Path of Substantial Wealth and Riches: Your Parents' Influence on Your Finances
substantialincomes.com

I said it yesterday, and before that. I've been saying it for more than six months. Everything's going to get cheaper. And that includes stocks. The July bottom will be tested by October. Count on it.

On the day, advancing issues held a healthy advantage over decliners, 4462-1798. New lows remained ahead of new highs, 226-116.

Oil for September delivery was down $2.24, to $119.17. Gold took an enormous hit, falling $21.80, to $886.10, the first time gold has fallen back under $900 since May. Silver fell a full 57 cents, to $16.57. Look for silver to fall back below $14 by the end of the year, if not sooner. Gold, too, is about to capitulate. The bull run in the metals, and most other overpriced commodities, is over, over, over. Gas will be under $3.00 by election day. Count on that, too.

For what it's worth, volume was light, so Tuesday's gains should be taken in light of some scrambling by short sellers and a concerted effort by market bulls. It won't last.

NYSE Volume 1,415,935,000
NASDAQ Volume 2,374,429,000

Great Day for Day-Traders

Rather than invest your money in stocks that go up, then down, then sideways, today's market - much like many before it and surely in the future - exemplified the virtues of just plain, good-old gambling, or, as the barons of Wall Street put it, day trading.

If you were on the right side of the market - and active - today, you could have made a killing in either direction, or both, with options, index options or a combination of buying and short-selling. The reason is volatility, and Monday, August 4, was especially volatile.

Take the Dow, for instance. It opened narrowly on the downside, but by 11:00 was at session lows at 11,221, down more than 100 points from the open of 11,326. It spent the rest of the day climbing to a high of 11,382, but just before 3:00, fell another 120 points or so, recovering slightly at the close.

It was a three-move market. Day-traders, which includes just about every trader, hedge fund manager and smart alek on Wall Street, had a blast, mostly at the expense of those stodgy buy-and-hold types.

So, this is today's market, and maybe it always was like this, though if you can find anyone over the age of 60 who still follows financials, they'll tell you differently. Back in the 60s, 70s and even into the 80s (the "me" decade), there were stocks that would make you money if you just bought them and held them for 5, 7, or 10 years.

Those days are probably gone, as are the companies which made all that moolah, like Ford, GM, Xerox, and yes, even Microsoft and Cisco.

Nowadays, it's all about getting in, making a profit and getting out in our high-tech, globalized, flat world economy. That's it. Buy, hold equates to dumb, loser.

But, times do change and change is in the wind.

Dow 11,284.15 -42.17; NASDAQ 2,285.56 -25.40; S&P 500 1,249.01 -11.30; NYSE Composite 8,268.65 Down 110.50

On the day, advancing issues lagged decliners, 4164-2069, and, big surprise, new lows overwhelmed new highs, 276-84.

Oil got slammed again, as a storm in the Gulf of Mexico seemed to be too weak to damage any oil infrastructure. Or, at least that's what the financial press and the oil geeks would have us believe. One would like to know just when the appearance of storms in the Caribbean began affecting the global price of oil. It was probably about the time GW Bush and Dick Cheney took over the highest government offices in the land. Some coincidence there.

Substantial Wealth and Riches Creation
The Path of Substantial Wealth and Riches: Your Parents' Influence on Your Finances
substantialincomes.com

Crude for September delivery closed down $3.61, to $121.41, the lowest closing price in nearly four months. The metals remained in lock step with the overpriced goo, with gold losing $9.60, to $907.90 and silver falling 38 cents to $17.14. The pattern in commodities is just too obvious to ignore.

I've been beating this story for over six months now, so I guess yelling that INFLATION ISN'T THE PROBLEM. DEFLATION IS! might not have any impact. But, a year from now, when gas is $2.75 a gallon, gold is $675 an ounce and you can't afford either because you have no job, don't say I didn't tell you so. The dollar's slide can only go so far, and it's gone a long way in a relatively short time. When the rest of the world begins to feel the same pain that Americans have for the past seven years plus, prices are going to go in the opposite direction.

It's simple supply and demand economics, and I don't have the time to explain it all right now. I have to go gamble... er, trade some stocks.

NYSE Volume 1,193,042,000
NASDAQ Volume 1,958,751,000

Stocks Chilled by GM, Jobs Data

Stocks traded lower for nearly the entire session on Friday, with all major indices pushing closer to mid-July depths after a mid-week run-up.

The damper du jour on the markets was two-fold. General Motors reported a $15.5 billion loss in the second quarter, with July sales falling 32% from a year ago. On the economic news front, the Labor Department reported non-farm payrolls for July down another 51,000, marking the 7th consecutive month of job losses. The "official" unemployment rate rose for the sixth straight month, to 5.7%, the highest in 4 years.

With those items greeting investors this morning, there was little euphoria on Wall Street as the week came to an end and the month of August began with an inauspicious start.

Dow 11,326.32 -51.70; NASDAQ 2,310.96 -14.59; S&P 500 1,260.31 -7.07; NYSE Composite 8,379.15 -59.49

Forex Beginner's Resource Website
Forex Foreign Currency Exchange Trading Beginner's Resource Center.

forexforexforexforex.com

Advancers and decliners were nearly even in lackluster, low-volume trading, with gainers holding a slim edge, 2972-2969. There were 261 new lows and just 87 new highs.

Crude oil gained $1.02, to $125.10. Gold $5.20, to $917.50, while silver dropped another 27 cents, to $17.52. The metals are still exhibiting signs of cracking, indicative of global recession.

.... and that's the good news for the week. Good luck.

NYSE Volume 1,226,226,000
NASDAQ Volume 2,188,498,000

Despite Earnings Upsides, Markets Tank

A disappointing preliminary reading on second quarter GDP, showing expansion at a 1.9% annual rate (optimistic analysts were expecting 2.3%), sent stocks into another decline on Thursday, though losses were somewhat tempered due to a 2% drop in oil prices and strong earnings from some widely-held companies.

Dow 11,378.02 -205.67; NASDAQ 2,325.55 -4.17; S&P 500 1,267.38 -16.88; NYSE Composite 8,438.64 -126.67

Winnipeg Theme Room Hotel Rooms
Enjoy all the comforts of home on your next trip.
qualityhotelwinnipeg.com

Jobless claims climbed 44,000 to 448,000, the third time in the last five weeks claims have been above the 400,000 level. The four-week moving average sailed 11,000 higher, to 393,000.

CBS Corp. (CBS), Altria (MO), Motorola (MOT), Disney (DIS), MasterCard (MA), Visa (V), and Tyco (TYC) all reported positive earnings results prior to the opening bell, though those pluses were not enough to stem the waves of selling that engulfed the markets.

Advancing issues were beaten back by decliners, 2656-3617. New lows were, as usual, ahead of new highs, though not by a substantial margin, 225-103.

Light Sweet Crude Oil for September delivery fell $2.69, to $124.08
Gold gained $10.40, to $922.70, and silver also rebounded, up 33 cents to $17.79 per ounce.

Release of July employment data in the Labor Department's Non-farm payroll report has investors somewhat spooked. Analysts are expecting the 6th straight month of job losses, roughly -72,000.

Oddly enough, many on the Street still put faith into the government's massively massaged numbers. For instance, it was revealed today that the economy actually shrank 0.2% in the 4th quarter of 2007, when earlier figures showed a minute gain of 0.6%.

Substantial Wealth and Riches Creation
The Path of Substantial Wealth and Riches: Your Parents' Influence on Your Finances
substantialincomes.com

The employment figures are even more of a statistical shroud, based on faulty data collection measures and a dubious calculation method. The worst feature of employment-unemployment data is where people whose unemployment insurance has expired are taken out of the equation completely, rather than counted as continuing unemployed.

It is ever prudent to interpret government data with a wide berth. No figures are ever finalized until months later, and even then - in addition to being irrelevant due to dating - may be a stretch from reality.

With the current administration's continuing effort to jawbone the economy into better condition, the rule of thumb is to consider all data releases at 10-20% better than what is actual.

Generally speaking, the markets and anecdotal evidence reflect reality better than government figures. Only some federal number-crunchers and a select minority of analysts actually believe that a recession has been avoided. The rest of the world already knew that the final quarter of '07 and the first quarter of '08 were in decline, meeting the classical definition of a recession.

NYSE Volume 1,456,028,000
NASDAQ Volume 2,357,763,000