Major Pain on Wall Street

Stocks took one of their worst losses of the year on Thursday, as more economic news showed the US and world economy slowing to a crawl and new unemployment filings up sharply. Retailers also reported sluggish back-to-school sales at a time when investors are desperate for some cheerful news.

Dow 11,188.23 -344.65; NASDAQ 2,259.04 -74.69; S&P 500 1,236.82 -38.16; NYSE Composite 8,008.25 -261.00

Adding to the already dire circumstances and dour news was a note from PIMCO's Bill Gross, manager of the world's largest bond fund, saying that the government needed to do more to shore up not only financial markets, but mom and pops who are suffering under heavy mortgage debt.

According to Gross,

"Liquidity is drying up; risk appetites are anorexic; asset prices, despite a temporarily resurgent stock market, are mainly going down; now even oil and commodity prices are drowning."

Gross points out that financial firms have been dumping assets in an effort to maintain liquidity in the absence of a stable lending environment. With credit markets close to a a state of seizure, financing has become almost non-existent in corporate and capital markets.

Interestingly, those same points have been made right here on this blog for many weeks and months. What Gross sees is nothing more than worldwide asset deflation and massive wealth destruction, the same circumstances that held sway during the Great Depression.

Gross' comments are interesting in that he is urging even more government interaction. These kinds of suggestions from a person of his stature suggest that a full-blown economic crisis is at hand. While the government can assist in many ways, others are suggesting a "laissie faire" or "hands off" policy to allow the excesses to be worked off by the markets.

Naturally, neither policy alone is correct. The government, through the Fed and Treasury, is acting as well as one could expect under such extreme pressure. Having a lame duck president and a congress focused on nothing more than the upcoming elections isn't helping matters, and it's unlikely that Americans, investors and financiers will see any relief from falling asset prices any time soon.

It will be January before a new president and congress is sworn in and another 60 days - at the very least - before any meaningful legislative action would take place. Expectations for a very slow 4th quarter and 1st quarter of 2009 cannot be underestimated. It will be something of a miracle if stocks don't decline another 10 to 20% by then.

Whichever candidate succeeds in taking over the White House - be it Obama or McCain - he will inherit the worst set of economic circumstances since FDR. Burgeoning federal debt (nearing $10 Trillion), extreme deficits, continuing job losses and an economy limping toward collapse await the winner. Godspeed to whomever it may be.

On the day, declining stocks overwhelmed advancers, 5108-1144, nearly a 5-1 ratio. New lows dominated new highs, 401-54. What's amazing is that any stocks reached new 52-week highs.

Volume, though better than the past two weeks, is still on the light side. Investors and large funds are holding back as best they can, seeking to avoid an all-out panic, though today's activity bordered on a crash with losses on the major indices right at 3%.

Deflating commodity prices continued without pause. Oil dropped another $1.46, to $107.89. Gold fell $5.00, to $803.20. Silver slipped a penny to $12.94. Further slippage in the metals may produce a rout, as much of the buying in gold and silver was speculative and near the top. With most of those gains already wiped out, investors in losing positions may soon capitulate if some stability is not brought to bear. Without any support apparent, gold could easily fall to $600 and silver under $10. At those points, speculators may become much more interested, though by no means would those levels constitute bottoms.

Speaking of bottoms, the Dow is now within 200 points of the July lows. The NASDAQ is also less than 100 points from its March 10 low of 2169.34, while the S&P 500 is dangerously close to its most recent bottom of 1214.91 at the close on July 15.

Since no bottom has yet to be put in place, expect these levels to fail, and soon. Tomorrow's Non-farm employment report is likely to show another 60-80,000 jobs lost in the month of August, triggering more selling. Today's action may be seen as prologue to the 8:30 am release of the employment data.

NYSE Volume 1,301,593,000
NASDAQ Volume 2,360,495,000

Wall Street: Dazed and Confused

Things are still getting back to normal on Wall Street, where investors and traders are beginning to come to grips with the realities of the 21st century economy.

America isn't what it used to be. At least not what it was just ten years ago, when jobs were plentiful, profits were soaring and dotcoms were popping up all over the place. It was a wonderful time, the 90s. So much has changed since then.

On this day in 1998, the Dow closed at 7682.22, the NASDAQ at 1571.86. The explosive and final phase of the bubble was still more than a year away. Just 18 months later, both indices would peak and subsequently collapse, with the NASDAQ, the home of the "new economy" stocks, taking the brunt of investors' wrath.

Here we are, though, 10 years out, and things just don't seem that much better. Take a look at where we closed today.

Dow 11,532.88 +15.96; NASDAQ 2,333.73 +15.51; S&P 500 1,274.98 -2.59; NYSE Composite 8,269.25 -27.72

Are Dow and NASDAQ stocks really worth nearly 50% more than they were in 1998? Probably not. Their earnings certainly don't justify that kind of valuation. They are priced that way for a number of reasons, none of them simple, but two of them obvious. The value of the dollar in relation to other currencies has fallen dramatically since then and inflation has shrunk the value of the dollar in the US by as much as 30% during that time. You can still buy a lot of good things for a buck in the US. A McDonald's double cheeseburger, and all the things you can find in the thousands of "dollar stores" which dot strip malls across the country.

But stocks? No. A dollar will not buy you a share of any "good" company. Not those listed on the NASDAQ and certainly not one of the Dow's blue chips.

But all that is about to change. $100 will buy you 100 double cheeseburgers, enough to feed a family of four for more than a week. With that same $100, you can buy more than a share of any Dow stock, except one: IBM, currently in the $118 range. Now a share or two or three of stock won't feed anybody for any length of time, but it may be worth more in the future.

Ah, the future. That's the ticket. IBM was selling for $121 per share 10 years ago, and it split 2-for-1 in 1999, so it's worth a little more, but you have twice as much of it and you would have raked in 10 years of dividends to boot. A good deal, I guess. How about Citigroup? On this day in 1998 it closed at $41.13. Today it ended at 19.61. But it split twice, 3 for 2 and 4 for 3. So you have almost twice as much, even though it's worth more than half less. Not so good.

Coca-cola? No splits, but in 1998, it was at $61.80 per share. Today, 51.66. Less, despite the dividends. There are many more just like that and worse.

The point is that the averages and indices aren't telling the whole story. As a country, we are worse off than ten years ago, in many ways, but especially financially. Wall Street just continues to exist in denial, but soon, almost all stocks will be worth less than they were ten years ago. Adjusted for inflation, it will be even worse. It's economic reality.

And McDonald's will sell triple cheeseburgers for a buck.

On the day, advancing issues led decliners slightly, 3209-2975. New lows expanded their edge over new highs, 234-107. This is a bit of a sign that another deep plunge is on the way. We'll know more tomorrow and even more on Friday. In fact, Friday is shaping up to be one of those ugly 250-point loss days.

Oil continued to slide, losing 36 cents to $109.35. The metals continue to do their part to contribute to the burgeoning worldwide deflation. Gold lost another $2.30, to $808.20. Silver fell 20 cents, to $12.95. Both should be markedly lower in coming months.

Of course, as oil continues to dip, motorists are getting a little relief at the pumps. The average price of a gallon of gas was $3.68 as of Sept. 1, off from its peak of $4.12 in July. Now, since oil was $145 then and a shade under $110 now, how much should a gallon of gas cost. Using the ratio of 2.5 cents per gallon of gas for every $1 in the price of a barrel of crude, gas should cost $3.25 per gallon, or 87 cents less. It's not even close. How come?

Well, even if oil drops below $90 per barrel, gas will still cost more than it should because the oil companies have to keep making obscene profits.

John McCain promised.

NYSE Volume 1,208,861,000
NASDAQ Volume 2,115,416,000

Traders Return, but Result is Not Cheerful

Many investors returned to trading on Tuesday after a lengthy summer hiatus which included some of the lowest-volume sessions of the year, occurring in the final two weeks of August.

Right out of the gate, stocks were soaring, mostly due to the uneventful passing of Hurricane Gustav and the consequent drop in oil prices (down more than $4/barrel on Monday). The Dow was up nearly 250 point in the first 20 minutes of the session.

However, the exhilaration soon faded as economic realities reared their ugly heads. Stocks continued to slide all day, with all major indices eventually ending with losses.

Dow 11,516.92 -26.63; NASDAQ 2,349.24 -18.28; S&P 500 1,277.57 -5.26; NYSE Composite 8,296.97 -85.11

With the rise and fall of the markets came increased volume, though the markets could easily still be characterized as "sluggish."

Market internals were mixed. Advancing issues led decliners, 3211-3053, though new lows remained above new highs, 168-137.

What did stocks in on the first unofficial day of fall were economic reports from various agencies. Construction spending in July reportedly fell 0.6%, following a gain of 0.3% in June.

A reading from the Institute for Supply Management (ISM), which tracks overall manufacturing activity, was perhaps the most dour news of the day. The index fell to 49.9 in August after a reading of 50 in July. Any number below 50 shows a contraction, and, while the figure is barely negative, it is not what investors are seeking.

To complicate matters further, in the same report, inflation was seen to be slowing. The August reading of 77 was a far cry from June's 91.5, mostly related to the price of oil. The survey showed commodity prices falling many areas, including copper, corn, fuel oil, natural gas and soybean oil.

This is simply more evidence of a growing worldwide slowdown, which will take down all prices and affect all asset classes, from real estate, to commodities, to collectibles. Between the steep declines in real estate and the continuing diminution of credit, this is a scenario which only numb skulls and dunces could not have seen coming... but, after all, isn't that why we have the Fed... and CNBC?

Oil traded lower by $5.75, to $109.71, while the metals turned in another clunker as well. Gold fell $24.70, to $810.50. Silver was off 56 cents, to $13.15.

The coming global recession is going to be a crusher, especially for over-leveraged companies which have high debt ratios, low profit margins and nowhere to turn. Without financing, a good number of household name-types are going to be on the auction block within the next 6-12 months.

The bright side to the equation is that fear of home heating oil and natural gas breaking the budgets of many consumers this winter are probably unfounded. The giant utilities will have to make due with their already grossly inflated profits. The summer was cool by recent standards, and if the winter is not devastatingly cold, consumers will "weather the storm" as there simply won't be enough demand to hike prices.

As I've said before, everything is going to be a lot cheaper down the road. The trick is to have enough cash on hand with which to afford any or all of it. That's because the failed policies of the Republican-Wall St. junta have left Americans with fewer jobs and those that are available are lower-paying ones.

It will probably take the country four to six years to recover from the damage done by the current administration over the last eight years. Friday's Non-farm employment report will once again show losses of 60-80,000 jobs, continuing a trend that began in December of last year, and that should be more than enough data to convince Americans that four more years of Republican leadership will devastate the economy and the country.

If Obama beats McCain in the fall, the healing could begin by the second quarter of '09. If McCain is elected, expect nothing more than an outright economic and social depression.

NYSE Volume 1,146,155,000
NASDAQ Volume 2,045,446,000

Another Downer for the Markets

Amid political rhetoric and slumbering stocks, the major indices managed to work themselves low in the final "unofficial" week of summer.

With the advent of the Labor Day holiday, investors thought better of yesterday's euphoric rally and sold off in get-away fashion.

Dow 11,543.96 -171.22; NASDAQ 2,367.52 -44.12; S&P 500 1,282.84 -17.84; NYSE Composite 8,382.10 -84.02

For the week, the Dow closed 85 points lower, the NASDAQ lopped off 47, the S&P shed 10, while the NYSE Composite was virtually unchanged, adding 9 points.

It truly was a forgettable week in the financial markets. Things should get back to some semblance of normalcy in September. Over the past week, volume was a little better than half of what it normally is. Friday's NYSE volume was the lowest of the year.

A couple of economic reports told the real story of the US economy on Friday. Personal income fell in July, as did consumer spending. No real surprise there, just confirmation of what everybody already knew. Consumers are generally tapped out and doing more saving and conserving than spending.

On the day, declining issues trounced advancers, 3906-2277. New lows nearly doubled new highs, 126-65.

Oil, despite some volatility concerning Hurricane Gustav's effect on Gulf oil production, oil finished 13 cents lower, at $115.46. Gold lost $2.00, to $835.20 and silver was unchanged at $13.71

NYSE Volume 750,671,000
NASDAQ Volume 1,583,494,000

Sliding Into the Fall

Stocks traded at new volume lows for the year for the fifth straight session on Wednesday. Volume has diminished every day leading up to the Labor Day holiday weekend.

It would be wise to assume that this kind of low-volume trading will continue through the end of the week unless there is some kind of surprise world-shaking event, and even that seems to be out of the equation.

Dow 11,502.51 +89.64; NASDAQ 2,382.46 +20.49; S&P 500 1,281.66 +10.15; NYSE Composite 8,349.84 +86.12

Making any kind of serious changes in trading positions at this juncture is also not a good idea. The markets are still slogging through some serious problems and the bottoms reached in July have yet to be retested. There's bound to be at least one more serious downdraft before the market and the overall economy can begin moving forward. Of course, since stocks are a kind of discounting mechanism, they are likely to move well before the rest of the economy, but we don't seem to be there yet.

On the day, advancing issues outperformed losers, 4250-1724. New lows remained in the lead over new highs, 148-60. The relationship of new lows to new highs has become a permanent feature of this market condition. There are just more bad companies than good ones, though surely, some are already below fair value. That's a story for another day, however. Investors are simply content shedding losers and not in a very sprightly, speculative mood.

To almost nobody's surprise, oil gained slightly, up $1.88, to $118.15, in advance of the American holiday. It's somewhat of a bad joke, how the oil companies manage to get the price of fuel up just when everybody is about to use more of it. That feature of the rigged commodity speaks volumes about the stranglehold the five major oil companies have on the world's economies.

Gold was up $5.90, closing at $834.00, but silver fell 11 cents, to $13.57. This little run-up in commodities is probably going to end badly as the downward trendline has yet to be broken, and like stocks, look to be heading down even further.

What is of interest as we drift into fall, is how markets will respond to the change of season and whether volume will improve after the holiday. There are some who believe this lower volume phenomenon is going to hang around a while longer, possibly until the November elections, being that political change may have more to do with the markets than anyone dares believe.

NYSE Volume 820,385,000
NASDAQ Volume 1,570,050,000