USA, UK DOWNGRADED!

If the US financial media, the government and Wall Street less corrupt, the top news story of the day would be how Standard & Poor's downgraded 11 financial institutions and cut the ratings on the banking systems of both the United States and the United Kingdom.

S&P cut ratings on Bank of America, Barclays Bank, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase Bank, Morgan Stanley, Royal Bank of Scotland, UBS and Wells Fargo Bank.

Of course, were the titanic institutions of our nations less corrupt, none of this would have happened in the first place. The stock market would not have gone wild, with the Dow advancing to 14,250 in the longest bull market in history. Banks would not have been able to loan $500,000 to people with no jobs to buy houses, the Fed would not have inflated the money supply, yada, yada, yada.

But, the government regulators proved to be as malleable and corrupt as their counterparts on Wall Street, likely because most of them came from the very same firms which were packaging mortgages into SIVs, MBSs and backing their positions with credit default swaps (CDS) behind which was nothing, absolutely nothing.

So, seeing is believing. From the above-linked article:

The ratings agency also cut the bank industry country risk assessment of the U.S. and the United Kingdom to "Group 2" from "Group 1."

The United States is now a country with a second rate banking system. Of course, that assessment is from one of the very same firms which rated subprime MBS at AAA. The more money the Treasury insists on stuffing down the black hole of failed banking institutions via TARP, the sooner our Treasury debt will also be downgraded, to AA, A, B, and eventually to junk, which it is fast becoming.

And speaking of the TARP, Secretary Paulson of Treasury, bagman extraordinaire of Goldman Sachs, is now asking congress to release the rest of the money in the program, another $350 billion. Ostensibly, Paulson wants the money before the year ends or a new congress is seated, or before President-elect Obama is inaugurated. There is already discontent in congress over how the first half of the fund has been employed, and it's likely that congress - especially the Senate - will jawbone the issue to until after January 20.

I mention that the government and the media are corrupt because of the events of this morning, the final Friday before Christmas, but also a quadruple witching day. Prior to the US markets open, at about 7:30 am, all futures were trading lower. Foreign markets were down, reacting to the negative rumors of the S&P downgrades and the news that Japan's central bank was cutting its key lending rate to 0.1%.

At 9:00 am, President Bush announced a $17 billion loan provision for two the Big 3 Detroit automakers: Chrysler and GM. This was an action the lame duck dimwit president could have announced at any time over the past week. Why did he wait until today? To give cover to the options traders poised to rake in billions on this quad witching day. Once news broke that the administration would use the remaining TARP money to bail out the flagging auto companies (Ford has already stated publicly that it doesn't need a loan), the futures shot higher. The markets opened on a positive note, and quickly the Dow was up 180 points. Ka-ching! The Wall street crooks scored again, no doubt.

It didn't last, of course. By midday, stocks were once again bouncing off the flat line. The Dow spent most of the final hour in the red, dropping by as much as 50 points, though the NASDAQ maintained a positive bent all day.

By the close, it was a draw. The Dow and Comp. lower, NASDAQ and S&P higher. All were marginal moves.

Dow 8,579.11, -25.88 (0.30%)
NASDAQ 1,564.32, +11.95 (0.77%)
S&P 500 887.87, +2.59 (0.29%)
NYSE Composite 5,616.05, -1.71 (0.03%

Advancers led decliners slightly, 3730-3028. New lows continued to maintain an edge over new highs, 205-33. Of any pattern I have ever followed, the trend of consistently more new lows than new highs on a daily basis, now having run into its 14th month, has to be the most telling. That condition maintained every market day except five or six during that span. It is a truly persistent and dominant pattern, which cannot bode well. When that condition begins to modulate between the two extremes, then we will have likely found a bottom. Whether any long term recovery can proceed from there is questionable.

Volume was the heaviest in weeks, likely due to options expirations.

NYSE Volume 2,420,350,000
NASDAQ Volume 2,597,346,000

While stocks were dithering, commodity prices were being beaten to death. Oil was off another $2.35, closing out the January contract at $33.87. Gold lost $23.20, to $837.40. Silver slid another 27 cents, to $10.85. I continue to be fascinated at the gold and silver prices. They have maintained value best (they are down the least) in recent months, which is to be expected, though in a deflationary environment, their upside is limited. When inflation once again takes hold, which may not occur for 3-4 years, the metals will be able to surge higher. Not until then.

A few articles that are worth reading regarding the general malaise and the government's mishandling of the Wall Street mess are the latest from the Golden Jackass, which links to iTulip, where the question, Major US banks worse than Japan's zombies? is pondered and discussed at length. Finally, the Institutional Risk Analytics offers a glimpse of what may be coming to America in their most recent story on the US Bank Stress Index and CDS in Europe.

And, last but not least, the video is of Gary Schilling explaining why he sees the S&P 500 heading to 600 in 2009.

Bush and Madoff: Signs of Things to Come?

Angry mobs tend to occur most in times of high stress and their anger, more often than not is directed at two groups: the government and the rich.

Over the past few days we have witnessed an angry Iraqi journalist throw shoes at our outgoing president, Mr. Bush, and a photographer emerge from a mob to shove billionaire criminal Bernard Madoff, the man who stole billions of dollars from some of the most sophisticated investors in the world.

In less civilized times, more people would have joined in the effort. Imagine if other journalists had joined Muntadar al-Zeidi in his "shoe protest" or that ordinary citizens and scorned investors had been part of the media throng outside Madoff's tony Manhattan apartment. Bush may have been injured, or worse. Madoff might have been beaten to death on the street.

It may come to that.

The world economy is teetering on the brink of disaster and up to this point all of the remedies have been directed by the government toward the rich. These are the two groups most responsible for the economic calamities which have befallen us. Nary a nickel has been offered to homeowners, average working class Joes and Janes who are struggling to make ends meet in difficult times. If matters continue to spin out of control, would anyone be surprised to hear that a wall Street banker is gunned down in broad daylight or that workers' protests turn violent? does anyone not believe that rank-and-file union members at GM would not want to punch CEO Rick Waggoner squarely on the kisser, or poke a finger in the eye of his counterpart at Chrysler, Bob Nardelli?

That's why these people fly on private jets, ride in bullet-proof limousines and dine at the most exclusive restaurants. Not because they're rich and they can - that's surely part of it - but they must fear for their personal safety. A high-up executive dining at a worker-type diner would be taking his own physical well-being very much for granted at times like this, and chances are very good that conditions will worsen in coming days, weeks and months. Those execs, and especially the walled-in Wall Street types had better hope they don't become victims of their greed.

Angry people have a tendency to find company and turn into angry mobs, capable of all kinds of violence and disruptive behavior. Here in America, and surely, in places around the globe, we have seen it all before. Deteriorating economic conditions for large swathes of people can ignite mob passions into burning infernos. While that is the outcome we would least desire, the actions of the Iraqi journalist and the NY photographer may be the proverbial tip of the iceberg.

There's plenty of video of both events available, though the one Madoff video most circulated (aired o CNBC) doesn't really capture the scene well. I found these clips from ABC news to be of the highest quality, but since they are owned by ABC, I cannot embed them here. Here are links to the Bush incident and Bernie Madoff outside his apartment building. (Both links should open in new windows)

As for the state of the economy, investors are still not convinced of anything, especially since Chrysler announced plans to shut down all 30 of their US plants for a month, beginning Friday.

If there's anything that can cause the stock market to swoon, it's uncertainty, and in the final 33 days before George Bush leaves the White House and Barack Obama moves in, uncertainty is a commodity that will be in ample supply. There are only a handful of trading days left in the year, and of course, following that, this January may be one of the worst we've seen in a while, though last year's was certainly no picnic.

For today, investors got scared off early in the day. The major indices were marginally higher in early trading, but by 10 o'clock they were all flat lining. By noon they all began to sink and by the close of the session, the losses had extended, resulting in another bad day on the Street.

Dow 8,604.99, -219.35 (2.49%)
NASDAQ 1,552.37, -26.94 (1.71%)
S&P 500 885.28, -19.14 (2.12%)
NYSE Composite 5,617.76, -152.04 (2.64%

This should come as no surprise. stocks are essentially overbought, short term, and lows will once again be retested, since a new low was put in just a month ago, on November 20. We are due for another round of profit-taking, selling and options-related mischief. Friday, by the way, is a quadruple witching day, and the last of the year. It could turn into a whopper of a session.

For Thursday, the internals were as bloody as the headlines, with declining issues outpacing advancers, 4045-2670. New lows surpassed new highs by a margin of 163-34. Volume was moderate to low, especially on the NYSE.

NYSE Volume 1,382,620,000
NASDAQ Volume 2,064,510,000

In commodities trading, oil futures continued to drop precipitously, falling another 10%, or $3.84, to $36.22, the lowest price for a barrel of light crude in 4 1/2 years. Gold fell into line, dropping, $7.90, to $860.60, with silver following the trend, losing 30 cents to close at $11.12.

It was another day for deflation, and surely not the last. At least the executives of Exxon Mobil and Chevron will feel a little more secure in their mansions. Their counterparts in banking and finance may have reason to cower and hide in darkness.

Abundant Disappointment

US equity markets failed to follow-through on Tuesday's massive Fed-induced rally. There is still ample concern that the global economy is undergoing a fundamental de-leveraging and deflationary shift.

Judging by the tenor of the trading, there was profit-taking right at the open, followed by sucker buying through middle of the day, briefly pushing the major indices into positive territory, and a pronounced selling bias at the close, with the Dow Industrials losing more than 80 points in the final 10 minutes.

Dow 8,824.34, -99.80 (1.12%)
NASDAQ 1,579.31, -10.58 (0.67%)
S&P 500 904.42, -8.76 (0.96%)
NYSE Composite 5,769.80, -35.17 (0.61%)

Also figuring into the equation was the price of crude oil. On the heels of the largest production cut ever announced by OPEC - 2.2 million barrels daily - prices sank below $40 per barrel in trading on the NY Mercantile Exchange, and closed at a four-year low of $40.06.

The rationale for the spirited selling of oil futures is the perception that - repeat after me - the global economy is in or heading into a prolonged period of deflation. Demand for fossil fuels is expected to actually fall by as much as 4% globally next year. That people and organizations would curtail their consumption in light of the ridiculous prices for petroleum and its derivatives should come as no surprise. The hidden factors are the promulgation of alternative, renewable sources of energy and conservation measures which went full-bore as the price for oil spiked to unsustainable levels. The drain from the pricing structure of the past four to five years on economies worldwide has never been accurately calculated, though it is certainly sizable. Overshadowed by the systemic collapse of the banking system (it has already collapsed and been resurrected by central banks, though nobody wants to admit that) oil's impact on wealth and disposable income has not been adequately understood nor explained by either the financial or mainstream media.

Nonetheless, investors continue to view stocks as very risky, and with good reason. A recent survey found that 74% of all questioned said that they planned to spend less this year on Christmas presents than last. Percentages varied, but if three quarters of the population is going to be engaged in Scrooge-like penny pinching, then the retailers, at the top of the food chain, are toast. In the middle, the manufacturers will see profits slide and at the bottom, raw materials providers and service industries will be negatively affected to various degrees.

It's going to be a nice Christmas for most consumers. Business owners and executives may have a different set of results.

Interestingly enough, market internals told a different story which bears notice. Advancing issues finished comfortably ahead of decliners, 3762-2943. Could this have been a stealth rally? Perhaps. Selective selling would be a more appropriate term. New lows were muted, registering only 166 - a multi-week low - to 48 new highs. This is the kind of trend bulls have sought. Increases in new highs are the function of a variety of factors, main among them, speculation and momentum. This could very well signal an extension of the rally, though 9000 on the Dow should prove to be tough to crack. With as much excess capacity as exists today, and given the new-found disposition for saving, betting on a long term rally is about as safe as shooting craps in Las Vegas. The internals are probably reflecting nothing more than some recovery of stocks which were sunk during the downturn in late 2007.

Volume was average.

NYSE Volume 1,340,071,000
NASDAQ Volume 2,150,876,000

Commodities carried on as they have over the past couple of weeks, with oil closing lower, down $3.54, to $40.06. Precious metals continued their relentless march higher. Again, this is unsurprising due to the Fed's Zero interest rate policy, which, at its core, is inflationary (and, I should add, rather pointless and ill-advised). Gold gained $25.80, closing at $868.50. Silver was up 72 cents, to $11.42. Both of these were massive upticks and may indicate a near-term blow-off top. Then again, the gold bugs of the world say their metal should be worth $2000 and $35, respectively. The reality is that they are only another asset class and have no viable place in modern economies. Unless the global economy collapses, of course. Then, people will be cutting off each other's hands for their jewelry. That is an unlikely scenario in most civilized nations, though I'm certain that anecdotal evidence will emerge to demonstrate the civility of all, and soon.

One might surmise from reading some of my daily rants, that I should carry around a sign stating that "The End is Near." That's actually close, as I believe the end is already here.

It's the holiday season. Peace. Joy.

The Fed Makes Money Free

Lowering interest rates to 1% - as Alan Greenspan did earlier in the decade - seems to be not enough for current Fed Chairman "Helicopter" Ben Bernanke. Today's cut in the Federal Funds rate, from 1% to "0 to 1/4 percent" is an all-time low for the Fed, and sadly, for the United States. The absurdity of making more credit and money available when that is the reason for the problem defies all logic, yet that is the approach Chairman Bernanke and the Governors of the FOMC have chosen all along.

Additionally, the Fed cut the discount rate to 1/2%, making it easier for banks to borrow from the Fed.

Now, with all this extra dough floating around, shouldn't we all be living on Easy Street? One would assume as much, but there's a little problem which goes something like, "you get what you pay for." The banks, since they are not paying much for the opportunity to bolster their balance sheets, see absolutely no reason to lend out the money at anything approaching reasonable rates. Instead, banks are hoarding cash and have raised lending standards to abnormally high levels, so that unless you have near-perfect credit history, you can't borrow a single dime.

There are many mainstream views on the Fed's move which purport that the lowering of the rate is merely "window dressing" or that it is only "symbolic." As far as anyone can tell, the symbolism is that America is for sale to the lowest bidder, Americans need not apply. Accordingly, the dollar fell precipitously against the Euro and Yen while US equity markets soared on the news. Naturally, financial firms led the massive rally, which pushed the S&P 500 to a 5-week high.

Dow 8,924.14, +359.61 (4.20%)
NASDAQ 1,589.89, +81.55 (5.41%)
S&P 500 913.18, +44.61 (5.14%)
NYSE Compos 5,804.97, +307.07 (5.59%)

Internals confirmed that the rally was broad and deep, with advancers overwhelming decliners, 5552-1264. New lows, however, expanded to 223, to just 31 new highs. The rally was fueled in part by the inflating Fed, short covering and outright speculation with money borrowed at almost nothing. It goes to reason that the free-spenders on Wall Street would have a field day with all the free money they've been dealt over the past three months, regardless the actual state of the US and global economies. All this does is run the Fed out of one set of bullets (rate cuts) and set up a massive market meltdown by late Winter or Spring of 2009. Volume was, as one would expect, on the high side.

NYSE Volume 1,539,748,000
NASDAQ Volume 2,217,972,000

Despite the massive Fed cut and fall in the dollar, oil continued to slide, losing 91 cents to close at $43.60. The metals continued their rally, with gold gaining $6.20, to $842.70 and silver ahead 9 cents to $10.71.

Perhaps the most significant anecdotal evidence that the entire world economy is now running on fairy-tale, make-believe money was the activity in shares of Goldman Sachs (GS). The company posted its first loss since going public in 1999, a massive $4.97 per share, but gained 14% on the day (76.00, +9.54). But why not. Goldman recently was converted from an investment bank to a bank-holding company and received $10 billion from the US Treasury in November as part of the TARP welfare for banks program. We should all be doing so well, or, so poorly.

It's the last bullet for the Fed's rate policy unless they begin to believe that paying people to take money off their hands is a good idea. It may come to that, as the Fed expands its balance sheet by leaps and bounds, at the same time sinking the dollar and the world economy. It's a new world order, all right. The banks will eventually own everything, which, in turn will be owned by the central banks. Capitalism is over, democracy you can pretty much kiss goodbye. That will be gone in coming years when the federal government begins to dictate every aspect of our lives, and we're almost there now.

The Dance - and the Fraud - Continues

Wall Street continues to dance to whatever tune is set before them. On certain days, they change partners, some doing tangos replete with dizzying dips and turns, while others waltz casually or two-step through the day. Yes, there are day-traders and buy-and-holders, investors and charlatans, but today they all took a turn at the tango, precisely at 3:30 pm, with just one half hour left to dance.

At that point, with the major indices all at or near their lows of the day, it was time to tango, and, as the band played a warped version of Bolerostocks rose dramatically, with the Dow rising almost 150 points in about 7 1/2 minutes. A lovely dance it was, and such an abjectly fraudulent one. Whatever the purpose, to salve the wounds of the already harmed, or keep the masses outside the markets from rioting, the players, and dancers were the same. The Fed, Goldman Sachs, the PPT, banks playing with TARP money, day-traders and outright louts and thieves were all in there making - or losing - a buck or two or a billion or more.

Any gains under the current market conditions are likely to be fake, as phony as the money backing them, or backing away from them. We have no economy any more, no market system, no trading regime. What we have is the remains of a corrupted, defunct, defeated grand Ponzi scheme, one at which Bernie Madoff would stand in awe. we are witnessing the end of the Wall Street capitalist money machine, but the dancers don't want to stop dancing just yet. No, it's all happening too fast for them, too suddenly. Why, the little people are demanding that CEOs not receive bonuses and that their pay be cut. The nerve!

It's what we've got, folks, like it or not. As individual investors already know all too well, the little guy has no chance against the megalithic monstrosities created by the wizards of Wall Street. Their bets are hedged, while the little guy goes naked, believing in the "system." But the system is broken and the evidence of it grows daily. Today's little dance was just a warm-up to the Zulu death spiral this spring. They'll be dancing and spinning right into the fire pits then.

Dow 8,564.53, -65.15 (0.75%)
NASDAQ 1,508.34, -32.38 (2.10%)
S&P 500 868.57, -11.16 (1.27%)
NYSE Composite 5,497.90, -46.06 (0.83%)

On the day, the internals were far worse than the headline numbers might suggest. Decliners absolutely overwhelmed advancing issues, by a score of 4857-1821. New lows bested new highs, 222-15. Volume could best be characterized as pathetic, more like a mid-summer session than a Christmas and tax-selling one.

NYSE Volume 1,214,382,000
NASDAQ Volume 1,671,975,000

Meanwhile, some of our favorite commodities diverged. Oil fell $1.77, to $44.51, though gold gained $16.00, to $836.50, and silver pushed ahead 32 cents, to $10.62. This is not surprising, though not everyone is still sold on the argument for precious metals, though it is a compelling one. In a deflationary environment, such as we are in, oil could fall as low as $20 per barrel. The metals have weathered the storm better than almost all other investments, and will retain value no matter what. Gold seems especially overpriced today, though purists will tell you it's cheap, even at these levels.

Nobody really knows, though. But, if all other measures of wealth go by the wayside, gold will return to prominence and that seems like a bet worth taking, or hedging.

Note that industrial production fell 0.6% in November, as did Capacity Utilization, which dropped to 75.4% from 76.0% in October. Slowly we turn...