American Express (AXP) has received preliminary approval for $3.39 billion in TARP funds along with CIT Group (CIT), which was also approved for $2.33 billion on Monday. Both companies have recently changed their status to bank holding companies, in order to qualify for the TARP money and other goodies from the Federal Reserve Bank and Treasury Department.
One wonders how the application-and-approval process actually works. Imagine a sleek CEO or CFO going to Paulson and Bernanke for money. Q: Are you and your firm both financially and morally bankrupt? A: Absolutely!
Ding, ding, ding! We have a winner!
Sadly, the entire US - and most of the world's - banking system is now defunct. Citigroup (C), Morgan Stanley (MS), Goldman Sachs (GS) and JP Morgan Chase (JPM) are all illiquid and have been for some time. Their status won't change. They all have to be broken up and sold off to healthier regional or local banks. Many of their "assets" will be liquidated, as the buyers will not want toxic structured financial instruments on their books. Buh, bye, bonuses!
On Friday, Treasury Secretary Paulson urged Congress to release the remaining $350 billion of TARP funds approved earlier this year. Today, the only independent voice in the Senate, Vermont's Bernie Sanders, urged congress to reject his request, saying, "It is inconceivable that we would provide another $350 billion to the banks – supposedly to ease credit – when they are refusing to tell us how they’re spending the money they’ve already received."
The latter portion of his comment was in reference to a Monday AP story describing how 21 recipients of TARP funds - all major banking or financial institutions - were unwilling or unable to answer questions on how the money already handed out was being used.
Essentially, the TARP, turned out to be a TRAP, like so many other government-sponsored programs under the Bush regime, essentially handing out taxpayer money (on loan) to the failed banking institutions. It has been more than two months since the bill passed congress, yet the economy has continued to worsen. What's becoming plain to all is that government is not going to save the average American from this maelstrom. We're all about to get sucked into the vortex of fraud, lies and deceit which ends in foreclosures, bankruptcies and discontent on a scale rivaling the Great Depression.
Getting to the title of this post, the end is here, and it is now. Americans will be facing some seriously ugly choices in the months ahead, and there's no guarantee that Mr. Obama's "infrastructure stimulus" package is going to produce anything more than make-work jobs in the construction trades. How that is supposed to revive an economy of which 70% of GDP comes from consumer spending remains a mystery.
It's apparent that there needs to be structural changes in almost every aspect of the American experience. The banking system is kaput, the government is corrupt, the taxes too high, yet they fail to meet budget demands year after year. Federal, state and local budgets need to be slashed now, not later, as does the budget of just about every household in the country.
A new way of finance and work ethic needs to be promoted, either from the bottom up or the top down. All the financial chicanery of the past 30 years has resulted in a near-death experience.
In response to the unfolding melodrama that is world socio-economic politics, investors took flight again on Tuesday, with markets sinking for the fifth straight day, and the eighth in the past eleven sessions. Some of the more oblivious in the financial media have been wishing for a "Santa Claus Rally" when the probability of such an event occurring is about the same as the Detroit Lions winning the Super Bowl. Personally, I'll be glad - along with about 10 million retail workers and countless investors - when this Christmas is over. It should rank as one of the most miserable ever.
Dow 8,419.49, -100.28 (1.18%)
NASDAQ 1,521.54, -10.81 (0.71%)
S&P 500 863.15, -8.48 (0.97%)
NYSE Composite 5,468.32, -52.50 (0.95%)
As expected, decliners led advancing issues, 4153-2549, while new lows continued to dominate new highs, 237-20, numbers that are becoming numbingly commonplace. Volume was again far below the norm, but the losses are so significant that volume isn't really part of the equation any more. So many hedge funds and individuals have already shut down for the holidays or longer that the remaining participants are being pushed by blind, naked fear, as that is the only emotion that hasn't already been fully drained, except possibly, desperation.
NYSE Volume 984,406,000
NASDAQ Volume 1,323,355,000
Oil slipped another $0.93, to $38.98. Gold fell $9.10, to $838.10. Silver slithered another sixty cents lower, closing at $10.26.
Underscoring the collapse of all asset values, the National Association of Realtors announced today that November existing home sales fell at a record pace of 8.6% and the median price of a home fell 13%, to $181,300 from $208,000 last year. The declines were the worst ever seen since the NAR began keeping records four decades ago.
At the peak of the housing market, in mid-2006, the median home price was $230,000. Since then, prices are off a shade more than 21%. In the short term, that's a large amount, though taking the longer view, there is surely more pain to come. Housing prices should fall another 25-40% over the next 3-5 years, and if that isn't the most pessimistic forecast you've ever heard, and are thinking I'm out of my mind, consider the following calculations.
Evan at the inflated value of 4 times annual pre-tax income, a person earning $40,000 a year could own a home worth $160,000. Now, let's do the new math: The average American will be (or already is) earning $35,000 or less in 2009, 2010, 2011 and beyond. At a more reasonable valuation of 3.5X annual income (and this is even pre-tax, assuming almost no income tax), that puts the "affordable" home at $122,500. That is 32.6% below today's median price. Of course, it could get worse, and probably will, since there aren't going to be that many banks willing to lend much of anything to anyone anytime soon.
Happy Holidays!
Tuesday, December 23, 2008
Monday, December 22, 2008
Low Volume, Lower Prices
With Christmas just three days off and investors already disgusted with stock performance over the past three months, Monday got off to a bad start and got worse as the day wore on. Only a sharp, short-covering rally in the final minutes kept markets from having a really dismal day.
Since this week will likely be among the slowest of the year, these posts are equally likely to be short, though no less instructive to astute traders.
Dow 8,519.69, -59.42 (0.69%)
Nasdaq 1,532.35, -31.97 (2.04%)
S&P 500 871.63, -16.25 (1.83%)
NYSE Composite 5,520.82, -95.30 (1.70%)
For the session, gainers were beaten badly by losers, 4584-2157, belying the generally tame losses. New lows expanded their edge over new highs, to 234-18, another significant development. Since volume this week will be inconsequential, those numbers are giving off strong sell signals. The markets are on the verge of another rush to the bottom, which could happen at any time over the next three weeks, and, if the November lows are not tested this week or next, January will be a slaughterhouse.
NYSE Volume 1,219,524,000
Nasdaq Volume 1,661,136,000
Commodities continued to display the deflationary bent. Oil futures, which are now in the February contract, fell $2.45, to $39.91. Gold managed to gain $9.80, to $847.20. Silver picked up a penny on the bid, closing at $10.86. None of the prices quoted today seem sustainable in the undeniably deflationary environment.
As the Christmas shopping season winds down to the last two days, numbers from retailers are horrifying. Even with sales of merchandise at 60-70% off, gross receipts are expected to come in as much as 20-30% below last year's results. January will witness the shuttering of huge swaths of retail stores. Many will be forced into bankruptcy, some to reorganize, but many others will simply liquidate. After that, the fallout from a commercial real estate glut will sour the economy even further.
A few weeks ago, President-elect Obama said the economy would get worse before it got better. He is so very right about that.
Since this week will likely be among the slowest of the year, these posts are equally likely to be short, though no less instructive to astute traders.
Dow 8,519.69, -59.42 (0.69%)
Nasdaq 1,532.35, -31.97 (2.04%)
S&P 500 871.63, -16.25 (1.83%)
NYSE Composite 5,520.82, -95.30 (1.70%)
For the session, gainers were beaten badly by losers, 4584-2157, belying the generally tame losses. New lows expanded their edge over new highs, to 234-18, another significant development. Since volume this week will be inconsequential, those numbers are giving off strong sell signals. The markets are on the verge of another rush to the bottom, which could happen at any time over the next three weeks, and, if the November lows are not tested this week or next, January will be a slaughterhouse.
NYSE Volume 1,219,524,000
Nasdaq Volume 1,661,136,000
Commodities continued to display the deflationary bent. Oil futures, which are now in the February contract, fell $2.45, to $39.91. Gold managed to gain $9.80, to $847.20. Silver picked up a penny on the bid, closing at $10.86. None of the prices quoted today seem sustainable in the undeniably deflationary environment.
As the Christmas shopping season winds down to the last two days, numbers from retailers are horrifying. Even with sales of merchandise at 60-70% off, gross receipts are expected to come in as much as 20-30% below last year's results. January will witness the shuttering of huge swaths of retail stores. Many will be forced into bankruptcy, some to reorganize, but many others will simply liquidate. After that, the fallout from a commercial real estate glut will sour the economy even further.
A few weeks ago, President-elect Obama said the economy would get worse before it got better. He is so very right about that.
Friday, December 19, 2008
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.
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 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.
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.
Thursday, December 18, 2008
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.
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.
Wednesday, December 17, 2008
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.
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.
Subscribe to:
Posts (Atom)
Posts
