Forget the idea that earnings move the market. Most of the firms which reported 4Q and full year results between Tuesday and Wednesday's close actually showed negative comparisons to year-ago figures for both revenue and earnings. What mattered most today was that congress is about to pass a nearly $900 billion spending bill and Tim Geithner, the newly-confirmed Treasury Secretary, will go about buying up all of the bad assets on the books of the major banks, in effect, creating a "bad bank" for which to orderly dispose of those nasty ill-advised and now non-performing loans.
It's a great day for inflationists. Unfortunately, it's a bad day for the value of the dollar and not such a great day for anybody who recently lost his or her job. There's nothing in the bill which will actually create new, private sector jobs, which is what - long term - is needed to stabilize and grow the economy.
Never minding the inflationary implications of government boosterism, investors went absolutely ballistic, sending the US indices on a rocket ride higher.
The measure passed in the House contains a hodge-podge of government spending and tax relief, though nothing which directly affects either housing or employment, currently the two keys to any kind of economic betterment. Much of the criticism being directed at the government stimulus plan is that it will not begin working soon enough to have a meaningful near-term impact.
The Fed, after meeting for two days, did exactly nothing more than snort out a few missives about how the economy continued to deteriorate and how they were prepared to engage in - though they are not currently - direct purchases of Treasury debt securities. Keeping the key rate at "Zero to 25 basis points" the Fed is effectively out of policy bullets. Clearly, from the release notes of their meeting, deflation is the enemy, though it is not mentioned by name. Included was this nugget, which underscores the Fed's inflation leaning:
Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.
Just how the Fed manages to justify the differences of "inflation" and "price stability" was not covered by the release because, of course, their position is impossible to attain.
Today's speculative fling was obviously based on false hopes in that the market "gapped up" at the opening bell. It's a sign that investor optimism has not been fully demolished by recent events. And it was just yesterday that I mentioned that stocks could only gain a few hundred points because they had yet to retest the lows. How prescient of the market... and me!
Markets hate gaps and always find ways to fill them. This market had been stuck between 8149 and 8200 on the Dow. Today, it simply ignored the level. Danger lurks in today's gaps, but the public is being prepared for another onslaught of negative news, most likely not until March, however. Clearly, stocks have further to fall from these levels.
Optimism was as naked today as a bull's backside as advancing issues trounced decliners, 5412-1178. Plenty of pent-up investor demand went to work. Volume was reasonable. New lows outpolled new highs, 111-15.
Speculators in commodity markets were less convinced. Oil gained a sparing 58 cents, to $42.16. Gold fell $11.40, to $890.00, while silver lost 21 cents, to $11.96. The unmistakable signal from commodities are bearish and deflationary, right in line with slack demand and tight credit markets.
After the bell, Starbucks reported earnings and revenue that missed estimates and says it will cut 6,700 jobs in '09.
Enjoy your latte. The government and Wall Street are supplying the froth.
The US equity markets are so solidly stalled, constipated and intractable for one simple reason. They have yet to retest the November 20 lows. Until that task is accomplished, there will be no meaningful rally in stocks, as there is no chart confirmation and thus, no commitment.
This is not to say that the Dow cannot escape the clutches of 7500 and change, though the current battle line clearly has been set at the most reasonable level of 8149. Stocks could easily advance another couple hundred points without anyone questioning whether or not they're overbought.
Stocks look cheap if you're an optimist. They appear somewhat more ghastly if you are not so easily persuaded. Realists are somewhere in the middle and probably, because they generally prove to think with their heads, invested in gold. (For those of you who cannot afford much gold, there is always silver, just as good, and historically cheap by comparison.)
For purposes of clarification, the Dow closed above our magic number today, though the entire day's range was covered by yesterday's, so the import of Tuesday's tidy gain was minimal in the larger scheme.
Dow 8,174.73 Up 58.70 (0.72%) NASDAQ 1,504.90 Up 15.44 (1.04%) S&P 500 845.71 Up 9.14 (1.09%) NYSE Compos 5,315.44 Up 70.83 (1.35%)
The usual spate of bad news helped keep investors in place on Tuesday, though there is still evidence that not everyone has been convinced that stocks are not where one should be putting his or her money.
More than 10,000 additional layoffs were announced on Tuesday, from companies as broad-based as Best Buy, Corning, IBM, Target, Baker Hughes and Avery Dennison. More than 70,000 corporate layoffs were announced on Monday.
The Conference Board also reported, earlier in the day, that their measure of consumer confidence had fallen to an all-time low of 37.7. The Case Shiller Home Price Index found that home prices had fallen by 18.18% in November from a year ago, the largest such decline in the history of the survey.
Advancing issues galloped ahead of decliners, 4253-2266. There were more new lows than new highs, 172-16. Volume was once again pathetic and indicative of a market with no conviction whatsoever.
And who can blame them? Layoffs continue to be announced daily, corporate profits, though many are beating expectations, are generally lower than for the same period last year. Many companies are showing significant strains and signs that business has slowed in an unprecedented manner.
Oil was also a victim of the deflationary environment, losing $4.15, to $41.58. Gold dipped $9.30, to $901.40. Silver bucked the trend, gaining 12 cents, to $12.18. Natural gas continued to wallow near lows, losing a penny to $4.44.
Monday's attempted push into higher ground was cut short by the very same forces which pushed it down to these levels in the first place: jobs, bank failures and government deficits.
The key sticking point, which the market understands (as do most chartists, but not politicians) is the 8149 level on the Dow. Why that spot is so stubborn and steadfast, not allowing movement beyond it, now that it has been violated, is that it is the interim closing low (Dec. 1) following the devastating bottom of November 20 (7552.29). Since violating this level by closing at 7949.09 on January 20, the index has tried to break out every day since. On January 21, the Dow did manage to hold on, at the close, at 8228.10, but since has closed below 8149 three consecutive sessions.
This is a troubling scenario. Not even the unexpected rise in existing home sales (+6.5%, though the median home price continues to fall) and the Conference Board's rosier outcome in the Leading Indicators (+0.3%) could keep stocks sufficiently in the green to call today's effort a true rally.
As a matter of fact, the Dow finished more than 100 points off its high, which was achieved shortly after the pair of announcements at 10:00 am. It was only a late day surge that allowed the index to finish with any gain at all. Other indices were similarly in positive territory at the close, though with marginal gains.
Perhaps equally troubling was the lack of commitment as measured by volume, off sharply from last week's somewhat more spirited efforts. On the day, advancing issues finished well ahead of decliners, 4207-2354, though the gap between new lows and highs remains troubling, with new lows ahead once more, 200-16.
Crude oil finished the day with a loss of 74 cents, easing to $45.73 at the close after trading as high as $48.05. Gold continued its own little winning streak, gaining $13.00, to $910.70. the first close above the $900 mark since early December. Silver tagged along with a gain of 17 cents, closing at $12.11. We are beginning to be convinced that the only safe place for your cash - besides in a mattress - is in precious metals.
What the politicians in Washington don't seem to understand at this juncture is twofold: first, that the stock market will not respond blindly to their grandstanding on economic issues and postures on bailouts, stimulus packages and the like, and second, that the number of Americans out of work or underemployed has now reached crisis proportions.
Just today, another 68,000+ layoffs were announced, by titans such as Caterpillar (20,000), Pfizer (merging with Wyeth, 26,000), Sprint Nextel (8000) and Home Depot (7000). Other companies, such as Dutch financial firm ING, and farm equipment maker Deere, also announced layoffs which slice across national borders.
The US economy shed 2.6 million jobs in 2008 - the most since 1945 - and there have already been 200,000 announced layoffs this year, though the real figures of unemployed and underemployed continue to spiral to nosebleed levels. Some estimates have the total of both groups already at 13-15% of the adult labor force.
In Washington, there's plenty of pomp and posture about how to correct the dilemma, but it surely seems that the worst is still ahead as the effects of multiple retail chain store closings and the consequent defaults in commercial loan portfolios begin to ripple through the economy.
Our political leaders have yet to either catch on or level with the American people about the depth of our economic crisis, preferring to "stick to their agenda" while offering little in the way of serious stimulative effort.
The stock market is just another ticking time bomb at this point. Anybody telling you to buy stocks here just doesn't understand the fix we're in and might as well instruct you to throw money down a well.
The action today on the markets was extraordinary, to say the least. When General Electric fessed up to a major revenue miss and 46% drop in profit, the market futures signaled a steep decline at the opening, which is exactly what happened. The Dow lost 200 points in the first few minutes of trading.
From there on, however, it was all hands on deck for the PPT and the foes of free markets. All but the Dow finished the day with small gains as the interventionists kept stocks from doing what they were supposed to do, drop like stones thrown off a cliff.
I may sound pessimistic to many, and I'll admit that I don't see much but doom and gloom ahead, but that's for stocks, mostly. If you like shiny objects made of gold and silver, the future looks better. But, the backdrop of millions of jobs lost, families being put out on the street and people just plain afraid to spend money, does have a sobering effect. Stocks should head lower, below the levels of November 20. The p-e ratios of most of the S&P (sans financials) are still high, not indicative of stocks in a recession. But, despite my desire for a quick, painful revaluation, the Fed and the federal government will continue to unwind matters slowly. Stocks have fallen, and they will continue to fall, just not quite as quickly as some (me) would like.
So, right around 9:15, somebody over at the secret PPT bunker kicked the switch-flipper awake and things got going. Ben Bernanke's grubby little fingers were all over this particular episode.
On the day, advancers and decliners were virtually even, with the winners ahead slightly, 3223-3211. New lows maintained their edge over new highs, 315-13, actually expanding their advantage, yet another indication that a lows retest is upon us. Volume was eerily the same as it's been all week.
Whoever flipped that switch this morning, must have tripped the inflation lever as well, as commodities, mired in a deep recession, suddenly emerged as the big winners of the day. Oil gained $2.80, to finish the week at $46.47. Gold was up $37.00, to $895.80, briefly trading above $900. Silver rose 58 cents, hitting $11.94 an ounce at the close of NY trading. The big loser of the day was natural gas, down 17 cents to $4.49. While this may seem like a boon to householders heating with natural gas, the reality is that most utilities locked in higher prices months ago, so Mr. and Mrs. Average Joe and Jane won't see any reduction in this month's utility bill. Maybe next month, maybe not.
Yesterday, I promised something called a "blockbuster" report on the Fed and I've managed to piece together most of the salient facts and articles which lead me to believe that the Federal Reserve Bank, which has provided nothing less than massive inflation and destruction of the dollar over it's 95 years of existence, is, in fact, one big Ponzi scheme, making Bernie Madoff look like a piker by comparison. We begin with a tame somewhat mainstream video clip and proceed to the meat of the story of the Fed
The following video features Christopher Whalen of Institutional Risk Analytics, proposing that the bailouts of banks end and the government allow Sheila Bair of FDIC to do her job, which is, take the Citigroups and Bank of Americas of the world into receivership, liquidate the assets and move on with new, stronger entities. Naturally, this sensible approach will be completely ignored by our financial masters at the Fed and in the higher reaches of "our" federal government.
This concept actually dovetails nicely into the creation of a "bad bank" as a repository for all the toxic debt weighing down the balance sheets of financial firms. The concept is neatly outlined, defined and debated in Bad Bank Regains Favor As Solution for Toxic Debt.
A "bad bank" is exactly what the world's money masters need. It is likely to be the biggest bank in the world, as companies, governments and central banks deposit all of their crookedness into one big cesspool. Naturally, the assets and liabilities will never be made public, nobody will have to come clean, and all the world will be better off, especially the rich, greedy manipulators of finance.
Moving on, the details of how the Fed creates money out of thin air are boring in their detail, but suffice it to say that they have many means available to them to create wealth for themselves at the expense of the American public, and they use all of them in gross excess almost all of the time.
The details of these two articles compelled me to make them more widely available before somebody from NSA comes along and scrubs them from the web. They partially describe how the Fed is an unruly, corrupt organization, with black holes in their books and secrecy and deceit all around. Both are exceptional reads.
Finally, here's John Maudlin, suggesting that we "muddle through" for another decade or so, but he does offer a couple of other, more interesting scenarios.
From John Maudlin, in an article entitled, The Endgame:
The US (and indeed soon the whole world) is in a deep recession. The US is going to try and combat that recession with stimulus on a scale never before tried. It is a grand experiment. On the one hand is the theory that you can allocate stimulus and keep the velocity of money from falling. On the other hand is the theory that once the deleveraging process starts, there is not much you can do about it: it is going to work its way through the economy. We are about to find out which theory is correct.
While the Fed and Central Banks around the world are simply dissatisfied with stealing most of people's wealth and labor (They want it all!), they'll be betting on the side of the argument that keeps liquidity and money flowing at a high velocity. The US population, scared to death by Wall Street, trillion dollar deficits and the Fed running the printing presses around the clock, are going to be a serious counterbalance to any reflation effort. So, choose your poison: deflation or inflation. I'll bet dollars to doughnuts that it will be deflation first and inflation later: my few dollars will buy lots of doughnuts today and later, I'll sell the stale ones for 10 times what i paid.
We've already seen what $350 billion did to re-inflate and stimulate the banking sector. It cratered like a punctured beach ball. More money thrown at it will have a similar effect because the banks and the Fed and central banks around the world are so deep in debt and sunk by credit default swaps, debt reconstituted into securities, resold and defaulted again, that they will find no way out short of armed conflict, devaluation of currencies (starting with the US dollar).
So, that's it for the week. It's Friday; go have a beer or seven. I am on my way out for a couple gulps of Steel Reserve, a high gravity lager, which, considering the height of the "gravity" we face, only seems appropriate.
Tim Geithner was approved by the Senate Finance Committee (guess we all can cheat on our taxes without worry now!) earlier today, as the process of confirmation as Treasury Secretary now passes to the full Senate. The AP wire lit up with the story at 12:37 pm EST, just about the same time the Dow crossed back above 8000 and started a mini-rally (by 2:15 pm, the Dow snuck past 8200).
Coincidence? I think not. Wall Street's fate is now tied to Geithner and how he and Ben Bernanke, over at the Fed, interact and respond to the ongoing obliteration of the nation's largest financial firms.
The euphoria over having one of their own (Geithner's resume is full of Wall Street, World Bank and NY Fed connections) with his hands nearly on the US Treasury quickly faded as those in the know remembered that the US government is carrying a debt load of close to $11 Trillion, so maybe Geithner won't be able to help in the long run. Shortly after 3:00 pm, the Dow was down 150 points again, and matters didn't improve much heading into the closing bell.
On top of this is a growing concern over how stable the Federal Reserve is. Bearing in mind that the Fed is a private bank, albeit with deep tethers to the government, the Fed has been buying up more than its fair share of rotten assets and throwing around money like Bernie Madoff on an investor hunt.
With more and more economists and commentators openly saying that the large banking institutions are insolvent (something I and others have known and written about since 2007), reality is taking a heavy toll on investor sentiment. (I'll have much more about the Fed, the banks, the bailouts and our future in a blockbuster report tomorrow)
While the marketeers were making the most of their man being appointed to Treasury, an earnings miss and announced layoffs by Microsoft and more dismal data from the housing and employment sectors overhung the entire session, acting as the metaphorical ton of bricks weighing down all sectors.
New unemployment claims hit a level not reached since 1982, with 589,000 new applications for the week ended January 16.
New home construction and permits fell to record low levels in December, the Commerce Dept. reported.
Taken together, the news could not have been much worse, though investors are getting used to the endless stream of bad news coming out of government and private analyses. The poor earnings reports for the 4th quarter are a relatively recent add to the mix, but earnings season is getting into full swing. Google reports after the bell today. (Update: Google beat analyst expectations ($4.98), posting Non-GAAP EPS for the fourth quarter of 2008 of $5.10.)
Declining issues outweighed advancers by a wide margin, 4867-1560. New lows: 230. New highs: 12. Volume was consistent with the past few days, generally on the high side.
Oil finished with a 12 cent gain, closing at $43.67, though US inventories were reported 14% above last year's levels. Oil traded lower for much of the session before recovering into the close. Natural gas fell 9 cents, to $4.65. Gold gained $8.70, to $858.80; silver finished the day 4 cents to the good, at $11.37 the ounce.
A catalyst to propel the bulls has yet to emerge, though at this juncture, small bits, like Google's good report, may be enough to keep what little is left of investor confidence. Today's close on the Dow, however, was the second this week below 8149, the interim low (Dec. 1) following the November 20 collapse and bottom (7552).
The markets have traded sideways for two months running, so a betting man might be inclined to look for a change in dynamics. I make the prospects of closing below the Nov. 20 lows within a month at 70%, and a gain to 8750 in the same time frame almost nil.
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