Investors Find No Easy Way Out

The stock market is a fickle beast.

No sooner than one believes one thing, conditions change to make the opposite true. That's why stocks go up and down. Yes, really.

After yesterday's rally on news that Tim Geithner was confirmed as Treasury Secretary and was boosting plans for a "bad bank" bailout for the endangered species that are large commercial banks, and the Obama administration was toasting with congressional cohorts their $800+ billion stimulus plan, news changed.

Starbucks plans to close more stores and lay off 7000 more employees. Ditto Boeing, ditto Kodak, and others. New home sales for 2008 sank to their lowest level in 26 years. There were record numbers of first-time unemployment claims filed last week. Durable goods orders fell another 2.6% in just one month. Pundits far and wide were assailing the stimulus plan as too little, too late. In the relatively short span between Wednesday's closing bell and Thursday's open (a scant 17 1/2 hours) the mood had changed.

But, if you're a chartist with keen observational skills, you already knew that stocks could not sustain any meaningful rally. As I mentioned just two days ago, in my post, Why Stocks Won't Move:

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.

Well, on Wednesday, the Dow did gain 200 points. And on Thursday, it fell by 226, closing at 8149.01. Hmmm... seems somebody's a penny off. Close enough, though, because nobody's perfect. Since 4:00 pm this afternoon, however, I have been answering the phone with the salutation, "Hello, resident genius."

Dow 8,149.01, -226.44 (2.70%)
NASDAQ 1,507.84, -50.50 (3.24%)
S&P 500 845.14, -28.95 (3.31%)
NYSE Composite 5,300.77, -200.69 (3.65%)

The condition of the economy is decidedly poor. The politicos in Washington can try to spin in any way they like, but many Americans - squeezed by ridiculous utility bills, overtaxed to near-death, and now many of them out of work and soon to be out on the street - are not schmoozing with cocktails after work. Many are just lucky enough to be able to afford dinner and maybe a malt liquor or pale ale.

Once again, the big-wigs in DC are sending the same wrong message as the CEOs and top executives on Wall Street. The Wall Street crowd has been chided by the government, so it's the public's right to express anger at elected officials.

Shame on you, Mr. Obama, Ms. Pelosi, Mr. Reid, Mr. McConnell, Mr. Boehner. Having cocktails while people are hungry, homeless, jobless and yearning smacks of elitism. I voted for Mr. Obama. I'm sure he was a better choice than McCain, but I'll say this just once: "Bush wrecked the economy, now it's Obama's turn to make it worse." I hope I'm wrong.

On the day, declining issues overwhelmed advancers, 5200-1333. 176 stocks made new 52-week lows. Only 16 made new highs. Volume was uninspired.

NYSE Volume 1,435,231,000
NASDAQ Volume 1,939,281,000

Oil fell another 72 cents, to $41.44. Gold picked up the slack, gaining $16.50, to $906.50. Silver also was higher, up 18 cents, to $12.15. Lean hogs and live cattle were little changed, but they are much lower than at this time last year. Food and energy have fallen precipitously in the deflationary cycle, perhaps providing some little modicum of comfort in this era of widespread distress.

Tomorrow, the government releases preliminary data on 4th quarter GDP and it's expected to show a contraction of roughly 5%. While that news will be neither surprising nor conclusive, it will confirm that the economy is in the throes of a deep, dark, dismal retreat.

Sure, Senator, the Resident Genius would like a screaming orgasm and some of that pulled pork you're passing around, thank you.

Fed Doublespeak, Bad Bank Idea Signal Bull Run

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.

Dow 8,375.45, +200.72 (2.46%)
NASDAQ 1,558.34, +53.44 (3.55%)
S&P 500 874.09, +28.38 (3.36%)
NYSE Composite 5,501.49, +186.05 (3.50%)

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.

NYSE Volume 1,548,266,000
NASDAQ Volume 2,160,559,000

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.

Why Stocks Won't Move

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.

NYSE Volume 1,171,004,000
NASDAQ Volume 1,819,427,000

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.

What the Market Knows (and Washington Doesn't)

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.

Dow 8,116.03, +38.47 (0.48%)
NASDAQ 1,489.46, +12.17 (0.82%)
S&P 500 836.57, +4.62 (0.56%)
NYSE Composite 5,244.67, +49.12 (0.95%)

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.

NYSE Volume 1,269,394,000
NASDAQ Volume 1,841,378,000

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.

Who Flipped the Switch? and, Is the Fed Busted?

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.

Dow 8,077.56, -45.24 (0.56%)
NASDAQ 1,477.29, +11.80 (0.81%)
S&P 500 827.68, +0.18 (0.02%)
NYSE Composite 5,195.55, +23.87 (0.46%)

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.

NYSE Volume 1,410,774,000
NASDAQ Volume 2,182,405,000

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 most interesting articles, were this one, The Federal Reserve’s Blueprint for Market Intervention, by James Turk, in which he follows the sleuthing of researcher Elaine Supkis, who uncovered a 1961 TOP SECRET FED RESERVE GOLD EXCHANGE REPORT.

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.

Cheers!