Bye, Bye, Bank of America

There was a rally underway on Wall Street, until, that is, around 10:30 am, when President Obama announced that executive pay for bankers whose institutions receive TARP funds would be capped at $500,000. That's when stocks peaked, eventually losing more than 200 points from top to bottom on the Dow, which was the worst affected of all indices.

Dow 7,956.66, -121.70 (1.51%)
NASDAQ 1,515.05, -1.25 (0.08%)
S&P 500 832.23, -6.28 (0.75%)
NYSE Composite 5,242.75, -25.27 (0.48%)

The blue chips were aided in their descent by 4th quarter earnings reports from Disney (DIS) and Kraft (KFT), in addition to Bank of America (BAC), which reportedly lost 12 investment bankers on the Obama announcement, jumping ship to join Deutsche Bank (DB), which has received no TARP funds nor money from their home, German government.

Among the three big losers on the Dow, Kraft posted a 72% earnings decline year-over-year, losing 9% on the day as traders punished the stock, sending it to 26.13, down 2.61 at the close. Disney suffered through a troubling fiscal first quarter, earning 45 cents a share in the quarter ended Dec. 27, compared with 63 cents a share, in the same quarter a year ago. Disney finished at 19.00, off 1.60, a 7.8% loss.

Bank of America was hit with massive selling, with more than 600 million shares changing hands, almost 4 times the average daily volume. shares fell to 4.60, a 17-year low, off 0.60, a decline of more than 11%. The number of shares trading is significant in that many funds, by charter, cannot maintain positions in stocks valued under $5 per share. The rout of the bank's backers should continue as long as the company's shares remain at depressed levels.

In truth, Bank of America should already have filed for bankruptcy protection as its operations have been underwater for quite some time. Continuing to shovel money into the bottomless pits of BofA and Citigroup, particularly, has been a mistake from the very start. No business is "too big to fail" and pouring taxpayer money into these obviously failed institutions is a monumental blunder on the part of the federal government, more likely to prolong and deepen the financial crisis than repair it.

A very astute rendering of the current economic malaise is offered by Ismael Hossein Zadeh, in "Too Big to Fail:" a Bailout Hoax at counterpunch.org. This article should be required reading for all of our elected federal officials, who, as a group, are poorly prepared to handle any kind of economy, especially one which is in dire straits.

Sadly, most of them will not read it or any other tract on economics, being that, for most of them, their major accomplishments involve using other people's money to land big-time government jobs. Of all the 650 or so congresspeople there is maybe a handful (10 to 20) who really have a grasp for economics of this scale. The rest simply are led by their noses by supposed government "experts" who dictate policy. There's little doubt that the worst enemy of the United States of America does not domicile in Afghan or Pakistani caves, but in tony residences around the Capitol. The lot of them and their predecessors has led America down this path of destruction since 1980 at least. Those currently holding office in congress will certainly finish the job in a smashing manner, impoverishing the nation in a manner never before seen.

As for the president who promised change, little has. Instead, he has surrounded himself with the very same people who are responsible for the whole mess. Yes, I voted for him, thinking he could turn around many of our mistakes, but, thus far, he has been a huge disappointment, favoring massive deficit spending over actual, practical solutions, like cutting the payroll tax, surely the easiest and quickest way to stimulate the overall economy.

Interestingly, and probably not coincidentally, today's morning rally stalled out just above my magic 8149.09 mark, the level which cannot be penetrated before lows are retested. This number is turning out to be a very strong resistance point, one that could endure for months, if not years. The Dow needs to fall further and our economy needs to find a solid footing before advancing in any meaningful way. That, sadly, is also months, or years, away and seemingly getting pushed further along the horizon every day.

The sooner the pols in Washington realize that decentralization of everything from the energy grid to banking to politics is at the heart of recovery, the sooner various parts of the country can begin to function well again. What's interesting and even amusing about this economic era is that the people being damaged the most are, not in any particular order, the rich, Wall Street, and Washington politicians, the last of which is rapidly losing credibility and relevance.

Recovery will begin more on local levels than at the federal. Communities with forward-looking. realistic activists will be better prepared to deal with the downturn and offer solutions for recovery. Those solutions will be more proactive and less involved with government and other macro-style solutions. They are likely to be based on models of sustainability, conservation and localism. The ideas are emerging. Many of them will be featured on this very blog as they become evident.

On the day, market internals confirmed the absolute pummeling the markets took on Wednesday. Declining issues overwhelmed advancers, 3732-2766. New lows expanded their edge over new highs, 235-17. Volume was strong, indicating that the decline is gaining momentum.

NYSE Volume 6,413,953,000
NASDAQ Volume 2,187,395,750

Commodities continue to trade in mixed fashion with oil falling 46 cents to $40.32, while gold gained $9.70, to $902.20, and silver posting a 17 cent gain, to $12.47. This is likely a trend which will continue. Commodities which are used widely - energy and food stocks - should continue to feel the pinch of deflation, while the safety of the precious metals will attract smart money seeking safety. Naturally, when the real effects of government overspending become evident in a weakened dollar, those same commodities should rise, and the metals will go parabolic. That eventuality is likely 2-3 years away, maybe longer.

In the interim, the US and world economies are undergoing a massive shift from globalization to localization. More and more people every day are understanding that their basic needs are not being met by government and ultra-national corporate entities, but by local economies, farms, businesses and people. This could be the beginning of the absolute end of big government in its many layers. From towns and villages all the way up to the federal level, the American public is increasingly weary of being overtaxed and underserved, harassed and obligated to the very institutions which are supposed to support and protect us.

Wall Street and Washington has screwed us all the way down. The American people will fix this on the way up, but, like a drunk with a problem, the first step is bottoming out, and we haven't done that yet. Mostly, we are still in denial.

More tomorrow.

Obama's PPT Working Group On the Job

The perks of the presidency are large.

One of them is that you have at your disposal, thanks to the "godfather of conservatism," Ronald Reagan, who, in his limited wisdom, created, by Executive Order 12631 -- Working Group on Financial Markets(otherwise known as the PPT, or Plunge Protection Team) to ostensibly put the nation's various stock exchanges under the control of top government operatives whenever necessary.

The presidency being largely a function of public relations, it seems that President Obama has finally gotten his guys together and instructed them to keep the market on an upward keel. All of the fingerprints are there: the subtle prodding, the 50-point spikes after 2:00 and 3:00 pm, the positive close. It's just so nice to be able to salve the wounds of fractured investors with a couple of nice gains.

Of course, it's merely a mirage, and a temporary one at that. Once again, I must invoke my status as Resident Genius, noting that the Dow (and by inference, the other major indices) cannot escape the clutches of pure market dynamics at the resistance line of 8149, the point at which the market must invariable submit. Today's pumping was likely some short-covering and market tinkering to keep the Dow above 8000, a key psychological level, but nothing more than that. In the long run, it's just another number on the way back down to the mid-7000s.

Being that my job is keeping track of these arcane, diabolical market assumptions, it's clear that the investment community (with the assistance of the Working Group) still has much work to do, now that the Dow has closed below our magic number 8 times since its invocation on December 1, 2008, and, with today's finish, for the fourth time in a row.

So, when your friends say smart things like, "How'd ya like the Dow today, huh?" You can even-more-smartly respond with the retort, "8149, kid, watch it," secure in the knowledge that any rally that doesn't reach that level is doomed, caught like a fly in a spider's web.

Besides, the bears have a secret weapon which will be unleashed on Friday morning. It's called the Non-farms payroll report, tracking the number of jobs lost in January (lots of them, like more than 500,000).

When the BLS releases that figure at 8:30 am, all the little knee-jerk relief rallies of this week will look like just so much noise because that's all they are. Lows must be retested and haven't been. Just getting within 400 points is not enough.

Dow 8,078.36, +141.53 (1.78%)
NASDAQ 1,516.30, +21.87 (1.46%)
S&P 500 838.50, +13.06 (1.58%)
NYSE Composite 5,268.00, +101.53 (1.97%

As for news flow, it was good early - Pending home sales improved 6.3% in December as eager buyers snatched up foreclosed homes, Merck (MRK) reported a strong 4th quarter - but soured late as automotive firms reported year-over-year sales declines for January: GM -51%, Ford -40%, Toyota -34%. It's not pretty in the auto dealer world. And it's not improving, either.

Citigroup says they're going to start loaning money again, which is really not news, or shouldn't be, since that's what banks are supposed to do, but they announced that they'll employ some $36 billion of the money the government GAVE them, for loans and securitizations of mortgages. Maybe they'll get it right this time, though any positive result from bank lending is still very much in doubt and a matter of severe speculation.

The trouble with unleashing loans across the landscape is that the lender still has no idea what the immediate future holds. No doubt, the honchos at Citi were prodded into making a public loan announcement by the Fed or Treasury or both, as the public has been outraged over the non-use of some $350 billion in TARP funds. Whether this round of lending will help Citigroup is a dodgy issue. Home prices are still falling and the economy is anything but stable. It's likely that this $36 billion to be lent is just a cover for the eventual break-up and bankruptcy of the once high-and-mighty Citi.

Market internals confirmed the move higher. Advancers beat back decliners, 3840-2624. New lows remained ahead of new highs, though the number of new lows decreased along with the gap, 250-24. Volume was nothing exciting, as low volume is becoming a semi-permanent feature of this sublimated market.

NYSE Volume 1,353,295,000
NASDAQ Volume 2,091,114,000

Commodities were mixed, if not mixed up. Oil for March delivery gained 70 cents, to $40.78. Natural gas slipped 4 cents to $4.51. It seems as though the home heating fuel folks missed their opportunity completely this winter. January was extremely cold, but prices barely budged. The Midwest and Northeast parts of the US are about to experience the other side of the coin, with warmer weather predicted for much of February.

Gold fell $14.70, to $892.50. Silver dipped 12 cents to $12.30. The precious metals are still the sweet spot in this market, especially silver, which is being suppressed in a variety of ways and is well below the traditional gold-silver ratio. Just as gold was the fair-haired boy of the previous five years, it may be silver's time to shine.

Midday, Tom Daschle withdrew his nomination for Secretary of Health and Human Services in a tax-related snafu.

Honestly, is that good news or bad? Probably a little of both. Maybe it's time to overhaul the tax code. Just a thought...

Wall Street to Washington, DC: A Road Paved with Fraud

I took this past weekend to catch up on some reading and focus my thoughts on the economy, the stock market and government.

Then I watched the Super Bowl, which worked out well enough for me. Though the Cardinals did not win, as I predicted, the Steelers did not cover the spread, which I also predicted, and, since covering the line is all that matters to gamblers, I retain my status as a near-genius football picker. Like anything else in our crazy world, we are judged most by our last effort. In the NFL prognostication business, that last effort each season happens to be the Super Bowl, so I'm good to go until August.

One final note on the game: Arizona nearly killed itself throughout the entire contest and, without the numerous mistakes and crippling penalties, they would have won easily. But, no excuses. All hail the Pittsburgh Steelers.

So, getting back to my laser-like focus on the economy, stock market and government, I can say one thing that applies to them all: They stink. Our economy is so deeply in debt that radical changes are needed for it to ever be fixed and workable. The government is simply too corrupt, too inept and too rooted in old, failed ideologies to make the necessary changes. As for the stock market, well, that's just a rigged craps table. You can place all the bets you like, but chances are you're going to lose because the game is rigged from the inside, for the insiders.

Monday was no exception to the rigging of Wall Street. At 3:00 pm, all indices were at or near the lows of the day. By the close, the losses were pared and the NASDAQ actually finished with a decent gain, that owing to the flawed thinking that tech firms would benefit from the new plans being shuffled about by the Obama administration and the Democratic congress.

Dow 7,936.75, -64.11 (0.80%)
NASDAQ 1,494.43, +18.01 (1.22%)
S&P 500 825.43, -0.45 (0.05%)
NYSE Composite 5,166.47, -29.32 (0.56%)

The pols, however, are a sideshow. Whatever they compose in "stimulus" legislation, it won't help stem the rising tide of defaults and bankruptcies (everything from individuals to banks, to cities, counties and states), nor will they correct the essential flaw in our system: government at all levels which is too corrupt, too large and too endeared to their own hold on power. Americans face some dim prospects in the near future. There is either going to be a prolonged economic disaster (caused by Wall Street and the federal government) or riots and overthrow of the government, or martial law.

None of those are palatable, but, believe it or not, the one in the middle (riots and revolution) is probably the best solution.

Clean slate. Put all the fraudsters and criminals from Wall Street to Washington behind bars or at least, out of positions of power. Being that the government has all the money and guns, it's probably going to be easier for most Americans to simply submit to martial law (this should occur by September) or leave the country (Get those passports now!).

The imbecility of the American public cannot be underestimated. They continue to elect leaders from the same two entrenched, powerful parties, and expect different results. When the newly-elected get to their appointed positions of power, they have become members of the club. They are no longer Democrats and Republicans, they are all elitists, taking their orders from the oligarchs (CEOs) behind the various Wall Street fraud schemes.

That the entire house of cards is collapsing upon them at once is a very large problem, one which neither the Wall Streeters or the federal (or state) government operatives seem to be able to right. They're screwed, and because of that, the American people is about to be screwed even more.

Already, Californians are getting IOUs instead of tax refund checks. The Governor and the legislature wants to raise taxes and fees to fill the burgeoning budget gap. Higher taxes and fees are also being bandied about in state houses from New York to Wisconsin, Florida to Arkansas, Massachusetts to Michigan. The states are facing monumental budget shortfalls and instead of cutting pay to overpaid civil servants, they're opting for more blood (tax revenue) from constituents.

From the federal level on down, government has the equation all wrong. They're facing shortfalls because there isn't enough revenue, because people are out of work, or out of their homes, or both. Raising taxes on the rest of the population isn't going to repair that condition. In fact, their higher tax solutions will only serve to infuriate the masses even more.

Backing up my contention that the market is rigged (a small loss today instead of a big one) are the internals, which worsened considerably today. Declining issues outnumbered advancers, 3408-3126. The number of new lows expanded to 357, while the new highs contracted to 17. These are unmistakable signs of a worsening condition. The indices are heading back to the November 20 lows, likely to exceed them by a long shot on the downside.

NYSE Volume 1,326,851,000
NASDAQ Volume 2,014,289,000

The commodity markets, much less prone to outright manipulation, showed continuing signs of deflationary strain. Oil futures fell $1.60, to $40.08. Gold was overtaken by profit-takers, losing $21.20, to $907.20. Silver also fell, by 15 cents, to $12.42.

Buy silver, food and bullets.

This morning, I undertook a small test of the value of stocks as investments. I'll spare you the math, but I decided to look at what a basket of 10 stocks, purchased in February, 1999, would look like today. My selections were household names, all of which paid dividends: Intel (INTC), IBM (IBM), General Electric (GE), ExxonMobil (XON), FedEx (FDX), Bank of America (BAC), Caterpillar (CAT), McDonald's (MCD), Wal-Mart (WMT) and Coca-Cola (KO). In my example, I purchased $10,000 of each stock, for a total investment of $100,000.

The results, considering that I didn't pick all outright losers (In fact, 6 of the 10 were higher today than in 1999.), was an eye-opener. Before all taxes and fees, the $100,000 invested in 1999 would have been worth just $2347 less today. Adding in dividends, that number became positive, to the tune of a total return of $27,953. Not bad. right?

Not good, is my response. A simple fixed investment retuning 4% annually would have produced a profit of $48,024 before tax considerations. My takeaway on this is simple: Wall Street is a major fraud, built on high risk. Your money would be much better off in a simple savings account with a fair rate of interest. Therein lies the major disconnect of our age: the difference between saving and investing. Most individuals are not investors, just as most investors are not savers. Over the last 40-50 years, we've been fed a steady diet that investing was the key to prosperity, when the truth - all along - was that saving was the real key.

Americans can now focus on saving, thrift and intelligent consumerism, rather than engage in the highly-leveraged, risk-ridden world of Wall Street. Let the rich take the risk. The rest of us can prosper well enough without them.

And for the government, how can be be confident in a leadership that allows tax cheats to take over some of the most critical and demanding jobs in government? I'm talking about Tim Geithner and Tom Daschle, each of whom evaded taxes knowingly and yet will be confirmed as Secretaries of Treasury and Health and Human Services, respectively. Geithner's already been seated. Daschle has widespread support, including President Obama himself.

Our institutions have been corrupted beyond any hope for a reasonable repair. Our economy is a black hole and Americans will need new leaders and renewed resolve to get through this period with our nation intact. God save us all.

January Barometer Predicts Down Year

For all of the optimism associated with a 3-or-4-day winning streak (depending on the index) and a big upside day on Wednesday, it may come as somewhat of a surprise to some that the major US equity indices all ended the week with losses.

The widely-watched Dow Jones Industrial Average tacked on more losses to Thursday's massive beat-down in Friday's one-sided trade, sending the index into negative ground, down 77 points for the week. The NASDAQ fared better, down less than a point since last Friday. The S&P 500 gave back 6 points, while the NYSE Composite finished higher by a slim 0.28 points.

Were the markets stabilizing? Hardly. Investors not only had to navigate through a slew of 4th quarter and full year 2008 earnings reports, but the stew of demoralizing economic reports continued in deluge fashion. There were some hopeful signs - like the government's initial estimate of 4th quarter '08 GDP posting a decline of 3.8% (better than estimates) - but not enough to keep serious money on the sidelines or increasingly heading toward bonds and precious metals.

Dow 8,000.86, -148.15 (1.82%)
NASDAQ 1,476.42, -31.42 (2.08%)
S&P 500 825.88, -19.26 (2.28%)
NYSE Composite 5,195.83, -105.07 (1.98%)

Also, the averages are not showing any signs of making upside progress. Since the fallout of November 20, they have recovered slightly, but mostly went sideways.

This being the final trading day of January, it should come as no comfort that the January Barometer is clearly indicating a down year for stocks in 2009, with all major indices closing the month anywhere from 7 to 9% lower than they had begun. Based on the adage "as goes January, so goes the year," the January Barometer has as solid a track record as any simple indicator, with accuracy in the range of upwards of 80%, depending on which sources are cited.

The day's internals were as unappealing as the headline numbers. Declining issues outflanked advancers, 4558-1903. There were more new lows than new highs, 253-12. This is the most troubling of all indicators, due entirely to its persistence. There have been only a handful of days where this condition did not persist - i.e., more new lows than highs in the daily data - since I have been tracking it since October 31, 2007. This is a 15-month, one-sided trend that has always declared general direction.

Of course, this was the natural conclusion of a 54 or 58-week bull market from 2003-2007 - one of the longest in history - built mostly on bad investments, incompetent fiscal policy, absence of regulations and general thievery. That's why the correction has been so severe. The foundation of the previous bull was built on sand.

Volume was as strong on Friday as it was on Tuesday's 200-point Dow rally, which also is not encouraging for stocks. Not to worry, the same kind of serious correction is occurring around the globe.

NYSE Volume 1,500,684,000
NASDAQ Volume 2,108,279,000

Commodities were the place to be. Crude oil was up 24 cents, to $41.68, though natural gas futures fell to $4.39, an obviator of oversupply. Gold zipped ahead $21.90, to $928.40, a multi-week high. Silver advanced 42 cents, to $12.57, making silver no longer a bargain and possibly short-term oversold, though it may be risky to rest on that assumption.

Employment and housing continue to be the main trouble spots in the economy, and those areas are likely to continue to deteriorate until there's some real relief for the middle class in government policy, namely, immediate tax relief via relaxed withholding, though our pals in Washington don't seem to like that idea. Since asking for a government wage and spending freeze would likely be too much, I won't bother to ask for actual spending cuts. The so-called "leaders" of our age are proving to be among the most incompetent bunch in history (unless you buy the conspiracy side of the argument for "big government"), unable to manage affairs of state effectively.

The world will wait while Washington winces, whines and wails. That's unfortunate because people must move on towards an improved existence. It is the history of civilization and should not be short-circuited by failures of financial creations.

To replace the broken models of the past, new ideas must be developed .

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.