Bear Market Rally Like Crack Cocaine

2:35 pm : The stock market sports strong gains near session highs. Beaten down industry groups top the leader board -- homebuilding (+16%), diversified financial services (+14%), regional banks (+14%), diversified banks (+12%), auto parts and equipment makers (+12%).

The above quote is from briefing.com, noted as the markets approached the highs of the day on Friday. As I noted earlier today, the market has absolutely rejected the obvious, continuing stream of bad news, including January's horrific jobs numbers (-598,000), released prior to the market's opening bell by the Bureau of Labor Statistics (BLS).

So, is this "irrational exuberance?" A little of that. The mainstream-obviated financial press is attributing the rise in equities to anticipation of congress passing a stimulus bill, presumably by tonight. There's probably a little of that, too, but the truth probably lies somewhere between the PPT and the fact that Bank of America stock had fallen below $5.00 per share on Wednesday, and our great and glorious financial leaders could not stomach the thought that investment and pension funds would not - by charter - be able to throw more cash down that rat hole of a "bad bank." Throw in a teaspoon of short-covering and viola! Bear market rally.

Rallies like this, in the midst of a serious recession, are like crack cocaine: a great rush, but it doesn't last and the crash is difficult. We've all seen them before and, judging by past experience, this one is just a lot of noise, indicative of nothing in particular except for the assertion that investors can be herded more readily than cats.

Bank of America was the among the biggest winners of the day, gaining 31% at one point of the activities. The stock finished the session with a nifty 1.29 point gain, closing at 6.13, up 26.65%.

But take a gander at those industry groups leading the rally. Banks? Homebuilders? Auto Parts? Aren't these the same companies needing bailouts and TARPs? This was another in a series of well-orchestrated pumping by the "invisible hand" of government and financial firms afraid of losing their grip on the American psyche. Naturally, jacking the stock markets is only a temporary solution.

Another irony of our day is the news that many of the banks and institutions receiving TARP funds - now that severe restrictions have been placed upon them, like limits on executive compensation - banks are turning away from government largess and Bank of America's CEO, Ken Lewis (left), says his firm won't need any more.

Is Lewis to be believed? Probably not. Bank of America is technically insolvent. Besides, his bank has already received $45 billion in direct funding, plus another $118 billion in government loan guarantees. Let's hope BofA doesn't need any more money.

Here's some more proof of the extent of insider meddling in today's (and every day's) trading. Look at how closely the indices tracked by percentage gain. Absolute lock-step. Unusually aligned.

Dow 8,280.59, +217.52 (2.70%)
NASDAQ 1,591.71, +45.47 (2.94%)
S&P 500 868.60, +22.75 (2.69%)
NYSE Composite 5,475.28, +149.27 (2.80%)

To say that today's gains are illusory or fantastical might be putting too fine a point on it, so I'll patiently wait until stocks on the Dow (of which every single one was higher today) revert to the norm at 8149, pulled down by the absolute weight and unshakable might of pure market dynamics. The Dow can only go so far for so long before retesting the lows set last November. How far and how long you ask? A few hundred points (maybe a top at 8600, though that's doubtful) and about another month at the outside. Sooner or later reality rears it's pretty head and investors head elsewhere, profits in hand.

On the day, advancing issues hammered decliners, by a heavy margin, 5137-1446. New lows remained atop new highs, 144-22. Volume, as it was yesterday, was strong, not surprising, considering how much money went into bidding up stocks that should have been going down.

NYSE Volume 1,611,600,000
NASDAQ Volume 2,429,589,000

Commodities continued under some pressure, which is normal. Oil futures finished a volatile session down $1.00, at $40.17. Gold barely budged, picking up 10 cents to $914.30. Silver's advance was the sharpest of all, up 41 cents, to a multi-month high of $13.16.

The stock indices all registered gains for the week, snapping four-week losing streaks and posting the first weekly gain of 2009. Direction is still down, though point-and-figure chartists will note a reversal here. Considering the depth of economic despair the country and globe is encountering, this doesn't seem to be much of a sustainable trend.

SPECIAL: Markets Off Course, Major Correction Coming

This is a special report on the unusual action in US equity markets this morning. Our usual recap will be posted around 5:00 today.

Last night, well after markets closed, News Corp. (NWSA) - the media conglomerate controlled by Rupert Murdoch - reported a loss of $6.4 billion in its most recent quarter.

This morning, paper and pulp producer Weyerhaeuser (WY) posted a 4th quarter loss of more than $1.21 billion, or $5.73 a share, from a loss of $63 million, or 30 cents a share, a year ago.

An hour prior to the opening bell, the Bureau of Labor Statistics reported job losses of 598,000 in January and a jump in the "official" unemployment rate to 7.6%.

So, naturally, at the open, the major US equity indices went straight UP. What's that you say? Doesn't make any sense?

Well, you're right. As I mentioned briefly yesterday, and the day before, and many times prior to that, US MARKETS ARE RIGGED.

As I write, I am watching stocks race towards the sky, with the Dow up 180 points, the NASDAQ higher by 33 and the S&P ahead by 17.

Speaking of the S&P, Standard & Poor's Index Services reports that it expects dividends for components of its S&P 500 Index to drop 13.3% this year. More bad news, right?

Stocks are higher, based on absolutely nothing but hype, not even hope! Zounds!

As a bonus, here's Peter Schiff on why the stimulus package is going to make things worse:



And...

"If the American people ever allow the banks to control the issuance of their currency.. the banks and corporations that will grow up around them will deprive the people of all property, until their children wake up homeless on the continent their fathers conquered."

- Secretary of State Thomas Jefferson

Anyhow, look for stocks to stop rallying on this semi-short squeeze and tank below 7500 in the near future. I'll be back later to report on how the rest of the day went.

Bad News Rally? Really?

Once the opening bell rang, investors knew what to do after seeing the latest round of initial unemployment claims coming in at a record number, 626,000. All of the major indices dropped right out of the gate, building losses until right around 10:30 am, with the usual suspects, banks and related financial firms, leading the way.

Adding to the early Thursday thumping was the 4th quarter report from Cisco (CSCO), along with a very disappointing outlook for Q1 of 2009.

Additionally, a slew of retailers reported same-store sales falling in the range of 15-25% in January. Overall, there wasn't much good news about.

But, then word hit the street that “mark-to-market” accounting rules might be suspended to provide additional relief to banks and financial institutions. In other words, banks would be able to hide bad debts deep in the bowels of their books. Fine. Dandy. More phony accounting should be just the elixir to pull the nation out of its deflationary tailspin.

I have a word for what the government has been doing and continues to do regarding the banks. It's called "manipulation."

Massaging the bank's books aren't going to magically make the bad paper go away. Toxic CDO and MBS are bad, plain and simple. Allowing the banks to put them into a tier of liabilities or assets that doesn't realistically reflect their market value only delays the eventual reckoning. It was the suggested "mark to model" accounting, by which the banks were able to conceal their liabilities in the gobbledegook of their accounting which was largely responsible for the entire mess to begin with. Now, the "change agents" in the federal government believe that a return to those failed and false standards will somehow turn the tide.

Rubbish. Absolute garbage and trash. The government has no silver bullet. The answer is to allow the market to function by bankrupting all of the major players (Bank of America, Citigroup, Goldman Sachs, JP Morgan, Morgan Stanley, et. al.) who are INSOLVENT. Instead, the government and Wall Street is conspiring to continue the rape of the American taxpayer by propping up these failed institutions. They are plotting nothing less than the destruction of the United States of America.

So, the market soars on the news. The Dow, in particular, turned a 110-point loss at 10:30 am to a 150-point gain just after noon. The other indices registered similar moves and finished at or near the highs of the day. Not surprisingly, the banking sector was up sharply.

Dow 8,063.07, +106.41 (1.34%)
NASDAQ 1,546.24, +31.19 (2.06%)
S&P 500 845.85, +13.62 (1.64%)
NYSE Composite 5,326.01, +83.26 (1.59%)

So, there you have it. Bad news almost all around, but because the feds offer easier accounting rules, everything is magically worth more today than yesterday. Not only is our government completely off the rails, they are taking all of the money with them through the corrupt, failed banking system. If Americans ever understand the truth rather than accepting the pablum spoon-fed to them daily by the equally-complicit mainstream media, there would be marches and sit-ins in Washington which would make the record crowds at Obama's inauguration look like a high-school picnic - that is, if the American people somehow rediscover their spines.

Of course, most of the American population has been placated by either poverty, the media, handouts (welfare and extended unemployment benefits) or a noxious combination of all three. Largely, the American public is a brain-dead, limp and nearly lifeless non-entity. They don't have a voice in their politics and those who actually understand what's happening are marginalized as kooks or conspirators. Our rights have been gradually stripped away (and not restored by the current administration) to the point at which we barely matter. Congress and the president do as they please. Wall Street openly steals billions of dollars. Americans pay their bills, struggle to make ends meet, try to get by, hundreds of thousands of Kentuckians are still in the dark and cold, recalling images of hurricane Katrina and the aftermath of New Orleans. Sick. Sick Sick.

Tracking the day's trends, advancing issues beat back losers, 4155-1308, but, new lows continued to hold a large edge over new highs, 288-12. Volume was very high, especially at the open (down) and into the close (flat) as the powers at work threw everything they had into the market to prevent the dissipation of the day's gains. The bull-bear struggle from 3:30 to 4:00 pm was monumental, even though the indices barely budged.

NYSE Volume 1,627,892,000
NASDAQ Volume 2,563,955,000

Commodity markets responded as would be expected. Oil rose by 85 cents, to $41.17. Gold was up $12.00, to $914.20; silver advanced another 28 cents, to $12.75.

Naturally, all the efforts of the pumpers and pimps of the market could not overcome the monumental resistance line set up at 8149 on the Dow... not even coming close. Friday morning will prove to be quite interesting. The Bureau of Labor Statistics releases their non-farms payroll report for January at 8:30 am. The consensus is for another loss of 525,000 jobs. ADP has already (on Wednesday) released their independent figure for January at -522,000 jobs for January. Whichever way the BLS decides to massage their figures will decide the line of the day's trade. Anything significantly over their "consensus" figure should cause a decline. Anything at or below the figure will trigger a monster rally. Either way, its the sucker trade of the week, or year, or... well, there have been so many sucker moves lately that it may just fall in line with the rest of them.

Suck it up, America. The oligarchs cannot be inconvenienced.

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...