After a rocky start, US stock indices finally put in a day of solid gains, thanks in large part from the seemingly never-ending supply of optimists seeking bargains after stocks plunge to new lows.
By no means is the recession or the drumbeat of downbeat economic news subsiding. In fact, this latest round of selling - pushing to Dow, S&P and NYSE Comp. to 12-year lows - was possibly the most brutal and merciless yet. Even today, the news was decidedly bad. The ADP Employment Report for February showed that another 697,000 private sector jobs were lost in the month of February. In the good-producing sector, it was the 26th consecutive month of US job losses; manufacturing fell for the 36th straight month, according to the firm.
Inside ADP's numbers was an alarming revelation: that most of the losses were from medium and small firms employing less than 500 individuals. The takeaway was that job-chopping by major firms has peaked, but now the recession is spreading down to smaller firms, even to the very mom-and-pop type small businesses that are the backbone of the economy.
For Wall Street, those figures, coupled with an oversold condition in the market, provided enough of a green light to let the bargain hunters loose, boosting stocks in an overdue, broad rally. At 2:00 pm, the Fed released the Beige Book, an anecdotal accounting which showed economic conditions deteriorating across all 12 regions.
That didn't dampen the mood much, until late in the session, when the Dow shed nearly 100 points in the last 20 minutes of trading.
As the Dow goes, it came just short of the new psychological barrier at 7000, paused and then fell away. That late-day downturn is surely cause for concern going forward, though if the 7000 level is breached, there's not much in the way of resistance until the 8000 level, so the opportunity for a short-term rally exists over the next four to six weeks.
Of course, there are still hurdles to overcome, and the chance that another bank may blow up or some other circumstance contribute to the overall malaise is paramount.
Dow 6,875.84, +149.82 (2.23%)
NASDAQ 1,353.74, +32.73 (2.48%)
S&P 500 712.87, +16.54 (2.38%)
NYSE Composite 4,464.89, +130.19 (3.00%)
Twenty-five of thirty Dow components sported gains, but the five which suffered losses revealed quite a bit about the overall tone of trading. Bank of America (BAC), Citigroup (C), American Express (AXP), General Electric (GE) and JP Morgan Chase (JPM) all have one thing in common. They are either banks or substantially tied to finance in their business operations. JPM took the biggest hit of all, down 8.14%, closing at 19.30, -1.71. The major banks still have unresolved issues and most of them relate back to derivatives and credit default swaps in the black hole of AIG.
Market internals were largely in line with the closing numbers. Advancers clobbered losers for the first time in over a week, 4955-1639. New lows moderated back to 676, though only three (3) stocks reached new highs. Volume remained at the elevated levels of the past week.
NYSE Volume 1,796,873,000
NASDAQ Volume 2,349,450,000
Oil ramped up on news of a surprise drawdown in US supply. Crude futures for April delivery gained $3.73, to $45.38. Gold continued losing, down another $6.90, to $906.70. Gold has lost nearly $100 in just over a week's time. Silver fared better (somebody is obviously taking my advice), gaining 20 cents to $12.92, still bargain territory (under $13 per ounce).
Optimism was abundantly everywhere. All commodity prices were up sharply with the notable exception of gold. This is likely an aberration, as is the stock market move, though there is a technical set-up for a short term bounce.
Stay tuned.
Wednesday, March 4, 2009
Tuesday, March 3, 2009
Weary Market Stuck on Red
Stocks zig-zagged across the unchanged line on Tuesday, with investors assessing the damage from Monday's drama.
There were equal amounts of bargain-hunting and hand-wringing as the major indices registers small losses, but overall, there was no good new upon which to launch any meaningful rally.
Housing data - which crossed the wires at 10:00 am - sparked more selling, as the numbers were far worse than even the most dismal expectations. New home sales for January fell 7.7%; construction spending dropped 3.3% for the same period.
Following those figures were numbers from the major auto makers, which posted the worst sales declines since the economy began to really sour in September of 2008.
Compared to the same period one year ago, General Motors (GM) said their light-vehicle sales dropped 53% in February, while Ford's declined 48%, with Toyota posting a 40% drop.
Ford's car sales dropped 48%, with sport-utility vehicles off a whopping 71%. Toyota's car sales fell 36%; GM's were off 50%.
Apparently, traders were too worn out from Monday's rout to engage in yet another sell-off session.
Dow 6,726.02, -37.27 (0.55%)
NASDAQ 1,321.01, -1.84 (0.14%)
S&P 500 696.33, -4.49 (0.64%)
NYSE Composite 4,334.70, -26.28 (0.60%)
Declining issues outweighed advancers, 4274-2343. New lows continued to dominate over new highs, as investors continued shedding outright losers, 1512-15. Volume was still very high, despite the minor movement in the market.
NYSE Volume 1,825,373,000
NASDAQ Volume 2,368,833,000
Oil gained $1.50, to $41.65. Gold tumbled $26.40, to 913.60; silver continued to correct, down 36 cents, at $12.72.
In another note on what I have coined the Post-Government Era, Pat Buchanan recently penned an interestingly-titled essay in which he correctly points out just how brutally federal, state and local taxes are bearing down on working, productive Americans. Mr. Buchanan fails to cross the line - in Pitchfork Time - from conjecture to the outright rebellion the title suggests, placing most of the blame on President Obama's budget proposal rather than rightfully on the monstrous policy decisions at every level of government over the course of the past 30 years.
While Buchanan may be stirring up the spirits of rebellion, he's dead on when it comes to the issue of taxation. Americans are being taxed out of their jobs, homes and security, though this condition has been existent for many years.
The current economic climate has only recently awakened the slumbering US middle class, though by many accounts, it's already too late.
Dow components finished with 17 up and 13 down. All the major indices extended their nearly 12-year lows.
There were equal amounts of bargain-hunting and hand-wringing as the major indices registers small losses, but overall, there was no good new upon which to launch any meaningful rally.
Housing data - which crossed the wires at 10:00 am - sparked more selling, as the numbers were far worse than even the most dismal expectations. New home sales for January fell 7.7%; construction spending dropped 3.3% for the same period.
Following those figures were numbers from the major auto makers, which posted the worst sales declines since the economy began to really sour in September of 2008.
Compared to the same period one year ago, General Motors (GM) said their light-vehicle sales dropped 53% in February, while Ford's declined 48%, with Toyota posting a 40% drop.
Ford's car sales dropped 48%, with sport-utility vehicles off a whopping 71%. Toyota's car sales fell 36%; GM's were off 50%.
Apparently, traders were too worn out from Monday's rout to engage in yet another sell-off session.
Dow 6,726.02, -37.27 (0.55%)
NASDAQ 1,321.01, -1.84 (0.14%)
S&P 500 696.33, -4.49 (0.64%)
NYSE Composite 4,334.70, -26.28 (0.60%)
Declining issues outweighed advancers, 4274-2343. New lows continued to dominate over new highs, as investors continued shedding outright losers, 1512-15. Volume was still very high, despite the minor movement in the market.
NYSE Volume 1,825,373,000
NASDAQ Volume 2,368,833,000
Oil gained $1.50, to $41.65. Gold tumbled $26.40, to 913.60; silver continued to correct, down 36 cents, at $12.72.
In another note on what I have coined the Post-Government Era, Pat Buchanan recently penned an interestingly-titled essay in which he correctly points out just how brutally federal, state and local taxes are bearing down on working, productive Americans. Mr. Buchanan fails to cross the line - in Pitchfork Time - from conjecture to the outright rebellion the title suggests, placing most of the blame on President Obama's budget proposal rather than rightfully on the monstrous policy decisions at every level of government over the course of the past 30 years.
While Buchanan may be stirring up the spirits of rebellion, he's dead on when it comes to the issue of taxation. Americans are being taxed out of their jobs, homes and security, though this condition has been existent for many years.
The current economic climate has only recently awakened the slumbering US middle class, though by many accounts, it's already too late.
Dow components finished with 17 up and 13 down. All the major indices extended their nearly 12-year lows.
Monday, March 2, 2009
Deflation, Depression Drumbeat
Everybody Limbo! How low can she go?
Today's closing numbers, seen below, are close to those levels, so the financial news junkies will be saying the stocks fell to their lowest levels since 1997, or the worst in 12 years.
Dow 6,763.29, -299.64 (4.24%)
NASDAQ 1,322.85, -54.99 (3.99%)
S&P 500 700.82, -34.27 (4.66%)
NYSE Composite 4,360.99, -256.04 (5.55%)
These kinds of comparisons serve almost no useful purpose, except to jangle our memories to recall what life was like back then. Here's an idea. Tiger Woods was in his first year as a professional golfer. Since then, Tiger's done well by simply plying his craft and parlaying his popularity into lucrative endorsement deals.
The point is that investing - especially in times like these - is not for everyone, while working hard and seizing the financial opportunities that may present themselves is probably a more fundamentally sound plan. Saving 10% of your income doesn't hurt either.
What is more useful is looking at the relative price/earnings ratios and dividend yields during boom and bust periods. Conventional wisdom dictates that stocks are risky when p/e ratios are above the 12-15 range and good buys when they are 5-10. The bottom comes when these ratios reach a cumulative 5-7. They are currently around 8-10, so the bottom is close at hand, numbers-wise.
As for dividend yields, a 7% compounded return doubles your money in 10 years, but with interest rates running at or close to historic lows, anything over 7% should be viewed with some degree of skepticism. Either the underlying stock is still falling or the dividend may, at some point in the not-so-distant future, be cut.
Either case will dampen your overall return, so stocks which are paying a dividend yield around 3-5% are likely to be good bets. Their price may improve (or not fall much more) and their dividends are likely to remain intact.
While I think it is still too early to call a bottom of any sort or time period, I am on record for calling the bottom at Dow 5267 sometime later this year, probably between August and November. Noting that, I may be completely wrong. We may be only at the beginning of a period of prolonged economic distress, in other words, a Depression-like decline.
Some are calling for the Dow to fall to 4000, others, below that. Remember that during the Great Depression, which lasted anywhere from 8 to 10 years, from 1929 to 1938, stocks lost 90% of their value. The very worst years of the depression, from a day-to-day "life sucks" standpoint, was from 1931 to 1935, when unemployment peaked and remained high and death, disease and rampant poverty was the order of the day.
Back in the 30s, people starved, froze to death, and suffered from a wide assortment of maladies many of which today have been eradicated by modern medicine. Considering the dynamic economy in which we live and the incredible amount of government aid available, it seems unlikely that many today will stave or freeze, though many will die of heat stroke, especially the elderly who try to save on cooling costs by turning their air conditioning off during the summer.
While I continue daily to paint this "doom and gloom" scenario, be reminded that today's calamity was caused by just one more market event - AIG's announced $61 billion loss in the last quarter and the government throwing another $30 billion at the company. Somebody please tell me how any company can lose $61 billion in 3 months time. On one hand, it's ludicrous and without precedent. On the other hand, how much of these "losses" are merely papering over a bottomless pit of credit default swaps and other cross-party derivatives.
AIG was the king of insurance and the leader in CDS, which are essentially insurance against bond defaults. With defaults still at inordinately-high levels (and growing, according to some), AIG doesn't have to funds to cover their own bad paper. AIG is no sideshow to the banking crisis, it is at the heart of the crisis.
Until AIG's problems are solved, or until the government comes up with a better idea than to just continue pumping good money down a sinkhole, nothing will change. Wall Street banks and AIG blew up the world financial system and there needs to be a fundamental shift in how the system works. Investigations of the CEOs and other executives at the tops of the firms are necessary, and they should lead to prosecutions and jail for the perpetrators, many of them household names by now.
The point is that bad news continues, unabated, nearly every day. This week will be no different. Tuesday, auto and truck sales for February; Wednesday, private job loss numbers are released by ADP; Thursday, new unemployment claims; Friday, Labor Department's Non-Farm Payrolls. All of the figures are predicted to be dire, so any hope for a rally needs to be moved back a few weeks, or months, or years.
On the day, one of the most one-sided ever witnessed, declining issues beat advancers by a stunning 9-1 ratio, 6036-675. New lows danced on the graves of new highs, 1479-11. Volume was again very high, as investors scramble to get out of way of the rampaging avalanche of burning paper holdings.
NYSE Volume 1,967,912,000
NASDAQ Volume 2,336,813,000
Not a single Dow component registered a gain. The worst were Citigroup (C) 1.30, -0.20, -20.00%; General Electric (GE) 7.60, -0.91, -10.61%; Alcoa (AA) 5.49, -0.74, -11.88%; General Motors (GM) 2.01, -0.24 -10.67; American Express (AXP) 11.06, -1.00, -8.29; Caterpillar 22.17, -2.44, -9.91% and Bank of America (BAC) 3.63, -0.23, -8.10.
Commodities exhibited all the symptoms of a deflationary spiral. There was no one single commodity higher on the day. From natural gas to coffee to feeder cattle, everything was down. Oil got hammered on persistent demand concerns, down $4.61, to $40.15. The precious metals fared better than most, but still, gold lost $2.50, to $940.00. Silver lost just 2 cents, to $13.07.
Today was one of the most disheartening in a series of such. Nothing, not the government, nor Warren Buffett, nor Barack Obama, nor the Fed can stop the freight train of deflation, wealth destruction and decline.
We might as well accept the facts: We are already in a depression. We are beyond the state of denial. No investment is safe.
- On April 28, 1997, the Dow closed at 6783.02
- November 1, 1996, the S&P closed at 703.77
- The NYSE Composite closed at 4378.48 on February 11, 1997
- The NASDAQ is still above its November 20, 2008 close at 1313, so, after that, the next closing low will be May 2, 1997, at 1305.33
Today's closing numbers, seen below, are close to those levels, so the financial news junkies will be saying the stocks fell to their lowest levels since 1997, or the worst in 12 years.
Dow 6,763.29, -299.64 (4.24%)
NASDAQ 1,322.85, -54.99 (3.99%)
S&P 500 700.82, -34.27 (4.66%)
NYSE Composite 4,360.99, -256.04 (5.55%)
These kinds of comparisons serve almost no useful purpose, except to jangle our memories to recall what life was like back then. Here's an idea. Tiger Woods was in his first year as a professional golfer. Since then, Tiger's done well by simply plying his craft and parlaying his popularity into lucrative endorsement deals.
The point is that investing - especially in times like these - is not for everyone, while working hard and seizing the financial opportunities that may present themselves is probably a more fundamentally sound plan. Saving 10% of your income doesn't hurt either.
What is more useful is looking at the relative price/earnings ratios and dividend yields during boom and bust periods. Conventional wisdom dictates that stocks are risky when p/e ratios are above the 12-15 range and good buys when they are 5-10. The bottom comes when these ratios reach a cumulative 5-7. They are currently around 8-10, so the bottom is close at hand, numbers-wise.
As for dividend yields, a 7% compounded return doubles your money in 10 years, but with interest rates running at or close to historic lows, anything over 7% should be viewed with some degree of skepticism. Either the underlying stock is still falling or the dividend may, at some point in the not-so-distant future, be cut.
Either case will dampen your overall return, so stocks which are paying a dividend yield around 3-5% are likely to be good bets. Their price may improve (or not fall much more) and their dividends are likely to remain intact.
While I think it is still too early to call a bottom of any sort or time period, I am on record for calling the bottom at Dow 5267 sometime later this year, probably between August and November. Noting that, I may be completely wrong. We may be only at the beginning of a period of prolonged economic distress, in other words, a Depression-like decline.
Some are calling for the Dow to fall to 4000, others, below that. Remember that during the Great Depression, which lasted anywhere from 8 to 10 years, from 1929 to 1938, stocks lost 90% of their value. The very worst years of the depression, from a day-to-day "life sucks" standpoint, was from 1931 to 1935, when unemployment peaked and remained high and death, disease and rampant poverty was the order of the day.
Back in the 30s, people starved, froze to death, and suffered from a wide assortment of maladies many of which today have been eradicated by modern medicine. Considering the dynamic economy in which we live and the incredible amount of government aid available, it seems unlikely that many today will stave or freeze, though many will die of heat stroke, especially the elderly who try to save on cooling costs by turning their air conditioning off during the summer.
While I continue daily to paint this "doom and gloom" scenario, be reminded that today's calamity was caused by just one more market event - AIG's announced $61 billion loss in the last quarter and the government throwing another $30 billion at the company. Somebody please tell me how any company can lose $61 billion in 3 months time. On one hand, it's ludicrous and without precedent. On the other hand, how much of these "losses" are merely papering over a bottomless pit of credit default swaps and other cross-party derivatives.
AIG was the king of insurance and the leader in CDS, which are essentially insurance against bond defaults. With defaults still at inordinately-high levels (and growing, according to some), AIG doesn't have to funds to cover their own bad paper. AIG is no sideshow to the banking crisis, it is at the heart of the crisis.
Until AIG's problems are solved, or until the government comes up with a better idea than to just continue pumping good money down a sinkhole, nothing will change. Wall Street banks and AIG blew up the world financial system and there needs to be a fundamental shift in how the system works. Investigations of the CEOs and other executives at the tops of the firms are necessary, and they should lead to prosecutions and jail for the perpetrators, many of them household names by now.
The point is that bad news continues, unabated, nearly every day. This week will be no different. Tuesday, auto and truck sales for February; Wednesday, private job loss numbers are released by ADP; Thursday, new unemployment claims; Friday, Labor Department's Non-Farm Payrolls. All of the figures are predicted to be dire, so any hope for a rally needs to be moved back a few weeks, or months, or years.
On the day, one of the most one-sided ever witnessed, declining issues beat advancers by a stunning 9-1 ratio, 6036-675. New lows danced on the graves of new highs, 1479-11. Volume was again very high, as investors scramble to get out of way of the rampaging avalanche of burning paper holdings.
NYSE Volume 1,967,912,000
NASDAQ Volume 2,336,813,000
Not a single Dow component registered a gain. The worst were Citigroup (C) 1.30, -0.20, -20.00%; General Electric (GE) 7.60, -0.91, -10.61%; Alcoa (AA) 5.49, -0.74, -11.88%; General Motors (GM) 2.01, -0.24 -10.67; American Express (AXP) 11.06, -1.00, -8.29; Caterpillar 22.17, -2.44, -9.91% and Bank of America (BAC) 3.63, -0.23, -8.10.
Commodities exhibited all the symptoms of a deflationary spiral. There was no one single commodity higher on the day. From natural gas to coffee to feeder cattle, everything was down. Oil got hammered on persistent demand concerns, down $4.61, to $40.15. The precious metals fared better than most, but still, gold lost $2.50, to $940.00. Silver lost just 2 cents, to $13.07.
Today was one of the most disheartening in a series of such. Nothing, not the government, nor Warren Buffett, nor Barack Obama, nor the Fed can stop the freight train of deflation, wealth destruction and decline.
We might as well accept the facts: We are already in a depression. We are beyond the state of denial. No investment is safe.
Friday, February 27, 2009
The Amazing Shrinking Economy
Prior to the market's open, the Commerce Dept. reported that GDP for the 4th quarter of 2008 declined by 6.2%, much more than the previous estimate of -3.8%, and more than the consensus estimate of -5.2%. Word was also spreading fast that the federal government was about to take a 36% stake in troubled Citigroup, more than quadrupling taxpayer's stake in the bank.
Right out of the gate, stocks tanked, with the Dow down nearly 150 points within the first 15 minutes. After trading in a tight range through most of the day, the markets finally succumbed to the intensely negative pressure in the final hour, sending the Dow, S&P and NYSE Comp. to new lows, surpassing those made earlier this week. As I said in yesterday's headline: GAME OVER!
Dow 7,062.93, -119.15 (1.66%)
NASDAQ 1,377.84, -13.63 (0.98%)
S&P 500 735.09, -17.74 (2.36%)
NYSE Composite 4,617.05, -95.97 (2.04%)
According to this report by Lauren Tara LaCapra, citing credit analysis by Egan Jones, a proprietary firm, Bank of America should be up next to follow Citigroup to the government hand-out window.
Hasn't it become evidently clear to Tim Geithner at Treasury that his plan for submitting the banks to a "stress test" won't even come close to relieving the stress to the credit and finance system?
First, the executives, Citi's Vikram Pandit and BofA's Ken Lewis, haven't come clean as to what's lurking on (and off - as in tier three) their books, awaiting implosion. Second, the government's benchmarks in the stress tests are simply too optimistic. For instance, the GDP worst case component calls for GDP to fall by 3.3% in 2009 and grow by 0.5% in 2010. We're looking today at a fourth quarter of 2008 in which GDP declined by 6.2%, according to the government's own report, issued today, so shouldn't the worst case be closer to a 5.0% decline in GDP for 2009 and a flat year in 2010?
As far as wost cases are concerned, a drop of 5.0% isn't even that bad. It is entirely possible that GDP could collapse by as much as 8 or 9% in the first two quarters of 2009 and get worse from there. The government simply doesn't want to face reality, believing, amazingly, after all we've been through, that the system is still resilient. It's not. The major banks are broken and the government is not only complicit through non-regulation, but now looking wholly incompetent, decrepit and corrupted to its core.
So, when the government finally gets the memo, they should have the FDIC close down Citi, zero out the shareholders, pay off bondholders at pennies on the dollar, recapitalize what's left and sell it off - in parts, if necessary - to private hands - shareholders, regional banks or private investors. Then, rinse, and repeat with Wells Fargo & Company (WFC) and JP Morgan Chase (JPM). anything short of a complete shutdown of the banking behemoths will only serve to prolong the agony in the credit, bond and stock markets, severely crimp lending and prolong the recession, turning it into a depression.
The Obama administration and Geithner's Treasury Dept. must take off the kid gloves, stop treating the banks as sacred cows and deal with the colossal problems facing the nation.
One of the reasons the economy is in such a staggering decline, is how lucrative not working has become. A woman caller to the Rush Limbaugh radio show today said she recieved $459 per week in unemployment insurance benefits and the government has just added an additional $25 per week, courtesy of the stimulus bill. That equates to $25,000 per year for not working. There clearly needs to be more incentive to find work, as being on the dole has now become better than the wages of 30-40% working Americans.
Elsewhere, General Electric (GE), slashed its annual dividend, from 32 cents to 10.
Market internals confirmed the headline numbers. Declining issues ran ahead of advancing ones, 4131-1390. New lows overwhelmed new highs, 815-7. Not a single NASDAQ issue made a new 52-week high on the day. The daily advantage for new lows over new highs has now run a full 16 months, since October, 2007. Volume was the highest of the week, in a week which was probably the highest it has been all year.
NYSE Volume 2,248,907,000
NASDAQ Volume 2,457,442,000
Commodities were quiet. Oil lost 46 cents, to $44.76. Gold lost a dime, to $942.50, while silver gained 13 cents to $13.11.
The major indices closed lower for the week, for the 7th time in 8 weeks in 2009.
In closing, I want to take this opportunity to lay claim to the coinage of a new socio-economic terminology, by announcing the advent of the Post-Government Era, a spawning global movement of rampant avoidance and non-compliance of the various laws, taxes and decrees of governments around the world. As the myriad levels of government lay deeper and deeper burdens upon the populace in the large majority of industrial nations, people will naturally revolt, and that revolutionary fervor finds its roots in non-compliance, civil disobedience and outright rejection of authority.
It's deserving of the current rostrum of national governments to receive treatment of this sort, as they have, individually and as a group, compounded the problems of the people, overtaxed them to extraordinary levels and continues to treat them as worthless fodder. The Post-Government Era has begun.
You heard it here first.
Right out of the gate, stocks tanked, with the Dow down nearly 150 points within the first 15 minutes. After trading in a tight range through most of the day, the markets finally succumbed to the intensely negative pressure in the final hour, sending the Dow, S&P and NYSE Comp. to new lows, surpassing those made earlier this week. As I said in yesterday's headline: GAME OVER!
Dow 7,062.93, -119.15 (1.66%)
NASDAQ 1,377.84, -13.63 (0.98%)
S&P 500 735.09, -17.74 (2.36%)
NYSE Composite 4,617.05, -95.97 (2.04%)
According to this report by Lauren Tara LaCapra, citing credit analysis by Egan Jones, a proprietary firm, Bank of America should be up next to follow Citigroup to the government hand-out window.
Hasn't it become evidently clear to Tim Geithner at Treasury that his plan for submitting the banks to a "stress test" won't even come close to relieving the stress to the credit and finance system?
First, the executives, Citi's Vikram Pandit and BofA's Ken Lewis, haven't come clean as to what's lurking on (and off - as in tier three) their books, awaiting implosion. Second, the government's benchmarks in the stress tests are simply too optimistic. For instance, the GDP worst case component calls for GDP to fall by 3.3% in 2009 and grow by 0.5% in 2010. We're looking today at a fourth quarter of 2008 in which GDP declined by 6.2%, according to the government's own report, issued today, so shouldn't the worst case be closer to a 5.0% decline in GDP for 2009 and a flat year in 2010?
As far as wost cases are concerned, a drop of 5.0% isn't even that bad. It is entirely possible that GDP could collapse by as much as 8 or 9% in the first two quarters of 2009 and get worse from there. The government simply doesn't want to face reality, believing, amazingly, after all we've been through, that the system is still resilient. It's not. The major banks are broken and the government is not only complicit through non-regulation, but now looking wholly incompetent, decrepit and corrupted to its core.
So, when the government finally gets the memo, they should have the FDIC close down Citi, zero out the shareholders, pay off bondholders at pennies on the dollar, recapitalize what's left and sell it off - in parts, if necessary - to private hands - shareholders, regional banks or private investors. Then, rinse, and repeat with Wells Fargo & Company (WFC) and JP Morgan Chase (JPM). anything short of a complete shutdown of the banking behemoths will only serve to prolong the agony in the credit, bond and stock markets, severely crimp lending and prolong the recession, turning it into a depression.
The Obama administration and Geithner's Treasury Dept. must take off the kid gloves, stop treating the banks as sacred cows and deal with the colossal problems facing the nation.
One of the reasons the economy is in such a staggering decline, is how lucrative not working has become. A woman caller to the Rush Limbaugh radio show today said she recieved $459 per week in unemployment insurance benefits and the government has just added an additional $25 per week, courtesy of the stimulus bill. That equates to $25,000 per year for not working. There clearly needs to be more incentive to find work, as being on the dole has now become better than the wages of 30-40% working Americans.
Elsewhere, General Electric (GE), slashed its annual dividend, from 32 cents to 10.
Market internals confirmed the headline numbers. Declining issues ran ahead of advancing ones, 4131-1390. New lows overwhelmed new highs, 815-7. Not a single NASDAQ issue made a new 52-week high on the day. The daily advantage for new lows over new highs has now run a full 16 months, since October, 2007. Volume was the highest of the week, in a week which was probably the highest it has been all year.
NYSE Volume 2,248,907,000
NASDAQ Volume 2,457,442,000
Commodities were quiet. Oil lost 46 cents, to $44.76. Gold lost a dime, to $942.50, while silver gained 13 cents to $13.11.
The major indices closed lower for the week, for the 7th time in 8 weeks in 2009.
In closing, I want to take this opportunity to lay claim to the coinage of a new socio-economic terminology, by announcing the advent of the Post-Government Era, a spawning global movement of rampant avoidance and non-compliance of the various laws, taxes and decrees of governments around the world. As the myriad levels of government lay deeper and deeper burdens upon the populace in the large majority of industrial nations, people will naturally revolt, and that revolutionary fervor finds its roots in non-compliance, civil disobedience and outright rejection of authority.
It's deserving of the current rostrum of national governments to receive treatment of this sort, as they have, individually and as a group, compounded the problems of the people, overtaxed them to extraordinary levels and continues to treat them as worthless fodder. The Post-Government Era has begun.
You heard it here first.
Thursday, February 26, 2009
Game Over! Stocks Swoon on Stress Test Suspicion
Stocks opened higher despite more sour economic news, but ended the day in the red as the reality that Treasury's "stress test" for the ailing banking sector was more smoke, mirrors, politics and PR than an actual remedy.
Secretary Tim Geithner's "plan" to resolve the banking and financial crisis has good probability to extend the recession by not addressing the core problems. (See earlier post below for details on Treasury's plan.)
Blow by blow, here's how the day went, as interpreted by Wall Street's desperate price discovery process (at least somebody's working).
8:30 am: The Commerce Dept. issues monthly Durable Goods Orders report for January, citing a deep decline of 5.2% from the previous month, the sixth straight monthly drop. It's evident that Americans have their wallets and purses closed tight. Some even have forsaken carrying such.
The Labor Dept. announces 667,000 new weekly unemployment claims nationally. The 5.1 million currently receiving benefits is the highest since the department began keeping records in 1967. The federal government celebrated the occasion by adding $25 to the weekly benefit. Each week, an additional $127,500,000 of taxpayer money will be spent, beginning immediately.
9:30 am: The markets open with sharp gains, ignoring the dire economic reports. The Dow is up 80 points in the first ten minutes. the other major indices are up more than 1%. Bank of America is up 0.69 at 5.85.
10:45 am: The Dow reaches what will eventually be the high of the day - 7400 - up 130 points. 26 of 30 Dow stocks show gains. Bank of America peaks at 5.89, up 0.73.
1:13 pm: Having given up all of the day's gains, the Dow briefly falls into negative territory. Bank of America is up only 0.24 at 5.40.
3:15 pm: Stocks are in full retreat, with the Dow lower by 97 points. Bank of America is down 0.05 at 5.11. There are now only nine Dow components with gains. Most have completely rolled over.
4:00 pm: Markets close with all indices near the day's lows. It's the 8th losing day in the last 10. The Dow closes below 7200 for the second time this week. 22 Dow components close with losses, 8 with gains. Bank of America finishes with a cheerless win of 0.16, at 5.32.
Dow 7,182.08, -88.81 (1.22%)
NASDAQ 1,391.47, -33.96 (2.38%)
S&P 500 752.83, -12.07 (1.58%)
NYSE Composite 4,713.02, -40.15 (0.84%)
Market internals verified the session's finish. Declining issues outgunned advancers, 3755-2761. New lows: 460; new highs: 4, the lowest number of new highs I have seen since October of 2007. Volume was high once again, as investors alternately test and flee from equities.
NYSE Volume 1,482,993,000
NASDAQ Volume 2,348,150,000
Commodities were split. Crude oil for April delivery was up $2.72 to an unsustainable $45.22. Gold continued to correct on profit-taking, losing $23.60, to $942.60. Silver tumbled 94 cents, to $12.98, an excellent buying opportunity for long term investors.
Today's results were startling, stunning, unprecedented in the level of pessimism on display, expressing a remarkable distrust of government and overwhelming lack of confidence in the economic future. There is little doubt among investors that the government has failed to offer reasonable solutions to stem bank losses, job losses, income deterioration and revive - or even stabilize - the economy.
Secretary Tim Geithner's "plan" to resolve the banking and financial crisis has good probability to extend the recession by not addressing the core problems. (See earlier post below for details on Treasury's plan.)
Blow by blow, here's how the day went, as interpreted by Wall Street's desperate price discovery process (at least somebody's working).
8:30 am: The Commerce Dept. issues monthly Durable Goods Orders report for January, citing a deep decline of 5.2% from the previous month, the sixth straight monthly drop. It's evident that Americans have their wallets and purses closed tight. Some even have forsaken carrying such.
The Labor Dept. announces 667,000 new weekly unemployment claims nationally. The 5.1 million currently receiving benefits is the highest since the department began keeping records in 1967. The federal government celebrated the occasion by adding $25 to the weekly benefit. Each week, an additional $127,500,000 of taxpayer money will be spent, beginning immediately.
9:30 am: The markets open with sharp gains, ignoring the dire economic reports. The Dow is up 80 points in the first ten minutes. the other major indices are up more than 1%. Bank of America is up 0.69 at 5.85.
10:45 am: The Dow reaches what will eventually be the high of the day - 7400 - up 130 points. 26 of 30 Dow stocks show gains. Bank of America peaks at 5.89, up 0.73.
1:13 pm: Having given up all of the day's gains, the Dow briefly falls into negative territory. Bank of America is up only 0.24 at 5.40.
3:15 pm: Stocks are in full retreat, with the Dow lower by 97 points. Bank of America is down 0.05 at 5.11. There are now only nine Dow components with gains. Most have completely rolled over.
4:00 pm: Markets close with all indices near the day's lows. It's the 8th losing day in the last 10. The Dow closes below 7200 for the second time this week. 22 Dow components close with losses, 8 with gains. Bank of America finishes with a cheerless win of 0.16, at 5.32.
Dow 7,182.08, -88.81 (1.22%)
NASDAQ 1,391.47, -33.96 (2.38%)
S&P 500 752.83, -12.07 (1.58%)
NYSE Composite 4,713.02, -40.15 (0.84%)
Market internals verified the session's finish. Declining issues outgunned advancers, 3755-2761. New lows: 460; new highs: 4, the lowest number of new highs I have seen since October of 2007. Volume was high once again, as investors alternately test and flee from equities.
NYSE Volume 1,482,993,000
NASDAQ Volume 2,348,150,000
Commodities were split. Crude oil for April delivery was up $2.72 to an unsustainable $45.22. Gold continued to correct on profit-taking, losing $23.60, to $942.60. Silver tumbled 94 cents, to $12.98, an excellent buying opportunity for long term investors.
Today's results were startling, stunning, unprecedented in the level of pessimism on display, expressing a remarkable distrust of government and overwhelming lack of confidence in the economic future. There is little doubt among investors that the government has failed to offer reasonable solutions to stem bank losses, job losses, income deterioration and revive - or even stabilize - the economy.
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