Stress? What stress? Whether banks need to raise more capital to remain solvent will be revealed tomorrow. Word leaked out today that Bank of America may need as much as $35 billion to meet a capital "shortfall" but that could not deter investors from bidding it and other stocks higher.
The Dow has dazzled many over the past few weeks and today got to within shouting distance of recording a 2000-point rise from the bottom reached on March 9. The "Industrials" need to reach 8547 to mark the rally at 2000 points.
Dow 8,512.28, +101.63 (1.21%)
Nasdaq 1,759.10, +4.98 (0.28%)
S&P 500 919.53, +15.73 (1.74%)
NYSE Composite 5,890.55, +119.79 (2.08%)
Some of the enthusiasm came from the April ADP Employment Report, which estimated that 491,000 jobs were eliminated from private payrolls during the month. That news reached the street prior to the open, and, as odd as this market has been when confronted with news, caused an immediate gap up and sell-off which pushed the Dow back to break-even shortly after 10:00 am.
Confronted with the prospect of stocks actually declining, the perma-bulls made sure to just keep buying at a torrid pace throughout the rest of the day, ensuring that the rally would continue for a 9th straight week.
Advancing issues decimated decliners, 4238-2283. New highs, however, failed once more to beat new lows, with the lows ahead for the day, 110-67. Volume was straight off the charts, with both the NASDAQ and NYSE recording one of the best trading days of the year.
NYSE Volume 1,876,341,000
Nasdaq Volume 3,016,188,000
Enthusiasm was a little more contained, though not by much in the commodity trading pits, where oil for June delivery was up $2.36 closing at its highest level in months, $56.38. Gold rose $6.70, to $911.00, while silver added 29 cents to finish at $13.71 per ounce.
Enjoy the bounce. Honestly, why fight prosperity? But don't let me hear a word about high prices and inflation. On that note, the dollar was down against all major currencies. That is the price we will all pay.
Wednesday, May 6, 2009
Tuesday, May 5, 2009
The Never-Ending Rally
Stocks took a bit of a breather on Tuesday, but, in the larger scheme of things, it amounted to nothing more than a rounding error.
Dow 8,410.65, -16.09 (0.19%)
NASDAQ 1,754.12, -9.44 (0.54%)
S&P 500 903.80, -3.44 (0.38%)
NYSE Composite 5,770.76, -29.46 (0.51%)
In an environment in which the Dow Jones Industrials have gained nearly 2000 points over the past two months, today's marginal loss was about as insignificant as normal intra-day noise. Not only was the decline hardly noticeable, but the range - less than 100 points on the Dow - indicates that all volatility has been wrung out of the market. The VIX, which measures market volatility, closed today at its lowest level since September of last year, prior to the Lehman Brothers failure and various market dislocations that touched off wave after wave of selling.
It's amusing, to say the least, that investor sentiment has quieted down so much, especially with Fed Chairman Ben Bernanke testifying on Capitol Hill and the results of the bank stress tests due out on Thursday. One can credit the mainstream media for selling the government line that the economy is "bottoming out" and recovery on the horizon. In fact, Bernanke actually made comments to the congress to that effect, saying that the economy should begin to turn upwards in the second half of 2009.
That Americans still believe in Bernanke and the general wisdom of congress and the president in dealing with the economy is alarming in itself. Remember that it was Ben Bernanke, along with Treasury Secretary Hank Paulson, who said that the subprime breakdown was "well contained" in 2007, and that financial institutions and the underlying economy was strong early in 2008. Are we now supposed to put faith in his prognosis that the economy will be in better shape later this year? Americans are easily duped. The billions of dollars stolen by Bernie Madoff is proof enough of that. Also playing into the equation is the oddly-American optimism in the face of certain doom which, in its simplest forms, merely reduces all negative arguments to sheer pessimism, regardless of the veracity of such doom-and-gloom claims.
Thomas E. Woods, author of various books on economics and the markets including "Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse," offers some insight, channeling Austrian school economists Henry Hazlitt and F.A. Hayek, in his article at the Daily Reckoning, "No, the Free market Did Not Cause the Financial Crisis."
Regardless of Woods' penchant for lengthy titles, his analysis mirrors what's been said on these pages many times, that the tinkering and intervention by the government and the Fed are more likely to make matters worse, rather than better, simply because they continue to prop up failed institutions and companies, casing good money to be continually thrown down a black hole to prop up insolvent banks and failed corporations.
And, though Woods does not address the condition, it is my belief that throwing money away shortly after it is created out of thin air won't readily induce inflation, because the money just gets wasted. How could anyone believe that printing dollars and then burning them would produce anything other than some flames and smoke? It is for that reason that I have resisted the alarms of runaway inflation. The Fed has created a good deal of money, however, almost none of it has gone into productive activities. Price inflation is caused by money chasing a dwindling volume of goods, and, at this time, there seems to be more of a glut of everything - from cheeseburgers to steel girders - than scarcity.
Maybe that's the case in other countries, but here in America, there's plenty of everything for everybody. The one troubling trend that has developed from "talking up" the economy and relentless government stimulation is that there is no downward pressure on prices, as would be the case under normal circumstances. The more "free money" being thrown around, the more difficult it is to create new businesses because the ones that are broken are being kept alive via government largess. For instance, dinner at Old Country Buffet, a marginal eatery at best, is $12, hardly cheap, and two Egg McMuffins at McDonald's go for over $5.00, another example of the lack of downward price pressure.
For instance, should Burger King go out of business due to lack of demand for their morning offerings, one would expect a similar scenario at McDonald's to develop. with less demand for eggs, cheese and ham, one would expect McDonald's to lower their prices to match market conditions. However, since Burger King isn't failing, and the flow of money is being kept constant with increases to unemployment, welfare and social security recipients, plus all the other bailout and stimulus measures, the natural consequences of a free-falling economy have failed to materialize.
The problem with this scenario is that it's completely and utterly doomed to failure. The moment the government closes off the spigot to free money at 0% interest is the moment business begins to deteriorate. The Federal Reserve and the federal government have painted themselves into a debt-driven corner: they have to keep supplying cheap money or else the economy goes back into the tank. Obviously, they cannot borrow and spend their way out of this mess, though that's exactly what they're trying to do. The natural result, no matter what they believe, is deflation, until prices and actual earned wages come back into equilibrium.
The government and the Fed can pump as much money as they like into the economy, but they will not be able to spark inflation, which is their desire. Most of the money is either being wasted, saved or used in paying down debt, none of which are particularly productive uses of capital. In the interim, the economy will look like it's improving, but it's a mirage. Corporations will be profitable, but they will not be able to maintain their margins once the government cuts off the easy money. This is why stocks have rallied and why people believe the economy is improving. It feels good, but the underlying economics are a complete fraud.
It's why Ben Bernanke has seemed less than fully confident of late. One the one hand, he wants to reassure the American public that the economy isn't dead, but he knows there are more potholes and pitfalls on the road to recovery. He is not certain that his policies have been the correct ones because he's tried to keep the economy afloat without pain, when it is the actual pain - business closings, shutdowns and bankruptcies - that is at the root of real recovery. He's also been less than candid about the condition of the banks, because he knows they are nearly just as leveraged and unregulated as before the crisis that hit last fall.
Here is an article outlining why stimulus money is going unspent, underscoring the concept that the stimulus is nothing more than a band-aid and won't spur recovery.
On the day, declining issues surpassed advancing ones, 3514-2985, and there were more new lows than new highs, 81-48. Volume was average.
NYSE Volume 1,534,299,000
NASDAQ Volume 2,562,924,000
Oil closed down 63 cents, at $54.09. Gold continued its climb, gaining $2.10, to $904.30. Silver galloped ahead of the pack, picking up 31 cents, to $13.42 per ounce, approaching the melt price at which American silver coins are worth 10 times their face value ($13.81).
Tomorrow, the market will face a little bit of reality, as ADP releases it's monthly private sector employment report. The firm's numbers come as a precursor to the government's monthly nonfarm payrolls report, which is released Friday. ADP's numbers are quite reliable and are likely to show that another 610,000 jobs were lost in April. Noting the massive number of job losses since October of last last year and the extensions of unemployment insurance real misery won't being until late this year, exactly when the government mouthpieces say the economy is due to turn around.
Irony. It just isn't funny anymore.
Dow 8,410.65, -16.09 (0.19%)
NASDAQ 1,754.12, -9.44 (0.54%)
S&P 500 903.80, -3.44 (0.38%)
NYSE Composite 5,770.76, -29.46 (0.51%)
In an environment in which the Dow Jones Industrials have gained nearly 2000 points over the past two months, today's marginal loss was about as insignificant as normal intra-day noise. Not only was the decline hardly noticeable, but the range - less than 100 points on the Dow - indicates that all volatility has been wrung out of the market. The VIX, which measures market volatility, closed today at its lowest level since September of last year, prior to the Lehman Brothers failure and various market dislocations that touched off wave after wave of selling.
It's amusing, to say the least, that investor sentiment has quieted down so much, especially with Fed Chairman Ben Bernanke testifying on Capitol Hill and the results of the bank stress tests due out on Thursday. One can credit the mainstream media for selling the government line that the economy is "bottoming out" and recovery on the horizon. In fact, Bernanke actually made comments to the congress to that effect, saying that the economy should begin to turn upwards in the second half of 2009.
That Americans still believe in Bernanke and the general wisdom of congress and the president in dealing with the economy is alarming in itself. Remember that it was Ben Bernanke, along with Treasury Secretary Hank Paulson, who said that the subprime breakdown was "well contained" in 2007, and that financial institutions and the underlying economy was strong early in 2008. Are we now supposed to put faith in his prognosis that the economy will be in better shape later this year? Americans are easily duped. The billions of dollars stolen by Bernie Madoff is proof enough of that. Also playing into the equation is the oddly-American optimism in the face of certain doom which, in its simplest forms, merely reduces all negative arguments to sheer pessimism, regardless of the veracity of such doom-and-gloom claims.
Thomas E. Woods, author of various books on economics and the markets including "Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse," offers some insight, channeling Austrian school economists Henry Hazlitt and F.A. Hayek, in his article at the Daily Reckoning, "No, the Free market Did Not Cause the Financial Crisis."
Regardless of Woods' penchant for lengthy titles, his analysis mirrors what's been said on these pages many times, that the tinkering and intervention by the government and the Fed are more likely to make matters worse, rather than better, simply because they continue to prop up failed institutions and companies, casing good money to be continually thrown down a black hole to prop up insolvent banks and failed corporations.
And, though Woods does not address the condition, it is my belief that throwing money away shortly after it is created out of thin air won't readily induce inflation, because the money just gets wasted. How could anyone believe that printing dollars and then burning them would produce anything other than some flames and smoke? It is for that reason that I have resisted the alarms of runaway inflation. The Fed has created a good deal of money, however, almost none of it has gone into productive activities. Price inflation is caused by money chasing a dwindling volume of goods, and, at this time, there seems to be more of a glut of everything - from cheeseburgers to steel girders - than scarcity.
Maybe that's the case in other countries, but here in America, there's plenty of everything for everybody. The one troubling trend that has developed from "talking up" the economy and relentless government stimulation is that there is no downward pressure on prices, as would be the case under normal circumstances. The more "free money" being thrown around, the more difficult it is to create new businesses because the ones that are broken are being kept alive via government largess. For instance, dinner at Old Country Buffet, a marginal eatery at best, is $12, hardly cheap, and two Egg McMuffins at McDonald's go for over $5.00, another example of the lack of downward price pressure.
For instance, should Burger King go out of business due to lack of demand for their morning offerings, one would expect a similar scenario at McDonald's to develop. with less demand for eggs, cheese and ham, one would expect McDonald's to lower their prices to match market conditions. However, since Burger King isn't failing, and the flow of money is being kept constant with increases to unemployment, welfare and social security recipients, plus all the other bailout and stimulus measures, the natural consequences of a free-falling economy have failed to materialize.
The problem with this scenario is that it's completely and utterly doomed to failure. The moment the government closes off the spigot to free money at 0% interest is the moment business begins to deteriorate. The Federal Reserve and the federal government have painted themselves into a debt-driven corner: they have to keep supplying cheap money or else the economy goes back into the tank. Obviously, they cannot borrow and spend their way out of this mess, though that's exactly what they're trying to do. The natural result, no matter what they believe, is deflation, until prices and actual earned wages come back into equilibrium.
The government and the Fed can pump as much money as they like into the economy, but they will not be able to spark inflation, which is their desire. Most of the money is either being wasted, saved or used in paying down debt, none of which are particularly productive uses of capital. In the interim, the economy will look like it's improving, but it's a mirage. Corporations will be profitable, but they will not be able to maintain their margins once the government cuts off the easy money. This is why stocks have rallied and why people believe the economy is improving. It feels good, but the underlying economics are a complete fraud.
It's why Ben Bernanke has seemed less than fully confident of late. One the one hand, he wants to reassure the American public that the economy isn't dead, but he knows there are more potholes and pitfalls on the road to recovery. He is not certain that his policies have been the correct ones because he's tried to keep the economy afloat without pain, when it is the actual pain - business closings, shutdowns and bankruptcies - that is at the root of real recovery. He's also been less than candid about the condition of the banks, because he knows they are nearly just as leveraged and unregulated as before the crisis that hit last fall.
Here is an article outlining why stimulus money is going unspent, underscoring the concept that the stimulus is nothing more than a band-aid and won't spur recovery.
On the day, declining issues surpassed advancing ones, 3514-2985, and there were more new lows than new highs, 81-48. Volume was average.
NYSE Volume 1,534,299,000
NASDAQ Volume 2,562,924,000
Oil closed down 63 cents, at $54.09. Gold continued its climb, gaining $2.10, to $904.30. Silver galloped ahead of the pack, picking up 31 cents, to $13.42 per ounce, approaching the melt price at which American silver coins are worth 10 times their face value ($13.81).
Tomorrow, the market will face a little bit of reality, as ADP releases it's monthly private sector employment report. The firm's numbers come as a precursor to the government's monthly nonfarm payrolls report, which is released Friday. ADP's numbers are quite reliable and are likely to show that another 610,000 jobs were lost in April. Noting the massive number of job losses since October of last last year and the extensions of unemployment insurance real misery won't being until late this year, exactly when the government mouthpieces say the economy is due to turn around.
Irony. It just isn't funny anymore.
Monday, May 4, 2009
The Grand Deception Continues as Stocks Soar
Regular readers of this blog will note that I have been completely wrong about the current stock market rally for more than a month. I apologize for any disservice I may have done to otherwise level-headed investors, but my position remains the same. This is a bear market rally, and, as such, any gains are subject to being wiped out at a moment's notice.
That said, I have and will try my level best to temper my opinion with facts and the facts should be sufficiently clear by now that the economy is far from any real recovery. It is also my opinion that the bottom reached in March was not the absolute bottom and that there are further hurdles ahead for stocks and the general economy.
One of those hurdles was pushed back a bit further, for a second or third time. I am talking about the release of the government stress test results on 19 of the nation's largest banking institutions. The release of this information has been pushed back to Thursday of this week. They were originally to be made public today.
The government's continued coddling of the banks and closeness to them is disconcerting, not only to me, but to a good number of economists and especially to Senator Dick Durbin, who last week announced that the banks "own the place," that place being the US congress.
So, just to be clear, I am mistrustful of Wall Street's ways and will continue to proclaim this rally as false. For more interesting reading on how corrupt the government and the banks have become, check out Rob Kirby's Market Observation from April 20, called "The Big Lie" in which he points out that foreign investors have already stopped buying US Treasuries and that the Federal Reserve likely has been engaged in more buying of Treasuries than the American public is being told.
With that information in hand, we may be witnessing the beginning of a great reflation of the economy. with stocks going up, commodities, and then, everything else (except wages, of course) will rise in price. Such a scenario - which the Fed is actively promoting - will signal the death knell of America as we once knew it. You will need to own more stocks at higher and higher prices just to keep up with the gallop of inflation. It is the worst of my fears. I would much rather see deflation take firm hold because at least it keeps food, fuel and other necessities of day-to-day living affordable.
Stocks were sent soaring on Monday after data showed construction spending and home sales both higher from the previous month.
While the pair of data sets were encouraging to many on Wall Street, closer inspection of the construction spending data showed that most of the increases were in commercial and government spending, not residential. The increase was likely the result of the nearly $1 Trillion federal stimulus bill, passed in February and now hitting the mainstream and Main Street. Despite the rise, construction spending - up a whopping 0.3% in March - is still 11.1% below 2008 levels.
And while more people may be buying existing homes, they are buying them for lower prices, with investors scooping up foreclosed properties as investments.
Nonetheless, investors looked the other way on any bad news, as they have for the past 8 weeks and sent stocks soaring to 4 month highs. Of the major indices, the NASDAQ and S&P 500 are now in positive territory for the year, though the dow is getting closer, having closed at 8776.39 on December 31, 2008.
Dow 8,426.74, +214.33 (2.61%)
NASDAQ 1,763.56, +44.36 (2.58%)
S&P 500 907.24, +29.72 (3.39%)
NYSE Compos 5,800.22, +231.46 (4.16%)
For the session, advancing issues far exceeded decliners, 5333-1261. New lows retained their edge over new highs, however, 101-66. Volume ticked up somewhat from last week's subdued levels, and it remains to be seen if investor interest will remain strong at such lofty levels. The odd characteristic of this rally is that there has been no significant pull-back at any juncture, somewhat difficult to believe in the current economic environment.
NYSE Volume 1,714,092,000
NASDAQ Volume 2,554,642,000
Commodities plowed ahead as well, with oil gaining $1.27, to $54.52. Gold rose $14.00, to $902.20, with silver adding 61 cents to settle at $13.11. Foodstuffs were mixed, but all energy-related commodities shot higher.
So, Wall Street has sounded the "all clear" once again and investors have responded like sheep instead of thinking, rational beings.
Here's Art Cashin on CNBC, talking about low volume rallies in bear markets and whether or not the markets are about to "roll over."
That said, I have and will try my level best to temper my opinion with facts and the facts should be sufficiently clear by now that the economy is far from any real recovery. It is also my opinion that the bottom reached in March was not the absolute bottom and that there are further hurdles ahead for stocks and the general economy.
One of those hurdles was pushed back a bit further, for a second or third time. I am talking about the release of the government stress test results on 19 of the nation's largest banking institutions. The release of this information has been pushed back to Thursday of this week. They were originally to be made public today.
The government's continued coddling of the banks and closeness to them is disconcerting, not only to me, but to a good number of economists and especially to Senator Dick Durbin, who last week announced that the banks "own the place," that place being the US congress.
So, just to be clear, I am mistrustful of Wall Street's ways and will continue to proclaim this rally as false. For more interesting reading on how corrupt the government and the banks have become, check out Rob Kirby's Market Observation from April 20, called "The Big Lie" in which he points out that foreign investors have already stopped buying US Treasuries and that the Federal Reserve likely has been engaged in more buying of Treasuries than the American public is being told.
With that information in hand, we may be witnessing the beginning of a great reflation of the economy. with stocks going up, commodities, and then, everything else (except wages, of course) will rise in price. Such a scenario - which the Fed is actively promoting - will signal the death knell of America as we once knew it. You will need to own more stocks at higher and higher prices just to keep up with the gallop of inflation. It is the worst of my fears. I would much rather see deflation take firm hold because at least it keeps food, fuel and other necessities of day-to-day living affordable.
Stocks were sent soaring on Monday after data showed construction spending and home sales both higher from the previous month.
While the pair of data sets were encouraging to many on Wall Street, closer inspection of the construction spending data showed that most of the increases were in commercial and government spending, not residential. The increase was likely the result of the nearly $1 Trillion federal stimulus bill, passed in February and now hitting the mainstream and Main Street. Despite the rise, construction spending - up a whopping 0.3% in March - is still 11.1% below 2008 levels.
And while more people may be buying existing homes, they are buying them for lower prices, with investors scooping up foreclosed properties as investments.
Nonetheless, investors looked the other way on any bad news, as they have for the past 8 weeks and sent stocks soaring to 4 month highs. Of the major indices, the NASDAQ and S&P 500 are now in positive territory for the year, though the dow is getting closer, having closed at 8776.39 on December 31, 2008.
Dow 8,426.74, +214.33 (2.61%)
NASDAQ 1,763.56, +44.36 (2.58%)
S&P 500 907.24, +29.72 (3.39%)
NYSE Compos 5,800.22, +231.46 (4.16%)
For the session, advancing issues far exceeded decliners, 5333-1261. New lows retained their edge over new highs, however, 101-66. Volume ticked up somewhat from last week's subdued levels, and it remains to be seen if investor interest will remain strong at such lofty levels. The odd characteristic of this rally is that there has been no significant pull-back at any juncture, somewhat difficult to believe in the current economic environment.
NYSE Volume 1,714,092,000
NASDAQ Volume 2,554,642,000
Commodities plowed ahead as well, with oil gaining $1.27, to $54.52. Gold rose $14.00, to $902.20, with silver adding 61 cents to settle at $13.11. Foodstuffs were mixed, but all energy-related commodities shot higher.
So, Wall Street has sounded the "all clear" once again and investors have responded like sheep instead of thinking, rational beings.
Here's Art Cashin on CNBC, talking about low volume rallies in bear markets and whether or not the markets are about to "roll over."
Friday, May 1, 2009
Despite Conditions, Stocks Continue to Gain
May came in with a whimper, but investors continued to bid stocks higher, despite continuing evidence that the financial underpinnings of the US economy is nowhere near any condition even remotely resembling healthy.
Economic reports were hardly encouraging. Factory orders for March fell more than expected, off 0.9%, when the anticipation was for a modest decline of 0.4. Additionally, the February figures were revised lower, from a gain of 1.8% to just 0.7% higher. Auto sales continued to slump. The major manufacturers reported another poor month, with overall sales down 30-40% from a year ago. Chrysler led the decline, with sales off by 48% in April. Ford and GM reported sales down 33% for the month.
Also, after the close, the FDIC shut down two banks, one in Georgia and one in New Jersey, bringing the number of bank closures this year to 31. 25 banks were shut down by government regulators in 2008.
Dow 8,212.41, +44.29 (0.54%)
NASDAQ 1,719.20, +1.90 (0.11%)
S&P 500 877.52, +4.71 (0.54%)
NYSE Composite 5,568.76, +55.40 (1.00%)
Still, investors insisted on keeping the rally going for the 8th week out of 9 for the Dow and S&P, and 9 straight for the NASDAQ. Advancing issues beat decliners, 3739-2721, but there were more new lows than highs, 77-32. Volume was dull, especially for a Friday.
NYSE Volume 1,335,943,500
NASDAQ Volume 2,152,036,000
The price of crude oil shot up $2.08, to $53.20, as is customary this time of year, though demand does not in any way warrant consumers paying more than $2.00 per gallon at the pump, which has been the case for some time. While the argument - that people drive more in warmer weather - is traditionally correct, current oversupply conditions indicate a lower price would be customary, though in the world of rigged markets, such as the consortium of five major oil companies controlling the price of gasoline worldwide, prices have remained at elevated levels, though certainly not those seen last summer.
Gold fell $3.00, to $888.20, and silver gained 18 cents, to close at $12.50 the ounce.
With another week of stock market gains in the books, one must realistically question the wisdom of buying stocks at this point. Stocks generally lag during the summer months and the major indices are up anywhere from 25-30% off their March lows. If economic recovery is at hand, then these prices and gains may be justified. However, most of the reportage of late has been very one-sided, nearly assuming that the recession/depression will be over and done with by the end of summer or early autumn.
That is quite a bit of wishful thinking, and the views of the cheerleaders in the financial media - whose job it is to promote investment in Wall Street stocks - can hardly be seen as unbiased. Realistic assumptions about the economy and its effect on publicly-traded companies should be made without the requisite commentary. In that regard, one cannot honestly suggest that economic conditions have improved to such a significant degree as to proclaim "recovery at hand," as many commentators have done during the course of this bear market rally.
Only time, and stock prices will tell whether investors were making wise bets during the past two months. It is usually understood that stocks climb a "wall of worry" even in the best of times. This current rally seems to have been built upon much misplaced hope and enthusiasm. It has been quick, abrupt and powerful, not what one would expect after such a precipitous decline.
The coming weeks and months will be interesting, indeed. The fireworks begin in earnest on Monday, when the government releases the results of their bank "stress tests." The weight of Chrysler's bankruptcy - and the fate of GM, soon to be determined - will also play a larger role in the direction of stocks.
Economic reports were hardly encouraging. Factory orders for March fell more than expected, off 0.9%, when the anticipation was for a modest decline of 0.4. Additionally, the February figures were revised lower, from a gain of 1.8% to just 0.7% higher. Auto sales continued to slump. The major manufacturers reported another poor month, with overall sales down 30-40% from a year ago. Chrysler led the decline, with sales off by 48% in April. Ford and GM reported sales down 33% for the month.
Also, after the close, the FDIC shut down two banks, one in Georgia and one in New Jersey, bringing the number of bank closures this year to 31. 25 banks were shut down by government regulators in 2008.
Dow 8,212.41, +44.29 (0.54%)
NASDAQ 1,719.20, +1.90 (0.11%)
S&P 500 877.52, +4.71 (0.54%)
NYSE Composite 5,568.76, +55.40 (1.00%)
Still, investors insisted on keeping the rally going for the 8th week out of 9 for the Dow and S&P, and 9 straight for the NASDAQ. Advancing issues beat decliners, 3739-2721, but there were more new lows than highs, 77-32. Volume was dull, especially for a Friday.
NYSE Volume 1,335,943,500
NASDAQ Volume 2,152,036,000
The price of crude oil shot up $2.08, to $53.20, as is customary this time of year, though demand does not in any way warrant consumers paying more than $2.00 per gallon at the pump, which has been the case for some time. While the argument - that people drive more in warmer weather - is traditionally correct, current oversupply conditions indicate a lower price would be customary, though in the world of rigged markets, such as the consortium of five major oil companies controlling the price of gasoline worldwide, prices have remained at elevated levels, though certainly not those seen last summer.
Gold fell $3.00, to $888.20, and silver gained 18 cents, to close at $12.50 the ounce.
With another week of stock market gains in the books, one must realistically question the wisdom of buying stocks at this point. Stocks generally lag during the summer months and the major indices are up anywhere from 25-30% off their March lows. If economic recovery is at hand, then these prices and gains may be justified. However, most of the reportage of late has been very one-sided, nearly assuming that the recession/depression will be over and done with by the end of summer or early autumn.
That is quite a bit of wishful thinking, and the views of the cheerleaders in the financial media - whose job it is to promote investment in Wall Street stocks - can hardly be seen as unbiased. Realistic assumptions about the economy and its effect on publicly-traded companies should be made without the requisite commentary. In that regard, one cannot honestly suggest that economic conditions have improved to such a significant degree as to proclaim "recovery at hand," as many commentators have done during the course of this bear market rally.
Only time, and stock prices will tell whether investors were making wise bets during the past two months. It is usually understood that stocks climb a "wall of worry" even in the best of times. This current rally seems to have been built upon much misplaced hope and enthusiasm. It has been quick, abrupt and powerful, not what one would expect after such a precipitous decline.
The coming weeks and months will be interesting, indeed. The fireworks begin in earnest on Monday, when the government releases the results of their bank "stress tests." The weight of Chrysler's bankruptcy - and the fate of GM, soon to be determined - will also play a larger role in the direction of stocks.
Thursday, April 30, 2009
Turn of the Screw? Markets Start Higher, End Lower
After yesterday's extraordinary move forward, there was a sense - by the end of the session - that the rally had finally reached a turning point. Early on Thursday, however, not everyone was convinced as employment data seemed to indicate a further strengthening in the economy. But, even though first-time claims were lower, they were still at extreme levels. 631,000 Americans filed for unemployment insurance in the most recent week.
As much as anyone wanted to call that number "improvement," long-time market watchers and economists warned against extended confidence. Additionally, the failure of Chrysler to secure a merger with Fiat without heading to bankruptcy court first, sent shivers through the markets.
Shortly after 11:00 am, the bloom was off the rose. The Dow peaked above 8300 briefly, but sold off for the remainder of the day with the other major indices suffering similar fates. By the end of the day, only the NASDAQ was showing a positive result.
Dow 8,168.12, -17.61 (0.22%)
NASDAQ 1,717.30, +5.36 (0.31%)
S&P 500 872.81, -0.83 (0.10%)
NYSE Composite 5,513.36, -2.78 (0.05%)
While the losses were marginal, the turn in sentiment was noticeable, especially after weeks of gains. Anybody entering the market on the long side today was hoping against reality that the economy would continue to improve and stocks would not slide back to depressed levels.
The Chrysler story topped even the growing concern over the swine flu pandemic, which spread to more states and more countries as the day wore on. With closures of schools in Texas and elsewhere, residents in the heartland are more concerned over the future of their employment. Chrysler's demise and involuntary bankruptcy may cost tens of thousands of auto workers their jobs and ripple throughout the already weakened economy.
By the end of the session, advancing issues - thanks largely to the relative strength of small caps on the NYSE - beat decliners, 3485-3027. New lows once more finished ahead of new highs, 99-50. It was the highest number of new lows in more than a week, and the trend of more new lows than highs on a daily basis continued unabated for what now has become a span of 19 consecutive months, dating back to October, 2007. Trading volume was elevated, though not extreme.
NYSE Volume 1,740,450,000
NASDAQ Volume 2,845,180,000
Commodity markets felt the pain as well. Oil was down 24 cents, to $50.88. Gold fell $9.30, to $891.20, while silver slid 45 cents to $12.33. There was not much to get excited over, either in stocks or commodities. Chrysler's demise has cast a new pallor over the entire economy.
Stocks have been pushing the limits of this rally in recent days and it now appears certain to all but the most optimistic that further deterioration to the economy is dead ahead. Most of the companies which beat street estimates were beating lowered expectations and many of those same companies have slashed dividends or didn't supply them in the first place. Chrysler's condition is almost certain to result in more layoffs, which can only erode the economic landscape further.
After first quarter GDP was reported at a loss of 6.1% on Wednesday, some investors took that as a sign of improvement, since the 4th quarter of '08 checked in with a loss of 6.3%. While the most recent figures are subject to revision, there's every chance that the economy could have retrenched by an even larger amount.
In this kind of economic climate, it has been difficult to watch stocks gain so rapidly, armed with knowledge instead of hope and the cheerleading of the noise-machine at CNBC and Fox Financial Network (FNN). It finally appears that more reasonable expectations are going to have a hearing. In the course of the past two months, stocks have gone from falling off the planet to an overbought condition. With the consideration that this recession could still turn worse, into a full-fledged depression, the rapidity of investors bailing out of stocks could surprise many.
The US economy has suffered severe structural damage. It is still unclear whether the nation's largest banks are insolvent or otherwise incapable of leading the country out of this corrective period. Further, the will of the American people has been sorely tested and they are not in any kind of mood for more bank bailouts while workers are idled and state and municipal budgets are stressed.
We may be facing a real paradigm change in how much faith we will place in institutions going forward.
As much as anyone wanted to call that number "improvement," long-time market watchers and economists warned against extended confidence. Additionally, the failure of Chrysler to secure a merger with Fiat without heading to bankruptcy court first, sent shivers through the markets.
Shortly after 11:00 am, the bloom was off the rose. The Dow peaked above 8300 briefly, but sold off for the remainder of the day with the other major indices suffering similar fates. By the end of the day, only the NASDAQ was showing a positive result.
Dow 8,168.12, -17.61 (0.22%)
NASDAQ 1,717.30, +5.36 (0.31%)
S&P 500 872.81, -0.83 (0.10%)
NYSE Composite 5,513.36, -2.78 (0.05%)
While the losses were marginal, the turn in sentiment was noticeable, especially after weeks of gains. Anybody entering the market on the long side today was hoping against reality that the economy would continue to improve and stocks would not slide back to depressed levels.
The Chrysler story topped even the growing concern over the swine flu pandemic, which spread to more states and more countries as the day wore on. With closures of schools in Texas and elsewhere, residents in the heartland are more concerned over the future of their employment. Chrysler's demise and involuntary bankruptcy may cost tens of thousands of auto workers their jobs and ripple throughout the already weakened economy.
By the end of the session, advancing issues - thanks largely to the relative strength of small caps on the NYSE - beat decliners, 3485-3027. New lows once more finished ahead of new highs, 99-50. It was the highest number of new lows in more than a week, and the trend of more new lows than highs on a daily basis continued unabated for what now has become a span of 19 consecutive months, dating back to October, 2007. Trading volume was elevated, though not extreme.
NYSE Volume 1,740,450,000
NASDAQ Volume 2,845,180,000
Commodity markets felt the pain as well. Oil was down 24 cents, to $50.88. Gold fell $9.30, to $891.20, while silver slid 45 cents to $12.33. There was not much to get excited over, either in stocks or commodities. Chrysler's demise has cast a new pallor over the entire economy.
Stocks have been pushing the limits of this rally in recent days and it now appears certain to all but the most optimistic that further deterioration to the economy is dead ahead. Most of the companies which beat street estimates were beating lowered expectations and many of those same companies have slashed dividends or didn't supply them in the first place. Chrysler's condition is almost certain to result in more layoffs, which can only erode the economic landscape further.
After first quarter GDP was reported at a loss of 6.1% on Wednesday, some investors took that as a sign of improvement, since the 4th quarter of '08 checked in with a loss of 6.3%. While the most recent figures are subject to revision, there's every chance that the economy could have retrenched by an even larger amount.
In this kind of economic climate, it has been difficult to watch stocks gain so rapidly, armed with knowledge instead of hope and the cheerleading of the noise-machine at CNBC and Fox Financial Network (FNN). It finally appears that more reasonable expectations are going to have a hearing. In the course of the past two months, stocks have gone from falling off the planet to an overbought condition. With the consideration that this recession could still turn worse, into a full-fledged depression, the rapidity of investors bailing out of stocks could surprise many.
The US economy has suffered severe structural damage. It is still unclear whether the nation's largest banks are insolvent or otherwise incapable of leading the country out of this corrective period. Further, the will of the American people has been sorely tested and they are not in any kind of mood for more bank bailouts while workers are idled and state and municipal budgets are stressed.
We may be facing a real paradigm change in how much faith we will place in institutions going forward.
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