Boxed-in Fed Takes Baby Steps on QE2

To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve's holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.1 The Committee will continue to roll over the Federal Reserve's holdings of Treasury securities as they mature.

Besides keeping interest rates at ZERO, that's the only important message from today's FOMC rate decision. Essentially, the Fed will continue to purchase Treasuries, as they have been, surreptitiously, for the past three to four months and above board, prior to that. They will roll over some of their mortgage (toxic) debt into shorter-dated and (supposedly) more stable Treasuries.

Nothing to see here. The Fed is essentially boxed-in, has been for some time and we are now Japan.

Stocks made an immediate jump - the Dow gained back 100 points - after the announcement, but it's nothing more than a knee-jerk reaction to meaningless story. The Fed can't do anything to improve the economy substantially except print and roll over debt.

Dow 10,644.25, -54.50 (0.51%)
NASDAQ 2,277.17, -28.52 (1.24%)
S&P 500 1,121.06, -6.73 (0.60%)
NYSE Composite 7,139.75, -48.55 (0.68%)

Declining issues smacked down advancers, 4829-1662, and new highs remained ahead of new lows, 342-118. Volume, the real story of the week, and the weak, remained at suppressed, almost laughable levels. More than ever it seems that the same stocks are just changing hands amongst the same people, with the Wall Street firms skimming at the margins.

NASDAQ Volume 1,906,714,625
NYSE Volume 4,524,408,000

Since the dollar was appreciably higher against the Euro and most other currencies, oil slipped, losing $1.23, to $80.25. Gold fell $4.50, to $1,196.20; silver dropped 8 cents, to $18.15, though both were marginally higher after the FOMC announcement.

The price/volume action in stocks is demonstrating a clearly-defined topping pattern, as mentioned yesterday. With no catalyst to move the economy forward, expectations for another corrective period are likely to be proven correct.

One other important note was a 0.9% drop in productivity in the 2nd quarter, along with a paltry gain of 0.2% in unit labor costs, more signs of a slowing economy and deflationary environment.

Topping Out as Devouring the Host

Sure, all of the major indices closed higher today.

They did it on abysmally-low volume, the third such low-volume day in a row.

The industrial machine, the engine of progress, the economic miracle once known as the United states economy is in the toilet.

Stocks should be at a peak, now, or very shortly, simply because the underlying conditions for not only growth, but even the plain maintenance of the basic infrastructure of the US system is unsustainable.

Congress has been rushed back from their "August recess" in order to vote on a $26 billion bailout for states, this, on top of last year's record federal assistance to the states in the stimulus bill. Not only is the private sector still reeling from the worst economic nightmare of all time - commonly known as the sub-prime meltdown - but the public sector also has been unable to escape its mighty grasp.

As I've probably mentioned too many times over the past three years, the USA is bankrupt and failing. That point has never been so obvious as right now, as local governments struggle to survive on a paucity of tax revenue, due to - big surprise - the failure of the unholy fascist union of government and big business to provide even the basic measure of economy to the citizens upon which it preys.

I am unable to put into words precisely how bad the economic condition in America has become. Much worse is the breakdown of social mores and values, which continue to deteriorate, seemingly, by the moment.

About a year ago, I declared the beginning of the post-governmental era, though apparently my inauguration was a bit premature. The government propped up the economy for most of the past 22 months since the breakdown of the financial system in Autumn of 2008. That gambit has ended. The federal government of the United States of America is completely off-the-rails (has been since somewhere in the first term of past president George W. Bush, probably about the time they began to lie us all into a war in Iraq), and cannot control the devastation - financial, social and political - which awaits.

The November elections are already a farcical affair, with people such as Rand Paul, Sharon Angle and Sarah Palin trolling for votes and outrage. Tea party candidates, or, those who espouse to be "endorsed" by the nebulous, imaginary "Tea Party" (there really is no such thing) are nothing more than the modern-day equivalent of Nazi Brown-shirts, thugs, impostors and paid political mercenaries. The upcoming elections are meaningless in terms of survival, the topic most on the minds of the vast majority of the American public (or at least it should be), and more focused on political will from the top down, a sick, twisted folly being played on the American people, complete with bread, circuses, dancing elephants, innuendo impersonating fact, celebrity masquerading as leadership.

As a nation, we are lost, we are doomed, we are dead.

That stocks would post gains in light of the conditions present puts on display positively some of the most-deranged market manipulations of all time. Shares of publicly-held US corporations are likely worth one-half to one-third of their stated market values because their future prospects (Remember that discounting mechanism we all so loved and cherished?) are skeptical, nightmarish, horrific... take your pick.

On Tuesday, the Fed will supposedly make some kind of announcement toward another round of quantitative easing, probably though some mechanism shrouded from view that will no doubt involve purchasing debt, specifically, US Treasury debt, though in reality, the program never actually stopped. What the Fed will announce will only serve to signal the banks and brokerages that the decimation of the dollar will continue and that they can commence with the further gutting of the wealth of America and Americans.

That I would like it to be something other than that goes without saying, but the cloth has been laid, the emperor - in this case, Ben Bernanke - will don the imagined suit and parade, like a clown, in front of the assembled world with nothing better to wear than a Zero interest rate policy which will at once equal both his IQ and his moral character. Tuesday, August 10, 2010, shall be a very sad day for Americans.

Dow 10,698.75, +45.19 (0.42%)
NASDAQ 2,305.69, +17.22 (0.75%)
S&P 500 1,127.79, +6.15 (0.55%)
NYSE Composite 7,188.30, +34.58 (0.48%)

On Monday, advancing issues far outweighed declining ones, 4498-1978. New highs overwhelmed new lows, 443-67. If it wasn't for the absurdly low volume of trading, one might believe we're on the cusp of a new bull market, which is precisely what the Wall Street hucksters wish you to believe, all along ready to hit the sell button and exit profitable positions built up over the past month, six months and since March of 2009. By the time the bear market has finished with what's available, all of those gains will be gone, forgotten, vanished. Valuations are so abnormally outside reality that a crash is nearly inevitable and has been for many months. It will occur, probably prior to the November elections, if only to better serve the interests of the so-called conservative faction, they being the paid lackeys of the ruling Wall Street elite.

NASDAQ Volume 1,642,519,125
NYSE Volume 3,631,964,750

Crude oil for September delivery was up another 78 cents on the day, to $81.48. Its relationship to the declining dollar is well-defined and will follow that same path of least resistance. If the dollar hegemony in oil pricing is ever broken, the world financial system will be in calamity for some period, the United States bearing the worst of it. Oil prices are going to rise for the near term, only because the US dollar is going to continue to fall. That's just the current case.

Gold lost $2.70, to settle neatly at everyone's favored price level, $1,200.70. It's a number not-too-threatening to the central bankers of the fiat-money nations, not too disliked by gold bugs, not subject to speculation nor implications of manipulation. It's about the only stable currency (oops, did I call gold "currency?") there is these days.

Silver continues to drift rudderless, losing 23 cents, to $18.23. It has lagged so far behind gold as to be almost untethered from its metallic counterpart.

The low volume price gains in the major markets are screaming sell signals on low volume. A topping out is underway in equities, but be not surprised if the averages continue a light climb until options expiration on August 20. After that, there is no bottom.

The Stock Market is Broken

Today's trading supplied more than sufficient evidence that the major stock exchanges in the United States are broken.

Following the release of the most important data in a month's time, the monthly US non-farm payroll report, futures fell, and so did stocks at the open, and with good reason.

The Bureau of Labor Statistics reported a July payroll decline of 131,000, mostly due - according to the completely inept and inefficient government - to layoffs of of thousands of census workers, though private sector payrolls were said to have increased by some 70,000.

Overall, it was an inexcusable report, with private payrolls even failing to meet the needed capacity to keep up with population growth. In normal, orderly markets, the Dow Jones Industrials would have declined some 200 to 300 points, possibly more, but, being that Wall Street and Washington are so completely corrupt and in cahoots, stocks only fell during the session, closing with what cannot even be called "modest" losses. The minuscule size of today's declines are not in proper proportion with economic reality.

The maximum the Dow was down on the day was 160 points, with the other indices generally in line. Thanks to a late-day rally which began precisely an hour and fifteen minutes before the markets were to close, stocks ended nearly flat.

An exceptional article by Jim Sinclair sums up the current condition rather succinctly.

Dow 10,653.56, -21.42 (0.20%)
NASDAQ 2,288.47, -4.59 (0.20%)
S&P 500 1,121.64, -4.17 (0.37%)
NYSE Composite 7,153.72, -20.55 (0.29%)

Decliners beat advancing issues, 3590-2804. New highs ramped past new lows, 347-127. Volume was once again on the sorry side of pathetic. Surely there was a great deal of arbitrage within particular stocks, mostly the volume leaders, which is where the hedge funds frolic these days. The overall tone of the market is one in which a few players are actually still interested. It is flat and lacking dynamism and liquidity, due to fail, though apparently not on any genuine bad news.

NASDAQ Volume 1,886,263,625
NYSE Volume 4,467,197,500

The commodity space was much more entertaining today than the equity markets. Oil fell $1.30, to $80.70, in line with the decimation of the US dollar. Gold gained a tidy $6.20, finishing the work-week at $1,203.40. Silver added 15 cents, to $18.46. There seems to be no stopping Forex traders from hammering the dollar versus other currencies. The greenback was slaughtered by the Euro and the Yen, in a nearly honest appreciation of the employment situation in the US.

For investment purposes, stocks should be almost completely shunned at the juncture. With a Fed meeting next week, some are hoping for action, in the form of more quantitative easing, or at least the announcement of such, in response to the horrible economic conditions within the US borders, though none is likely, and, even if it is, will only provide more cover for the clowns in suits who occupy the Fed, Treasury and all three branches of the federal government.

The United States is slowly being bled to death by a thousand paper cuts applied by the government-approved banking/financial cartel.

Markets which cannot properly respond to critical economic data are rouge casinos, not orderly mechanisms for the trade of investment vehicles.

To further illustrate how the stock market is not in sync with reality, bonds tumbled like dominoes. The 10-year yield, already closing in on historic lows, fell 8 basis points to 2.82%. The five-year yield, which only a month ago was 1.78%, fell today to 1.50%. These Treasury bond prices truly reflect the economic condition of a country without support other than that which it commands from within. Fear is writ large in the bond prices. Unless there is a sudden change in political thinking and practicality, the economy will continue to languish.

Dead Money Littering Wall Street as Suckers Flee

When you buy into a stock that refuses to go up in a meaningful way (Pfizer over the past five years is a good example) you have what is known among traders as "dead money." It's just sitting there doing nothing, not earning interest, just kind of lying around.

Now, that might be a good thing during a deflationary debacle like the one we're currently undertaking, so, maybe the dead money issue isn't all that earth-shattering a concept, after all, though, if you're used to the usual 15% returns that Wall Street hucksters promise, money lying around isn't your typical bag.

For the rest of us, those smart enough to stick our money in a coffee can or inside a wall safe, it's all well and good, so long as prices don't go ridiculously higher all of a sudden. There are a slew of misconceptions about money and its uses and usefulness, most of them aimed at baby-boomers with excess cash they're supposedly saving for a child's college, or a wedding or retirement, and most of those misconceptions usually involve keeping your money at work and not lazing around in a lounge chair in the back yard getting a tan.

However, based on the trading (in)activity the past few days, the concept of dead money might just be catching on. Stocks have just undergone a pretty significant rally - first, off the lows of March 2009, and more recently, about an 11% move back to where they now have settled, and nobody seems willing to sell, or to buy. Volume has dried up rather abruptly over the past two days, leaving open the question of whether Wall Street is even relevant anymore.

It seems that the majority of Americans who don't really have a whole lot of faith in the publicly-traded equity markets and have moved, over the past two years, into largely bond-related funds, are more than content with just keeping what they have instead of risking it in stocks. With the small investor clearly out of the market, that leaves mostly professionals and the very wealthy to do most of he trading on a day-to-day basis, but even they have become significantly more risk-averse of late, which means that the bulk of the trading has been left in the rather unstable hands of hedge fund managers and high-frequency traders.

Now, when these boys slow down there's really nothing left to keep markets bubbling, creating a sea of dead money, or more in the vernacular of economists, a liquidity crunch, which is precisely what we're staring at today.

It would seem, after the worst weekly unemployment claims figures since April came out this morning, and retail sales from a wide variety of chain stores showed poorly, that stocks would be sold off rather dramatically, and that seemed to be the case early on, but, buyers stepped in midday to soak up some of the losses, leaving the markets in a rather untidy state of affairs, with all indices down slightly, spending the entire session in the red, on volume that has to be one of the lightest five days of the year.

Truly pathetic, it was.

Dow 10,674.98, -5.45 (0.05%)
NASDAQ 2,293.06, -10.51 (0.46%)
S&P 500 1,125.81, -1.43 (0.13%)
NYSE Composite 7,174.27, -7.87 (0.11%)

Market internals showed a different side of the story as declining issues ran rampant over advancers, 3898-2509. New highs managed to maintain their sizable edge over new lows, 372-92.

NASDAQ Volume 1,704,054,000
NYSE Volume 4,089,902,750

In commodities, the September light crude oil futures contract fell by 48 cents, to $82.01. Gold gained $3.50, to finish at $1,197.20. Silver was up 4 cents, to $18.31.

With the July non-farm payroll report out tomorrow prior to the open, one would have expected a little more excitement, especially in light of the dreary economic data that seems to roll onto the street every day, but there was little movement overall, suggesting that these markets are suffering from a lack of interest bordering on apathy, due to a number of factors, but mostly, distrust, fear, uncertainty of the future and having been burned once too often.

It's the same kind of thing that happens with crooked card games. In the early stages, there a pigeons a'plenty. But, once word begins to get around and a few mouthy types get taken to the cleaners, the game dries up, and the cheaters end up playing penny-ante games amongst themselves, wiling away the hours, days and weeks.

We may be witnessing the initial stages of the final collapse of the Wall Street Ponzi scheme. They may have run out of suckers.

A Thousand Points of (False) Hope

Stocks on the major indices closed near their highs of the day, pushing the averages ahead for the 14th time in the last 21 sessions - about a month's worth.

Most of the upside movement since the 4th of July holiday has been on lighter-than-normal volume, and today was certainly no exception. Out of a universe of over 3000 stocks, the top five most active on the NYSE accounted for 12.5% of the volume, a skewing to the degree of magnitude of nearly 100 times normal, proving that when analysts say that most people trade the same stocks, they surely aren't lying about it.

Those five stocks - Citigroup (C), Bank of America (BAC), Motorola (MOT), Pfizer (PFE) and Ford (F) all trade for under $20 per share and have since Autumn of 2008, when the systemic financial collapse made everyone rethink valuation models. It's patently clear that investors have gotten stuck in a routine, especially in the case of Citi and BofA, two stocks which, under better-managed conditions would have been bankrupted and de-listed long ago. The pair of zombie banks consistently lead the most actives, as gamblers attempt to profit from fairly large percentage moves in what have become, essentially, penny stocks.

Another interesting side note on those top five is that all but Bank of America posted a gain, though Citigroup's was only a slim penny advance. BofA dropped by 14 cents, making the two most actively traded stocks the worst of the bunch. One can only speculate as to why so many trades occur on these two dogs, but there are, almost without a doubt, plenty of sellers, long-term holders who a quietly slipping their money out of them.

The advances over the past three days have pushed the Dow to a 1000-point gain over the past month, putting them right at (for Fibonacci fans) a 67% retracement of the 1500-point decline which commenced from mid-April to the first days of July.

At what appears to be a key inflection point, stocks face an uphill battle to surpass the April high of 12,200 on the Dow. Since the latest move has been fueled largely by excellent second quarter results from a wide swath of companies (notably, neither BAC nor C among them), the propellant seems to be missing for the final push, replaced by two key data points: Thursday's unemployment claims figures and Friday's July non-farm payroll report.

There were an equal amount of groans and cheers this morning when ADP released its own private payroll report for July, showing 42,000 new jobs being created during the month. Since the report does not include government employment, it serves as a proxy for Friday's figures, which are likely to come in only slightly on the positive side or even negative, due to layoffs from expired census employment. Thursday morning's unemployment data will provide another clue.

It's probably safe to say, barring any outsize surprise on the upside, that stocks are ready for a reversal after a month in a fantasy zone, though those of the bearish camp will contend that the stock market does not represent the US economy, and thus will continue to climb on their own.

There is some degree of truth to that argument, but if US-based companies refuse to hire US citizens, as they have for the past two years (ad for some, much longer than that), there will be bottom-line damage eventually, unless the companies in question are doing 75% or more of their business outside the USA, in which case they should be listed on another, non-US exchange. The US market is still the largest and most important, and people without jobs cannot continue to buy good and services at a steadily-growing rate. Of course, should congress deem that unemployment benefits should continue indefinitely, beyond the currently-absurd 99 weeks, companies might as well just lay off all US employees and allow the government to pick up the tab.

ISM services index rose from 53.8 in June, to 54.3 in July, eliciting another big whoop from perma-bulls, various tea-partiers and clueless analysts, who seem to be everywhere at once this summer.

Dow 10,680.43, +44.05 (0.41%)
NASDAQ 2,303.57, +20.05 (0.88%)
S&P 500 1,127.24, +6.78 (0.61%)
NYSE Composite 7,182.14, +35.15 (0.49%)

Advancing issues dominated decliners on the day, 4577-1880; new highs soared past new lows, 408-68; but volume, as previously mentioned, was the real story, well below normal levels and embarrassingly below what used to serve as average prior to the 2008 meltdown.

NASDAQ Volume 1,881,489,125
NYSE Volume 4,293,061,500

Commodity traders seemed unable to gain traction. Oil paused, dropping 8 cents, to $82.47. Gold gained $8.50, to $1,193.70, though silver did not follow on, losing 14 cents to $18.26.

With new economic data on the horizon, there appears to be no new catalyst with which to lift equities near-term, and longer-term prospects, heading into 2011, also seem pinned to dim, or even false, hopes.