After taking a day off on some short-covering, stocks continued their relentless selloff on Thursday, sending the Dow careening to a close below 10,000 for the first time since July 6, nearly two months ago. While the 10,000 mark is not an important line of support nor resistance, it is still a valuable psychological level which many traders and even more casual observers will note with unease.
Stocks are trading within a fairly tight range, though the bottom of that range now begins to come into focus. On the Dow, the close of 9686 should be viewed as short-term support. A break through that level, which now seems highly likely within the upcoming days and weeks, would send an even stronger signal than the one that's currently flashing that the stock market and, by inference, the US economy, is failing on many levels.
Bad news continued to berate Wall Street, the latest being new unemployment claims - slightly better than last week's, coming in at 473,000 - and more distress on the home front, with the Mortgage Bankers Association reporting that "after declining since the beginning of 2009, the rate of short-term delinquencies is going up and the increase in these short-term delinquencies may ultimately drive the foreclosure measures back up."
The MBA said that the percentage of homes either already in foreclosure or behind by at least one payment on their mortgage was 13.97 in the second quarter of 2010, a number only marginally better than the 14.01% reported in the first quarter of 2010.
This steady stream of dour economic news had, until recently, been offset by fairly positive earnings reports from publicly-traded companies. Now that the season for corporate quarterly reporting has passed, there's nothing to buoy up stocks and investors - those not already out of the market - are increasingly trimming exposure and heading to either the sidelines, cash, bonds or precious metals. Thursday's beat-down marked the 10th day in the last 12 that the Dow has finished the day lower. From the start of the year, the Dow is down 443 points, or about 4% from where it ended 2009. The NASDAQ is off 150 points, or 6.6% for the year, while the S&P has suffered losses so far this year of 68 points. or 6.1%.
With prospects for the second half of the year not offering much in the way of hope, chances are good that 2010 will go down as another bad year to own stocks. Analysts cite a growing raft of concerns, including the Fed being unable to kick-start the economy; upcoming elections creating confusion; continued disappointing readings on unemployment and housing; banks not lending, consumers not wanting to borrow; the end of he Bush tax cuts; potential sovereign defaults in Greece, Ireland, Spain and Portugal; federal budget deficits and lower tax receipts; strained state and municipal budgets; and a host of other related and intertwining issues which are keeping the US economy in a straight jacket.
Naturally, everybody is seeking a way out, a solution, to put the economy back on a positive growth path, but few have examined the demographic and social implications of 30+ years of stimulation, easy credit and an upward trajectory in population. With baby boomers closing in on retirement and much of the population saving rather than spending, the traditional growth patterns since the second World War are unlikely to be replicated, so expectations should be ratcheted down instead of holding to the quaint - but incorrect - notion that the economy will return to "normalcy" once certain issues are worked out.
The entire stance of the federal government and the Federal Reserve has been one of keeping the credit spigot open and has wasted valuable resources and time fighting for a sustained growth pattern that probably will nor re-emerge for many years. Asset values, from stocks to houses, were artificially inflated for years, but now that trend is in reverse and nothing - even massive stimulus spending, 0% interest and backstopping the too-large-to-fail banks - is going to stop the economy from wringing out all of the malinvestment of the previous epoch.
Prices of homes and shares of almost all stocks will continue to fall until some balance is restored between wages and affordability. A little common sense from our brain-dead leaders in congress would certainly help, though it appears that the United States is plunging headlong into a depression that will rival or exceed the Great Depression of the 1930s. A combination of poor choices by consumers, investors, business leaders and the government has brought us to the brink of economic extinction. Over the coming two to three years, major business failures will occur, with a solid 10 to 20% of publicly-traded corporations filing some form of bankruptcy or reorganization. The financial firms, especially Bank of America, which fell today to another 52-week low, should be at the top of the list for bankruptcy court. The toxic assets which were the catalyst for the general decline and that they continue to keep off their books due to lax accounting standards are tied around their collected necks, albatrosses that will weigh them down and keep the economy from functioning in a reasonable manner.
There are going to be hard choices ahead for most Americans. It is time our leaders in government begin making some real decisions instead of playing politics and continuing to kick the can of economic distress further down the road. Solutions are needed now and these elected officials will not make them for fear of losing power. Their risk is that they will lose power no matter what, either through the voting booths or other, more draconian, traditional means.
Dow 9,985.81, -74.25 (0.74%)
NASDAQ 2,118.69, -22.85 (1.07%)
S&P 500 1,047.22, -8.11 (0.77%)
NYSE Composite 6,665.26, -30.86 (0.46%)
Declining issues beat down advancers, 3770-1946, though new highs moved back ahead of new lows, 210-129, though the numbers seem oddly skewed. Volume remained at the same distressed levels as the previous two sessions, with little improvement.
NASDAQ Volume 1,824,585,375
NYSE Volume 3,913,177,000
Oil gained 84 cents to close at $73.36. Gold traded down $4.10, to $1,235.40 and silver slipped 4 cents, to $18.98.
Friday offers the first revision to second quarter GDP, which is really beginning to appear like an imaginary number. The illuminati of the financial world already expects the figure to be revised from 2.4% to 1.3%, though the reality is that the way GDP is expressed today anything less than 2% growth should likely be considered a decline in real terms. The government shades the figures on almost every important statistic to make the economy appear to be better than it is. That also isn't helping matters.
Thursday, August 26, 2010
Wednesday, August 25, 2010
Markets End Losing Streak, but Are Up Only Slightly
Stocks started out in ugly fashion and got even uglier at 10:00 am when the Commerce Department announced that new home sales in July slipped to their lowest-ever level, selling at an annual rate of 276,000, down 12.4% from June and down 32.4% from July of last year. The number was the lowest ever recorded since the department began tabulating the data in the 1960s.
The media trotted out the usual commentary - just as it did trying to justify the horrific numbers in existing home sales - saying that the decline was tied to the April expiration of the government's $8,000 buyer home credit. The argument is weak, since the credit expired three months prior to the most recent recording period. May sales were awful, June's only slightly better, so the evidence seems to be pointing to widespread weakness in demand, like everything else in our stressed-out economic environment.
With prices falling as well, potential home buyers - the few that are out there - are either waiting for prices to drop further, which they most surely will, or waiting until there are some positive signs in the US economy. Either way, fewer and fewer people are diving into new or existing homes, and one can hardly blame them. Younger couples in particular may be concerned about their employment situation and don't feel an urgent need to take on massive new debt even though mortgage rates are at historic lows.
While the financial press continues to call the data "surprising," American households seem to have a better grip on what's really happening in the overall economy. At the best, it's stagnating, at the worst, we've never actually emerged from recession and are about to take another leg down.
The market's reaction to the report, along with a weak 0.3% reading on durable goods, was more salt into the wounds of already-battered bulls. The usual suspect experts were expecting durables to come in with an increase of 2.5-3.0%. As usual, they were sorely disappointed, especially since durable goods orders had fallen in the previous two months, and stripping out transportation, the numbers fell to -3.8%.
Some time around noon traders managed to piece together a soft rally which extended into the close, though there was little commitment among buyers. The gains looked more like dabbling in technology and heath care and consumer cyclical stocks, but didn't amount to much.
Dow 10,060.06, +19.61 (0.20%)
NASDAQ 2,141.54, +17.78 (0.84%)
S&P 500 1,055.33, +3.46 (0.33%)
NYSE Composite 6,696.12, +15.09 (0.23%)
Advancers galloped past declining issues, 3577-2177, though new lows exceeded new highs for the second consecutive session, 344-188. Volume was about the same as yesterday's, still in a very depressed state.
NASDAQ Volume 1,859,870,000
NYSE Volume 4,530,124,500
Oil traded lower on initial reports of US inventory builds, but managed to close the day higher, up 89 cents, to $72.52 a barrel. Gold continued its march toward new highs, gaining $7.70, to $1,239.50. Silver made its second strong advance in as many days, rocketing 65 cents to close the day at $19.02.
Today's smallish rally off nothing but bad news was probably more wishful thinking than rational investing by fund managers whose mandate requires stock purchases. It's a kind of forced buying which can turn markets around on individual days, even when the overall trend is very negative. The little bit of optimism provided probably won't last into the next session, with initial jobless claims due out at 8:30 am on Thursday. The much-anticipated revision to second quarter GDP caps off a week dominated by economic reports on Friday prior to the opening bell.
The media trotted out the usual commentary - just as it did trying to justify the horrific numbers in existing home sales - saying that the decline was tied to the April expiration of the government's $8,000 buyer home credit. The argument is weak, since the credit expired three months prior to the most recent recording period. May sales were awful, June's only slightly better, so the evidence seems to be pointing to widespread weakness in demand, like everything else in our stressed-out economic environment.
With prices falling as well, potential home buyers - the few that are out there - are either waiting for prices to drop further, which they most surely will, or waiting until there are some positive signs in the US economy. Either way, fewer and fewer people are diving into new or existing homes, and one can hardly blame them. Younger couples in particular may be concerned about their employment situation and don't feel an urgent need to take on massive new debt even though mortgage rates are at historic lows.
While the financial press continues to call the data "surprising," American households seem to have a better grip on what's really happening in the overall economy. At the best, it's stagnating, at the worst, we've never actually emerged from recession and are about to take another leg down.
The market's reaction to the report, along with a weak 0.3% reading on durable goods, was more salt into the wounds of already-battered bulls. The usual suspect experts were expecting durables to come in with an increase of 2.5-3.0%. As usual, they were sorely disappointed, especially since durable goods orders had fallen in the previous two months, and stripping out transportation, the numbers fell to -3.8%.
Some time around noon traders managed to piece together a soft rally which extended into the close, though there was little commitment among buyers. The gains looked more like dabbling in technology and heath care and consumer cyclical stocks, but didn't amount to much.
Dow 10,060.06, +19.61 (0.20%)
NASDAQ 2,141.54, +17.78 (0.84%)
S&P 500 1,055.33, +3.46 (0.33%)
NYSE Composite 6,696.12, +15.09 (0.23%)
Advancers galloped past declining issues, 3577-2177, though new lows exceeded new highs for the second consecutive session, 344-188. Volume was about the same as yesterday's, still in a very depressed state.
NASDAQ Volume 1,859,870,000
NYSE Volume 4,530,124,500
Oil traded lower on initial reports of US inventory builds, but managed to close the day higher, up 89 cents, to $72.52 a barrel. Gold continued its march toward new highs, gaining $7.70, to $1,239.50. Silver made its second strong advance in as many days, rocketing 65 cents to close the day at $19.02.
Today's smallish rally off nothing but bad news was probably more wishful thinking than rational investing by fund managers whose mandate requires stock purchases. It's a kind of forced buying which can turn markets around on individual days, even when the overall trend is very negative. The little bit of optimism provided probably won't last into the next session, with initial jobless claims due out at 8:30 am on Thursday. The much-anticipated revision to second quarter GDP caps off a week dominated by economic reports on Friday prior to the opening bell.
Tuesday, August 24, 2010
More Stumbling Along for Stocks as US Economy Slowly Crumbles
Anyone under the age of 60 as of this date (you'd have to be born on or after August 24, 1950) who believes that they'll be getting all of their promised Social Security benefits when they reach the age of 65... what's that? President Clinton and the Republican-led congress raised the retirement age to 67? Oh, that's right, I completely forgot that the government changes the rules as they go along...
So, where was I? Right. If you are under the age of 60 and actually believe that Social Security (already paying out more than it takes in) will pay you, beginning at age 67, what they say you're actually due, you need a reality check, not a government check. The federal government is technically insolvent, has been for years and the situation continues to worsen every day politicians dance around the issues of unfunded liabilities such as Social Security and Medicare. The future obligations of those two entitlements alone amount to something in the range of $53 to $85 trillion, completely dwarfing the more-readily recognized national debt, which itself is an abomination at over $12 trillion.
These debts and obligations are a large part of the problem causing individuals, businesses and investors to stop cold in their tracks when attempting to make buying decisions. The overburden of these debts, brought about by a congress - and a public that allowed it - which binged on debt and the former surpluses in the programs (at least in the case of Social Security) are just one issue facing the US economy. There are many others, but these are the big ones, and they will absolutely kill the US economy, the only question being when.
I don't purport to have an answer to that, though it would be prudent to not rely on any future income promised by the US government, and to a lesser degree, any state or municipality simply because the money just isn't there. Baby Boomers are heading directly into the Social Security pool and the burden on current earners will be unbearable unless remedies are found, and soon.
Unfortunately, nobody in Washington is willing to touch the issue until, at the very earliest, January of next year, when a new congress will be installed. Don't count on any meaningful reforms any time soon, however, as the candidates for federal offices - congressmen and senators - are not even as well-qualified as the ones currently holding office, and this bunch isn't very good at anything.
So, America continues to stumble through the worst recession since the 1930s a ship without a rudder, or a sail. We are just drifting along, nobody knowing exactly which direction we're going, when we'll arrive or what awaits us when we get there.
Consensus opinion is leaning toward believing that wherever we're going, the destination will be a bleak and desolate place, especially when we get economic data like that released by the NAR today, showing existing home sales falling to their lowest levels since the National Association of Realtors began tracking the numbers in 1999.
This kind of bleak economic picture is not welcome to investors of any stripe. People are scared, bordering on desperation from a housing and employment collapse which are symptoms of even bigger ills, debt and dwindling resources.
Dow 10,040.45, -133.96 (1.32%)
NASDAQ 2,123.76, -35.87 (1.66%)
S&P 500 1,051.87, -15.49 (1.45%)
NYSE Composite 6,681.03, -103.94 (1.53%)
Declining issues finished the session well ahead of advancers, 4439-1402. New lows shot past new highs, 416-190, marking a complete turnover in that indicator. Volume was a bit higher than previous slow sessions, though, on a down day, that has to be viewed as a negative.
NASDAQ Volume 1,885,569,250
NYSE Volume 4,631,528,500
Oil continued its relentless slide, which, during the month of August, is alarming. Crude usually improves price-wise during the summer, though this year has remained largely range-bound. Crude fell another $1.47, to $71.63 on the day.
Precious metals were the only safe haven. Gold gained 4.80, to $1,231.80, while silver ramped ahead by more than 2%, up 39 cents, to $18.37.
The litany of sour economic news continues apace, and though it would be welcome for a bit of good news on the economy, none seems forthcoming. The US and global economies are stumbling badly with no apparent end in sight.
So, where was I? Right. If you are under the age of 60 and actually believe that Social Security (already paying out more than it takes in) will pay you, beginning at age 67, what they say you're actually due, you need a reality check, not a government check. The federal government is technically insolvent, has been for years and the situation continues to worsen every day politicians dance around the issues of unfunded liabilities such as Social Security and Medicare. The future obligations of those two entitlements alone amount to something in the range of $53 to $85 trillion, completely dwarfing the more-readily recognized national debt, which itself is an abomination at over $12 trillion.
These debts and obligations are a large part of the problem causing individuals, businesses and investors to stop cold in their tracks when attempting to make buying decisions. The overburden of these debts, brought about by a congress - and a public that allowed it - which binged on debt and the former surpluses in the programs (at least in the case of Social Security) are just one issue facing the US economy. There are many others, but these are the big ones, and they will absolutely kill the US economy, the only question being when.
I don't purport to have an answer to that, though it would be prudent to not rely on any future income promised by the US government, and to a lesser degree, any state or municipality simply because the money just isn't there. Baby Boomers are heading directly into the Social Security pool and the burden on current earners will be unbearable unless remedies are found, and soon.
Unfortunately, nobody in Washington is willing to touch the issue until, at the very earliest, January of next year, when a new congress will be installed. Don't count on any meaningful reforms any time soon, however, as the candidates for federal offices - congressmen and senators - are not even as well-qualified as the ones currently holding office, and this bunch isn't very good at anything.
So, America continues to stumble through the worst recession since the 1930s a ship without a rudder, or a sail. We are just drifting along, nobody knowing exactly which direction we're going, when we'll arrive or what awaits us when we get there.
Consensus opinion is leaning toward believing that wherever we're going, the destination will be a bleak and desolate place, especially when we get economic data like that released by the NAR today, showing existing home sales falling to their lowest levels since the National Association of Realtors began tracking the numbers in 1999.
This kind of bleak economic picture is not welcome to investors of any stripe. People are scared, bordering on desperation from a housing and employment collapse which are symptoms of even bigger ills, debt and dwindling resources.
Dow 10,040.45, -133.96 (1.32%)
NASDAQ 2,123.76, -35.87 (1.66%)
S&P 500 1,051.87, -15.49 (1.45%)
NYSE Composite 6,681.03, -103.94 (1.53%)
Declining issues finished the session well ahead of advancers, 4439-1402. New lows shot past new highs, 416-190, marking a complete turnover in that indicator. Volume was a bit higher than previous slow sessions, though, on a down day, that has to be viewed as a negative.
NASDAQ Volume 1,885,569,250
NYSE Volume 4,631,528,500
Oil continued its relentless slide, which, during the month of August, is alarming. Crude usually improves price-wise during the summer, though this year has remained largely range-bound. Crude fell another $1.47, to $71.63 on the day.
Precious metals were the only safe haven. Gold gained 4.80, to $1,231.80, while silver ramped ahead by more than 2%, up 39 cents, to $18.37.
The litany of sour economic news continues apace, and though it would be welcome for a bit of good news on the economy, none seems forthcoming. The US and global economies are stumbling badly with no apparent end in sight.
Monday, August 23, 2010
24 Seconds to Financial Incineration
Another Monday of not trading (for many) has come and gone, and with it the hopes for a US economic recovery any time soon. Even though the words - like upturn, rebound, recovery - are spoken on CNBC, evidence of them is falling in frequency as the evaporation of trading continues to take hold.
There's a real problem with the US markets and it has as much to do with technology and greed as it does with fear, uncertainty and skepticism, all of which have been on the rise not just in the past few weeks or months, but for years.
The average American (if there is anything such as "average") is invested, like it or not, in stocks to varying degrees. Some have their own online accounts, some are in mutual funds, others in 401k funds, others have their money forcibly taken from them by union fiat and pushed into a pension fund. Anyone who pays taxes is invested via society because the money they pay in taxes is inextricably wound up into public employee pension funds, most of which are glorified Ponzi schemes which need to be radially overhauled. So, for the sake of argument, we all have an interest in the smooth functioning and prosperity of our capital markets.
What amounts to the real problem, at its very core, is a rising lack of confidence that the system is fair and not manipulated. And that's because many have come to the sad realization that it is not, that it favors those with bigger bank accounts, better access and faster computers. Nothing could have put that issue more in focus than the "flash crash" of May 6, 2010, when stocks tumbled more than 600 points on the Dow Jones Industrial Index in a matter of minutes before recovering most of those losses in mere minutes afterward.
Why the "flash crash" of concern right now carries any number of rationales, but it is probably the one event - still unexplained by government regulators who vowed to "look into" the matter - that has, more than any other single event, exacerbated the flight of small investors away from stocks and stock markets.
Foremost, the regulators looking into the cause of the event are lying through their collective teeth when they say they have not figured out why it occurred. It happened because of a time lag in different trade reporting venues, between the NYSE, the specialists and other exchanges and exploitation of them by hedge fund traders. Which exchanges or traders are not readily known, though the SEC could pin those down if they so desired.
More than likely culprits include high-frequency traders (HFT) whose desks belong to some of the more well-known institutions on Wall Street, which is another reason why the government can't seem to find numerous needles in the stock market haystack. The clues are all there, all recorded, but the regulators simply do not want to expose the truth, their reasons being that even more faith in the markets would be squandered, while, in reality, their resolute desire to "keep the lid on" is only making matters worse as more and more honest investors are too afraid, been burned too many times and now have lost their last remaining sliver of faith in the markets.
An interesting article by Tyler Durden of ZeroHedge.com, published today, adds more credence to the machinations of the conspiracy crowd. Durden cites a report which demonstrates two very salient pieces of data. One is that the NBBO (National Best Bid and Offer) - the best price quoted - is not actually that at all, that it often defaults to the NYSE price. The second piece of information is even more critical: the time lag between the quoted NYSE price and the actual trading price can be as much as 24 seconds or longer in the CQS (Consolidated Quotation System).
This may sound like a lot of mumbo-jumbo to most people, but in a world dominated by enormous companies using vast amounts of money and the world's fastest computers, 24 seconds in which a quote may be off by a quarter point, a half point or more, can result in huge profits, and that's what happened during the aforementioned "flash crash" and continues as an illegal arbitrage tool of the rich and powerful to this day.
Rather than belabor the point by trying to explain it all in layman's terms, attention should be focused on Nanex.net the one company which has done a detailed analysis of the event and continues to provide cogent explanations of what's really going on behind the scenes in our swift and untidy, unbalanced, unfair markets.
The question arises that if Nanex could figure this out, why hasn't the SEC? And why hasn't this been headline news on the financial and news networks? Being that I am prone to believing the worst about corporations and our government, I urge readers to examine the facts and draw their own conclusions. I believe the work by Nanex is top-rate and unbiased, and I'll leave it at that.
All of this matters so much today because the markets are rather rapidly grinding to a halt. We've been detailing the low volume regime that's persisted for the past two weeks, and today it got even worse. Not only that, but the trading pattern of the major indices are indicating massive manipulation and arrogance by insiders and patterns suggestive of an imminent crash.
I've borrowed the chart of today's Dow for emphasis.
Note that stocks were up initially, and then fell abruptly, vacillated through most of the day and then slid lower into the close. The other indices followed roughly the same pattern all day. This is a classic bear market trading session, a sucker's market, if you will, in which stocks fly at the open suckering in the slower traders, pounded lower throughout the day, and then hammered down again into the close. As usual, some people made money off this trade, others lost. You can only guess who were the winners (HTFs, Goldman Sachs, JP Morgan, et. al.) and who were the losers (individual investors, some small hedge funds, pension and mutual funds).
This is a no-win situation for everybody as pointed out by Kristina Peterson in "Not Wolf, Not Bear, Meet the Wolf Market," published in the Wall Street Journal, which describes the current condition of the market as analogous to a pack of wolves, which, after devouring all of the prey then turn on each other. Ergo, low volume of trading, because, in the wolf market, there aren't many other animals on which to gnaw.
So, thanks for indulging me, and allowing me to explain how 24 seconds can turn into the equivalent of an eternity in financial hell.
Dow 10,174.41, -39.21 (0.38%)
NASDAQ 2,159.63, -20.13 (0.92%)
S&P 500 1,067.36, -4.33 (0.40%)
NYSE Composite 6,784.97, -28.18 (0.41%)
On the day, decliners took advantage over advancing issues, 3902-1826, though new highs exceeded new lows, 263-216.
NASDAQ Volume 1,722,462,250
NYSE Volume 3,477,778,250
Commodities continued to trend lower, especially in the energy space, where crude oil for September delivery slipped another 72 cents, to $73.10. The metals were little changed. Gold fell 40 cents, to $1,226.90, and silver was unchanged at $17.98.
Things are grinding to a halt almost everywhere, but we'll find out just how quickly with some economic data this week. Existing home sales figures for July will be released tomorrow, new home sales and durable goods on Wednesday, initial claims on Thursday and finally, the government's second estimate on GDP for the second quarter on Friday, along with the University of Michigan's Consumer Sentiment Index. It ought to be a fascinating, though slow-trading volume week.
There's a real problem with the US markets and it has as much to do with technology and greed as it does with fear, uncertainty and skepticism, all of which have been on the rise not just in the past few weeks or months, but for years.
The average American (if there is anything such as "average") is invested, like it or not, in stocks to varying degrees. Some have their own online accounts, some are in mutual funds, others in 401k funds, others have their money forcibly taken from them by union fiat and pushed into a pension fund. Anyone who pays taxes is invested via society because the money they pay in taxes is inextricably wound up into public employee pension funds, most of which are glorified Ponzi schemes which need to be radially overhauled. So, for the sake of argument, we all have an interest in the smooth functioning and prosperity of our capital markets.
What amounts to the real problem, at its very core, is a rising lack of confidence that the system is fair and not manipulated. And that's because many have come to the sad realization that it is not, that it favors those with bigger bank accounts, better access and faster computers. Nothing could have put that issue more in focus than the "flash crash" of May 6, 2010, when stocks tumbled more than 600 points on the Dow Jones Industrial Index in a matter of minutes before recovering most of those losses in mere minutes afterward.
Why the "flash crash" of concern right now carries any number of rationales, but it is probably the one event - still unexplained by government regulators who vowed to "look into" the matter - that has, more than any other single event, exacerbated the flight of small investors away from stocks and stock markets.
Foremost, the regulators looking into the cause of the event are lying through their collective teeth when they say they have not figured out why it occurred. It happened because of a time lag in different trade reporting venues, between the NYSE, the specialists and other exchanges and exploitation of them by hedge fund traders. Which exchanges or traders are not readily known, though the SEC could pin those down if they so desired.
More than likely culprits include high-frequency traders (HFT) whose desks belong to some of the more well-known institutions on Wall Street, which is another reason why the government can't seem to find numerous needles in the stock market haystack. The clues are all there, all recorded, but the regulators simply do not want to expose the truth, their reasons being that even more faith in the markets would be squandered, while, in reality, their resolute desire to "keep the lid on" is only making matters worse as more and more honest investors are too afraid, been burned too many times and now have lost their last remaining sliver of faith in the markets.
An interesting article by Tyler Durden of ZeroHedge.com, published today, adds more credence to the machinations of the conspiracy crowd. Durden cites a report which demonstrates two very salient pieces of data. One is that the NBBO (National Best Bid and Offer) - the best price quoted - is not actually that at all, that it often defaults to the NYSE price. The second piece of information is even more critical: the time lag between the quoted NYSE price and the actual trading price can be as much as 24 seconds or longer in the CQS (Consolidated Quotation System).
This may sound like a lot of mumbo-jumbo to most people, but in a world dominated by enormous companies using vast amounts of money and the world's fastest computers, 24 seconds in which a quote may be off by a quarter point, a half point or more, can result in huge profits, and that's what happened during the aforementioned "flash crash" and continues as an illegal arbitrage tool of the rich and powerful to this day.
Rather than belabor the point by trying to explain it all in layman's terms, attention should be focused on Nanex.net the one company which has done a detailed analysis of the event and continues to provide cogent explanations of what's really going on behind the scenes in our swift and untidy, unbalanced, unfair markets.
The question arises that if Nanex could figure this out, why hasn't the SEC? And why hasn't this been headline news on the financial and news networks? Being that I am prone to believing the worst about corporations and our government, I urge readers to examine the facts and draw their own conclusions. I believe the work by Nanex is top-rate and unbiased, and I'll leave it at that.
All of this matters so much today because the markets are rather rapidly grinding to a halt. We've been detailing the low volume regime that's persisted for the past two weeks, and today it got even worse. Not only that, but the trading pattern of the major indices are indicating massive manipulation and arrogance by insiders and patterns suggestive of an imminent crash.
I've borrowed the chart of today's Dow for emphasis.Note that stocks were up initially, and then fell abruptly, vacillated through most of the day and then slid lower into the close. The other indices followed roughly the same pattern all day. This is a classic bear market trading session, a sucker's market, if you will, in which stocks fly at the open suckering in the slower traders, pounded lower throughout the day, and then hammered down again into the close. As usual, some people made money off this trade, others lost. You can only guess who were the winners (HTFs, Goldman Sachs, JP Morgan, et. al.) and who were the losers (individual investors, some small hedge funds, pension and mutual funds).
This is a no-win situation for everybody as pointed out by Kristina Peterson in "Not Wolf, Not Bear, Meet the Wolf Market," published in the Wall Street Journal, which describes the current condition of the market as analogous to a pack of wolves, which, after devouring all of the prey then turn on each other. Ergo, low volume of trading, because, in the wolf market, there aren't many other animals on which to gnaw.
So, thanks for indulging me, and allowing me to explain how 24 seconds can turn into the equivalent of an eternity in financial hell.
Dow 10,174.41, -39.21 (0.38%)
NASDAQ 2,159.63, -20.13 (0.92%)
S&P 500 1,067.36, -4.33 (0.40%)
NYSE Composite 6,784.97, -28.18 (0.41%)
On the day, decliners took advantage over advancing issues, 3902-1826, though new highs exceeded new lows, 263-216.
NASDAQ Volume 1,722,462,250
NYSE Volume 3,477,778,250
Commodities continued to trend lower, especially in the energy space, where crude oil for September delivery slipped another 72 cents, to $73.10. The metals were little changed. Gold fell 40 cents, to $1,226.90, and silver was unchanged at $17.98.
Things are grinding to a halt almost everywhere, but we'll find out just how quickly with some economic data this week. Existing home sales figures for July will be released tomorrow, new home sales and durable goods on Wednesday, initial claims on Thursday and finally, the government's second estimate on GDP for the second quarter on Friday, along with the University of Michigan's Consumer Sentiment Index. It ought to be a fascinating, though slow-trading volume week.
Friday, August 20, 2010
Stocks Finish with Wide Losses as Financial Continue Decline
For the third week in the past four, the major indices recored losses, which is especially poignant this week as the expiration of stock options usually encourages some upward momentum, but there was little to be found as another drab session marked the close of the week.
Stocks bottomed out just at the noon hour before rallying back somewhat, with fresh cash being put to use in what some must surely consider "bargains." There was some discussion on the internet Thursday about buying into Bank of America as the stock hit fresh 52-week lows, but broke down again on Friday to even lower levels.
Consistently the second most traded stock on the NYSE, Bank of America crumpled to a close of 12.87, marking a 34% decline from its closing high of 19.47 on April 15. In the span of four months, one of the most heavily traded stocks in the world has lost more than one third of its market cap. Something is definitely not right, and investors are voting with their feet, running away from the zombie bank as fast as they can.
What is wrong with Bank of America is also wrong with Citigroup (C), JP Mogan Chase (JPM) and Wells Fargo (WFC) to varying degrees. They are all victims of their own fortunes, made during the bubbly sub-prime housing boom days from 2003-2007 and crushed by the onslaught of those loans - and many more - going sour. These four banks share a raft of common themes, in that they all made fabulous amounts of money during the housing boom, executives were enriched grandly, all were TARP fund recipients and all were aided in the Spring of 2009 when the FASB allowed banks to employ significant judgement in "mark to market" accounting.
The rule allowed the banks enormous leeway in how they valued assets while at the same time reducing writedowns on impaired investments, including mortgage-backed securities. The rule change saved the banks from untold billions of dollars in impairment charges, but the same rule, as long as it remains in force, keeps bank capital bottled up and unable to be lent.
Honest accounting would probably put the nation's largest banks into receivership or bankruptcy and unleash a financial tsunami that would make the 2008 crash look like a gentle summer rain. In the meantime, many investors are apparently not about to wait for BofA and its counterparts to work out all of their bad, toxic and otherwise broken down investments. They are leaving the stock in droves.
BofA's brethren are in similar straits, taking on losses since mid-April of between 25-35%. Wells Fargo has dropped from 34.25 to as low as 24.27. JP Morgan Chase has gone from a high of 48.20 to as low as 35.16. And Citigroup, usually the most actively-traded stock on the NYSE, has dipped from 5 in mid-April to 3.75 today, a neat, 25% haircut.
While Wall Street pounds the table over Washington's inaction on the fiscal front, lawmakers in Washington are eerily quiet about the fate of the nation's largest banks, seeming to want the nightmare scenario of another Japan-style deflation to just go away. The truth is that they have no clue what to do next, relying on the Federal Reserve to sop up excesses in the default markets and keep interest rates at ZERO until something good happens, whatever that might be. Washington politicians are only interested in keeping their jobs, meaning that they will purposely mislead the public into a false sense of stability until the elections this November.
In the meantime, the nation suffers and America's fiscal problems become worse by the day as the corrective measures that would have already kicked these banks to the collective curbs have not been even mentioned. Bad assets need to be written down and the companies need to take their licks, but that solution is seen as messy and untenable by the ruling elite.
The entire situation reeks of insider deals, secrecy, mismanagement and falsehood, and it is killing the US economy, little by little, day in and day out.
Dow 10,213.62, -57.59 (0.56%)
NASDAQ 2,179.76, +0.81 (0.04%)
S&P 500 1,071.69, -3.94 (0.37%)
NYSE Composite 6,813.15, -37.30 (0.54%)
On the day, there were more losers than winners, by a 3567-2778 tally. Tellingly, new lows surpassed new highs, 259-226, signaling that those who were buying all afternoon were either delusional or just misguided. The markets appear ready to break down once again to fresh lows. Dipping below the 9680 mark on the Dow over the next month is certainly in the equation. Volume was a little better than most of this week, though that's another negative. Higher volume on losing days indicates, quite simply, that more stocks are being sold than bought.
NASDAQ Volume 1,913,865,250.00
NYSE Volume 4,309,225,000
Stocks were not the only asset class being beaten down. Crude oil for September delivery fell another 97 cents, to $73.46 on the NYMEX. Gold lost $6.60, to $1,227.20, and silver was hammered down nearly 2%, losing 37 cents to close the week at $17.98 the ounce.
Deflation has come, and has actually been pushing on stocks, bond yields and home prices for the past three years. Only the federal government's ability to throw large amounts of money around has kept the economy from complete collapse, though the band-aid approach seems to have failed miserably and the eventual downturn will be more severe than anyone can imagine.
Stocks bottomed out just at the noon hour before rallying back somewhat, with fresh cash being put to use in what some must surely consider "bargains." There was some discussion on the internet Thursday about buying into Bank of America as the stock hit fresh 52-week lows, but broke down again on Friday to even lower levels.
Consistently the second most traded stock on the NYSE, Bank of America crumpled to a close of 12.87, marking a 34% decline from its closing high of 19.47 on April 15. In the span of four months, one of the most heavily traded stocks in the world has lost more than one third of its market cap. Something is definitely not right, and investors are voting with their feet, running away from the zombie bank as fast as they can.
What is wrong with Bank of America is also wrong with Citigroup (C), JP Mogan Chase (JPM) and Wells Fargo (WFC) to varying degrees. They are all victims of their own fortunes, made during the bubbly sub-prime housing boom days from 2003-2007 and crushed by the onslaught of those loans - and many more - going sour. These four banks share a raft of common themes, in that they all made fabulous amounts of money during the housing boom, executives were enriched grandly, all were TARP fund recipients and all were aided in the Spring of 2009 when the FASB allowed banks to employ significant judgement in "mark to market" accounting.
The rule allowed the banks enormous leeway in how they valued assets while at the same time reducing writedowns on impaired investments, including mortgage-backed securities. The rule change saved the banks from untold billions of dollars in impairment charges, but the same rule, as long as it remains in force, keeps bank capital bottled up and unable to be lent.
Honest accounting would probably put the nation's largest banks into receivership or bankruptcy and unleash a financial tsunami that would make the 2008 crash look like a gentle summer rain. In the meantime, many investors are apparently not about to wait for BofA and its counterparts to work out all of their bad, toxic and otherwise broken down investments. They are leaving the stock in droves.
BofA's brethren are in similar straits, taking on losses since mid-April of between 25-35%. Wells Fargo has dropped from 34.25 to as low as 24.27. JP Morgan Chase has gone from a high of 48.20 to as low as 35.16. And Citigroup, usually the most actively-traded stock on the NYSE, has dipped from 5 in mid-April to 3.75 today, a neat, 25% haircut.
While Wall Street pounds the table over Washington's inaction on the fiscal front, lawmakers in Washington are eerily quiet about the fate of the nation's largest banks, seeming to want the nightmare scenario of another Japan-style deflation to just go away. The truth is that they have no clue what to do next, relying on the Federal Reserve to sop up excesses in the default markets and keep interest rates at ZERO until something good happens, whatever that might be. Washington politicians are only interested in keeping their jobs, meaning that they will purposely mislead the public into a false sense of stability until the elections this November.
In the meantime, the nation suffers and America's fiscal problems become worse by the day as the corrective measures that would have already kicked these banks to the collective curbs have not been even mentioned. Bad assets need to be written down and the companies need to take their licks, but that solution is seen as messy and untenable by the ruling elite.
The entire situation reeks of insider deals, secrecy, mismanagement and falsehood, and it is killing the US economy, little by little, day in and day out.
Dow 10,213.62, -57.59 (0.56%)
NASDAQ 2,179.76, +0.81 (0.04%)
S&P 500 1,071.69, -3.94 (0.37%)
NYSE Composite 6,813.15, -37.30 (0.54%)
On the day, there were more losers than winners, by a 3567-2778 tally. Tellingly, new lows surpassed new highs, 259-226, signaling that those who were buying all afternoon were either delusional or just misguided. The markets appear ready to break down once again to fresh lows. Dipping below the 9680 mark on the Dow over the next month is certainly in the equation. Volume was a little better than most of this week, though that's another negative. Higher volume on losing days indicates, quite simply, that more stocks are being sold than bought.
NASDAQ Volume 1,913,865,250.00
NYSE Volume 4,309,225,000
Stocks were not the only asset class being beaten down. Crude oil for September delivery fell another 97 cents, to $73.46 on the NYMEX. Gold lost $6.60, to $1,227.20, and silver was hammered down nearly 2%, losing 37 cents to close the week at $17.98 the ounce.
Deflation has come, and has actually been pushing on stocks, bond yields and home prices for the past three years. Only the federal government's ability to throw large amounts of money around has kept the economy from complete collapse, though the band-aid approach seems to have failed miserably and the eventual downturn will be more severe than anyone can imagine.
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