Stocks Surge on No News, High Hopes

Sure enough, no sooner do I call a near-term top and tell the world to shun stocks and buy gold and silver, than the market participants decide to push the indices close to 2010 highs.

Notice I said close, not at 2010 highs. The major indices are anywhere from 4 to 8 per cent below the levels reached in late April, with the Dow being the closest of the three. What is propelling stocks higher is nothing in particular, but gobs of free money, courtesy of the Fed, in aggregate.

This is actually the way it's going to play out, with stocks advancing on nothing but momentum or speculation, while gold and silver may take a bit of a breather, only to resume rising as money evaporates along with all investments measured in it, except, or course, the precious metals, an asset class unto themselves, doubling as a safety-net, de facto currency.

Dow 10,860.26, +197.84 (1.86%)
NASDAQ 2,381.22, +54.14 (2.33%)
S&P 500 1,148.67, +23.84 (2.12%)
NYSE Composite 7,301.04, +159.53 (2.23%)

Advancing issues were back in their groove, dancing all over decliners, 4645-1065. New highs totaled 420, to just 29 fresh lows. Volume was subdued, once again.

NASDAQ Volume 2,014,145,250
NYSE Volume 4,326,041,500

Gold finished nearly unchanged at $1297.70 per ounce; silver was shining, at $21.42. Crude oil finished $1.31 ahead, at $76.49.

Beginning of the End for Stocks; Gold and Silver Set to Soar

It's all so simple. Once one can take a deep breath, review all that's come before and all the promises made and not kept - like the current Republican phony Pledge to America - one can truly see that the future of life in America is going to be difficult for many over the ensuing twenty to thirty years.

If you are one of the millions who expect to be alive and living in the good, old, USA from 2010 to 2030 and maybe beyond, you've got to see through all the phoniness of politicians, the corruption and collusion of the banks and major corporations, the concentration of wealth at the very, very top (not just the top 5%, but especially the top 1%) and on the other side the welfare state of outright welfare recipients, people on disability, veteran's benefits, social security and other similar entitlements and begin to believe that it's all going to end badly and the end is getting closer and closer every day.

The politicians and the fed and the completely corrupt, elite banksters will probably be able to keep the status quo for another six months or a year or maybe even two, but conditions are likely to deteriorate further. All attempts to sell "recovery" to the populace has failed. There's still some hope left in the people, but it's growing tired, especially since the "change" part of the equation promised by Mr. Obama and his Democratic party friends has failed to materialize in any meaningful way.

Upcoming are the mid-term elections, with Republicans blaring on about how the Democrats have failed and the Democrats attempting to vie for more time or alternatively scaring the voting public about what a Republican Tea Party takeover of congress will do to the country, not for the country. The worst part of it all is that the Republicans are likely to pick up some seats in the House and a few in Congress, but not enough to enable a majority large enough to overcome a presidential veto, while the Democrats will face the same kind of obstructionism that's been prevalent for the past four years.

In other words, the congress will be balkanized, stalemated and incapable of agreement on anything. It will be even worse in makeup than it is today, inept, powerless, clueless and incompetent, a recipe for economic disaster as sure as the sun rising in the East.

Today's action in stocks is significant, since the Democrats are making statements to the effect that they will not consider any kind of legislation concerning either the expiration or extension of the Bush-era tax cuts before the election, which was literally a sell signal to Wall Street, because getting a deal done after the election and before the tax cuts expire (December 31, 2010), will be next-to-impossible.

That's the main reason stocks ended today as they did, down for a second day in a row and this day's decline larger than yesterday's. Also, unlike recent days of gains, these last two declines were orderly, with each of the indices in somewhat of a lock-step with the others.

Stocks made a major near-term top on Tuesday, directly after the Fed announcement, and are aligned to head lower into the upcoming elections, just six weeks away. Prior to the elections, third quarter earnings report for most major publicly-traded firms are due out, which could provide some short term relief, but the direction is overall to the downside from here. After election day, who knows? With the Fed hell-bent on keeping the status quo, effectively debasing the currency with QE2, prospects for the remainder of 2010 are dicey at best.

Meanwhile, gold and silver have never looked better. Upon the release of the FOMC statement, both precious metals priced higher and have held or exceeded their new tops. Silver is at a 30-year high. Gold close to an all-time high, the record being set just yesterday.

Gold and silver will survive and prosper. They have been the best investments of the past 10 years and may have only begun an historic bull market. Precious metals prices could double, triple or go well beyond those levels within the next three to five years. Their charts show steady appreciation and interest in them is growing daily. All of this leads to the unmistakable conclusion that they are the only true store of value worth investing in today.

Advancing issues took a back seat to decliners on the day, 3897-1812. New highs continued to erode, but stayed well ahead of new lows, 249-57. Volume was not even worth mentioning, it was so shabby.

Latest gold bid: $1292.30; silver: $21.14 per ounce. Crude for November delivery rose 47 cents, to $75.18.

For more, read the latest musings of the Golden Jackass.

Dow	10,662.42	76.89 (0.72%)
NASDAQ	2,327.08	7.47 (0.32%)
S&P 500	1,124.83	9.45 (0.83%)
NYSE Compos	7,141.51	69.34 (0.96%)
NASDAQ Volume		1,951,539,875.00
NYSE Volume		3,999,012,250.00

Markets Are in a Seriously Confused State

First, a bit of a correction, or, an explanation, at least.

When I posted the losses in gold and silver in yesterday's post, I was taking the quotes from CNN/Money, where I usually get the information. Looking at a chart from Kitco.com, I see that the price level I quoted was just about the low of the day, quoted just at 2:15 pm, right as the Fed made their announcement. Ditto for silver.

Immediately, gold and silver shot through the roof, and the NY Globex close was 1286.80. Being that Kitco gives the close at 5:30 in the afternoon, and I usually write this about 4:00-4:45 pm, I cannot guarantee the accuracy of the gold and silver quotes, though I will endeavor to do so from here on out.

Now, on to today's events...

After a positive open, stocks were down most of the remainder of the day as the true ramifications of the fed's overt hinting at QE2 and fresh numbers on housing reached the Street about 10:00 am. The FHFA House Price Index [PDF], a gauge of residential housing prices in America, came in with a 0.5% decline for July, off a revised 1.2% drop in June. That's a 1.7% drop in residential housing in just two months, or a full year run-rate of 10.2%. The news was not received very well.

The Index is a government gauge, meaning it is subject to tweaks and revisions and is probably a more conservative approach than most would use. The Index tracks conforming, conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac. It also excludes, multi-family units and condos, among others, so it is likely to be a more conservative estimate than say, NAR data. To get an idea of just how conservative the measure is, consider that the index is only 13.7% below the April, 2007 peak.

Dow 10,739.31, -21.72 (0.20%)
NASDAQ 2,334.55, -14.80 (0.63%)
S&P 500 1,134.28, -5.50 (0.48%)
NYSE Composite 7,210.85, -35.10 (0.48%)

Once again, the markets took on small losses, but decliners submerged advancing issues in a big way, 3712-2027. New highs continued to dominate new lows, 313-52. Volume was at about the same levels as yesterday, still well off traditional readings.

NASDAQ Volume 2,193,723,500
NYSE Volume 4,082,509,750

Crude oil for october delivery fell 26 cents, to $74.71. The latest reading on gold was $1291.50, officially a new record. The spot silver bid was $21.15.

As there are numerous schools of thought now that the Fed has made it abundantly clear that they will proceed with dollar debasement in hopes of reviving inflation (a soundly stupid idea), there are many more questions than answers about where this is all leading. The best guesses - and they're all just guesses at this point - are for sustained inflation in food and energy prices, courtesy our friendly, evil central banking cartel, which seems hell-bent on salvaging the defunct credit structures of the past 40 years and keeping the insolvent mega-banks open for business, regardless of whether or not they have to starve half the global population to do so.

If the current economic scenario seems like some dysfunctional Orwellian nightmare, it's probably because it is. Keynesianism has burst upon the system in all its glory and is slowly eroding the value of all fiat currencies, one by one and often in unison. Eventually, it will end badly for those in power: the Fed, the president, congress, princes and kings of Euroland and probably the Chinese and Indians as well.

Welcome to the financial world of the future, where you don't know the value of anything.

When The Boom Really Goes Bang, Bang, Bang!

Pensions become Ponzi, Recess becomes recession and eventually depresses into depression. There's a natural progression to these things and trying to stop them is like throwing water back over a broken dam. There's some temporary relief, a feeling that it may all work out for the best, but eventually, the dam bursts, flooding everything and drowning most. This is the situation in which most of the world's economies - but mainly the United States - currently find themselves. Patches have been applied to the broken dam, but, even though all the experts know that it will eventually burst, they will not, either from some misguided confidence or fear of what may occur should they reveal the truth.

Either way, they'll look bad when it does, but they'll probably be long gone, either dead or expatriated.

Since there's nothing worthwhile happening in the equity markets other than the usual churn associated with the Fed's POMOs (Permanent Open market Operations), today we offer some background, which only took a little bit of searching on the internet. (Apparently, there are quite a few skeptics on the loose these days.)

First, though, let's make sure we know what really happened today.

Any and all trading centered around the FOMC statement at 2:15 pm, in which the Fed neither raised nor lowered rates (Actually, they can't lower them below ZERO, where they currently sit.), but they did change some of the wording in their release.

The salient points were, "the pace of recovery in output and employment has slowed in recent months.", "Housing starts are at a depressed level. Bank lending has continued to contract, but at a reduced rate in recent months." and "The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate."

That final quote is a mouthful, though most have interpreted it to mean that the Fed is ready to engage in further quantitative easing (i.e., printing money), to keep the economy from falling off a cliff. Ouch! Ohh!

The market reaction was odd. Stocks first went straight up, as in "Happy days! More free money!" and then did an about face when moron buyers realized they had been taken and that the reason the Fed is printing more money is because the economy sucks. There, it's been said. The economy sucks, and the Fed writ that large today.

Dow 10,761.03, +7.41 (0.07%)
NASDAQ 2,349.35, -6.48 (0.28%)
S&P 500 1,139.78, -2.93 (0.26%)
NYSE Composite 7,245.95, -20.07 (0.28%)

Once again, the markets delivered a split decision, with the Dow up and everything else down. In contrast to the soft headline numbers, declining issues far outpaced advancers, 3612-2095. New highs ramped past new lows, 428-38 and volume was actually a bit on the strong side (poor timing).

Commodities took a hit, too, though they were trending lower prior to the Fed statement. Crude oil slipped $1.34, to $73.52. Gold fell $6.60, to $1,272.40 and silver dropped 16 cents, to $20.62, all of which makes perfect sense if we are actually going to slide quietly into a deflationary depression. Shhh! Don't tell anybody.

NASDAQ Volume 2,148,134,500
NYSE Volume 4,403,680,500



Please note, this following little piece is someone else's work. It is not my intent to plagiarize.

Here's a step-by-step look at the banks and bailouts.

1) All the global banks were up to their eye-balls in toxic assets. All the AAA mortgage-backed securities etc. were in fact JUNK. But in the balance sheets of the banks and their special purpose vehicles (SPVs), they were stated to be worth US$ TRILLIONS.

2) The collapse of Lehman Bros and AIG exposed this ugly truth. All the global banks had liabilities in the US$ Trillions. They were all INSOLVENT. The central banks the world over conspired and agreed not to reveal the total liabilities of the global banks as that would cause a run on these banks, as happened in the case of Northern Rock in the U.K.

3) A devious scheme was devised by the FED, led by Bernanke to assist the global banks to unload systematically and in tranches the toxic assets so as to allow the banks to comply with RESERVE REQUIREMENTS under the fractional reserve banking system, and to continue their banking business. This is the essence of the bailout of the global banks by central bankers.

4) This devious scheme was effected by the FED’s quantitative easing (QE) – the purchase of toxic assets from the banks. The FED created “money out of thin air” and used that “money” to buy the toxic assets at face or book value from the banks, notwithstanding they were all junks and at the most, worth maybe ten cents to the dollar. Now, the FED is “loaded” with toxic assets once owned by the global banks. But these banks cannot declare and or admit to this state of affairs. Hence, this financial charade.

5) If we are to follow simple logic, the exercise would result in the global banks flushed with cash to enable them to lend to desperate consumers and cash-starved businesses. But the money did not go out as loans. Where did the money go?

6) It went back to the FED as reserves, and since the FED bought US$ trillions worth of toxic wastes, the “money” (it was merely book entries in the Fed’s books) that these global banks had were treated as “Excess Reserves”. This is a misnomer because it gave the ILLUSION that the banks are cash-rich and under the fractional reserve system would be able to lend out trillions worth of loans. But they did not. Why?

7) Because the global banks still have US$ trillions worth of toxic wastes in their balance sheets. They are still insolvent under the fractional reserve banking laws. The public must not be aware of this as otherwise, it would trigger a massive run on all the global banks!

8) Bernanke, the US Treasury and the global central bankers were all praying and hoping that given time (their estimation was 12 to 18 months) the housing market would recover and asset prices would resume to the levels before the crisis. . Let me explain: A House was sold for say US$500,000. Borrower has a mortgage of US$450,000 or more. The house is now worth US$200,000 or less. Multiply this by the millions of houses sold between 2000 and 2008 and you will appreciate the extent of the financial black-hole. There is no way that any of the global banks can get out of this gigantic mess. And there is also no way that the FED and the global central bankers through QE can continue to buy such toxic wastes without showing their hands and exposing the lie that these banks are solvent. It is my estimation that they have to QE up to US$20 trillion at the minimum. The FED and no central banker would dare “create such an amount of money out of thin air” without arousing the suspicions and or panic of sovereign creditors, investors and depositors. It is as good as declaring officially that all the banks are BANKRUPT.

9) But there is no other solution in the short and middle term except another bout of quantitative easing, QE II. Given the above caveat, QE II cannot exceed the amount of the previous QE without opening the proverbial Pandora Box.

10) But it is also a given that the FED will embark on QE II, as under the fractional reserve banking system, if the FED does not purchase additional toxic wastes, the global banks (faced with mounting foreclosures, etc.) will fall short of their reserve requirements.

11) You will also recall that the FED at the height of the crisis announced that interest will be paid on the so-called “excess reserves” of the global banks, thus enabling these banks to “earn” interest. So what we have is a merry-go-round of monies moving from the right pocket to the left pocket at the click of the computer mouse. The FED creates money, uses it to buy toxic assets, and the same money is then returned to the FED by the global banks to earn interest. By this fiction of QE, banks are flushed with cash which enable them to earn interest. Is it any wonder that these banks have declared record profits?

12) The global banks get rid of some of their toxic wastes at full value and at no costs, and get paid for unloading the toxic wastes via interest payments. Additionally, some of the “monies” are used by these banks to purchase US Treasuries (which also pay interests) which in turn allows the US Treasury to continue its deficit spending. THIS IS THE BAILOUT RIP OFF of the century.

---

The rest is all original, and mine.

Ah, well, that's not even the worst of it. In order to stave off imminent implosion of the entire global banking system, some believe the Fed will have to print (and waste) some $30 TRILLION. Now, that happens to be just an round estimate, but it does amount to twice the annual GDP or twice the existing debt (choose your poison). Since the Fed is already in somewhere between $2 and $11 Trillion, depending on your level of pessimism and how you choose to crunch the numbers, we are only, at best, one third of the way down the path of complete, utter and final desolation.

If this first third of the way took three years (2007-2010), then we should finally be soup by 2016, though anybody with the uncanny ability to think that far ahead would probably be living in Brazil, China or Belize by then. The rest of us will just have to "suck it up" so to speak. The good/bad news is that you will be able to buy a traditional, three-bedroom home in a good suburb for about $30,000; a pound of tomatoes will be only $8.00, your utility bill will be 40-70% higher because usage will be very low and you have to take up the slack and your property taxes will be at least triple your mortgage payment (at least in the Northeast).

However, you won't be paying any taxes since there will be no jobs, but, for all you 50-and-60-somethings out there, that Social Security check you planned on receiving monthly will no longer be available. The overwhelming debt the nation has built up will see to it that almost all entitlements will have to be curtailed or, at a minimum, severely curtailed.

Soooooo, the lifestyles you've so carefully planned for yourselves and your children will go entirely up in the smoke of debt and default. The world will be a poorer place, you will be old and decrepit and the minions from nations to which we owe money we can never repay will be scouting the streets and byways of America for choice deals, to which they feel entitled!

The problem is that most Americans took it for granted that our government and our leaders were telling us the truth, not lying through their collective teeth in order to keep being re-elected. We - and I'm speaking mostly to the baby boomers - allowed them to tax us to the max, spend every last penny and then borrow more. we've brought it upon ourselves, you see.

And, just in case you're not convinced that we're well upon a path of self-destruction, in order to keep the public in the dark and at ease through our economic nightmare, the government is manipulating the stock market.

OK, So Now What?

Stocks just pushed higher through resistance on Monday as traders searched for clues that either the economy was improving or the Fed would change some wording in Tuesday's FOMC rate policy meeting.

Rates are expected to remain unchanged, at ZERO, which, if one were to look at it objectively, would consider it a glorious time to take on additional risk. After all, borrowing money without any interest - or marginal at best - is accommodative to speculation, just the kind of easy credit policy which has created all the other prior bubbles.

From certain perspectives, it makes perfect sense to invest in US equities. On the side of caution are those who believe the entire Fed operation is nothing more than a grand illusion, destined to fail. In the meantime, investors simply cannot refrain from buying stocks with cheap money. Buy, buy, buy was the message delivered today, loud and clear.

The major indices have rallied through their 200-day moving average and are testing the high end of the recent range. Whether this current rally has enough impetus to surpass the highs of Spring will be known in a number of days or weeks, though there seems to be nothing standing in the way of new highs heading into the elections, despite what cynics might be assuming about the political nature of the markets.

Dow 10,753.62, +145.77 (1.37%)
NASDAQ 2,355.83, +40.22 (1.74%)
S&P 500 1,142.71, +17.12 (1.52%)
NYSE Composite 7,266.02, +111.37 (1.56%)

Advancing issues buried decliners, 4693-1152. New highs soared past new lows, 531-45. Even volume was a little improved from the sluggish levels of the past six weeks.

NASDAQ Volume 2,027,424,375
NYSE Volume 4,064,069,750

Commodities participated in the overall euphoria. Oil gained $1.20, to $74.86. Gold closed up $3.40, to another new record, at $1,279.00. Silver slid just a penny, to $20.78. Today's rally - and the general rally of the past two weeks would be more believable if commodity prices were more contained. The gains in commodities are only proving that while stocks may be favored in the short run, there's no scarcity of skepticism among investors, who are buying the precious metals and oil as protection... against exactly what, nobody seems certain. But, whether it's inflation or deflation, commodities and bonds have been rallying right alongside the stock market.

All asset classes usually do not gain or fall at the same moments in time, but, with the massive amount of liquidity being suppled constantly by the Federal Reserve, anything is possible, including re-flation, inflation and even hyper-inflation. The Fed is swimming in some very dangerous water, indeed.