Fed, ZIRP, QE2 Pumps Dow to Highest Close in 27 Months

Since the economy is still looking like something out of a B-grade horror flick, the Fed can take credit for one thing, at least, pumping stocks to levels not since they were going down, two years ago. The Dow Jones Industrials closed at its highest point since September 8 of 2008, when it closed at 11,510.74, on it's way to its eventual bottom on March 8, 2009, of 6547.05.

Today's close of 11,476.54 represents an overall 21-month gain from the bottom, of 75%, one of the most tremendous performances by the stock market in history. However, as we learned in 2008, these gains are largely transitory, on paper, unreal, and can be wiped out in a matter or weeks or months. Further, they have been fostered by trillions of dollars in bailouts, stimulus, fraud and deception on top of an economy that can't seem to move off square one, never mind creating any jobs for real, working Americans.

If it all seems somehow out of whack, it's largely because it is. Between TARP, QE, QE2 and two stimulus plans, the government - and the Fed - has gone deeply into debt and the burden pushed onto the taxpayer in the form of an overgrown public debt and federal budget deficits of over a trillion dollars a year for as far as the eye can see.

Meanwhile, the housing and manufacturing sectors of the economy have been shattered. Home prices are down 25-30% since 2006 on a national basis, with some areas - particularly Nevada, California, Florida and Michigan - experiencing deeper declines. Manufacturing has shed nearly 500,000 businesses since the early 2000s, along with more than 10 million jobs.

Unemployment, even narrowly defined by the BLS, is approaching 10%, though true measures of employment in America put the number closer to 20%, with some estimates ranging as high as 27%. In effect, about one in four able-bodied American under the age of 65 is not gainfully employed full time. This is a condition which cannot continue. High unemployment renders us a welfare state, complete with all the nasty side-effects: high crime rates, rising death rates, lower educational standards and a permanent underclass which now is beginning to occupy the outskirts of major cities across the country and especially in the South and Southwest. Homeless people tend to gather where it's warm enough to sleep out-of-doors, and the numbers are beginning to become staggering statistics.

The FOMC voted today to keep interest rates at ZERO to .25% for the 27th month in a row, neatly matching up with the collapse of the stock market, so, while the Fed has failed on multiple fronts, they get a big round of applause from Wall Street, as the only group seemingly doing just fine are bailed-out bankers and the corporate crack in which they traffic.

The only other measurable group doing well would be coin and bullion dealers and collectors, as gold and silver coins and bullion have appreciated at rates dwarfing stock market gains since 2000. Essentially, both precious metals have quadrupled in price over the past decade and silver, in particular, seems to be just getting started on a lengthy bull run. So long as the Fed keeps monetizing the debt and the banks fail to record and write down their losses, the metals will outperform all other asset classes.

Today's gains were once again truncated by late-day selling, after the FOMC announcement. There's little faith left in equities, as they nervously approach levels which are unsustainable in the current environment. Traders are counting the hours down to the year's end, after which they can make adjustments in January, but we're not quite there yet.

Dow 11,476.54, +47.98 (0.42%)
NASDAQ 2,627.72, +2.81 (0.11%)
S&P 500 1,241.59, +1.13 (0.09%)
NYSE Composite 7,855.22, +5.20 (0.07%)
NASDAQ Volume 1,767,595,125
NYSE Volume 4,579,517,500

Advancing issues trailer decliners, 3067-3346. New highs/lows on the NASDAQ were 158-23 and 176-113 on the NYSE. The high-lows are converging in a hurry, signaling that a major dell-off could occur within days. Volume remained weak. No news there.

Oil pulled back a little on the day, shedding 33 cents, to $88.28, though still close to 2-year highs. Gold was up most of the day, but barely hung onto a $1.40 gain, at $1395.90. Silver was also higher, but is now printing down 4 cents, at $29.51. This, after JP Morgan, in a terse statement, said they had trimmed their exposure to the silver market, the one they are accused of rigging for years and now the subject of a criminal class action suit.

Anecdotal evidence that the holiday shopping season is not at all robust got a kick of reality as Best Buy missed estimates by a wide margin, causing other electronics retailers and related industries to tumble.

Twelve Days Until Retailers Call It a Day

If this weren't the most over-hyped Christmas season in the past six years, one would be wondering where all the ads are on TV. Retailers continue to proclaim that this year will be better than last year (which was pretty bad, in itself), that same-store sales are showing solid improvement and all the rest of the nonsense they banter about to shareholders and keepers of the materialist Christmas buying season creed.

But, with just twelve days to go before everybody stops shopping and actually opens the presents, there are some indications that this holiday season is going to be quite awful for many a retailer.

Here's a few reasons why:

• "Same-store sales" are always measured against stores open a year or longer. Most of the larger retailers have already closed many non-or-under-performing stores, so the comparisons look better, even though there is less volume.
• November non-farm payrolls actually showed a decrease in November retail hiring, at a time which retailers are normally hiring more staff for the "Christmas rush." This is a troubling sign that there is no rush this year.
• Inflation has pushed up prices for many gift items, especially clothes, which are primarily made of cotton, which price went nearly exponential this year. Higher prices will result in high same-store sales, though buying the same sweater this year rather than last will cost 5-10% more, making it look like there were more sales when in fact there were not.
• On Friday, December 10, TJX Cos., the parent company of TJ Maxx, Marshall's and HomeGoods, announced the closing of 71 A. J. Wright stores and the conversion of 91 others into TJ Maxx or Marchall's stores, and permanent job cuts of 4400 nationwide.
• According to a BDO survey, 63% of retailers are spending what they did last year on advertising and marketing; 20% are spending less, and just 17% have increased their budgets over 2009.
• Retail sales for October were up 1.2% (ex-auto, 0.4), but November, the start of the holiday shopping season, is expected to show a gain of only 0.5%. The figures are due out on Tuesday, and anything less than that may cause investors to reconsider retailers in their investment strategies.

All of this points to a ho-hum kind of Christmas season, when a whiz-bang one is what's needed. Unemployment is too high and consumer deleveraging continues at such a hot pace that one cannot reasonably expect high demand for consumer products. Some retailers may actually close more stores in January or February, or file bankruptcy, as Great Atlantic & Pacific Tea Company (A&P), parent of Waldbaum's and Pathmark stores, did last week.

Harder hit will be smaller, "mom-and-pop" type retailers, who generally have less room for error, tight - if any - lines of credit and no tolerance for losses. Retailing has been hit hard since the market collapse of 2008, and many small businesses fall into the retail category.

A little bit of good news is that some of these retailers may close their Main Street or mall shops, only to re-emerge online with business being run out of a home or less-expensive location. The trend from brick-and-mortar to online continues to grow and has actually been pushed by tight margins and high rents which plague many a retailer.

Still, when the country wakes up on December 26 and again in early January, only to find that the economy is still as sluggish as ever, there will be repercussions and more casualties.

Some of that sentiment may have been reflected in today's trading on the stock markets, which broke higher in the morning, peaked just before 3:00 pm and sold off hard into the close. It was an unexpected start to the week and may be offering a clue about tomorrow's 8:30 am retal sales release.

The Dow, NYSE and S&P registered marginal gains, closing at or near the lows of the session, while the NASDAQ broke an eight-day winning streak.

Dow 11,428.56, +18.24 (0.16%)
NASDAQ 2,624.91, -12.63 (0.48%)
S&P 500 1,240.46, +0.06 (0.00%)
NYSE Composite 7,850.02, +26.72 (0.34%)

Decliners beat advancers, 3459-3059. NASDAQ New Highs: 279; Lows: 19; NYSE New Highs: 271; Lows: 87. Volume was dull, as per usual.

NASDAQ Volume 1,853,841,375
NYSE Volume 4,861,153,000

The real action today was in the commodity space, which heated up once again with the Fed injecting $8.9 billion in fresh cash to the Primary Dealers through Treasury purchases. Oil advanced 82 cents, to $88.61. Prices for non-leaded regular gas are now over $3.00 per gallon in most of the United States. The most recent gold price was $1394.50, up $8.90. Silver had a huge rally, up 87 cents, to $29.55, and should break through the magic $30 mark this week if trends outlined by Turd Ferguson play out with resistance at 29.50 broken by today's close.

As the World Turns... or, As the Fed Turns the World Into Trash

You really have to hand it to our genius Chairman of the Federal Reserve, Ben Bernanke. He's so smart, he managed to lose a couple billion dollars on his recent bond purchases. Not a problem for him, really, he's just another hired hand, but he's now openly adding to the national debt load, which, in case this needs repeating, is completely unpayable and out of control.

How did Uncle Benji lose $2.4 billion in a month, you ask? Maybe announcing the timing of his "buying spree" otherwise known as QE2, in advance, gave the Primary Dealers (those from whom he was purchasing) the opportunity to ramp up interest rates to their benefit (and the public's detriment). Would they do that? would execs at Goldman Sachs, Morgan Stanley or Merrill Lynch steal your grandmother's purse in broad daylight if she accidentally left it unguarded?

It's exactly what happened. Otherwise, why did interest rates spike the moment the Fed announced their POMO schedule? It's open theft on the American public. May the Fed and all member banks rot in the very worst of hells for eternity.

Making matters even more absurd and detrimental to the health of the US economy, the Fed today announced its latest schedule of market "operations," by which they will monetize another $105 billion of Treasury debt and thus fund the bankrupt banks with more easy money.

Equity markets responded as they should to easy money flows, with gains across the board in the major indices.

Dow 11,410.32, +40.26 (0.35%)
NASDAQ 2,637.54, +20.87 (0.80%)
S&P 500 1,240.40, +7.40 (0.60%)
NYSE Composite 7,823.30, +41.16 (0.53%)

Advancing issues overwhelmed decliners, 4334-2199. NASDAQ New Highs: 243; Lows: 28; NYSE New Highs: 203; Lows: 47. Unfortunately, many of the NYSE New Lows were bond funds, many the repositories of municipal pensions. As these lose money, debt crises in the various states continues to grow. In New York, California and Illinois, state budget deficits have reached crisis stage. Volume, overall, was miserable, as normal.

NASDAQ Volume 1,754,129,500.00
NYSE Volume 4,996,264,500

In the commodities space, a bit of a breather. Oil, thankfully, has backed off a bit after flirting with the $90 level, losing another 58 cents today, closing the week at $87.79. Gold's last print was at $1385.80, down $1.20. Silver was also relatively quiet, spending the entire day in the red, though down only 8 cents, at $28.68.

Finishing off a ho-hum kind of week (though admittedly, the Fed has us on the edge of our seats), the following animated video helps explain why JP Morgan Chase is rich, though maybe not for long, and why you should own as much physical silver as you can afford.

Hilarious video of how JP Morgan is up to its neck in short silver contracts with no good way out.

Do Not Watch at Your Own Risk

For those who think Nouriel Roubini (AKA Dr. Doom) is a little too pessimistic, the interview - linked at the end of this post - with John Williams (shadowstats.com) might be a bit much to bear. But, it is highly recommended that anyone with a time horizon of more than six to twelve months view the interview in its entirety (almost nine minutes) and heed well what Mr. Williams says about the future of the United States, hyperinflation, Fed policies and being prepared.

Mr. Williams' site, shadowstats.com, has general commentary on the state of the economy, though more detailed analysis is by subscription only. It's rare to see Williams live, this being one of the few interviews available, but he's a down-to-earth economist who examines the US economy with the bent of a CPA, using GAAP instead of the fuzzy numbers the government likes to throw around.

Just the kind of stuff one needs to hear before venturing out to the mall for Christmas shopping, but, essential viewing if one wishes to survive until, say, 2012.

First a quick recap of the markets:

Dow 11,370.06, -2.42 (0.02%)
NASDAQ 2,616.67, +7.51 (0.29%)
S&P 500 1,233.00, +4.72 (0.38%)
NYSE Composite 7,782.14, +31.82 (0.41%)
NASDAQ Volume 1,948,935,500
NYSE Volume 4,994,395,500

Obviously, not much to get excited about today, though House democrats did vote no in a caucus on accepting the President's "tax compromise" worked out with Republicans earlier in the week. It's a bit of a snag, especially since the Bush tax cuts expire at year's end and most of the cretins in congress would like to skip out of town in less than two weeks.

Advancing issues beat decliners, 3697-2758. NASDAQ New Highs: 182; Lows: 21; NYSE New Highs: 152; Lows: 28. Volume was poor, especially on the NYSE.

Oil put up a 9 cent gain, to $88.37. Gold recovered some lost ground, gaining $5.70, to $1387.00 on last print, as did silver, up 40 cents, to $28.76.

That's about it. Markets are dull as traders wind down positions at year's end, allowing more time to view the excellent video below.

Click here for John Williams interview.

Bullet Points (no, not real bullets, yet) on the Mid-Week Menage

The noise out in finance-land is becoming deafening. So much, that one can barely keep up with events as they occur. Whether that is the plan of the criminal oligarchs or not, things are sure getting interesting. we present bullet points for today's mass screwing:

• Overnight, gold and silver are sucker-punched, supposedly by JP Morgan, which is trying to suppress prices of what are now competing currencies. The assault continues into the day (see below).
• Certain members of the House of Representative express doubts about whether they will vote for the "tax deal" that President Obama and the Republican leadership worked out on Monday.
• 10-year note yield hits 3.37 midday, backs off to close around 3.24, but is up a full 100 basis points (1%) from just a month ago.
• Julian Assange, founder and head of WikiLeaks is still being held without bail in UK; lawyer seeks to fight extradition to Sweden where he faces trumped-up charges of "sex crimes."
• In response to Visa and Mastercard shutting off Assange's access to his money, hackers shut down credit card web sites.
• Planned bank run in Europe turns into a colossal failure, hardly worth mention.
• More criticism of Fed's Bernanke interview surfaces, most claiming he lied about "not printing money" and laughable commentary about being 100% sure he can handle his job.
• China ready to hike interest rates 50 basis points on Friday or Saturday, in direct opposition to Fed's QE2
• Stocks flounder all day as Fed only monetizes $2.1 billion, smallest POMO in weeks.
• Market spooked by alleged huge FBI raids on hedge funds, though no arrests occur.

Dow 11,372.48, +13.32 (0.12%)
NASDAQ 2,609.16, +10.67 (0.41%)
S&P 500 1,228.28, +4.53 (0.37%)
NYSE Composite 7,750.32, +10.68 (0.14%)

In opposition to the smallish headline numbers, declining issues outnumbered gainers on the day, 2829-3641. NASDAQ New Highs: 165, Lows: 25; NYSE New Highs: 125, Lows: 28. While the gap between the new highs and new lows is still quite large, the shrinkage today from the advantage the past few weeks is substantial. This indicator has been threatening to roll over for some weeks now, but has yet to do so. When it does - and it eventually will - it will delineate a new down-trend for stocks, one that is very long overdue. Even Bernanke's QE efforts cannot keep a market permanently on an upward bias.

Volume was back to sick, anemic levels once again as nobody wants to trade US stocks, or, at least the number of players in the market has diminished and will probably remain at low levels at least through the new year. Trades of size have only another seven or eight sessions remaining in the year to be made, as the Christmas and New Year's holidays blunt all trades and are normally among the slowest trading days of the year. A run on equities for year end is assumed, as prices are abnormally high and being held in space. Options expiration is still a week away, and could be the day (next Friday, Dec. 17) for capitulation, though today serves as a hint of what's coming.

NASDAQ Volume 1,783,785,000
NYSE Volume 5,241,274,000

Crude oil backed off a little more, losing 41 cents, to $88.28. The damage done in the precious metals markets, however, was more severe, likely the effort of highly-leveraged manipulators (JP Morgan), dropping gold $18.20, to $1382.20 and silver losing another 27 cents, to $28.38. Both gold and silver had made new multi-year highs on Tuesday and the powers that be could not stomach losing so badly on their short positions, thus, the coordinated attack.

For gold and silver bugs, who buy and hold the PMs as hedges against currency risk, the moves were meaningless, actually presenting a buying proposition as global currencies continue their race to the bottom. CNBC hosts asked if the moves were indicative of a bubble, especially in gold, the best contrarian indicator we've seen in some time.