Predictions 2011, Part 1

Before commencing with the annual predictions of where everything is supposed to go in 2011 - up, down, sideways or otherwise, a quick recap of the market on the first trading day of the new year is in order.

As expected, traders - con men all - made sure 2011 got off to a roaring start, with a gap up at the open sending the Dow Jones Industrials up almost 100 points moments into the session. While the gains were outsized as compared to recent run-ups, trading volume remains a viable concern, both short and long-term. Today's volume, while a 60% improvement over those of the last week, is still averaging a size that were the stock market a real roller coaster, volume couldn't get on the ride due to being too short.

It should also be pointed out that the estimates made here - wholly on anecdotal presumptions - have now been duly christened by some valuable researchers - Smithers & Co. - which notes S&P listed stocks some 73% overvalued as of December 10. With the S&P up another 2.5% since then, this data suggests that the stock market is headed for a crash of epic proportions. Based on measurements that ceased functioning around the time of Ben Bernanke's Jackson Hole speech last summer (where he first mentioned QE2), many stocks could experience declines of 50% or more in coming months.

Naturally, nobody is talking about valuation, since the Fed and Wall Street have famously destroyed all methods of honest price discovery and computers are doing most of the trading these days, but stocks are already wickedly overpriced and heading higher. Notice how silent Bernanke is concerning the markets, with no "irrational exuberance" kind of talk. The Fed is desperate to get the moribund economy off its back and the banks back to health. Destroying the currency through money printing and the markets through wild speculation via HFT computers are the only games in town now, and destined to fail spectacularly.

The daily charts and the massive monetary infusions (a $7.8 billion POMO today) tell the entire story: stocks ramp up in the morning, closing off gains for all but insiders, then meander lazily to an insignificant close. This pattern has been the most prominent over the past four months and continued in grand style today.

Dow 11,670.75, +93.24 (0.81%)
NASDAQ 2,691.52, +38.65 (1.46%)
S&P 500 1,271.87, +14.23 (1.13%)
NYSE Composite 8,043.96, +79.94 (1.00%)

As expected, advancers overwhelmed declining issues, 4948-1661. NASDAQ new highs: 296; new lows: 6. On the NYSE, there were 375 new highs and only 2 new lows. These numbers, if not there already, are at extremes and shorting would normally be child's play were it not for the unusual state of US equity markets, pumped daily with new money. There will be an unwinding, but it may be very slow and gradual, killing one's patience and probably most profits. The best position remains cash and equivalents, gold, silver, rarities, arable land and tools of trades.

The continued low levels of trading indicate that individual investors have not returned to the market and some may stay away permanently. If a large enough segment of those fleeing stocks and bonds is made up of Baby Boomers at or nearing retirement, it could spell doomsday for Wall Street, though with approximately 10,000 Boomers retiring every day, the fresh influx of pension and Social Security monies could induce a good deal of foolish speculation, much of it by retirees not secure enough with their monthly take even though it's more than enough upon which to exist.

NASDAQ Volume 1,809,840,875.00
NYSE Volume 4,730,662,000

The front-end crude contract seems to have hit a wall at $92. Anyone with a functioning brain realizes that pushing gas prices over $4/gallon will kill any recovery or chance of the consumer-led economy doing anything but stalling around as fuel prices steal from all other spending. Still, the verdict on the oil barons is still out and their game will continue. $100 or higher for crude could happen, but it seems only sensible that driving and energy use would be curtailed severely by cash-strapped consumers. Oil finished at $91.55, up just 17 cents on the day.

Gold and silver were sporting nice gains until about 2:00 pm, when they turned radically lower, about the same time the Obama administration announced that 13 select drillers would be allowed to resume deep-water drilling in the Gulf of Mexico, halted in the wake of BP's Deepwater Horizon gusher last year. Gold was last seen down $7.50, at $1414.10. Silver lost 23 cents, to $30.68.

And, for the most absurd trade of the day, Bank of America (BAC) rose 85 cents, to 14.19 (a gain of 6.37%) on news that the bank had agreed to a $4.1 billion settlement with Fannie Mae and Freddie Mac to repurchase soured loans issued by Countrywide (purchased by BofA in 2008) the GSEs had backed.

And, now, on to Fearless Rick's Fabulous Preview of 2011...

Soothsayers of antiquity were revered and honored, but in the crowded world of today, there's no shortage of predictions, prognostications, and outright guesses on what the future will bring.

Most predictors are amateurs, not skilled in the art of actually hanging on a limb, due to fear of being wrong. Fearless Rick knows no such fear, having been wrong so often that it's become a fixture to some degree. What is presented here is not so much a final saying on what, where and when some events may occur, but rather a proximate attempt to use experience and empirical values to arrive at a kind of whole world experience.

The dominating theme of 2011 will be VALUE. The pricing of assets will be challenging due to a continuation of monetary policies which may or may not be alleviated by fiscal controls expected from newly-minted Tea Party Republicans in congress. By Spring, the US government will be approaching the debt ceiling and a battle over whether or not to raise it will begin in some form. The betting is that it will be raised again - out of necessity - but Republicans will issue stern warnings or attempt to tie the vote to more austerity measures. The rhetoric on Capitol Hill will be more raucous than ever, but eventually, the Tea Partiers will be put into line by the status quo centrists who prefer slow death rather than the pain of an operation to actually address the greatest concern of our day, the burgeoning federal debt.

It may be difficult to assume that the world will not end, nor will the existence of the Federal Reserve, in the present year though it will not be without significantly-large challenges. Despite indications from our runaway stock market, the US employment situation is not going to get materially better in 2011. In fact, even using the greatly-flawed BLS figures that get trotted out the beginning of each month, the Obama administration will have no option other than to take its lumps and admit that the economy is just not recovering at all. By June or earlier, the "official" unemployment figure will be over 10%, and shock waves will reverberate throughout the affected areas, mostly the South, Southwest and West, prompting more give-away programs from the administration and certain congressional factions.

Pressure for another stimulus bill will be large, spurred on by liberals who cannot get too much of a free lunch, but will ultimately be small, if passed at all. Stimuli has become a permanent factor in federal government, though, so some free money will certainly flow from the seat of power.

Residential Housing is going to be worse than ever, with prices falling in areas that weren't hard hit the first time around. With banks lending only to the super-clean credit risks there will be a continuing glut of houses on almost every local market. Coupled with interest rates that should moderate, overall activity will be at a snail's pace, similar to what was seen in 2010. Knowledge of local markets may result in windfalls for some, misery for others, especially those in homes with Alt-A or 5/30 or 5/20 mortgages that are resetting in 2011 - a motherload of them by Spring. The expectation is for residential housing prices to drop another 6-10% during the year, with larger decreases in the NorthEast and MidWest.

(TO BE CONTINUED)

Happy New Year Wall Street Cheats; Silver the Big Winner

Equity traders and other market participants are probably happy this week is over.

Finishing up with the worst volume of the week - a week that witnessed the slowest level of trading activity in ten years - indices finished with a split decision once again.

Eschewing with the normal banter that would accompany a normal trading session, since today's was anything but normal, let's just move on to 2011. Beginning Monday, January 3, this column will feature predictions for 2011, as most of the mainstream predictors have fallen into the Kool-Aid drinking bullish category, we will offer some contrarian views.

Dow 11,577.51, +7.80 (0.07%)
NASDAQ 2,652.87, -10.11 (0.38%)
S&P 500 1,257.64, -0.24 (0.02%)
NYSE Composite 7,964.02, +12.11 (0.15%)

Advancing issues and decliners were almost evenly split, with gainers taking a narrow edge, 3257-3189. There were 86 new highs on the NASDAQ, to just 8 new lows. New highs on the NYSE numbered 104, while only 4 issues touched new lows.

NASDAQ Volume 959,300,187.50
NYSE Volume 2,148,760,500

The short-term shake-out in crude oil futures didn't even make it until the end of the year, with speculation taking the front-end contract up $1.54, to $91.38, something of a portentous final trade leading into the new year.

Gold finished with a nice gain to close out the year, up $17.50 on the continuous contract, to $1421.60, just ten dollars from its all-time high. Silver turned in the best performance of the year, a gain of 45 cents today sending it to $30.91, its highest point since 1980, and good for a gain of 83.7% on the year.

Gold and silver have been recommended so often here that it hardly needs repeating, but all prospects appear ripe for continued flight, away from fiat money and paper securities and directly into commodities and hard assets. Silver's massive run-up in 2010 might only be a precursor for a long, durable rally that will take the second precious metal to unimagined heights in 2011 and beyond.

Silver's rally, having started later than that of gold, may have more juice for steadfast holders and even new buyers. It is shaping up to be the century of silver. With sovereign fiat paper money stressed around the globe, even small, casual investors are making their way into the precious ore that seems ready for another monster run in coming months.

Farewell, 2010. Happy New Year!

Data Ignored as Stocks Take a Rare Step Back

Another exceedingly dull session marked the penultimate trading day of the year, but, unlike the tree previous days, all indices finished in the red, showing marginal losses.

Initial unemployment claims came in at a seasonally-adjusted rate of 388,000, beating expectations (418,000), but the data set is marred by the non-seasonally-adjusted number, which came in at a whopping 521,834. Obviously, the BLS is doing a bang-up job at keeping the truth about the employment condition in America almost out of view.

Elsewhere, Chicago PMI surged To 68.6 on expectations Of 62.5, the highest since July 1988, another badly skewed statistic from the government's statistical fantasy factory.

If one were to believe these two reports (are you getting the idea that we don't?), the take-away would be that very few people were laid off following the holiday shopping season and our manufacturing base is vibrant and growing. The truth of the situation is that jobs are being shed as quickly as number-crunchers can adjust their bottom lines on excessively hyped same-store sales figures and the PMI is being fueled largely by cost inflation.

So, with one more dreary day ahead in the lowest volume week in ten years, traders, pundits, analysts and economists can hardly wait to put 2010, the year of the little lie, finally to rest. Without a doubt, 2011 will be better known as the year of the bigger lie.

Dow 11,569.71, -15.67 (0.14%)
NASDAQ 2,662.98, -3.95 (0.15%)
S&P 500 1,257.88, -1.90 (0.15%)
NYSE Composite 7,951.91, -9.57 (0.12%)

Declining issues edge advancers, 3282-3152, while NASDAQ cheered 152 new highs and jeered 17 new lows. The pattern was the same for the NYSE, with 149 new highs and just 8 new lows.

NASDAQ Volume 1,036,465,812.50
NYSE Volume 2,292,664,000

Crude oil finally took off some of the froth, dipping $1.28, to finish just below the $90 mark, at $89.84. Gold eased $7.60, to $1404.40, while silver also slowed, down 13 cents, to $30.47.

How High is Up? Stocks Continue Relentless Rise

It's absolutely amazing to anyone who's followed the markets for the past twenty years or more, how this current rally, based entirely on free money flowing from the Federal Reserve to the Primary Dealers, continues to defy the gravitational pull of low volume.

Just like the first two days of the week, Wednesday was full of nothing but hot air and the pretentious attitude that the US and the rest of the planet are in some kind of economic recovery and not being lifted by fumes, happy talk and a lack of market participants. This week should stand the test of time as the lowest volume week of at least the past 10 years.

Those few remaining players - the Primary Dealers, select hedge funds and some high-wealth individuals - managed to wring out even more gains as the Fed delivered the final POMO of the year, a mere $5.4 billion, though an amount adequate enough to lift this listless market significantly.



Dow 11,585.38, +9.84 (0.09%)
NASDAQ 2,666.93, +4.05 (0.15%)
S&P 500 1,259.78, +1.27 (0.10%)
NYSE Composite 7,961.48, +29.81 (0.38%)

Advancing issues swamped decliners, 3991-2544. NASDAQ new highs were at 120, with 15 stocks hitting new lows. On the NYSE, there were 189 new highs and just 16 new lows.

NASDAQ Volume 1,079,771,000
NYSE Volume 2,318,948,250

Commodities continued their path higher as well, as gold added another $4.70, to $1410.90 at this time, and silver gained 29 cents, eclipsing its previous 30-year high (Dec. 7, $30.50), now trading for $30.58 per ounce.

Crude oil for February delivery, the front-end contract on the NYMEX, took a 37-cent haircut, but is still dangerously high, at $91.12 per barrel.

We'll get unemployment claims before the opening bell on Thursday and no other data on Friday, the final trading day (and final day, period) of 2010, putting to rest a very painfully-slow post-holiday series of sessions.

One final note for the day. There's a duopoly that is just begging to be resolved. Short interest is at record lows while margin debt is at its highest level since the collapse of Lehman Bros. in 2008. Those two data sets cannot exist side-by-side for long without something breaking out somewhere.

With Stocks Stuck in Near-Neutral, Precious Metals Break Out

It's been a while since there was any excitement in the precious metals space - about a three weeks to be exact, when silver popped to a multi-year high at $30.50 and gold marked an all-time record high of $1420.00 on the London Fix. Both of those numbers were made on December 7th, and since then both have seen pull-backs in price, though nothing any serious gold bugs were losing sleep over.

Since then, talk of a gold bubble have been bandied about by the numbskull financial press, the case against JP Morgan and HSBC manipulating the silver market has expanded and stocks have done what they usually do in December, appreciate, though on close to record-low volume across the board.

With Christmas season over and stock pickers jubilant over what's being called the best holiday shopping season since 2007 (not that big a deal, since 2008 and 2009 were, by most accounts, stinkers) there may be a little bit of sanity re-emerging into the markets. Bond auctions in the EU and here in the USA have not fared particularly well, and a failed short-term government bond auction and a 25 basis point hike in China have put the fear of inflation squarely back on the table as holiday cheer and the cheering over retail stocks fades into the background.

Gold rocketed higher, up $21.30 on last check, to $1405.40, which, if it holds above $1403.50 until 5:00 ET, would be the third-highest closing price ever on the NYMEX, all recorded this month. Silver will finish with its second-highest close since the attempted cornering of the market by the infamous Hunt Brothers back in 1979-80 when it topped out at $54/ounce. Today's price is up $1.00, at $30.28, only the second time silver has closed over $30 per ounce in 30 years.

There's currently so much doubt and fear involved with trading stocks and bonds that investors, gamblers and speculators of all kind and size are bidding up the price of both gold and silver, which have traditionally performed best in times of uncertainty. To believe that sovereign economies are solvent and secure would be tantamount to believing that some mythical fat man in a red suit delivered all those nifty iPads and colorful sweaters a few days ago.

Nations are on the brink of economic collapse, and not just Greece and Spain, but larger ones such as the United States, France and Great Britain. Decades of mismanagement of government budgets have stretched the credibility of central banks and politicians to the point that smart money is moving away from the paper chase of currency and securities and back to the old standards of real money - gold and silver.

Today's moves in the precious metals may have been caused by some expiring options positions, though the past three weeks have witnessed more consolidation in the metals market than outright selling. The pullback from the December 7 highs has been brief and not particularly deep, with the move covering all of 5% in the gold price and roughly 7% in silver.

If anything is certain heading into the new year, it's that the global recovery or crisis (tke your pick) still has more to play out, and the main beneficiaries of uncertainty will be the precious metals, heading into the 10th year of an historic bull run.

Stocks and bonds will come and go, rise and fall as they always do, but the permanence of gold and silver appear to be headed for a bright and glorious future.

The day's action in the equities space was as usual: little movement, split indices and extremely thin volume. If not for the HFT computers pushing electrons around, US exchanges might as well have been closed the first two days of this week and probably won't look any better after the next three.

Dow 11,575.54, +20.51 (0.18%)
NASDAQ 2,662.88, -4.39 (0.16%)
S&P 500 1,258.51, +0.97 (0.08%)
NYSE Composite 7,931.67, +10.73 (0.14%)

Losing issues outpaced advancers for the session, 3505-2977, and there were more new highs than lows across both exchanges: 135-12 on the NASDAQ and 130-14 on the NYSE, a kind of reverse-Hindenburg indication. The volume figures should be starkly defeatist to any bulls.

NASDAQ Volume 1,144,227,750.00
NYSE Volume 2,461,884,250

A couple of key economic indicators shed some light on the US economy, which remains mired in the quicksand of bogus bailouts, high unemployment and moribund housing prices. The Case-Shiller 20-city index declined for the 4th consecutive month, making a residential housing double dip a fait accompli. Consumer confidence, as measured by the Conference Board, tumbled from 54.3 in November to 52.5 this month, a clear sign that, despite the howls of excitement over prospects for 2011 from the likes of Jim Cramer and Larry Kudlow, along with a roster of economic forecasters (charlatans) too numerous to mention, economic conditions in America continue to be just a hair's breadth from desperation.

Those wise enough to be already entrenched in niche markets, rarities, precious metals and arable acreage are sitting comfortably in the proverbial cat-bird's seat.