Stocks Bounce Back; Slaughter of PMs Continues; Predictions 2011, Part 2

After unexpectedly rosy employment data from ADP - showing US employment gains of 295,000 in December - failed to lift market futures, the major indices opened with a decidedly negative bias, sending the Dow down by nearly 40 points at the open with the others in tow.

As it turns out, however, the open, or just minutes into trading, witnessed the lows of the day, as unusual an event as a hole-in-one perhaps, or as a Democrat (or a Republican, for that matter) voting to cut spending.

Stocks levitated into positive territory until about the noon hour, then lazily spent the rest of the session moderating around the highs. A bit of a spark at the end of the day caused them all to close very close to or at their highs. So, we have a market that does nothing but go up, endlessly, it appears, run by HFTs (high frequency traders) and their trusty computer algorithms. It should be obvious - though it is not - to anyone who's studied markets and/or finance for more than 20 minutes that such a system cannot endure.

Meanwhile, the same Ponzi schemers traders have managed to make gold and silver look like the worst investments since 17th century tulip bulbs, smacking the two widely-held precious metals down for the second consecutive day. A glance at kitko daily charts clearly indicates that the manipulations by JP Morgan and HSBC are still in place, with their boundless short position being unwound during the US sessions, allowing them to BTD (Buy the Dip) as they surpress the spot price to a level at which they can semi-comfortably unload.

Nobody really knows how large the short positions of these two banks really are, or, worse yet, the extent of manipulation in gold, but if the past two days - and especially today, as the metals receded while oil spiked, breaking the correlated commodity trade - offer any kind of guide, they must be into it up to their stuffed shirt pockets.

We are currently in an inverted market in which the worst, riskiest and most speculative investments - paper money, stocks - continue to rise unabated and the most intrinsic, solid and stable investments (also those with a stellar track record the past 10 years) - gold and silver - are being shunned by the kleptocracy. All the while the Wall Street swindlers are telling you to buy equities and sell your gold and silver, because, according to them, they're "in a bubble," constitutes the worst form of the shell game, because as you sell your gold and silver to buy stocks from them, they are buying, yes, sir! gold and silver.

The best strategy these days is to play along with them, buying when they force the price of PMs lower, because, if they're doing it out of desperation, the prices are sure to rise. Demand for physical gold and silver (not ETFs or "holdings") is at historic highs and will remain there as long as there is artificial suppression and unrelenting money printing by central banks.

Dow 11,722.89, +31.71 (0.27%)
NASDAQ 2,702.20, +20.95 (0.78%)
S&P 500 1,276.56, +6.36 (0.50%)
NYSE Composite 8,040.04, +17.86 (0.22%)

In a reversal from Tuesday's trade, advancing issues led decliners, 4116-2407. NASDAQ new highs: 148; new lows: 8. NYSE new highs: 175; new lows: 8. The diminishing number of new highs (as compared to Tuesday, a down market day) and the bottoming out of new lows continues to scream "sell, sell, sell" louder than even Jim Cramer's mindless sound effects. The levitation is nearly at an end, there are fewer and fewer stocks left to pump, left the pumpers lift the actual dead and dying weight at or near bottoms.

These new high-low figures are at extremes and the small number of stocks making new highs indicates a market top as does the paucity of analysts willing to put near-term objectives out in front of their faces. Normally, a sell-off would be imminent, though with the controlled nature of the US markets, almost anything could happen.

NASDAQ Volume 2,072,631,625
NYSE Volume 5,273,362,500

Oil bounced back up over the $90 mark, closing at $90.30, a gain of 92 cents on the day. Gold fell $5.10, to $1,373.70, while silver shed another 31 cents, to $29.20, though both were much lower mid-day.

Predictions 2011: Part 2

When we left on on Monday, the discussion had turned to unemployment, which we said would run past 10% in 2011. What wasn't said was that the corollary, employment, would continue to show faint signs of life, though what the BLS and the government number crunchers also won't tell anyone is that high-paying jobs in tech, manufacturing and other businesses are still being downsized, only to be replaced by low-wage service jobs. Essentially, the middle class is being downsized by enormous corporate interests which have a vested interest in boosting their bottom lines.

In essence, over the past 40 years, America has gone from being one of the most productive economies evre seen on the face of this planet, to being one of the most destructive, in terms of lost opportunity, capacity utilization and middle class wealth destruction. This shift away from productive, capital-building enterprises to service-related companies with the emphasis toward domestic consumption will only accelerate in the coming year unless radical changes are made to our tax laws and industrial policy, a thing that currently does not exist.

Currencies/FOREX

The race to the bottom of the fiat money pit will continue unabated in 2011, and probably accelerate in the second half of the year as the Fed's Zero Interest Rate Policy (ZIRP) and 2nd round of Quantitative Easing (QE2) continue to keep the economy like a patient in traction. The patient will be reported as doing better, though still unable to move on its own. Thus, when the Fed's latest ploy (QE2) runs out in June, there will be need for further stimulus and it will have to be n the form of expanding the money supply, slipping it into the balance sheets of the illiquid banks and letting the proceeds sit on the bloated balance sheet of the Federal Reserve.

While Europe has openly stressed austerity, there's little evidence that it's doing anything different than what our own Fed is doing, as they go from one bailout to another - from Greece, to Ireland, to Portugal, Spain, Italy. The issues in the EU are so extreme and dangerous, the US dollar will look like a good bet by comparison. But the real strengthening currencies will be in developing nations like India, China, Malaysia, Korea and those with raw materials, like (surprisingly) Peru, Brazil, Ecuador, Indonesia and the mainstays, Canada (though they're stressed as well) and Australia. Any nation displaying fiscal discipline would serve as a good place to hedge US dollars, though they are difficult to find.

As the world becomes an increasingly dangerous place, deployment of capital will seek alternatives to the developed world, but inflation in growing economies could offset any currency gains. It's a strange and fast-paced trade in currencies, not for the inexperienced or those with limited capital to put at risk. The US dollar will fare well against almost all other competing currencies. Destruction of the world's reserve currency takes time, and a year is just a small part of the breaking tableau.

COMMODITIES

Tying back to the constant hum of government printing presses, increased monetary stimulus will eventually find an outlet in hard goods and raw materials. Food prices already are at record levels in many parts of the world, energy continues to feel demand strains, though the relatively slow pace of growth and the inexorable pull of political power worldwide will put a brake on some of this trade. While climate concerns top the list as far as grains and most foodstuffs are concerned, manipulation in metals - precious and otherwise - may cause violent swings and price dislocations. In an environment created to obfuscate and confuse price discovery mechanisms, an absolute rise in prices is definitely not a slam dunk, though the inflationary push seems to point in that direction.

Eventually, price will meet demand, or lack thereof, and some equilibrium found before riots and starvation become the norm. Your best bets for 2011 are still gold and silver, with the latter being the favored instrument as it seeks to re-establish the 15-1 gold-silver ratio. Both should appreciate well in excess of 15%, so $1500 gold should be an easy target and silver may bust right through $40 per ounce in rapid manner.

As far as oil is concerned, apart from the rigged and artificial aspects of how it is traded, crude prices cannot exceed $100 for very long, if they even reach them. Absolute price inflation will crimp demand, and, thus, set the wheel back to "go" again, so don't expect oil prices to skyrocket or decline much at all. Stable prices would be best for all parties (except those selling the stuff, short term), and that's what we may get. There's about a 30% chance oil prices actually fall on slack demand, back under $75, but not much further, though a price around $60 per barrel would go a long way toward global growth, though the supply/demand numbers simply don't add up well for that to be much more than a wing and many prayers.

Besides gold and silver, rare earth investments are tricky and unless you discover a mother lode of ytterbium in your back yard, best avoided as another needless paper chase and probably over-hyped. All well-stocked commodity cabinets should have the requisite PMs, plus canned foods and bottled water in case of the absolute end. Guns if you got 'em, ammo if you have the guns.

Friday: Stocks, indices, politics and cultural trends to watch.

Market Correction Begins, Stalls as Gold and Silver are Unloaded

Stocks sold off in the morning and recovered somewhat in the afternoon, with the Dow the only index to post a gain at the close. The volume was quite a bit better than recently, which, if you're in the bullish camp, is not a good sign, as this was controlled selling followed by short covering, in earnest.

As was stated yesterday, stocks are wickedly overpriced and due for a retracement or at least a pullback of 7-10% from yesterday's close. However, considering the forces at work behind the market, nothing would come as a surprise these days as these markets are anything but orderly.

The real story of the day was in commodities, as everything - from wheat to oil - sold off viciously. More on that later.

Dow 11,691.18, +20.43 (0.18%)
NASDAQ 2,681.25, -10.27 (0.38%)
S&P 500 1,270.20, -1.69 (0.13%)
NYSE Composite 8,022.18, -21.79 (0.27%)

Declining issues beat advancing issues by a wide margin, 4262-2248. There were 146 new highs on the NASDAQ, and just 3 new lows. On the NYSE, new highs buried new lows, 200-9. As mentioned yesterday, these numbers are at extremes, cannot be maintained and the fallout is likely to be severe, unless we're entering some new Twilight Zone of prosperity, complete with flying unicorns, fairy princesses and mushrooms made of gold.

NASDAQ Volume 2,034,894,250
NYSE Volume 5,395,944,500

In the commodity space, it was sell or be damned. Crude oil for February delivery - the front end NYMEX contract - lost $2.17, closing at $89.38, though it traded lower during the day. It would not be a shock to see oil head back into the low $80 range, being that the busy holiday season is over and the oil barons have skewered the driving public once again.

Gold was unmercifully slaughtered, losing $44.10 (-3%), to finish at $1,378.80. Silver was even more battered, losing over 5%, down $1.62, to $29.51. The precious metals r being routinely pumped and dumped by large hedge players, most notorious of the bunch, JP Morgan and HSBC, who are being sued for manipulation of the silver market. This move in the PMs is nothing to get excited about, for now. A reversal was due, but not to the extent of today's move. Given time, both gold and silver will attain new heights as the kleptocracy running Wall Street and the US government becomes more desperate every day.

One should not be persuaded to sell any gold or silver in this environment, as the metals have proven to be quite volatile and able to replace huge losses in a matter of weeks, or even days.

Please note: Part 2 of 2011 Predictions will appear tomorrow, with Part 3 on Friday

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.