More POMO Equals More Momo; Less for Your Dollar

For the uninitiated, POMO stands for Permanent Open Market Operations, which, well, really doesn't explain anything, but let's just say this is how the Federal Reserve has been handing money over to primary dealers for the past 6 1/2 months, through various coupon pass-throughs and bond-repurchases.

So why POMO causes MOMO (slang for "momentum") is that these primary dealers have to do something with their newly-minted free Fed paper money, so they thrust it into the stock market and goose up shares of Apple (AAPL), Netflix (NFLX), Chipolte Mexican Grill (CMG) and other darlings of the "Fast Money" crowd.

The Fed is furiously throwing money around these days, attempting to keep the Ponzi market afloat before John Boehner decides to cram it all back to the Fed by insisting on budget cuts. Mr. Boehner best watch what he says or soon enough there will be calls for him to step down as Majority Leader in the House. Treasury Timmy and Bingo Bernanke don't like cuts in spending as it really diminishes the impact of their unilateral pumping of all things financial.

Of course, Mr. Boehner's calls for $2 trillion in budget cuts is laughable and will never happen. Even he knows that, but he must maintain the posture of a "conservative" even though he and his Republican members (except a brave few - very few - Tea Partiers) are as quick to spend a buck as their Democratic counterparts. There will be a few trifling spending cuts announced as part of some kind of compromise, but it won't matter. The government is about as desperate and broken as the stock markets, and that takes some doing.

So, today, on the back of a ramp job yesterday, we have more momentum playing, goosing stocks back towards the highs they scored a few weeks back. There are about 30 more POMO days before the Fed cuts the cord in late June, so expect the equity indices to be heading for higher highs before then. As long as the mainstream media can keep the public convinced inflation is marginal, transitory or immaterial, and that $4 or $5 gas is now acceptable, there will be no turning back the tidal wave of Federal Reserve Notes banging prices higher around the world.

Quoting Diane Keaton in her role as Annie Hall, from the Woody Allen movie by the same name, "la dee da." Welcome to the centrally planned economy.

Dow 12,760.36, +75.68 (0.60%)
NASDAQ 2,871.89, +28.64 (1.01%)
S&P 500 1,357.16, +10.87 (0.81%)
NYSE Composite 8,550.49, +72.30 (0.85%)

Advancing issues far outpaced decliners, 5077-1471, so one could call today's ramp-up, POMO-induced rally, broad-based, if one so chooses. Most of it are just calling it "nowhere to hide the devalued dollars." On the NASDAQ, there were 142 new highs and 34 new lows. Over on the NYSE big board, new highs were well ahead of new lows, 240-16. This is, in fact, easy to accomplish with free money, no restraint and near-record low volume - again.

NASDAQ Volume 1,996,086,625.00
NYSE Volume 3,778,728,750

Crude oil, despite an announced 25% margin hike which takes effect tomorrow, gained $1.33, to close at $103.88. And now, since oil has been sufficiently beaten down, we hear that numerous refineries are partially shut down, just in time for the nicer weather. Welcome to $4.00 and $4.50 gas coming to a fueling station near you.

Gold continued to strike back against the empire of debt, gaining $3.20, to $1516.30 up to the minute. Silver added 76 cents, at $38.47. The precious metals now have added momentum to meet and exceed previous all-time and multi-year highs before the end of June.

The government reported today that import prices (almost everything that US consumers purchase) rose 2.2% in April, on the heels of a 2.6% rise in March. Year-over-year, the increase was 11.1%

The 12-month advance in April was the largest year-over-year increase since an 11.2 percent gain between April 2009 and April 2010.

So, no, there's no inflation, just record import prices two years running.

Keep printing, Mr. Bernanke. We will continue to buy silver and gold, POMO and MOMO notwithstanding.

Citi Reverse Split Causes Volume Dump; PPT Still Engaged

Covering the daily machinations of a stock market that is now nearly a vast wasteland of swap trades, churning and "gotcha" moves seldom offers much of anything substantive of which to report, but today's reverse split of Citigroup (C) may turn out to be a watershed moment for our contrived and trivial stock markets.

With Citi now a $44 stock instead of a $4.40 stock - and it being the nearly indisputable daily volume leader for many months - America's 3rd largest bank has cost the NYSE about 450,000 trades on a daily basis, today, tomorrow, forever. This dramatic upside-down-sizing caused today's NYSE volume to dip to its second-lowest level of the year.

It is more than dismal on Wall Street; it is so scary that the PPT was brought in today just before noon for a quick fixer-up, sending all the indices close to their highs of the day in a 20-minute ramp job that is certain to destroy what little remains of confidence in the veracity of US markets.

From about 11:50 am to 12:10 pm, the Dow gathered itself up for an 80 point gain, the NASDAQ gained about 27 points and the S&P added nine. The indices had been hugging the flat line until the PPT (yes, we're absolutely certain they're still working) showed up. Afterwards, stocks drifted along the new highs and closed near those newly-elevated levels.

Yet another fantastic display of why nobody trusts these markets and nobody should be trading here: the stocks are all traded between the biggest brokerages and selected hedge funds, and the whole game is rigged for their benefit. Someday, we can only hope, the whole miasma gets thrown a loop by the HFT computers and never recovers. Maybe then, the greed, corruption and utter uselessness of US stock markets can be exposed.

Dow 12,684.68, +45.94 (0.36%)
NASDAQ 2,843.25, +15.69 (0.55%)
S&P 500 1,346.29, +6.09 (0.45%)
NYSE Composite 8,478.19, +52.29 (0.62%)

For the record, advancing issues beat decliners, 4534-2055. NASDAQ new highs: 81; new lows: 39. On the NYSE, there were 120 new highs and 17 new lows. Combined volume for the NYSE and NASDAQ was at or below the lowest level of the year. While the trading volume on the NYSE was expected, the absurdly low number of trades on the NASDAQ is telling market timers that now is the time to get out of Dodge.

NASDAQ Volume 1,654,697,000.00
NYSE Volume 3,366,898,000

Commodities must be the new playground, because they had a banner day. Forget the massive drop in crude oil from last week. Today's ramp job of $5.37 on NYMEX WTI crude futures brought the price back to $102.55 at the close. One wonders whether it's actual volatility driving the wild price swings or just plain revenge by the traders who were nearly wiped out in last week's plummeting decline. In any case, the price of oil has absolutely nothing to do with fundamental. It's almost as though price discovery has become a function of speculation. There is no real price for a barrel of oil, only that which appears or appeases for the day. These markets are broken beyond repair. Time to dust off and oil up that old bike. You'll need the energy boost in order to stay ahead of the coming rolling panics in cities across America.

Gold buyers were back in earnest, raising the price $18.20, to $1513.60. Silver recovered as well, gaining $2.28, to $37.90.

If anybody can make sense of any of this, please call 1-800-CONFUSED and leave a long, descriptive message.

Skimming Off the Fear Factor

Another week in the books for the crippled economy saw stocks rise on a better-than-expected jobs report and commodities take a bit of a breather as the dollar and bonds both gained.

for the week, the major averages were down anywhere from 1.3% to 1.7%, with the Dow faring best and the S&P the worst.

For analysis of the control factor in all trading, see this morning's post.

When the BLS' non-farm payroll report came out prior to the opening bell, futured roared back to life and equity markets opened sharply higher. The Dow was up as many as 175 points, but the rally fizzled as renewed weakness in Europe prompted a flight to safety to the US dollar.

News that Greece was pondering a move to leave the EU, or at least abandon the Euro as its main currency, kept the Euro sliding right into the weekend.

As the dollar gained strength, trades came off in risk assets, mainly equities, as investors were once again cheered then spooked by forces other than fundamentals.

Dow 12,638.74, +54.57 (0.43%)
NASDAQ 2,827.56, +12.84 (0.46%)
S&P 500 1,340.20, +5.10 (0.38%)
NYSE Composite 8,425.90, +28.50 (0.34%)

Advancing issues finished well ahead of decliners on the day, 4144-2356. New highs beat new lows on the NASDAQ, 68-36. The story was more exaggerated on the NYSE, where 133 new highs towered over 15 new lows. Volume was back in the doldrums, following heavy flight volume the previous two sessions.

NASDAQ Volume 2,007,823,250
NYSE Volume 4,907,953,500

After being whipsawed into submission, a few brave souls ventured back into the commodity trade, but it was definitely not for the faint of heart. NYMEX WTI crude oil continued to sell off, losing another $2.62, to finish out the week in NY at $97.18.

Gold bugs were welcomed back with open arms, as the shiny yellow metal yielded a gain of $19.30, to stand at $1492.40 as of this writing. Silver was less warmly received, but still managed to bounce of the lows and add 65 cents, to $35.31, though there is still concern another round of trimming is yet on the way.

The calendar for next week is rather light until Thursday, which kicks off with unemployment claims, PPI and retail sales, followed on Friday with the monthly CPI figures and the University of Michigan consumer sentiment index. With first quarter earnings now winding down, the markets will be looking for clues for direction, as this week's action has left many dazed and confused.

Snow Job in May

It is difficult to express just how warped US markets have become, though, from the movements of the past two trading days, a case can be made that the markets are being guided by forces that are distinctively not based on free market ideology nor statistics that can be trusted within any degree of accuracy.

Taking a look first on the massive downdraft in commodities - mostly silver and crude oil - from Thursday's trading, one should look no further than the CME (Chicago Mercantile Exchange), the overarching body that controls trade in futures, options and various other derivatives.

The CME raised margin requirements - the cost to buy a futures contract - on silver four times in the past two weeks. That resulted in many speculators - generally honest traders working with leverage via margin - to reduce their exposure, thereby taking the price of silver from close to $50/ounce on Friday, April 29, to under $35/ounce by Thursday, May 5.

This really doesn't require much thought. If it costs more to buy something - in this case a silver futures contract - you either buy less of it or don't buy at all, waiting until the price is more reasonable. In the case of silver futures contract, a highly inelastic entity (You can't buy a fraction on one; you must buy a full contract.), one is either in or out. When margin requirements (cost) rise rapidly, many legitimate buyers head for the hills. This is exactly what happened all week, culminating in the final thrust downward on Thursday, May 5, as there were also fewer short contract holders which would have provided some support, having to cover as prices fell. Alas, the shorts were also out of the market due to exorbitant margin costs.

This makes a great deal of sense from a banker's perspective. Money flowing into either physical silver or gold is money out of circulation, and, more dangerously, into a competing currency. Precious metals compete with all fiat (paper) currencies, insofar as they are considered stores of wealth and mediums of exchange. Thus, when one buys Silver Eagles, silver bars, etc., bankers get worried because the buyer exchanged paper dollars (or Euros or Yen or Reals) for physical metal. And if the price of physical metal and the amount in circulation gets too high, the need for paper dollars is diminished.

Silver, being the "coin of gentlemen," as opposed to gold, "the coin of the realm (or, kings), is a very dangerous commodity to the banker line of thought. If more and more ordinary people - the "little guys" upon whom the banker depends - conduct transactions in silver - the utility of paper money declines, velocity decreases and all of a sudden there's a liquidity crisis.

This is exactly what the global (mostly in the USA) banking cartel feared as silver approached all-time highs, thus the need for margin hikes to kill the competing currency before it became a real threat.

The same is true for gold, to a lesser degree, as central banks hold gold as a final backstop to their paper currencies, though it is leased out, levered 100-1, and therefore, being a useful conduit for the bankers, not as volatile as silver.

As for oil, what caused Thursday's sell-off is a little less clear, but again, the CME, which owns the NYMEX, where West Texas Intermediate oil futures (the most popular and widely held) are traded, extended trading range limits from $10 to $20, exacerbating an already decisive decline.

In simple terms, the CME allowed oil to fall though the floor simply by changing the rules in the middle of the day. There's less concern in the price of oil declining, because lower oil prices are generally good for everybody outside of oil companies and Middle East sovereigns, so less attention was paid to the CMEs quick decision, but it still underscores the levels at which rules will be either broken or amended to accommodate the needs of the powers behind the money (read: the too big to fail banks, the Fed and Treasury Department).

Now to Friday's fiasco in the Bureau of labor Standards (BLS) non-farm payroll data for April (the establishment survey). While the consensus opinion had been trending toward lowered expectations, the BLS surprised everybody with the announcement of 244,000 new jobs created during the month, 268,000 in the private sector, offset by a loss of 24,000 public sector jobs - mostly municipal and state employees being furloughed.

What's intriguing about the non-farm payroll data is how the numbers are created, and the use of the word "created" is no accident, because the BLS employs such such extreme and convoluted data manipulation that pure statistics become rather murky. It's easy to say that our monthly "jobs data" is more a political process than an actual statistical survey with a margin of error in the low single digits. It's guided by a smallish sample and then amplified by what's known as the "birth/death model," a number created to reflect the number of businesses opening (birth) and closing down (death).

Does the BLS actually sample bankruptcy and new corporation filings in selected communities and states? No. Does the BLS ever adjust the number for seasonality. No. For accuracy, yes, but not in the month-to-month survey numbers.

So, from where did the 244,000 net new jobs in April come? 175,000 came from the birth/death model. And while some are contending that roughly 62,000 came from the widely-published McDonald's hiring, the Wall Street Journal begs to differ, stating that McDonald's hire date was April 19, a week after the BLS survey period.

Taking just the raw data, subtracting out the birth/death figures, the US economy consisting of existing businesses created 69,000 net new jobs - not so hot. If we can believe that a couple hundred thousand newly-minted entrepreneurs joined the business fray and 30 to 40,000 businesses went belly up in the same time frame, we could believe this figure. However, like the missing photo of a dead Osama bin Laden, there's no proof of these "births" and "deaths," only trust in the BLS, which, by the way, stretched credulity again by proclaiming the official unemployment rate to have risen, up to nine per cent (9%).

That rise correlated to the other side of the BLS coin, the household survey, which showed the number of employed persons to have fallen by 190,000 from the March reporting period to April.

Is it a gain of 244,000 jobs or a loss of 190,000? Who knows? The point is that many decisions are made based upon the BLS data, which, as shown, is more guesswork and massaging of data than trustworthy data, but one wonders if these decisions are based on reality, a perception of reality, or if the reality is being superimposed upon the American public to suit the current narrative of "recovery."

Whatever the case, it seems a shoddy way to run a country's economy, with dodgy data and questionable maneuvers by those running the exchanges.

It doesn't snow much in the USA in May, but that surely doesn't preclude a massive snow job by Wall Street and the federal government and their extensions.

Armageddon Arrives in Commodities; Stocks Next

As has been the ongoing motif of this blog for many months, the grand Bernanke experiment is now experiencing some of the nasty side effects. Today's action in commodities, particularly silver and crude oil, came as a stark reminder that leveraged positions can go very, very badly in very, very short spans of time.

It was just last Friday that silver stood at the precipice of $50/ounce, approaching the all-time high. As of this writing it is now trading on the spot market at $34.76, a drop of 30% over just four days. WTI crude oil futures were at $116 on Monday, and today it closed on the NYMEX at $99.80. All those sheiks and oil robber-barons drooling over $4/gall gas across the USA can now wipe their chins with their sell tickets.

Stocks were also not immune from the liquidity trap. The Dow was down as many as 200 points around midday, but recovered a bit into the close. Still, leveraged bets (margin) on selected stocks have finally begun to display inherent risk and the carnage has only begun.

What set off today's massive selling spree were a number of unrelated events which combined to turn the trading day into an economic tornado, tearing through asset classes like a Midwestern twister. First, a series of margin tightenings on silver speculation that has been ongoing from Sunday night began the unwinding process. Silver had been hammered for three straight days without buyers on the downside. Then, with the 8:30 am release of some truly horrible weekly unemployment claims, the spring was coiled tighter.

Initial claims for the most recent week (last week in April) came in at 474,000, the highest since August of 2010, off expectations for a number around 400,000. So much for Hope and Change, Bernanke's Zero Interest Rate Policy (ZIRP) and QE2. The smart money has made its way out of Dodge and the rest of the pilgrims are scrambling to leave town with whatever they can salvage.

While commodities were being ravaged one after another, stocks were salvaged from the brunt of the storm, though they eventually faced capitulation and will likely be under pressure from the opening bell on Friday, after the April non-farm payroll report goes public at 8:30 am EDT. Following the unemployment number, expectations have been ratcheted lower. The expected number of new jobs created during the month was supposed to be around 200,000, though that's been trimmed to 185,000 and even lower by some analysts. Anything under 185,000 will produce a bloodbath. Even anything over that will likely induce more selling, on a faster pace than today's, because this is a liquidity trap, and economic numbers - good, bad or indifferent - may not matter at all.

The winners on the day were the US dollar, which majestically made its move all the way from a low of 72.81 (about the point at which Mssrs. Bernanke and Geithner were having accidents in their pantaloons) to a close at 74.08, a move of roughly 1.5%, which, in the world of currencies, is enormous. This created a vicious, self-reinforcing virtuous loop, with the dollar's rise causing commodity margin calls, and a risk-off scramble in stocks.

The other winner was bonds, which explains much. Bonds are the lifeblood of the Ponzi scheme between the Treasury, Primary Dealers and the Federal Reserve which gave us the illusion of prosperity against the backdrop of an eroding dollar. Bumping right up to the debt ceiling, the Fed intervened in a very big way today - behind the scenes, of course - to dampen risk appetite and make fixed income investments the choice for the foreseeable future. They had to, being backed into an untenable position.

It was truly a momentous day, one which we've been preparing you for with our reminders all week that the narrative was changing with the (fictitious) slaying of Osama bin Laden. And now, change has come to us all.

Dow 12,584.17, -139.41 (1.10%)
NASDAQ 2,814.72, -13.51 (0.48%)
S&P 500 1,335.10, -12.22 (0.91%)
NYSE Composite 8,397.40, -109.21 (1.28%)

Advancing issued were submerged by decliners overall, 4183-2412. The NASDAQ recorded 48 new highs and 52 new lows, the second straight day of high-low reversal. On the NYSE, there were 100 new highs and 36 new lows, mostly due to the elevated levels reached recently. It's hard to imagine the daily lows not overtaking the highs within the next week. Volume was magnificently higher as sellers sold with both hands.

NASDAQ Volume 2,241,177,750
NYSE Volume 5,510,796,500

Crude oil took an earth-shattering drop of over 8%, losing $9.44, to finish at $99.80. The selling is certainly far from over as the tempering of emotions in the Middle East after the slaying of OBL will surely push prices back to some level of sanity and take out the majority of the risk premium and speculative fever.

Gold, which had been holding up relatively well with respect to other precious metals, finally took a beating, losing $43.40 (nearly 3%), to its current trading level of $1473.10. Silver took the worst of it again, falling another $4.73, to $34.66, but there is a silver lining for the faithful in precious metals. Most of the true believers - who only hold physical metal and use the futures and ETFs only as a hedge - have a cost basis below $20/ounce.

Technically, they've lost nothing, and could still sell right here for a hefty profit. But they won't, and are actually looking at this momentous correction as a buying opportunity, hoping to snatch up more metal at what they perceive as bargain-basement prices. The general strategy is to buy once everything has more or less settled out. Nobody is really worried about catching the absolute volume, and a few days of upwards trending will not entice the hardiest of the breed. They will wait until a bottom is confirmed. Like love, they'll know it when they see it. The same strategy holds more or less true for gold bugs worldwide.

The holders of gold and silver will eventually rule the world as we approach - at breakneck speed - the eventual destruction of the global fiat money regime and the likely collapse of more than a few governments. What has happened in Greece, Iceland, Ireland and Portugal will eventually visit the shores of Japan, the USA, Great Britain, France and even China.

We are still reeling from the catastrophe of the housing bubble and collapse and the general liquidity and solvency crisis of 2008. The measures taken by the Federal Reserve and other central banks has been to throw more money at the credit monster they created, but it has resulted in extreme imbalances everywhere. The thinking at the top of government is focused already on the elections of 2012. The betting is that the US government and the financial community will have a time making it there unscathed.

If this looks anything like 2008 to those wizened enough to learn from history, those people would be on the right track, except, this time, it's likely to be worse and without any magic bullets, because the Fed is all out of them.