After last week's carnage, traders lined up on Monday for what looks to be one of the duller trading weeks of the year, though the Greek bailout crisis in Euroland might change the scenario a bit.
There is scant economic news and the quarter doesn't end until June 30, so there are no corporate quarterly earnings reports on which to trade, which leaves markets in a situation nearly resembling "every man for himself."
Inasmuch as traders are a courageous lot, there was some horse-swapping in the session, though most of it was in the form of shedding assets because the US economy looks to be falling back upon itself and could be headed for another recession. QE2 ends abruptly just after options expiration on the 17th, so one could expect an even more severe downturn at that time.
Banks are once again in the cross-hairs. They led today's decline and are possibly among the worst risk assets to be holding at present, especially in the case of the big ones: JP Morgan, BofA, Citigroup, Goldman Sachs, Morgan Stanley and Wells Fargo.
While many have taken to calling this a "soft patch" - which is just another term for "I have no idea because I only can make money when stocks go up" - more hardened economists see the current condition as analogous to the Fall of '08, as Greece (and maybe Spain, Portugal and Italy) takes the place of Lehman Brothers and another solvency crisis comes to bear.
However, it could be even deeper than that, with one of the major US banks finally throwing in the towel. In that case, it's likely to be Bank of America (BAC), which was highlighted in Fortune magazine on Friday.
In the article linked above, contributor Abigail Field - who has penned a number of solidly-researched pieces on the mortgage crisis - claims that the extent of sloppiness, incompleteness and outright fraud contained in mortgages originated and securitized by Countrywide (taken over by Bank of America in 2008) is likely much more severe and perverse than anyone had imagined and BofA wasn't letting on about it.
Bank of America is easily the one most crippled by the mortgage and foreclosure crisis and the extent of their losses may have been (probably is) grossly understated, both by the bank and by regulators. The sheer volume of bad loans, fraudulent documents and outright chaos in the mortgage servicing department of Bank of America would have taken down a smaller institution years ago, but BofA is the nation's largest bank and they've been aided continuously by the Federal Reserve, at taxpayer expense.
The severity of the crisis continues to dog the mega-bank at every turn and they may have to make the decision of off-board the entire Countrywide unit in order to salvage what remains of their institution. Of course, this is speculation, but the regulations still being written for the Dodd-Frank bill may be complete enough to call for an orderly winding down of the bank should it pose systemic risk, and surely it does.
To a lesser extent, Wells-Fargo (WFC) faces the same situation, as they managed to snatch up Wachovia - and all their no-doc, low-doc loans - during the turmoil of the financial crisis.
On the day, both stocks finished well into the red, with BAC falling to its lowest closing level since May 15, 2009, breaking below the close of 10.92 on November 30, 2010, losing 45 cents, to 10.83. Wells-Fargo (WFC) lost 0.60 to 26.26 and is close to making a double-bottom.
Today was a truly ugly day on Wall Street, as stocks simply lost value steadily, albeit slowly, throughout the session. The lows of the day were reached shortly after 3:00 pm and an abrupt rally fizzled in the final minutes. Nothing but reluctance to sell is keeping this market from an outright crash.
Dow 12,090.11, -61.15 (0.50%)
NASDAQ 2,702.56, -30.22 (1.11%)
S&P 500 1,286.17, -13.99 (1.08%)
NYSE Composite 8,115.87, -106.28 (1.29%)
Despite the modest declines, internals were shattered. Losers dominated winners, 5175-1436. The NASDAQ posted just 31 new highs, overwhelmed by 131 new lows. On the NYSE, there were just 27 new highs, but 65 new lows, putting the combined number at 58 new highs to 196 new lows. This is the third straight day of the lows beating the highs. On Thursday of last week, it was 115 to 76 and Friday saw 130-68, both in favor of new lows.
This is a very telling sign that we are about to enter a serious correction which should last months, at least through September. A ton of money has already fled stocks and more will follow. Volume was moderate, but only because there are fewer and fewer players every day.
NASDAQ Volume 1,826,802,125.00
NYSE Volume 4,034,310,000
Crude oil futures fell $1.21 to $99.01. Gold advanced $2.40, to $1544.80. Silver finished up 51 cents, at $36.80
Finally, in the video below, some justice was served in Florida, where Bank of America got their just deserts.
Monday, June 6, 2011
Friday, June 3, 2011
At the End of the Day, Everyone Knew This Was Coming
With the 8:30 am release of the May Non-farm Payroll date from the Bureau of labor Statistics, the bad news - for which everyone in the world had been pre-conditioned by NBC, CNBC and any other reliable propagandist sources - was finally revealed.
Only 54,000 new jobs had been created by the great ponzi scheme, the unimaginative artificial stimulus and $600 trillion in fresh buckeroos since last September from Fed Chairman Ben Bernanke.
The Keynesian experiment can now be exposed as the colossal failure that it is, though already the talking heads, left-wing politicians and idiotic economists from the Ivy League's ivory towers are already suggesting that the slowness in job creation is merely a "soft patch" in the recovery.
It is nothing of the sort. The US economy is closer to a complete shutdown and recession than at any time since the grand collapse in the fall of 2008. Not only were the NFP numbers off by grotesque magnitudes of scale, any suggestion that conditions will improve over the summer - while the worst congress in the history of our nation idly postures over the debt ceiling and enormous deficits - is nothing short of hot, gaseous, noxious air, the kind most prevalent inside Washington DC's beltway.
Rather than belabor the obvious: that the economy is stuck in first gear, if not simply idling, it is time for Americans to come to grip with what we have. And that is an aging population living on borrowed time, borrowed money, false hope and remembrances of things past, without an industrial base, energy policy, sound money, honest markets nor anyone even remotely willing or able to fix them.
We are a hollow shell of a formerly great nation, put on its collective knees by a cabal of bankers and politicians whose only purpose has been personal gain and control, a control which they are rapidly losing. 17% of the country receives food stamps. More than half the country depends on some form of government check for their basic needs. The middle class has been relegated to numb consumers of foreign goods, many without jobs and those that have them living in abject fear of losing them.
Nobody except bankers get raises, educational standards have been lowers persistently over the past forty years, though that's hardly a problem since there is no steady employment for engineers, chemists, biologists, and a raft of other high-skilled fields of endeavor.
All of the economic numbers for the past month have been dismal, despite the government's best efforts to fudge, obfuscate or otherwise obscure the truth that we, as a nation, are smack dab in the middle of the worst depression in the country's history.
People are living in houses without paying mortgages for two, three and four years because the banks can't produce clear titles, the courts are overwhelmed even when they dispense justice properly, which is seldom, and the number of weeks spent on unemployment is now at an all-time high.
Housing values have plummeted to levels worst than during the Great Depression, gas is more than ten times as expensive as it was 40 years ago, new car sales, retail sales, industrial production, capacity utilization, factory orders and durable orders are beginning to fall off a cliff. Municipalities everywhere are struggling to close budget deficits, while pensions are underfunded and tax receipts are falling. About the only thing that isn't falling apart the amount of outright lying and deception delivered daily from the various mainstream news outlets, politicians and business leaders, some of whom have already jumped ship and are oopenly saying that another recession is on its way (considering the first one ever ended).
And that's the good news.
It's good news that all of this is finally getting to see the light of day, so that Americans can outrightly reject any and all new proposals, taxes, regulations, elections and instead stand for change.
This is A TRULY GREAT DAY FOR AMERICA AND FREE MARKET CAPITALISM...
because the jobs data and all the other bad data from the past three weeks show that central planning doesn't work. Bailouts of insolvent banks don't work. Giving taxpayer money to the richest people and foreign financial institutions doesn't work. Mark this day down because it is the date upon which Wall Street, the Fed and the federal government (throw in the mainstream media for good measure) are shown to be complete frauds, liars and cheats, absolutely unfit to serve the good people of America in any capacity.
America can and will survive. Watch for more of the following, strictly from the private sector:
Innovation
entrepreneurship
rent parties
barn raisings
barter clubs
independent contractors
tax evasion
home business
cottage industry
buy American!
back yard garden
handymen (and women)
underground economy
black markets
and forget the following:
mortgage payment
property tax increase (or any tax increase for that matter)
bank loans
TBTF (at least two of the big four BAC, JPM, WFC, C) will fail within a year
minimum wage
health insurance
The restructuring of America can begin apace! Get the insurance companies out of health care and let doctors earn their livings like they should, treating their patients individually.
National banks will become much smaller.
The Fed has to go.
Back to the gold standard or some semblance of sound money.
We can also repeal the minimum wage, along with severely limiting all the other employment regulations, like unemployment benefits, worker's comp, Social Security and medicare deductions, etc.
Start putting up WE WIN! signs and people will first think you're nuts, until they start seeing you living better than them by rejecting the status quo.
It's time to put away the idea that government can fix problems, because they simply create more of them, along with wars, fear, famine and homelessness and time for Americans to do what they have always done in times of crisis: stand up individually and take control of your lives.
Stocks tumbled again, on low volume, but it could have been worse. Since the poor jobs number was telegraphed by the ADP report, much of the selling was already well underway on Wednesday. Today's figures were mostly priced in, though since there's almost no participation by individual investors at this point, the big, controlling interests can hold a while longer and take stocks down as they please. Wall Street has been and now is completely irrelevant. One could do better stuffing dollars into mattresses than taking a flyer on the various stock offerings being kicked about.
Th Dow Jones Industrial Average fell for the fifth consecutive week, the largest expanse of time for continuous losses since 2004, and it doesn't look like it's going to end any time soon. Stocks are probably 30-40% overvalued at this juncture, and a crash is dead ahead.
Dow 12,151.26, -97.29 (0.79%)
NASDAQ 2,732.78, -40.53 (1.46%)
S&P 500 1,300.16, -12.78 (0.97%)
NYSE Composite 8,222.15, -55.61 (0.67%)
Declining issues buried advancers, 4809-1792. NASDAQ new highs totaled 31, while there were 82 new lows. ON the NYSE, 37 new highs did not measure up to 48 new lows. Combined, there were 68 new highs and 130 new lows. The most reliable leading long-term trend indicator - highs-lows - has been flashing signs of reversal for months. This should be the tipping point after which the direction will be identified undeniably as straight down. As long as new lows outweigh new highs for a period of more than about six to eight trading days, there is virtually no way to reverse the trend. It also will be telling if the gap between the highs and lows continues to widen. Even as such, the Dow has already shed 657 points from its nominal high, reached exactly one month ago today. The turnover in the highs-lows is just now confirming the trend despite desperate pumping, dumping and priming by manipulative stock insiders.
NASDAQ Volume 1,908,014,125
NYSE Volume 4,028,291,000
The commodities markets were a tragi-comedy of denial that global deflation has ensued. All manner of commodities fell sharply in the morning, only to be ramped back up in the afternoon. Crude oil fell by a laughable eleven cents! to close at an abysmally-overpriced and speculatively-inflated $100.22.
Gold could not be held back, gaining $9.20, to $1543.00. Silver, despite being pushed down to near $35 early on, ended up 17 cents, at $36.32.
At least the weather is better. This is by no means over. Rather, a collapse worse than 2008 is already in the cards, though not represented in prices. The sum of all fears is on its way and it will be deflationary, desperate and lasting for more than a generation.
Only 54,000 new jobs had been created by the great ponzi scheme, the unimaginative artificial stimulus and $600 trillion in fresh buckeroos since last September from Fed Chairman Ben Bernanke.
The Keynesian experiment can now be exposed as the colossal failure that it is, though already the talking heads, left-wing politicians and idiotic economists from the Ivy League's ivory towers are already suggesting that the slowness in job creation is merely a "soft patch" in the recovery.
It is nothing of the sort. The US economy is closer to a complete shutdown and recession than at any time since the grand collapse in the fall of 2008. Not only were the NFP numbers off by grotesque magnitudes of scale, any suggestion that conditions will improve over the summer - while the worst congress in the history of our nation idly postures over the debt ceiling and enormous deficits - is nothing short of hot, gaseous, noxious air, the kind most prevalent inside Washington DC's beltway.
Rather than belabor the obvious: that the economy is stuck in first gear, if not simply idling, it is time for Americans to come to grip with what we have. And that is an aging population living on borrowed time, borrowed money, false hope and remembrances of things past, without an industrial base, energy policy, sound money, honest markets nor anyone even remotely willing or able to fix them.
We are a hollow shell of a formerly great nation, put on its collective knees by a cabal of bankers and politicians whose only purpose has been personal gain and control, a control which they are rapidly losing. 17% of the country receives food stamps. More than half the country depends on some form of government check for their basic needs. The middle class has been relegated to numb consumers of foreign goods, many without jobs and those that have them living in abject fear of losing them.
Nobody except bankers get raises, educational standards have been lowers persistently over the past forty years, though that's hardly a problem since there is no steady employment for engineers, chemists, biologists, and a raft of other high-skilled fields of endeavor.
All of the economic numbers for the past month have been dismal, despite the government's best efforts to fudge, obfuscate or otherwise obscure the truth that we, as a nation, are smack dab in the middle of the worst depression in the country's history.
People are living in houses without paying mortgages for two, three and four years because the banks can't produce clear titles, the courts are overwhelmed even when they dispense justice properly, which is seldom, and the number of weeks spent on unemployment is now at an all-time high.
Housing values have plummeted to levels worst than during the Great Depression, gas is more than ten times as expensive as it was 40 years ago, new car sales, retail sales, industrial production, capacity utilization, factory orders and durable orders are beginning to fall off a cliff. Municipalities everywhere are struggling to close budget deficits, while pensions are underfunded and tax receipts are falling. About the only thing that isn't falling apart the amount of outright lying and deception delivered daily from the various mainstream news outlets, politicians and business leaders, some of whom have already jumped ship and are oopenly saying that another recession is on its way (considering the first one ever ended).
And that's the good news.
It's good news that all of this is finally getting to see the light of day, so that Americans can outrightly reject any and all new proposals, taxes, regulations, elections and instead stand for change.
This is A TRULY GREAT DAY FOR AMERICA AND FREE MARKET CAPITALISM...
because the jobs data and all the other bad data from the past three weeks show that central planning doesn't work. Bailouts of insolvent banks don't work. Giving taxpayer money to the richest people and foreign financial institutions doesn't work. Mark this day down because it is the date upon which Wall Street, the Fed and the federal government (throw in the mainstream media for good measure) are shown to be complete frauds, liars and cheats, absolutely unfit to serve the good people of America in any capacity.
America can and will survive. Watch for more of the following, strictly from the private sector:
Innovation
entrepreneurship
rent parties
barn raisings
barter clubs
independent contractors
tax evasion
home business
cottage industry
buy American!
back yard garden
handymen (and women)
underground economy
black markets
and forget the following:
mortgage payment
property tax increase (or any tax increase for that matter)
bank loans
TBTF (at least two of the big four BAC, JPM, WFC, C) will fail within a year
minimum wage
health insurance
The restructuring of America can begin apace! Get the insurance companies out of health care and let doctors earn their livings like they should, treating their patients individually.
National banks will become much smaller.
The Fed has to go.
Back to the gold standard or some semblance of sound money.
We can also repeal the minimum wage, along with severely limiting all the other employment regulations, like unemployment benefits, worker's comp, Social Security and medicare deductions, etc.
Start putting up WE WIN! signs and people will first think you're nuts, until they start seeing you living better than them by rejecting the status quo.
It's time to put away the idea that government can fix problems, because they simply create more of them, along with wars, fear, famine and homelessness and time for Americans to do what they have always done in times of crisis: stand up individually and take control of your lives.
Stocks tumbled again, on low volume, but it could have been worse. Since the poor jobs number was telegraphed by the ADP report, much of the selling was already well underway on Wednesday. Today's figures were mostly priced in, though since there's almost no participation by individual investors at this point, the big, controlling interests can hold a while longer and take stocks down as they please. Wall Street has been and now is completely irrelevant. One could do better stuffing dollars into mattresses than taking a flyer on the various stock offerings being kicked about.
Th Dow Jones Industrial Average fell for the fifth consecutive week, the largest expanse of time for continuous losses since 2004, and it doesn't look like it's going to end any time soon. Stocks are probably 30-40% overvalued at this juncture, and a crash is dead ahead.
Dow 12,151.26, -97.29 (0.79%)
NASDAQ 2,732.78, -40.53 (1.46%)
S&P 500 1,300.16, -12.78 (0.97%)
NYSE Composite 8,222.15, -55.61 (0.67%)
Declining issues buried advancers, 4809-1792. NASDAQ new highs totaled 31, while there were 82 new lows. ON the NYSE, 37 new highs did not measure up to 48 new lows. Combined, there were 68 new highs and 130 new lows. The most reliable leading long-term trend indicator - highs-lows - has been flashing signs of reversal for months. This should be the tipping point after which the direction will be identified undeniably as straight down. As long as new lows outweigh new highs for a period of more than about six to eight trading days, there is virtually no way to reverse the trend. It also will be telling if the gap between the highs and lows continues to widen. Even as such, the Dow has already shed 657 points from its nominal high, reached exactly one month ago today. The turnover in the highs-lows is just now confirming the trend despite desperate pumping, dumping and priming by manipulative stock insiders.
NASDAQ Volume 1,908,014,125
NYSE Volume 4,028,291,000
The commodities markets were a tragi-comedy of denial that global deflation has ensued. All manner of commodities fell sharply in the morning, only to be ramped back up in the afternoon. Crude oil fell by a laughable eleven cents! to close at an abysmally-overpriced and speculatively-inflated $100.22.
Gold could not be held back, gaining $9.20, to $1543.00. Silver, despite being pushed down to near $35 early on, ended up 17 cents, at $36.32.
At least the weather is better. This is by no means over. Rather, a collapse worse than 2008 is already in the cards, though not represented in prices. The sum of all fears is on its way and it will be deflationary, desperate and lasting for more than a generation.
Thursday, June 2, 2011
Interest Rate Math and the Gathering Collapse of GDP
Taking a break from the usual, tired explanations of why the economy is imploding or why stocks went up or down on a particular day, today we will endeavor to discovre how much money is being lost to the US economy via the Federal Reserve's Zero Interest Rate Policy, that drives all other rates towards ZERO.
The idea for this enterprise came from an article n the September, 2010, edition of Reader's Digest, titled "Bonus Question" by Michael Crowley, abot how Wall Street profits at the expense of the middle class, especially through low interest rates. There's a podcast of the article available here.
The premise is simple. A long time ago, somebody, probably one or both of our parents, told us that saving was a good idea. And it was, especially when you could get 5% interest in a savings account.
Well, times have changed. One per cent is now the norm for CDs, savings accounts, money markets and other similar investments. So, the question emerges: how much has the Fed's Zero Interest Rate Policy (ZIRP) cost the middle class and the overall GDP?
Let's take an example of a person or couple having put away $300,000 for retirement, their plan, to retire on that money (they'll probably need more) and use the interest to pay for much of their daily living expenses. At 5% interest, they'd be looking at $15,000 a year, which is a very good start and would cover at least food, fuel and probably most of the rent.
But, let's suppose they've still retired, but they are only earning 1% today. That's only $3000, or, in other words, $12,000 that now has to come out of the principal, so every year that the Fed keeps ZIRP in place, they'll have to spend more and their net worth declines, impoverishing themselves and their heirs, someday in the future.
Editor's Note: I would like to point out that I'm using $300,000 in savings as an example here, figuring it is probably around the median savings of the already retired. Surely, many have saved less, but quite a few have saved even more. Actually, prior to 2000, the number was probably quite a bit higher.
OK, so now we can clearly see that the ZIRP has benefitted banks and Wall Street, as they borrow at nearly zero and lend at higher rates while investing in riskier assets like stocks and commodities. Retired individuals have no doubt tried to do the same with their savings, but the results have been poor over the past decade.
Getting back to our original premise, we have an average of $12,000 being lost to ZIRP, the money coming from the principal rather than interest. But suppose we say that this money is not being spent - and in some very real ways it isn't - because these retired folks are spending less on discretionary items since they have poor prospects for the future. Any way you look at it, ZIRP is causing a reduction in spending by seniors.
How much? Good question. We took a look and found that in April, 2011, there were 36,378,000 people collecting Social Security aged 65 or over.
So, simple math tells us that because of the Fed's ZIRP, there's roughly (36,378,000 X $12,000) $436,536,000,000 being lost in general spending to the economy. That's close to half a trillion dollars, and since we're two-and-a-half years into the Fed's ZIRP experiment, we lost that much in 2009, again in 2010 and are well on our way to doing it again this year.
Also, it's worth pointing out that Fed Chairman Greenspan, Ben Bernanke's predecessor, cut the federal funds rate to one per cent in the aftermath of the dot-com bust in 2001. Through the decade of the 2000s, the federal funds rate never got higher than 5 1/2%, and for much of the time it was well below that level, so the savings destruction has been going on for some time. We have been slowly eroding the wealth of seniors and future generations for over a decade and the effects are beginning to become quite a strain on the US economy.
So, how much damage is being done. If we can trust that number of $436,536,000,000 as the difference between 5% interest on savings versus 1%, it comes to about 3% of annual GDP, about the same amount the government would like the economy to grow annually. With the Fed's ZIRP in place, though, GDP will actually have to grow 6% just to make up the slack. And it isn't. It's not even close.
Charles Hugh Smith penned a very poignant essay on the topic of GDP on his Of Two Minds blog, in which he suggests that the economy isn't growing at all, thus reinforcing our point.
Since economics is mostly guesswork, extrapolation and statistics, please take this back-of-the-envelope with appropriate grains of salt, but the upshot is still the same: the Fed is actively destroying the savings and spending potential of seniors and anyone else who might be prudent enough to want to put something away for "a rainy day." Add in the implications of inflation, and it becomes clear why we're stuck in a no-growth economy and why deflation is not only desirable, but the best path out of our current morass.
Now, for our usual market recap:
Stocks went almost nowhere today, bothered by Wednesday's wicked sell-off and cognizant of Friday morning's May Non-farm Payroll release. Nobody seemed willing to put much "risk on", as they say, in advance of what could be a game-changing number. Most of the residual pain from Wednesday was felt in the Dow and in commodities, with the notable exception of crude oil (go figure).
Two pieces of economic data should have moved markets further to the downside, but the stubborn "recovery" crowd still refuses to buckle.
Initial jobless claims came in again above expectations (400,000) at 424,000, and factory orders fell 1.2% in April. This news, though bad, is about as good as anything seen in the past month. The Dow Jones Industrials were down nearly 100 points close to midday, but, as usual, recovered during the afternoon.
Dow 12,248.55, -41.59 (0.34%)
NASDAQ 2,773.31, +4.12 (0.15%)
S&P 500 1,312.94, -1.61 (0.12%)
NYSE Composite 8,277.76, -3.83 (0.05%)
Declining issues topped advancers, 3411-3119. On the NASDAQ, there were 30 new highs and uh, oh, 68 new lows. The NYSE saw 48 new highs and 47 new lows. Taken together, we have the expected flip, with 78 new highs being exceeded by 115 new lows. Unless the BLS pulls a rabbit out of its hat tomorrow morning and announces 150,000 or more new jobs created in May, it could mark a very important market turn that has taken many months to set up.
Volume on the day was back to pedestrian, depressed levels.
NASDAQ Volume 1,886,108,625
NYSE Volume 4,256,270,500
Crude oil was lower for much of the session, but finished the day up 11 cents, at $100.40, even though the government reported an inventory build of 2,878,000 barrels for the week ending 5/28.
Gold was punished again for being an alternative to paper money, losing $4.80, to $1534.30, though still very near all-time highs. Silver took more lumps, down 64 cents, to $36.18.
Just for fun, here's a chart which helps explain where the US economy is really heading via the Debt-to-GDP ratio:
And if that doesn't whet your technical appetite, try this long term chart of the S&P 500 measured in gold.
The idea for this enterprise came from an article n the September, 2010, edition of Reader's Digest, titled "Bonus Question" by Michael Crowley, abot how Wall Street profits at the expense of the middle class, especially through low interest rates. There's a podcast of the article available here.
The premise is simple. A long time ago, somebody, probably one or both of our parents, told us that saving was a good idea. And it was, especially when you could get 5% interest in a savings account.
Well, times have changed. One per cent is now the norm for CDs, savings accounts, money markets and other similar investments. So, the question emerges: how much has the Fed's Zero Interest Rate Policy (ZIRP) cost the middle class and the overall GDP?
Let's take an example of a person or couple having put away $300,000 for retirement, their plan, to retire on that money (they'll probably need more) and use the interest to pay for much of their daily living expenses. At 5% interest, they'd be looking at $15,000 a year, which is a very good start and would cover at least food, fuel and probably most of the rent.
But, let's suppose they've still retired, but they are only earning 1% today. That's only $3000, or, in other words, $12,000 that now has to come out of the principal, so every year that the Fed keeps ZIRP in place, they'll have to spend more and their net worth declines, impoverishing themselves and their heirs, someday in the future.
Editor's Note: I would like to point out that I'm using $300,000 in savings as an example here, figuring it is probably around the median savings of the already retired. Surely, many have saved less, but quite a few have saved even more. Actually, prior to 2000, the number was probably quite a bit higher.
OK, so now we can clearly see that the ZIRP has benefitted banks and Wall Street, as they borrow at nearly zero and lend at higher rates while investing in riskier assets like stocks and commodities. Retired individuals have no doubt tried to do the same with their savings, but the results have been poor over the past decade.
Getting back to our original premise, we have an average of $12,000 being lost to ZIRP, the money coming from the principal rather than interest. But suppose we say that this money is not being spent - and in some very real ways it isn't - because these retired folks are spending less on discretionary items since they have poor prospects for the future. Any way you look at it, ZIRP is causing a reduction in spending by seniors.
How much? Good question. We took a look and found that in April, 2011, there were 36,378,000 people collecting Social Security aged 65 or over.
So, simple math tells us that because of the Fed's ZIRP, there's roughly (36,378,000 X $12,000) $436,536,000,000 being lost in general spending to the economy. That's close to half a trillion dollars, and since we're two-and-a-half years into the Fed's ZIRP experiment, we lost that much in 2009, again in 2010 and are well on our way to doing it again this year.
Also, it's worth pointing out that Fed Chairman Greenspan, Ben Bernanke's predecessor, cut the federal funds rate to one per cent in the aftermath of the dot-com bust in 2001. Through the decade of the 2000s, the federal funds rate never got higher than 5 1/2%, and for much of the time it was well below that level, so the savings destruction has been going on for some time. We have been slowly eroding the wealth of seniors and future generations for over a decade and the effects are beginning to become quite a strain on the US economy.
So, how much damage is being done. If we can trust that number of $436,536,000,000 as the difference between 5% interest on savings versus 1%, it comes to about 3% of annual GDP, about the same amount the government would like the economy to grow annually. With the Fed's ZIRP in place, though, GDP will actually have to grow 6% just to make up the slack. And it isn't. It's not even close.
Charles Hugh Smith penned a very poignant essay on the topic of GDP on his Of Two Minds blog, in which he suggests that the economy isn't growing at all, thus reinforcing our point.
Since economics is mostly guesswork, extrapolation and statistics, please take this back-of-the-envelope with appropriate grains of salt, but the upshot is still the same: the Fed is actively destroying the savings and spending potential of seniors and anyone else who might be prudent enough to want to put something away for "a rainy day." Add in the implications of inflation, and it becomes clear why we're stuck in a no-growth economy and why deflation is not only desirable, but the best path out of our current morass.
Now, for our usual market recap:
Stocks went almost nowhere today, bothered by Wednesday's wicked sell-off and cognizant of Friday morning's May Non-farm Payroll release. Nobody seemed willing to put much "risk on", as they say, in advance of what could be a game-changing number. Most of the residual pain from Wednesday was felt in the Dow and in commodities, with the notable exception of crude oil (go figure).
Two pieces of economic data should have moved markets further to the downside, but the stubborn "recovery" crowd still refuses to buckle.
Initial jobless claims came in again above expectations (400,000) at 424,000, and factory orders fell 1.2% in April. This news, though bad, is about as good as anything seen in the past month. The Dow Jones Industrials were down nearly 100 points close to midday, but, as usual, recovered during the afternoon.
Dow 12,248.55, -41.59 (0.34%)
NASDAQ 2,773.31, +4.12 (0.15%)
S&P 500 1,312.94, -1.61 (0.12%)
NYSE Composite 8,277.76, -3.83 (0.05%)
Declining issues topped advancers, 3411-3119. On the NASDAQ, there were 30 new highs and uh, oh, 68 new lows. The NYSE saw 48 new highs and 47 new lows. Taken together, we have the expected flip, with 78 new highs being exceeded by 115 new lows. Unless the BLS pulls a rabbit out of its hat tomorrow morning and announces 150,000 or more new jobs created in May, it could mark a very important market turn that has taken many months to set up.
Volume on the day was back to pedestrian, depressed levels.
NASDAQ Volume 1,886,108,625
NYSE Volume 4,256,270,500
Crude oil was lower for much of the session, but finished the day up 11 cents, at $100.40, even though the government reported an inventory build of 2,878,000 barrels for the week ending 5/28.
Gold was punished again for being an alternative to paper money, losing $4.80, to $1534.30, though still very near all-time highs. Silver took more lumps, down 64 cents, to $36.18.
Just for fun, here's a chart which helps explain where the US economy is really heading via the Debt-to-GDP ratio:
And if that doesn't whet your technical appetite, try this long term chart of the S&P 500 measured in gold.
Wednesday, June 1, 2011
A Major Dose of Reality and the Beginning of the End of Paper Money
Confirming yesterday's hypothesis that "something is wrong," stocks righted themselves to the steady flow of horrible economic news on wednesday and took their largest losses in months.
What really sent the markets into a deep funk was the release of the ADP private payroll survey, which showed job gains for the month of May to be only 38,000, when most estimates ranged from 175,000 to as high as 300,000. That sent futures tumbling in the hour just prior to the open and stocks did a complete reversal from Tuesday's glorious rally, which, truth be told, was based on nothing but hot air, or even cold air, but air, nonetheless.
Once traders had tasted the bitter flavor of selling winners and losers alike, the ISM manufacturing index came in at 10:00 am, well below expectations of 57.0, at 53.5, after notching a 60.4 handle in April. Despite still being positive (above 50), it was the worst reading since the fall of 2009.
Lumped on top of Tuesday's Chicago PMI and Case-Shiller housing report, the first week of June looks like it may be a tide-turning one. The euphoria of Tuesday's happy-face rally all but extinguished, investors, economists and government talkers must face the grim reality that the economy is sputtering, even after trillions in stimulus over the past two-and-a-half years.
The fallout from the long series of poor to horrible economic reports was that the benchmark 10-year note fell to its lowest level since last summer, checking in at 2.94%, after closing at 3.06 yesterday. Sub-3% yields on the 10-year is swell for borrowers, but it also belies a grim truth: that the economy is dead in the water, and there is nowhere to go but into the relative safety of fixed income, albeit at very unattractive yields.
Dow 12,290.14, -279.65 (2.22%)
NASDAQ 2,769.19, -66.11 (2.33%)
S&P 500 1,314.55, -30.65 (2.28%)
NYSE Composite 8,281.59, -195.69 (2.31%)
Declining issues overwhelmed advancers, 5420-1222. It was the biggest rout of 2011. Still hanging on for dear life, the new high-new low indicator showed the NASDAQ dead even at 74 new highs and the same number of new lows. On the NYSE, a bit more resilience, with 101 new highs and 38 new lows, though once again, the margin is shrinking and it's only a matter of time before the market flips right over and a full-blown correction can be announced.
Naturally, since nobody wants or likes to face the reality of the situation, the US and global economies are almost completely kaput. Nothing more than wasted effort printing worthless Dollars, Euros and Yuan will be the requisite response from the league of central bankers whose policies have been exposed as outright disasters. A great reckoning is upon us, and those who have not prepared will be blind-sided and left in tears with paper assets worth nothing.
Volume was on a par with Tuesday's, unsurprisingly, though one could have expected even heavier selling. Apparently, not everyone is convinced that the game is over. The Too Big To Fail banks are still holding out hope for more dollar devaluation for the Fed and more handouts via the strapped and wrecked taxpayer base.
Of the more curious aspects of today's global melt-down was that the dollar actually looked like the best of a bad lot, rising 0.364 to 74.90, though that condition is - as the Chairman might express - transitory. Eventually, all paper money will be debased to nothing as the world sinks into global depression.
NASDAQ Volume 2,316,268,250
NYSE Volume 4,920,608,500
Of some small consolation to millions of consumers, oil fell abruptly, down $2.41, to $100.29. While still about $25 higher than it should be, the price of crude and the resultant price of gasoline should ease over the coming days and weeks to reflect the true status of the economy. Nothing kills growth as quickly or completely as high oil and gasoline prices, and, even though demand has been falling steadily since the average price of a gallon of unleaded gas hit just below $4.00, the price still remains a drag on the overall economy, at $3.77.
Gold was the greatest beneficiary of Wall Street's loathsome session, hitting a two-month high at $1551.20, before falling back to $1539.10, up $4.10 on the day. Naturally, the central banking cartel could not let silver go untouched, smashing the second precious metal down $1.65, to $36.82. Of course, in a deflationary depression, the metals offer no great relief, though they will tend to outperform all other asset classes and when the collapse of all fiat money occurs, they will shine as saviors.
June is shaping up to be a killer for the stock markets. Even though the ADP employment report has been widely criticized, there's little doubt that Friday's non-farm payroll report for May will be nothing short of disastrous, showing quite clearly that all the stimulus and wanton speculation of the past two years has done nothing to repair the deep wounds to the Main Street economy.
What little hope there is can be found amongst those who believe it is time for honesty and a change of policy, that people be favored over wealthy banks and their criminal CEOs and that government, if unable to serve the needs of the people, will be left behind. As during other times of hardship, the American public will turn to barter, black markets and other underground economies. Governments at all levels will be left holding onto unwieldy deficits as tax receipts fail to materialize.
The more one pays attention to what comes out of the mouths of bankers, government officials and elected legislators, the more one comes to realize that they have no interest but their own at heart and the American people will carry on without them, even if it means wholesale tax rebellion at every level. The system is burdened with unassailable costs and debts that cannot be paid. When and if congress decides to actually come to grips with these harsh realities, we will begin healing, though most with any sense of history feel that government has lost all control and the people are about to begin fending more or less for themselves.
Of course, the government will continue kiting checks to the "needy" and keeping the masses at bay with food stamps and other entitlement outlays, but the value will continue to erode and the already well-entrenched, wretched sub-class of welfare and government dole recipients will suffer even more.
It is truly a remarkable time in the world's history, and probably better to be young than old, for the young have the advantage of time - to repair, replenish and rebuild that which our absent leaders have destroyed.
What really sent the markets into a deep funk was the release of the ADP private payroll survey, which showed job gains for the month of May to be only 38,000, when most estimates ranged from 175,000 to as high as 300,000. That sent futures tumbling in the hour just prior to the open and stocks did a complete reversal from Tuesday's glorious rally, which, truth be told, was based on nothing but hot air, or even cold air, but air, nonetheless.
Once traders had tasted the bitter flavor of selling winners and losers alike, the ISM manufacturing index came in at 10:00 am, well below expectations of 57.0, at 53.5, after notching a 60.4 handle in April. Despite still being positive (above 50), it was the worst reading since the fall of 2009.
Lumped on top of Tuesday's Chicago PMI and Case-Shiller housing report, the first week of June looks like it may be a tide-turning one. The euphoria of Tuesday's happy-face rally all but extinguished, investors, economists and government talkers must face the grim reality that the economy is sputtering, even after trillions in stimulus over the past two-and-a-half years.
The fallout from the long series of poor to horrible economic reports was that the benchmark 10-year note fell to its lowest level since last summer, checking in at 2.94%, after closing at 3.06 yesterday. Sub-3% yields on the 10-year is swell for borrowers, but it also belies a grim truth: that the economy is dead in the water, and there is nowhere to go but into the relative safety of fixed income, albeit at very unattractive yields.
Dow 12,290.14, -279.65 (2.22%)
NASDAQ 2,769.19, -66.11 (2.33%)
S&P 500 1,314.55, -30.65 (2.28%)
NYSE Composite 8,281.59, -195.69 (2.31%)
Declining issues overwhelmed advancers, 5420-1222. It was the biggest rout of 2011. Still hanging on for dear life, the new high-new low indicator showed the NASDAQ dead even at 74 new highs and the same number of new lows. On the NYSE, a bit more resilience, with 101 new highs and 38 new lows, though once again, the margin is shrinking and it's only a matter of time before the market flips right over and a full-blown correction can be announced.
Naturally, since nobody wants or likes to face the reality of the situation, the US and global economies are almost completely kaput. Nothing more than wasted effort printing worthless Dollars, Euros and Yuan will be the requisite response from the league of central bankers whose policies have been exposed as outright disasters. A great reckoning is upon us, and those who have not prepared will be blind-sided and left in tears with paper assets worth nothing.
Volume was on a par with Tuesday's, unsurprisingly, though one could have expected even heavier selling. Apparently, not everyone is convinced that the game is over. The Too Big To Fail banks are still holding out hope for more dollar devaluation for the Fed and more handouts via the strapped and wrecked taxpayer base.
Of the more curious aspects of today's global melt-down was that the dollar actually looked like the best of a bad lot, rising 0.364 to 74.90, though that condition is - as the Chairman might express - transitory. Eventually, all paper money will be debased to nothing as the world sinks into global depression.
NASDAQ Volume 2,316,268,250
NYSE Volume 4,920,608,500
Of some small consolation to millions of consumers, oil fell abruptly, down $2.41, to $100.29. While still about $25 higher than it should be, the price of crude and the resultant price of gasoline should ease over the coming days and weeks to reflect the true status of the economy. Nothing kills growth as quickly or completely as high oil and gasoline prices, and, even though demand has been falling steadily since the average price of a gallon of unleaded gas hit just below $4.00, the price still remains a drag on the overall economy, at $3.77.
Gold was the greatest beneficiary of Wall Street's loathsome session, hitting a two-month high at $1551.20, before falling back to $1539.10, up $4.10 on the day. Naturally, the central banking cartel could not let silver go untouched, smashing the second precious metal down $1.65, to $36.82. Of course, in a deflationary depression, the metals offer no great relief, though they will tend to outperform all other asset classes and when the collapse of all fiat money occurs, they will shine as saviors.
June is shaping up to be a killer for the stock markets. Even though the ADP employment report has been widely criticized, there's little doubt that Friday's non-farm payroll report for May will be nothing short of disastrous, showing quite clearly that all the stimulus and wanton speculation of the past two years has done nothing to repair the deep wounds to the Main Street economy.
What little hope there is can be found amongst those who believe it is time for honesty and a change of policy, that people be favored over wealthy banks and their criminal CEOs and that government, if unable to serve the needs of the people, will be left behind. As during other times of hardship, the American public will turn to barter, black markets and other underground economies. Governments at all levels will be left holding onto unwieldy deficits as tax receipts fail to materialize.
The more one pays attention to what comes out of the mouths of bankers, government officials and elected legislators, the more one comes to realize that they have no interest but their own at heart and the American people will carry on without them, even if it means wholesale tax rebellion at every level. The system is burdened with unassailable costs and debts that cannot be paid. When and if congress decides to actually come to grips with these harsh realities, we will begin healing, though most with any sense of history feel that government has lost all control and the people are about to begin fending more or less for themselves.
Of course, the government will continue kiting checks to the "needy" and keeping the masses at bay with food stamps and other entitlement outlays, but the value will continue to erode and the already well-entrenched, wretched sub-class of welfare and government dole recipients will suffer even more.
It is truly a remarkable time in the world's history, and probably better to be young than old, for the young have the advantage of time - to repair, replenish and rebuild that which our absent leaders have destroyed.
Tuesday, May 31, 2011
Something Is Not Right
Nothing like a three-day weekend to rekindle those old "animal spirits" in the stock market.
Today's outsize gains come courtesy of the banking criminal cartel, whose sole mission in life is to separate regular people from their money. There was no good reason for stocks to go up, much the less by this inordinate amount. In the real world, economic indicators all pointed to a much weaker US economy than the mainstream media has been hyping, but the Wall Street floozies pumped their paper garbage all the same, and, apparently, there were plenty of pigeons to be plucked.
Before the market even opened, the S&P/Case Shiller 20-city index showed that the value of residential real estate has now fallen more than during the Great Depression. That's not some figure picked out of the blue. The link comes from none other than CNBC's Diana Olick, one very savvy real estate reporter who - unlike others from her network - can be trusted to share pertinent facts.
Olick points out that the big banks will definitely face more write-downs due to the massive unwind in real estate. Those big banks - PM Morgan Chase (JPM), Bank of America (BAC), Wells Fargo (WCF) and Citigroup (C) all finished 0.5 to 1.0% higher today. Either investors are whistling past their own graves or there is something definitely wrong with this picture. The banks are among the most unhealthy institutions in our unhealthy economy. The sooner they are wound down and bankrupted - because they really are insolvent, despite massive inflows of cash from the US taxpayer - the US can begin healing. Until then, we will head down the path of dollar destruction and desperation.
Just 15 minutes into the trading session, Chicago PMI posted a horrible read, with the index falling from 67.6 in April to 56.6 in May. Though the perma-bulls will contend that the index is still positive (anything over 50 is considered expansionary), an 11-point drop in one month is simply jaw-dropping. This actually took a little wind out of the Wall Street sails, as stocks drifted off their gap-up opening highs, hitting a bottom around midday. From there, however, the 30-minute attention span that seems to cover most of the trading public, kicked back in and stocks surged into the close, even though there was no catalyst - such as a sinking dollar - to prompt the gains.
Again, absent a falling dollar, stocks should have been flat or lower, considering how generally bad was the news today, but also every economic report from the past three weeks. Something is crooked, rotten, bad, awful, wrong, but since the stock market is now the special province of four or five major players, we may never know what the game really is until it comes.
At some point, Wall Street will be reconnected to Main Street, though the impression is clear that there will be many tears and disjointed days such as this. Until then, we can only marvel at the absurdity of centrally-planned economies and their formerly-free stock markets.
Dow 12,569.79, +128.21 (1.03%)
NASDAQ 2,835.30, +38.44 (1.37%)
S&P 500 1,345.20, +14.10 (1.06%)
NYSE Compos 8,477.28, +90.94 (1.08%)
Advancing issues buried decliners, 4904-1755. On the NASDAQ, 135 new highs dwarfed 46 new lows. The NYSE, not to be outdone, posted 224 new highs and just 11 new lows. Volume was terrific, something we have not witnessed since the collapse in 2008.
NASDAQ Volume 2,561,412,750
NYSE Volume 4,560,891,500
Oil was jacked another 2.11, to $102.70 per barrel for WTI crude. Gold lost $4.00, to $1535.10, but silver finished higher, up 40 cents, to $38.47.
The dollar index only fell 0.303, to 74.61. This was not a DXY move that could have produced the kind of gains seen today.
Something is definitely not right, and until we find out just what it is making stocks look like the values of the century, all due caution should be employed.
Today's outsize gains come courtesy of the banking criminal cartel, whose sole mission in life is to separate regular people from their money. There was no good reason for stocks to go up, much the less by this inordinate amount. In the real world, economic indicators all pointed to a much weaker US economy than the mainstream media has been hyping, but the Wall Street floozies pumped their paper garbage all the same, and, apparently, there were plenty of pigeons to be plucked.
Before the market even opened, the S&P/Case Shiller 20-city index showed that the value of residential real estate has now fallen more than during the Great Depression. That's not some figure picked out of the blue. The link comes from none other than CNBC's Diana Olick, one very savvy real estate reporter who - unlike others from her network - can be trusted to share pertinent facts.
Olick points out that the big banks will definitely face more write-downs due to the massive unwind in real estate. Those big banks - PM Morgan Chase (JPM), Bank of America (BAC), Wells Fargo (WCF) and Citigroup (C) all finished 0.5 to 1.0% higher today. Either investors are whistling past their own graves or there is something definitely wrong with this picture. The banks are among the most unhealthy institutions in our unhealthy economy. The sooner they are wound down and bankrupted - because they really are insolvent, despite massive inflows of cash from the US taxpayer - the US can begin healing. Until then, we will head down the path of dollar destruction and desperation.
Just 15 minutes into the trading session, Chicago PMI posted a horrible read, with the index falling from 67.6 in April to 56.6 in May. Though the perma-bulls will contend that the index is still positive (anything over 50 is considered expansionary), an 11-point drop in one month is simply jaw-dropping. This actually took a little wind out of the Wall Street sails, as stocks drifted off their gap-up opening highs, hitting a bottom around midday. From there, however, the 30-minute attention span that seems to cover most of the trading public, kicked back in and stocks surged into the close, even though there was no catalyst - such as a sinking dollar - to prompt the gains.
Again, absent a falling dollar, stocks should have been flat or lower, considering how generally bad was the news today, but also every economic report from the past three weeks. Something is crooked, rotten, bad, awful, wrong, but since the stock market is now the special province of four or five major players, we may never know what the game really is until it comes.
At some point, Wall Street will be reconnected to Main Street, though the impression is clear that there will be many tears and disjointed days such as this. Until then, we can only marvel at the absurdity of centrally-planned economies and their formerly-free stock markets.
Dow 12,569.79, +128.21 (1.03%)
NASDAQ 2,835.30, +38.44 (1.37%)
S&P 500 1,345.20, +14.10 (1.06%)
NYSE Compos 8,477.28, +90.94 (1.08%)
Advancing issues buried decliners, 4904-1755. On the NASDAQ, 135 new highs dwarfed 46 new lows. The NYSE, not to be outdone, posted 224 new highs and just 11 new lows. Volume was terrific, something we have not witnessed since the collapse in 2008.
NASDAQ Volume 2,561,412,750
NYSE Volume 4,560,891,500
Oil was jacked another 2.11, to $102.70 per barrel for WTI crude. Gold lost $4.00, to $1535.10, but silver finished higher, up 40 cents, to $38.47.
The dollar index only fell 0.303, to 74.61. This was not a DXY move that could have produced the kind of gains seen today.
Something is definitely not right, and until we find out just what it is making stocks look like the values of the century, all due caution should be employed.
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