Last Hour Rally Salvages Gains, Though Markets Down for Week

A tumultuous week came to a very anti-climatic conclusion on Friday, as the President issued a challenge to congress to come up with the "framework" of a deal within the next 24 to 36 hours to solve the wrangling over the debt ceiling and budget issues.

President Obama's 11:00 am new conference did little to move the matter in a more positive direction, and stocks languished throughout the day, finally putting together a half-hearted momentum rally in the final hour of trading.

In Europe, 82 of 90 banks passed the European banking Authority stress tests, but eight failed - four of them in Spain - and 12 more received barely passing grades.

Citigroup posted better-than-expected second quarter results, but still finished in the red for the day. Taking its cue, Bank of America (BAC), which reports on July 19, fell below $10 per share, finishing exactly at 10.00, after trading as low as 9.88, the lowest in more than two years.

The entire day was rather disjointed and purposeless, as stocks drifted around until the ramp-up at the close.

For the week, the Dow shed 177 points, the NASDAQ fell 70, the S&P gave back 27 and the NYSE composite dropped 183 points.

The late rally made little sense, unless one gives credence to the thought that it was a positive sign from the markets that a debt ceiling deal would be hatched by Monday.

Dow 12,479.73, +42.61 (0.34%)
NASDAQ 2,789.80, +27.13 (0.98%)
S&P 500 1,316.14, +7.27 (0.56%)
NYSE Composite 8,227.04, +35.91 (0.44%)

Advancers led decliners, 3945-2570. The NASDAQ offered 40 new highs and 34 new lows, while the NYSE had 62 stocks make new 52-week highs and 51 reach new lows. The combined total of 102 new highs and 85 new lows is cutting the margin rather closely and is reflective of the choppiness inherent in current markets.

NASDAQ Volume 1,825,291,125
NYSE Volume 4,370,969,000

A swath of economic data points offered no suggestion of improvement. The CPI fell 0.2%, the Empire Index returned a -3.76, industrial production and capacity utilization were both stagnant at 0.2% and 76.9%, and the Michigan consumer sentiment fell from 71.5 in May to 63.8 in June.

Crude oil continued on its zig-zag path, gaining $1.55, to $97.24. Gold hit another record, up 80 cents, to $1,590.10. Silver was up 38 cents, at $39.07 per ounce.

The NFL lockout continued, but both sides seem intent on reaching a deal, saying they would continue working over the weekend in order to conclude talks as early as possible without jeopardizing the preseason or regular season.

Maybe congress should take a hint from the players and owners. The American people have had about as much stalling and posturing as they can handle.

Italy Settles Down, But Stocks Slide Again; Google Amazes

With the continuing debt crisis in Europe taking an unusual day of rest, US stocks opened on the upside but could not maintain momentum as stalled talks over the US debt ceiling weighed heavily.

It's almost a certainty that the government clowns in Washington will come to a compromise solution similar to the budget deal in May - too little, almost too late, and sure to not address the most pressing US issues, those being housing, jobs and our very own burgeoning debt crisis.

With both sides still at odds over the scope and details, the nation is paralyzed by indecision, regulations and a tax policy that has - like the rest of the federal government - gone off the rails.

In Italy, austerity measures were passed, allowing the Italian government to issue much-needed 5-and-15-year bonds to finance continuing operations. The plan has many facets, and should (though it won't) serve as a blueprint for US measures.

That did not, however, help traders in US equities, which has this week given back much of the gains made over last week's spectacular five-day rally. Markets hate uncertainty, and even in the midst of earnings season, US stocks are very much a mixed bag of tricks, teetering on the brink of collapse.

It was a fine day for Google (GOOG), though, as the giant internet search and service company boasted profits well above Street estimates. Reporting after the closing bell, the company reported $6.92 billion in net revenue in the second quarter of 2011 and non-GAAP earnings per share of $8.74 on expectations of $6.54 billion in revenue and earnings per share of $7.87. The stock was trading up 12% in after-hours, up more than 63 points.

Dow 12,437.12, -54.49 (0.44%)
NASDAQ 2,762.67, -34.25 (1.22%)
S&P 500 1,308.87, -8.85 (0.67%)
NYSE Composite 8,191.13, -55.67 (0.68%)

Declining issues beat back advancers, 5019-1495. Though the headline numbers were hardly spectacular, except for the NASDAQ, which lost 1.22% on the day, selling was broad-based. NASDAQ stocks showed 56 new highs and 35 new lows, while the NYSE posted 46 new highs and 45 new lows. The combined total spread of 102 new highs and 80 new lows continues to deteriorate. Volume on the day was relatively solid, though that should be bearish for investors.

NASDAQ Volume 1,923,346,875
NYSE Volume 4,298,657,500

Economic data was mixed and uninspiring. Initial unemployment claims dropped to 405,000, though it was the 16th consecutive week above 400,000, another non-encouraging sign. Retail sales for June came in at plus 0.1%, and the PPI actually fell 0.4%, though the core number, which excludes food and energy, rose 0.3%. Business inventories were up 1.0% in May, as companies cited slack demand.

Commodities were also mixed. WTI crude oil fell sharply, down $2.36, to $95.69. Gold, though, set another new record high, gaining $3.40, to $1,589.30. Silver added 54 cents, gaining to $38.69 per ounce.

With the week drawing to a quick conclusion, Friday's data features the June CPI reading, the Michigan survey of consumer confidence and earnings from Citigroup (C).

Bernanke Thinks Gold is Not Money as it Soars to Record Highs

Before launching into my daily monologue on what's wrong with the global financial system (almost everything), here's a short video clip of Federal Reserve Chairman Ben Bernanke's answer to Texas representative (and presidential candidate, though you wouldn't know it from watching TV) Ron Paul's question as to whether the Chairman of the world's largest central bank thinks gold is money.

Watch the latest iteration of "what's wrong with this picture" below.



Well, there you have it. The Chairman thinks funny-looking pieces of paper with pictures of dead presidents on them are money, but gold, which has been used as a medium of exchange and a store of value, is not. Is there any wonder then, why the global economic system is on the verge of a grand mal seizure?

Bernanke's comments came at a time at which gold was breaking out to record highs, making his remarks seem not only ignorant and ridiculous, but also contrived, disingenuous and bordering on being an outright lie.

If one were to follow Bernanke's train of thought, then, no, gold is not money, land is not real estate, the moon is not a satellite and the sun is not a star. Rubbish, pure, stinking trash.

In addition to making profoundly absurd statements like the one above, the Chairman, in testimony before the House Financial Services Committee, also signaled that he and the Fed were prepared to provide more stimulus should the US economy continue to falter, though he held steadfast to the curious position that the economy was improving.

With that, stocks and commodities took that as a cue to ramp higher, with the Dow gaining more than 160 points just before 11:00 am.

However, the euphoria over the potential for QE3 was fleeting and stocks drifted lower throughout the session, with selling accelerating in the final hour. Equity markets lost about 2/3rds of their earlier gains, as traders left the floor moribund and still confused over fiscal as well as monetary policy.

Elsewhere in Washington, the President and leaders of congress met for a fifth straight day to try to work out a compromise on the budget and raising the debt ceiling. The late-afternoon meeting (3:45 pm) offers little chance of reaching any kind of agreement right away as both sides seem entrenched on their particular set of issues. Republicans are resistant to any kind of tax increase, even if only on the very top earners, while Democrats and the President have been more accommodative, though seem reluctant to make any modifications to Medicare or Social Security without some bending by Republicans. The result is a standstill, with the good faith and credit of the USA hanging in the balance.

So, while it was a winner for the bulls overall, the feeling of failure was pervasive at the end of the day.

Dow 12,491.61, +44.73 (0.36%)
NASDAQ 2,796.92, +15.01 (0.54%)
S&P 500 1,317.72, +4.08 (0.31%)
NYSE Composite 8,246.80, +54.05 (0.66%)

Advancing issues still managed to defeat decliners by a healthy margin, 4557-1978. On the NASDAQ, there were 87 new highs, and 26 new lows. The NYSE had 61 new highs, 24 new lows, putting the combined total for the day at 148 new highs and just 50 new lows. Volume was fairly dull, though the broader NYSE outgained the Dow, which happens rarely and is a sign that assets are shifting from traditional safe havens to more riskier investments, not at all surprising given Bernanke's comments.

NASDAQ Volume 1,874,432,000
NYSE Volume 4,033,702,250

Commodities, especially the precious metals, had a field day. Oil was up 62 cents, to $98.05, but was a laggard by comparison. Gold made another new all-time high at $1,585.50, up $23.20, while silver was a 7% gainer, up $2.52, to $38.15.

The slate of economic data for Thursday is chock-full of interesting readings, beginning with weekly unemployment claims along with retail sales and June PPI at 8:30 am.

After the bell, Yum! Brands (YUM) beat expectations by five cents, posting 66 cents per share for the second quarter, though most of the profits were driven by overseas performance and a favorable shift in its tax rate. US same store sales slipped 4% in the quarter, which was a discouraging sign for the global fast food company.

Mariott International (MAR) posted diluted EPS of $0.37, roughly in line with estimates.

No Rest for the Wicked; Stocks Fall Again

Conditions in Europe have not really changed much since yesterday's news of a crisis in Italy's continuing funding, except that Greece - before even receiving all of its most recent bailout money - already has put out its hand for more.

The word for the deepening debt crisis in Europe most-bantered about these days is contagion, the likelihood that issues of underfunding and failing to meet obligations by sovereign governments will spread. Here's a tip: contagion is already in effect. A few years ago Iceland defaulted on debt, refused to take austerity and cash from the IMF and is well on its way to a newfound prosperity without the rigors of international finance and fractional reserve banking.

However, on the continent, Ireland, Greece, and now Italy are suffering strains of the same disease - that of over-promising (mostly on government employee pensions and benefits) and failing to pull in enough revenue in taxes, fees and levies to pay out promptly and graciously. Portugal and Spain are not far behind, and the tiny nation of Belarus has already defaulted and devalued its currency. Belgium is also a basket case.

Contagion is here and its happening now.

What this really means is two things: 1) The European Union is in its death throes after just 11 years of existence, and, 2) Many of the largest banks in Europe are nearing the end of their government-supplied rope and will hang.

And maybe there's a third link to the disaster that is modern Europe: people will cheat, steal, riot, and eventually revolt. Forget collecting taxes. Government officials will be happy if they escape with the clothes on their backs and a few thousand Euros to see them safely out of their respective countries. Whether or not the contagion has enough virulence to travel across the Atlantic Ocean and infect the United States is a matter for politicians and their media lackeys, because the United States is the world's largest debtor with a total debt (on the books, not including the unfunded liabilities of Social Security, Medicade and Medicare) well beyond its annual GDP, making the United States the worst of all nations with a debt-to-GDP ration of over 100%.

Not only is the USA a basket case gone full retard, the debt is growing larger every day, and every day the Obama administration and the congress dithers over raising the debt ceiling (they all agree that the US cannot default), the situation worsens. We are in the midst of the most enthralling and frightening economic condition of all time. Many, many grave errors have occured over the past thirty years, not the least of which was the hollowing out of our industrial base which provided good jobs for millions of Americans. Those jobs went to Mexico and then to Southeast Asia and China. They are gone, many for good, and there is no way to bring them back soon.

It brings up an interesting proposition, supposing that the mindless cretins we call our "leaders" in Washington haggle and argue right up to the August 2nd deadline. Who gets stiffed in the case of a default? Would the US actually stop paying its military? Social Security recipients? Food stamp mouth-breathers? How about China?

There are no good answers, only bad and horrible conclusions. The answer is China. Stiff the Chinese on their $1.8 billion or so in bond holdings and go to war, as war solves all problems in a way. Both countries get decimated in a protracted struggle or blow each other and the rest of the Northern Hemisphere away in a nuclear holocaust. The first way is slow, painful and regrettable. The second is quick and completely devastating, and since neither side would likely opt for MAD (mutually assured destruction), the first choice is rather obvious.

Will it happen? Hopefully not. And there's the very good chance that the politicians, controlled by the banking and industrialist interests, would opt on stiffing seniors. What the heck, they're old and going to die soon anyway, why not just accelerate the process. And wipe out the food stamp class as well. They contribute nothing, so starve them to death. Nice scenarios, no?

Whatever happens over the next few weeks, nothing is really going to be solved. Even if the government officials decide on a compromise of $3 trillion in budget cuts over ten years, the annual deficit will probably be close to a trillion dollars each and every year. They're only cutting $300 billion a year out of the budget. It's kind of like using a sponge to empty a bucket. It works, but not very well. By 2022, the national debt will have grown to over $24 trillion, and that's if they work out a compromise that cuts some of the deficit and tax revenues remain steady for the next ten years, two possibilities that are not very good bets.

In other words, you, me, your kids, their friends, your neighbors and their neighbors are royally screwed unless we begin taking off the rose-colored shades and rid ourselves of the infliction known as normalcy bias pretty soon. Normal is going away. Austerity, poverty and desperation will become rampant, as they're already spreading across the land and are in place in Europe.

Not to sound like the whack-job on the street corner, shouting, "prepare or die," it is time to hunker down and get serious about the issues plaguing the globe, most of which start and end at your local bank branch, which is probably a Chase, Bank of America or Wells Fargo. They're the problem, have been the problem and will continue to be the problem until they are forced to meet their realities and be broken up, though that will not happen. We're beyond that, and, with the politicians thinking more about elections in 2012 rather than whether or not there will be a nation and an engaged electorate at that time, the chances of complete systemic breakdown are greater than they were in 2008, when the unthinkable almost happened. This time, there will be no bailout, because it will be the government going under.

Whether that's a good thing or not will be for historians to judge, but one thing's for certain: we cannot continue along this path much further without some kind of catastrophe. It's coming faster than anyone can imagine.

As for the markets, the major indices bounced along the flat line for most of the session, with the NASDAQ (where the highest risk stocks reside) taking the worst of it. There was a slight bounce after the Fed released the minutes from the last FOMC meeting, in which it was revealed that the Fed governors were torn between more stimulus and raising rates. There cannot be a greater divide of opinion, which, at such a critical time, is a very, very bad omen and portends more mistakes by the Fed straight ahead.

That bounce lasted only a few minutes as stocks fell to their worst levels of the day into the close. It was truly ugly and sets up some very dicey trading for the remainder of the week. Even as earnings are rolling out from a variety of companies, interpreting economic data is going to be a challenge. PPI is out on Thursday along with initial unemployment claims, and Friday, a veritable stew of data comes forth: CPI, Industrial Production, Capacity Utilization, the Empire Index for NY state and the Michigan gauge of consumer sentiment. Things could get very messy down on the trading floors. Good time to stock up on tissues and handkerchiefs because there's likely to be a bit of sweating and some crying before the week is out.

Dow 12,446.88, -58.88 (0.47%)
NASDAQ 2,781.91, -20.71 (0.74%)
S&P 500 1,313.64, -5.85 (0.44%)
NYSE Composite 8,192.75, -35.98 (0.44%)

Declining issues outpaced advancers, 3806-2726. There were 56 new highs and 37 new lows on the NASDAQ. The NYSE showed 46 new highs and 37 new lows. Combined, there were 102 new highs and 74 new lows. Not much margin for error as the tide seems to be turning very bearish, very quickly. Today's volume was a bit perky, with much of it occurring in the final two hours' rush for the exits, another disturbing sign.

NASDAQ Volume 2,028,997,125
NYSE Volume 4,215,946,500

For those of us who drive combustion engine vehicles, another knife in the back from our friendly oil producers, who drove the price of WTI crude up another $2.28, to $97.43. Gold, however, made a new all-time high at $1,562.30, gaining $16.20 on the day. Silver added 35 cents to $36.10.

With gold and silver rising, stocks falling, and, by the way, the 10-year note down to a yield of 2.87% - from 3.12% a week ago - all signs point to a very rough patch dead ahead. The flattening of the yield curve is happening at an unprecedentedly rapid pace. The clowns in Washington better come to a deal soon, like tomorrow, because financial armageddon awaits. The same goes for the millionaire players and billionaire owners of the NFL. People are tired of gamesmanship and waiting.

Now is the time for decisive action.

Problems Abound: Jobs, Italy, Greece; Stocks in Retreat

Quoting from Friday's post: "Monday may, in fact, turn into a real blood-bath."

Well, it may not have been real blood, and it was more of a dousing rather than a bath, but stocks got hit pretty hard on Monday, following the less-than-impressive sell-off after the dismal non-farm payroll report which ended last week's rally in rather abrupt fashion.

The poor start to the new week was blamed - according to most pundits and exclamatory TV barkers - almost entirely on debt issues related to Italy, though there are more issues and problems popping up every day. The scapegoat Italians seem to be having the same problem most Western nations are: too much debt and not enough revenue.

What has the EU concerned is the not the size of the bailout which might be needed to shore up Italy's evolving debt crisis, it is the size of Italy's economy, the third largest in the European Union. Halping out smaller countries like Greece or Ireland are mere child's play by comparison. Italy is a nation of 60 million people, or, about 1/5th the size of the United States. That's a big problem, akin to having Texas, New Mexico, Arizona, Colorado, Wyoming and Louisiana all threaten to default on public debt at once.

The absolute fact of the matter is that the EU simply cannot go about printing up more Euros to bail out nation after nation. Sooner or later, the currency will become worthless and the nascent "grand experiment" of a unified Europe will fall completely apart. Already, there are signs of trouble in Germany, which has been acting - along with the US Federal Reserve - as the main funding source for bailout money, but in the end the major European banks will become victims of their own Ponzi scheme.

You see, money really doesn't grow on trees and just whipping it up out of thin air makes for instability and eventual anarchy. This is the situation in which we all are headed, and in a hurry. Would the financiers of the leading nations have confessed to their sins during the Lehman debacle in 2008, much of this would not be occurring, but, being the type of people who are prone to lie and cover up crimes and major blunders, world leaders would rather play this silly game of bailout rather than face the music (and jail time or guillotines).

Eventually, it's all going to implode into a global depression, rivaling or exceeding the pain and suffering of the 1930s. By some accounts, parts of the world, such as the Middle East, the Horn of Africa, certain counties in Georgia and Florida, along with Greece and Ireland, are already in a deep, never-ending depression. All that's keeping the rest of the world from falling apart is the non-stop printing of US dollars and the helping hand of uncle Ben Bernanke at the Fed.

While there are those who believe we in America will suffer a bout of hyper-inflation a la the Weimar Republic, the fact remains that wage growth is stagnant, money supply is insufficient to handle all claims in a mass default and the other income-producing part of the great capitalist triangle (money, labor, materials), that being materials, are still rather abundant.

We should all be preparing for the "great reset" in which everything becomes worth less than it was the day before, except maybe food, for that is the only requisite commodity essential to sustaining human life. One hates to be the messenger for bad news, but starvation and death may indeed become preferable, for some, to living under the thumb of a global police state in a condition of abject poverty. It's coming, and, as today's evidence and that of the past three years can attest, it's gaining momentum.

Incidentally, only eight stocks in the S&P 500 were winners today, and all 30 Dow components finished on the downside. Financials led the way, with Bank of America (BAC) and Morgan Stanley (MS) hitting new 52-week closing lows.

Here are the sad facts from fat-cat Wall Street:

Dow 12,505.76, -151.44 (1.20%)
NASDAQ 2,802.62, -57.19 (2.00%)
S&P 500 1,319.49, -24.31 (1.81%)
NYSE Composite 8,228.73, -181.46 (2.16%)

Losing issues trampled gainers, 5494-1122, the largest margin of losers to winners in quite some time, probably not since 2008. On the NASDAQ, there were, hard to believe, 49 new highs and 32 new lows. On the NYSE, a little closer to reality, 34 new highs and 30 new lows. The combined total of 83 new highs and 66 new lows masks the fact that many of the new highs were nothing but bear funds, inverse, triple leveraged ETFs and other derivative products. Even looking through the listings of new highs on the NYSE shows most stocks finishing well below their stated 52-week high. Surely, we can trust the Rupert Muchdoch-owned Wall Street Journal to not fudge statistics, right?

Volume was pretty weak, even for a massive down day, though this low level of trading has by now morphed into a new normal, so lower and lower volume figures should not be cause for alarm as market participants exit or are destroyed.

NASDAQ Volume 1,778,419,250
NYSE Volume 3,843,530,000

WTI crude oil traded down again, losing $1.05, to $95.15. Gold gained $7.60, to $1,549.20, close to an all-time high, though silver was punished once more for attempting to be regarded as money, dipping 85 cents, to $35.70 per ounce.

Not all the news was bad... well, yes it was, as Alcoa (AA) reported after the bell that it missed LOWERED estimates by a penny, at 32 cents per share as opposed to the consensus of 33 cents. Share were lower all day, preceding the after-hours announcement and continued to slide.

That is not a good way to kick off 2nd quarter earnings season.