One of the wildest weeks in US stock market history came to a rather anti-climactic close on Friday, with modest gains on all of the major indices, though the close was well off the highs of the session.
The Dow was the biggest winner of the day in percentage terms, suggesting that money is being plowed into the global behemoths for their international reach and dividend yields, but the week-ending rally was well short of spectacular and the Dow ended the day close to the middle of the range after it had been up 203 points at the high.
The S&P 500 had been as high as 1189 before losing more than half its gains through the afternoon. So too, the NASDAQ, which was up as much as 32 points before surrendering much of those gains as the day wore on.
For the week, all the major averages were lower. The Dow gave up 175 points over the roller coaster week; the NASDAQ lost 25 points, or about one percent, and the S&P shed 20 points, closer to 2%.
It was the third straight week of losses for the major averages, though hardly as bad as it could have been, measured by the lows set in place on Wednesday. The troubling characteristics of the week's trading were extreme volatility, high volume and the uncanny ability - in the near future - for indices to retest lows before making decisive moves.
With Europe still unresolved and US problems probably put away for a while with the start of preseason football, Friday turned out to be a day of celebration, not for the gains of the session, but for the fact that markets did not continue to slide as the week wore on and out.
Another troubling aspect was the 10:00 am reading from the University of Michigan's survey of consumer sentiment, which plunged to an 31-year low of 54.9, after a reading of 63.7 in July.
On the other hand, retail sales posted positive gains for July according to the Department of Commerce, though their readings and estimates have proven in the past to be more hot air than fact.
Not to hose down anyone's equity parade, but the global economy is still rather shaky, and unless long-term, structural problems with debt and the global currencies themselves are addressed, we are sure to repeat this kind of market behavior and sluggish economic growth. As it is, it's been nearly three years since the collapse of Lehman Brothers and the world is hardly a better place. Investments have become short term holdings, while real money has gravitated to bonds, gold or hard assets.
Dow 11,269.02, +125.71 (1.13%)
NASDAQ 2,507.98, +15.30 (0.61%)
S&P 500 1,178.81, +6.17 (0.53%)
NYSE Composite 7,303.88, +46.30 (0.64%)
Advancing issues topped decliners, though the margin was slight, 3965-2678. New highs on the NASDAQ numbered just four (4), with 60 new lows. On the NYSE, there were only seven (7) new highs and 24 new lows. The combined total of 11 new highs and 84 new lows - low numbers on both sides - suggests exactly what the market shows, that we are in a mid-range between a rally and collapse, with a bias to the negative.
Volume dropped off substantially, as traders were worn out and some caution and reason was applied to today's trading.
NASDAQ Volume 2,222,537,500
NYSE Volume 5,581,791,000
Commodities were sluggish. Oil fell 34 cents, to $85.38. Gold dipped $8.90, ending the week at $1,742.60, while silver speculators snapped back at onerous margin requirements, gaining 45 cents, to $39.11.
At the end, it was a smooth finish, but hardly inspiring to the bulls. After all, this is a three-week skid and the major markets are still bound between correction (-10%) and a bear market (-20%). It will likely take more than a few good days of trading to come to some understanding of future direction.
Friday, August 12, 2011
Thursday, August 11, 2011
Markets in Stupid Mode
Sorry, but nobody can accurately analyze four consecutive days of 400+ point moves on the Dow.
It's just not normal, but this is what we get when there are no regulators, lax controls and machines doing 90% of the trading.
The only thing one can possibly take away from this is that markets, and most traders, have no idea what to expect from day-to-day and the entire equity complex is more than likely rigged to benefit high frequency traders and the TBTF banks.
Fundamental analysis more or less died in 2008, and now we are seeing the effects of a completely broken price discovery mechanism.
It's tough to get excited about a 400-point move higher when the day before was a 500-point move to the downside. Any attempt to justify this kind of activity should be met with blank stares and an excessive amount of skepticism because, over the past four days, nothing has fundamentally changed except the price people - or machines - are willing to pay for stocks, options, ETFs and mutual funds.
Seriously, it's not even worth attempting to analyze today's movements because tomorrow's are likely to be something completely different, rendering any judgments incorrect.
Dow 11,143.31, +423.37 (3.95%)
NASDAQ 2,492.68, +111.63 (4.69%)
S&P 500 1,172.64, +51.88 (4.63%)
NYSE Composite 7,257.57, +319.34 (4.60%)
Advancers beat decliners, 5816-965. On the NASDAQ, there were five (5) new highs and 131 new lows; the NYSE saw seven (7) stocks reach new highs, but 127 make new lows. It should be of some benefit to keep a close eye on the new highs-new lows indicator. Even on a massive upside day like today, very few stocks made new highs, though an inordinate number made new lows. That's a definitely bearish trend which has remained in place throughout the market turmoil.
Volume was on the high side again, though not nearly as robust as on the days when the markets turned lower. One gets the feeling that most of the trades are very short-term, and once the money's been made, the traders will exit and go looking for fresh meat. This isn't a stock market any more. It's close to being a casino, though that would give casinos a bad name.
NASDAQ Volume 3,091,521,750
NYSE Volume 7,798,956,500
Oil priced higher again, gaining $2.83, to close the NYMEX session at $85.72. Would it surprise anyone to see oil back above $90 shortly, with no change at all in prices for gasoline at the pump? It's all part of the elitists' plan to destroy the middle class.
Gold was slapped down after the CME announced it would raise margin requirements by 22%, losing $32.80, to $1,751.50. Silver nose-dived 66 cents, to $38.67.
A couple of things are for certain. The powers that be don't like gold and silver rising in price and the general direction of the market is down. We're still in correction territory, down more than 10% on the major indices, and these powerful rallies are fueled, in part, by short covering, the machine-driven trading and the allocations required by ETFs, one of the worst financial innovations of the last fifty years.
If ETFs are going to continue to be part of the market, they need to be excluded from making up part of the averages. In other words, spill them out into their own exchange, which would eliminate a lot of the volatility in markets today.
Of course, that will never happen.
Thank goodness tomorrow is Friday.
It's just not normal, but this is what we get when there are no regulators, lax controls and machines doing 90% of the trading.
The only thing one can possibly take away from this is that markets, and most traders, have no idea what to expect from day-to-day and the entire equity complex is more than likely rigged to benefit high frequency traders and the TBTF banks.
Fundamental analysis more or less died in 2008, and now we are seeing the effects of a completely broken price discovery mechanism.
It's tough to get excited about a 400-point move higher when the day before was a 500-point move to the downside. Any attempt to justify this kind of activity should be met with blank stares and an excessive amount of skepticism because, over the past four days, nothing has fundamentally changed except the price people - or machines - are willing to pay for stocks, options, ETFs and mutual funds.
Seriously, it's not even worth attempting to analyze today's movements because tomorrow's are likely to be something completely different, rendering any judgments incorrect.
Dow 11,143.31, +423.37 (3.95%)
NASDAQ 2,492.68, +111.63 (4.69%)
S&P 500 1,172.64, +51.88 (4.63%)
NYSE Composite 7,257.57, +319.34 (4.60%)
Advancers beat decliners, 5816-965. On the NASDAQ, there were five (5) new highs and 131 new lows; the NYSE saw seven (7) stocks reach new highs, but 127 make new lows. It should be of some benefit to keep a close eye on the new highs-new lows indicator. Even on a massive upside day like today, very few stocks made new highs, though an inordinate number made new lows. That's a definitely bearish trend which has remained in place throughout the market turmoil.
Volume was on the high side again, though not nearly as robust as on the days when the markets turned lower. One gets the feeling that most of the trades are very short-term, and once the money's been made, the traders will exit and go looking for fresh meat. This isn't a stock market any more. It's close to being a casino, though that would give casinos a bad name.
NASDAQ Volume 3,091,521,750
NYSE Volume 7,798,956,500
Oil priced higher again, gaining $2.83, to close the NYMEX session at $85.72. Would it surprise anyone to see oil back above $90 shortly, with no change at all in prices for gasoline at the pump? It's all part of the elitists' plan to destroy the middle class.
Gold was slapped down after the CME announced it would raise margin requirements by 22%, losing $32.80, to $1,751.50. Silver nose-dived 66 cents, to $38.67.
A couple of things are for certain. The powers that be don't like gold and silver rising in price and the general direction of the market is down. We're still in correction territory, down more than 10% on the major indices, and these powerful rallies are fueled, in part, by short covering, the machine-driven trading and the allocations required by ETFs, one of the worst financial innovations of the last fifty years.
If ETFs are going to continue to be part of the market, they need to be excluded from making up part of the averages. In other words, spill them out into their own exchange, which would eliminate a lot of the volatility in markets today.
Of course, that will never happen.
Thank goodness tomorrow is Friday.
Wednesday, August 10, 2011
Fear Factor: Wall Street, Europe in Full Retreat; Dow Down Another 520 Points
Wall Street suffered one of its worst losses of all time and the third major loss in the last week.
Stocks were battered right from the opening bell, though selling accelerated in the final two hours of trading, just after stocks had reached their highs of the session.
The culprits - just in case anyone needs a good villain for the orderly destruction of capital - today were European banks such as France's Societe Generale, Germany's Duetsche Bank and Italy's Unicredit. European liquidity is being pinched again, just as it was during the global financial meltdown in 2008-09, though most of the players involved do not yet see the risk as severe.
The markets are telling different story, with stocks suffering deep declines for the third time in five days. Tuesday's enormous snap-back rally was completely overwhelmed by today's selling, and the end of the crisis seems well into the future.
To put matters into perspective as to how deep these recent losses are, consider:
A pretty picture this is not. Additionally, there's nowhere to park money with any kind of real return. The 10-year note fell to an historic low of 2.09%, the 30-year bond dropped to 3.50% at the close, while a 2-year bill fetches a ridiculous 17/100ths of a percent in interest. Might as well stuff dollar bills into a mattress for the next few years as it's likely a safer place than the bond markets.
Even after yesterday's stunning announcement by the Federal Reserve that it would keep the federal funds rate at near zero for the next two years, markets were still unrelieved. What the Fed did, in effect, was broadcast deflation with about as big a bullhorn as they could, saying that unemployment was getting worse, the housing crisis has not been resolved and prospects for further deterioration in the economy outweighed the chances for meaningful recovery.
Meanwhile, most of congress is off on its annual month-long vacation, supposedly back in their various states and legislative districts, watching the mess from as far away as they can get. It would be interesting to see how many are out of the country, and, if this stock market malaise continues, how many of those come back to face the music.
Here's the sad story of the day in numbers:
Dow 10,719.94, -519.83 (4.62%)
NASDAQ 2,381.05, -101.47 (4.09%)
S&P 500 1,120.76, -51.77 (4.42%)
NYSE Composite 6,938.23, -319.81 (4.41%)
Losing issues belted advancers again, 5050-1691, though, by those figures, there was at least a smattering of selectivity in the sell-off. On the NASDAQ, six (6) new highs were offset by 232 new lows. Over on the NYSE, a mere three (3) stocks posted new highs, while 221 made new lows. The combined total of 9 new highs and 453 new lows is indicative of yesterday's smash-up, which set many stocks above their recent lows, though the feeling is that it's only a matter of a few more days before the new lows reach well beyond the 1000 mark.
Volume was robust again, in keeping with the current trend of being "all in."
NASDAQ Volume 3,437,055,500
NYSE Volume 9,282,671,000
Oil stopped skidding for a day, gaining $3.59, to $82.89. Gold briefly priced at over $1800, but fell back, to $1,784.30, a $41.30 gain on the day. Silver picked up finally, gaining $1.44, to $39.33. Both gold and silver are up as trading heads to Asian markets.
Tomorrow will begin with an 8:30 read of initial unemployment claims, which is still expected to be hovering around the 400,000 mark. It will likely be a non-market-moving number, as the macro condition is truly driving the declines.
Some are already saying that stocks are cheap, but many were saying that a few weeks ago, before the bottom began falling out.
Cheap is such a relative term. A particular asset may be "cheap" to some and pricey to others. Right now, stocks look like they're being sold as fast as they can, before they lose even more value.
Maybe the worst thing about this sudden crashing is that it's only Wednesday. There are still two more trading days to get through.
Stocks were battered right from the opening bell, though selling accelerated in the final two hours of trading, just after stocks had reached their highs of the session.
The culprits - just in case anyone needs a good villain for the orderly destruction of capital - today were European banks such as France's Societe Generale, Germany's Duetsche Bank and Italy's Unicredit. European liquidity is being pinched again, just as it was during the global financial meltdown in 2008-09, though most of the players involved do not yet see the risk as severe.
The markets are telling different story, with stocks suffering deep declines for the third time in five days. Tuesday's enormous snap-back rally was completely overwhelmed by today's selling, and the end of the crisis seems well into the future.
To put matters into perspective as to how deep these recent losses are, consider:
- On July 27, the Dow closed at 12,724.41; today's close was 10,719.94, a drop of more than 2000 points in just 14 sessions.
- The NASDAQ topped out at 2858.83 on the 22nd of July; today's close of 2381.05 is a 17.7% drop.
- The Russell 2000, comprised primarily of small and mid-cap names, is already in bear territory, down more than 20% from recent highs
- The Dow Jones Transportation Index, which topped out at 5514.87, closed today at 4377.14, technically signaling a bear market as it is down 21%
- The S&P 500 lost 32 points last Tuesday, another 60 points last Thursday, 80 points on Monday and another 51 points today.
- The Dow Jones Industrials is just 500 points from making a 20% decline and resumption of the Bear market which was interrupted for 53 months by a stimulus and quantitative easing-induced rally that is now evaporating.
A pretty picture this is not. Additionally, there's nowhere to park money with any kind of real return. The 10-year note fell to an historic low of 2.09%, the 30-year bond dropped to 3.50% at the close, while a 2-year bill fetches a ridiculous 17/100ths of a percent in interest. Might as well stuff dollar bills into a mattress for the next few years as it's likely a safer place than the bond markets.
Even after yesterday's stunning announcement by the Federal Reserve that it would keep the federal funds rate at near zero for the next two years, markets were still unrelieved. What the Fed did, in effect, was broadcast deflation with about as big a bullhorn as they could, saying that unemployment was getting worse, the housing crisis has not been resolved and prospects for further deterioration in the economy outweighed the chances for meaningful recovery.
Meanwhile, most of congress is off on its annual month-long vacation, supposedly back in their various states and legislative districts, watching the mess from as far away as they can get. It would be interesting to see how many are out of the country, and, if this stock market malaise continues, how many of those come back to face the music.
Here's the sad story of the day in numbers:
Dow 10,719.94, -519.83 (4.62%)
NASDAQ 2,381.05, -101.47 (4.09%)
S&P 500 1,120.76, -51.77 (4.42%)
NYSE Composite 6,938.23, -319.81 (4.41%)
Losing issues belted advancers again, 5050-1691, though, by those figures, there was at least a smattering of selectivity in the sell-off. On the NASDAQ, six (6) new highs were offset by 232 new lows. Over on the NYSE, a mere three (3) stocks posted new highs, while 221 made new lows. The combined total of 9 new highs and 453 new lows is indicative of yesterday's smash-up, which set many stocks above their recent lows, though the feeling is that it's only a matter of a few more days before the new lows reach well beyond the 1000 mark.
Volume was robust again, in keeping with the current trend of being "all in."
NASDAQ Volume 3,437,055,500
NYSE Volume 9,282,671,000
Oil stopped skidding for a day, gaining $3.59, to $82.89. Gold briefly priced at over $1800, but fell back, to $1,784.30, a $41.30 gain on the day. Silver picked up finally, gaining $1.44, to $39.33. Both gold and silver are up as trading heads to Asian markets.
Tomorrow will begin with an 8:30 read of initial unemployment claims, which is still expected to be hovering around the 400,000 mark. It will likely be a non-market-moving number, as the macro condition is truly driving the declines.
Some are already saying that stocks are cheap, but many were saying that a few weeks ago, before the bottom began falling out.
Cheap is such a relative term. A particular asset may be "cheap" to some and pricey to others. Right now, stocks look like they're being sold as fast as they can, before they lose even more value.
Maybe the worst thing about this sudden crashing is that it's only Wednesday. There are still two more trading days to get through.
Tuesday, August 9, 2011
Fed Honesty and Insane Markets
This was the mother of all snap-back, double-back rallies.
Let's see, first, after the sixth-worse day in US market history - taking the Dow as our guide - stocks opened sharply higher, then fell back to the flat line in the first fifteen minutes of trading, then rallied 200 points in the next 20 minutes.
After that, stocks just drifted along, as though yesterday's massive decline was some kind of mirage or a bad joke.
At 2:15 pm EDT, the FOMC issued what might be the most useful statement in the 98 year history of the Federal Reserve. It's not very long, so here's the whole thing (worth a look):
The salient points are many, but the stunner of them all was the statement that the federal funds rate would remain at ZERO to 1/4 percent and that this accommodative measure would remain in effect until the middle of 2013, or, put another way, for about the next two years.
At first, market reaction was positive, then turned completely negative just minutes after the release. What the Fed is saying, in effect, is that the US economy has just about sputtered out, but there's nothing the Fed can do at this point. They surrender to market forces and will keep rates at the absurdly low levels for the next two years.
What they didn't say might have been even more important. There was not even a hint of more quantitative easing (QE), as the last two rounds produced nothing other than price inflation and the build-up of the too-big-to-fail (TBTF) banks' balance sheets. The Fed also did not mention how or when it would begin unwinding its own over-stuffed balance sheet, currently at historic highs.
Once the market got the gist of the Fed's generosity and after falling more than 350 points from before the statement's release, it was off to the races and a nearly 600-point rally in the final hour and fifteen minutes of trading.
Us markets are, and will continue to be, completely insane, out of control except under that of the TBTF banks who control it. Some people lost money today and some made quite a bit. Anyone with any knowledge of the corrupt, inner workings of the stock market knows who won and who lost, and most of the losers were surely people without super fast computers and gee-whiz algorithms.
Dow 11,239.77, +429.92 (3.98%)
NASDAQ 2,482.52, +124.83 (5.29%)
S&P 500 1,172.53, +53.07 (4.74%)
NYSE Composite 7,258.04, +362.07 (5.25%)
Advancers clobbered decliners on the day, 5880-966, but new lows remained at elevated levels over new highs. There were just 16 new highs, but 484 new lows on the NASDAQ, while on the NYSE there were only 3 new highs and 702 new lows. That puts the combined numbers at 19 new highs and 1186 new lows, an extremely negative bias.
Volume was extreme once again, nearly as pronounced as yesterday's.
NASDAQ Volume 3,819,984,500
NYSE Volume 10,180,450,000
Commodities were literally all over the place. Oil zig-zagged over the unchanged line to a $2.01 loss, at $79.30 by the end of the day. Gold was higher all day, finally settling at $1,743.00, up $29.80, another record close. Silver, however, has become the whipping boy of the lovers of fiat, losing $1.50, to $37.88. Apparently, either the decade-long love affair with gold's first cousin is over or the shorting machinery of HSBC and JP Morgan has the markets covered. The latter is more than likely the case, though eventually silver will score enormous gains, once the masters of the universe are satisfied they've done their best to squelch any thought of making silver a negotiable currency again.
The gold-silver ratio is historically around 16-1, which, were that the case today, silver would cost somewhere in the neighborhood of $109 an ounce. The current gold-silver ratio is 46-1, though that is lower than what it's been in previous years. It still needs to find equilibrium. No doubt that silver is too cheap, but is gold too high? Probably not.
Thus ends another adventure through the canyons of Wall Street. Tune in tomorrow to find out that 90% of all trading is done by computers over which humans have no control. We are slaves to technology.
Let's see, first, after the sixth-worse day in US market history - taking the Dow as our guide - stocks opened sharply higher, then fell back to the flat line in the first fifteen minutes of trading, then rallied 200 points in the next 20 minutes.
After that, stocks just drifted along, as though yesterday's massive decline was some kind of mirage or a bad joke.
At 2:15 pm EDT, the FOMC issued what might be the most useful statement in the 98 year history of the Federal Reserve. It's not very long, so here's the whole thing (worth a look):
Information received since the Federal Open Market Committee met in June indicates that economic growth so far this year has been considerably slower than the Committee had expected. Also, recent labor market indicators have been weaker than anticipated. Indicators suggest a deterioration overall in labor market conditions in recent months, and the unemployment rate has moved up. Household spending has flattened out, investment in nonresidential structures is still weak, and the housing sector remains depressed. However, business investment in equipment and software continues to expand. Temporary factors, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events of Japan, appear to account for only some of the recent weakness in economic activity. Inflation picked up earlier in the year, mainly reflecting higher prices for some commodities of imported goods, as well as the supply chain disruptions. More recently, inflation has moderated as prices of energy and some commodities have declined from their earlier peaks. Longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting and anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, downside risks to the economic outlook have increased. The Committee also anticipates that Inflation will settle, over coming quarters, at levels at or below both consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.
To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent. The Committee currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013. The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.
The salient points are many, but the stunner of them all was the statement that the federal funds rate would remain at ZERO to 1/4 percent and that this accommodative measure would remain in effect until the middle of 2013, or, put another way, for about the next two years.
At first, market reaction was positive, then turned completely negative just minutes after the release. What the Fed is saying, in effect, is that the US economy has just about sputtered out, but there's nothing the Fed can do at this point. They surrender to market forces and will keep rates at the absurdly low levels for the next two years.
What they didn't say might have been even more important. There was not even a hint of more quantitative easing (QE), as the last two rounds produced nothing other than price inflation and the build-up of the too-big-to-fail (TBTF) banks' balance sheets. The Fed also did not mention how or when it would begin unwinding its own over-stuffed balance sheet, currently at historic highs.
Once the market got the gist of the Fed's generosity and after falling more than 350 points from before the statement's release, it was off to the races and a nearly 600-point rally in the final hour and fifteen minutes of trading.
Us markets are, and will continue to be, completely insane, out of control except under that of the TBTF banks who control it. Some people lost money today and some made quite a bit. Anyone with any knowledge of the corrupt, inner workings of the stock market knows who won and who lost, and most of the losers were surely people without super fast computers and gee-whiz algorithms.
Dow 11,239.77, +429.92 (3.98%)
NASDAQ 2,482.52, +124.83 (5.29%)
S&P 500 1,172.53, +53.07 (4.74%)
NYSE Composite 7,258.04, +362.07 (5.25%)
Advancers clobbered decliners on the day, 5880-966, but new lows remained at elevated levels over new highs. There were just 16 new highs, but 484 new lows on the NASDAQ, while on the NYSE there were only 3 new highs and 702 new lows. That puts the combined numbers at 19 new highs and 1186 new lows, an extremely negative bias.
Volume was extreme once again, nearly as pronounced as yesterday's.
NASDAQ Volume 3,819,984,500
NYSE Volume 10,180,450,000
Commodities were literally all over the place. Oil zig-zagged over the unchanged line to a $2.01 loss, at $79.30 by the end of the day. Gold was higher all day, finally settling at $1,743.00, up $29.80, another record close. Silver, however, has become the whipping boy of the lovers of fiat, losing $1.50, to $37.88. Apparently, either the decade-long love affair with gold's first cousin is over or the shorting machinery of HSBC and JP Morgan has the markets covered. The latter is more than likely the case, though eventually silver will score enormous gains, once the masters of the universe are satisfied they've done their best to squelch any thought of making silver a negotiable currency again.
The gold-silver ratio is historically around 16-1, which, were that the case today, silver would cost somewhere in the neighborhood of $109 an ounce. The current gold-silver ratio is 46-1, though that is lower than what it's been in previous years. It still needs to find equilibrium. No doubt that silver is too cheap, but is gold too high? Probably not.
Thus ends another adventure through the canyons of Wall Street. Tune in tomorrow to find out that 90% of all trading is done by computers over which humans have no control. We are slaves to technology.
Monday, August 8, 2011
Debt Downgrade Fallout: Stocks Shattered, Gold Soars, Europe a Wasteland
At 9:00 pm Eastern time on Friday night, August 5, S&P officially released their downgrade of US debt from AAA to AA+, prompting widespread panic and sharp rebukes from the White House, who claimed, in effect, that S&P had made what amounted to "math errors."
Over the weekend, much was made of the downgrade, as the Obama hit the airwaves with gusto, rebuking the call from the ratings agency. Fitch and Moody's had previously reaffirmed the US debt as AAA, the highest possible sovereign bond rating, but S&P would not back down, and the downgrade remained in effect.
What S&P reasoned was that the US government did not take the necessary steps - in its theatrical production of waiting until the last possible moment to pass a debt ceiling increase - to address the structural problems facing it. S&P rightly concluded that US debt levels were and continue to rise and discretionary spending levels have not been controlled. Therefore, they downgraded the nation's debt and threaten to do it a second time, sometime around November, if the 12-member congressional committee charged with dealing with long term debt does not come up with actionable, concrete, debt reduction proposals.
As markets opened on Monday, the effects of a global panic were evident, especially on the heels of a 10% decline in US indices over the past two weeks and Thursday's dramatic sell-off of over four per cent on major markets.
First, it was the Asian markets which tanked at their various openings and continued through the day to sell off anywhere from 1.5 to 4.0%. Next up was Europe, where the crisis over bailing out Italy and Spain have reached a point of no return. EU officials stressed that they would be in the market with the ECB, buying up italian and Spanish debt, but that did little to change the outlook of investors, which had turned sour over the past fortnight.
Appetite for risk was at a low, as European markets suffered steep losses. England's FTSE was the best of the lot, down only 2.62%. France's CAC-40 took a 4.68% loss and Germany's DAX shed 5.02%. Other Euro-zone markets fell between 3.76 and 6.11%.
By the time US markets were to open, index futures had been hammered down to presage an inauspicious opening. Within minutes of the bell, the Dow was down more than 200 points, the S&P had taken a 25-point hit and the NASDAQ fell more than 70 points, though those declines were nothing compared to the carnage that lay ahead.
By the end of the day, after a minor rally in the first 15 minutes of the final hour, stocks were trading at or near their lows, with the Dow Jones Industrials surrendering the 6th-worst performance in its history. While the Dow suffered a 5.5% decline on the day, the other indices were actually much worse, with the NYSE Composite topping them all, coming home with a 7.05% loss.
It wasn't just the debt downgrade that spurred the sell-off. Conditions in Europe have worsened significantly over the past few months, to the point that European Union officials are without reasonable solutions to the debt contagion spreading across the region. While the ECB has managed to prop up smaller countries like Greece, Portugal and Ireland, Italy especially poses a much larger concern.
All the European leaders could muster on Monday was a terse statement which offered no concrete proposals but plenty of assurances, which was be roundly written off by markets. To wit:
The irony is that one of them, Italy, has been the source of the most recent anguish.
Essentially, the funds available to the ECB fall short of meeting the debt purchases needed to save Italy and Spain. Europe will have to engage in quantitative easing, as was the case in the United States over the past two years, to stave off defaults and the threat of a cascading crisis which would envelop all of Europe and likely doom the 11-year-old Euro currency.
If the EU decides upon cheapening the currency - which it almost certainly will do - theknock-on effect will be to sink the Euro, probably close to parity with the US Dollar. As the dollar would grow in strength, commodities, particularly oil and gas for auto use, would plummet, a boon to US drivers and to the general economy. Costs of imports would also decline, on a relative basis, giving American consumers more purchasing power.
Within the same scenario, however, are pitfalls for the global manufacturers and companies that populate the S&P 500, NASDAQ and the Dow. A stronger US Dollar would make them less competitive in foreign markets, shrinking margins and thus, profits. Thus, the great selling rush today was more of a statement on the global condition rather than that of the debt downgrade, which, when all is said and done, won't amount to a hill of beans. In fact, treasuries were up sharply today, as yields fell to their lowest levels in over a year.
The benchmark 10-year note fell 25 basis points in just one day, from 2.56% on Friday to 2.31% on Monday. The 30-year bond fell 19 basis points, to 3.65% as the yield curve continues to flatten. Money is going out of stocks and into bonds, and whether they're AAA or AA+ doesn't matter to those seeking a safe haven. The ridiculously low yields offered are a moot point. As one trader put it, "Investors aren't looking at making money; they're more concerned with getting their money back."
And, therein, the next crisis, in bonds, especially if the US government doesn't get its house in order soon. Higher rates and another downgrade could trigger a default of impossible proportions as the US would be unable to roll over its debt and fund itself without incurring higher borrowing costs. Ditto for Europe. Rising interest rates signals the end game for fiat currencies globally and back to some form of honest money, most likely on a gold standard.
The market events of the past few days, in which the major indices lost more than 10% are not the end of the crisis, but rather the beginning of the end of a great generational bear market that began in 2007 and will eviscerate all risk assets until nobody wants to hold anything any more.
Markets have entered the final stages of the third leg down. QE 1 and 2 staved off the collapse, but there will be no bailouts this time around. It's every man, woman, child and company for itself. There will be some winners, but mostly there will be losers, anguish, agony and the disappearance of great hordes of wealth.
Dow 10,809.85, -634.76 (5.55%)
NASDAQ 2,357.69, -174.72 (6.90%)
S&P 500 1,119.46, -79.92 (6.66%)
NYSE Composite 6,895.97, -523.10 (7.05%)
The internals were equally as stunning as the headline numbers. Declining issues decimated advancers, 6553-375, a ratio of 17.5:1. It was truly one of the deepest, broadest declines in stock market history. On the NASDAQ, there were four (4) new highs next to 725 new lows. The NYSE had just three (3) new highs, but 1292 stocks making new 52-week lows. The combined total of seven (7) new highs and 2017 new lows rivals or exceeds the figures presented during the fallout of 2008-2009.
Volume was at the highest levels of the year, exceeding that of last Thursday, which was then the high volume day of the year. Investors aren't just scared, they are trampling each other running through the exits at breakneck speed.
NASDAQ Volume 4,002,857,250
NYSE Volume 11,046,384,000
Crude oil futures were pounded again, as the front-month contract on WTI crude fell $5.57, to $81.31. Gas prices will soon fall below $3.50 - and possibly below $3.00 - a gallon as current supplies are depleted and replaced by less expensive distillates. According to AAA, the average price of gas in the US is now $3.66 per gallon, but the deep declines have not yet been factored into the equation. That will happen over the next two to three weeks.
Gold was the big winner of the day, soaring $61.30, to $1,713.20, another all-time record price as investors, companies, nations, central banks and housewives scrambled to find reliable assets. Silver, still constrained by high margin requirements, gained $1.17, to $39.38. Silver is almost certainly the most under-appreciated asset in the world, though that will soon change. As the crisis escalates and governments make more and more bad moves, the precious metals will skyrocket to unforeseen heights.
The banking sector took it on the chin, but none more than Bank of America (BAC) which is on the verge of a well-deserved bankruptcy. shares of the nation's largest banks fell 20% on the day, losing 1.66, to close at 6.51. Just a few weeks ago, BofA was trading at a price nearly double that. The unfolding mortgage crisis, brought about by Bank of America's 2008 purchase of Countrywide, has become a fatal blow to the once proud institution.
David Tepper's Appaloosa Management Fund has reportedly sold its stake in Bank of America (BAC) and Wells Fargo (WFC), while significantly trimming Citigroup (C) from the portfolio.
Adding to the irony, AIG has sued Bank of America for $10 billion, citing "massive fraud" in its representations of mortgage-backed securities (MBS).
However, Citigroup analyst Keith Horowitz takes the booby prize for reiterating a "buy" rating on Bank of America shares this morning. Timing is not one of Mr. Horowitz's strong points, it would appear.
On top of all this, the FOMC of the Federal Reserve will issue a policy statement Tuesday at 2:00 pm EDT, followed by a news conference from Chairman Ben Bernanke. That alone should equate to another 300-point decline in the Dow.
For those with a morbid curiosity, check out the slideshow of the 10 worst days on the Dow, already outdated, as August 8, 2011, will go down in the history books as the 6th worst day for the blue chip index of all time.
Henry Blodgett and Aaron Task have a nice summation of the situation in the video below:
Over the weekend, much was made of the downgrade, as the Obama hit the airwaves with gusto, rebuking the call from the ratings agency. Fitch and Moody's had previously reaffirmed the US debt as AAA, the highest possible sovereign bond rating, but S&P would not back down, and the downgrade remained in effect.
What S&P reasoned was that the US government did not take the necessary steps - in its theatrical production of waiting until the last possible moment to pass a debt ceiling increase - to address the structural problems facing it. S&P rightly concluded that US debt levels were and continue to rise and discretionary spending levels have not been controlled. Therefore, they downgraded the nation's debt and threaten to do it a second time, sometime around November, if the 12-member congressional committee charged with dealing with long term debt does not come up with actionable, concrete, debt reduction proposals.
As markets opened on Monday, the effects of a global panic were evident, especially on the heels of a 10% decline in US indices over the past two weeks and Thursday's dramatic sell-off of over four per cent on major markets.
First, it was the Asian markets which tanked at their various openings and continued through the day to sell off anywhere from 1.5 to 4.0%. Next up was Europe, where the crisis over bailing out Italy and Spain have reached a point of no return. EU officials stressed that they would be in the market with the ECB, buying up italian and Spanish debt, but that did little to change the outlook of investors, which had turned sour over the past fortnight.
Appetite for risk was at a low, as European markets suffered steep losses. England's FTSE was the best of the lot, down only 2.62%. France's CAC-40 took a 4.68% loss and Germany's DAX shed 5.02%. Other Euro-zone markets fell between 3.76 and 6.11%.
By the time US markets were to open, index futures had been hammered down to presage an inauspicious opening. Within minutes of the bell, the Dow was down more than 200 points, the S&P had taken a 25-point hit and the NASDAQ fell more than 70 points, though those declines were nothing compared to the carnage that lay ahead.
By the end of the day, after a minor rally in the first 15 minutes of the final hour, stocks were trading at or near their lows, with the Dow Jones Industrials surrendering the 6th-worst performance in its history. While the Dow suffered a 5.5% decline on the day, the other indices were actually much worse, with the NYSE Composite topping them all, coming home with a 7.05% loss.
It wasn't just the debt downgrade that spurred the sell-off. Conditions in Europe have worsened significantly over the past few months, to the point that European Union officials are without reasonable solutions to the debt contagion spreading across the region. While the ECB has managed to prop up smaller countries like Greece, Portugal and Ireland, Italy especially poses a much larger concern.
All the European leaders could muster on Monday was a terse statement which offered no concrete proposals but plenty of assurances, which was be roundly written off by markets. To wit:
We are committed to taking coordinated action where needed, to ensuring liquidity, and to supporting financial market functioning, financial stability and economic growthThat was the extent of the communique from the magnificent seven of the United States, Canada, Great Britain, France, Germany, Italy and Japan.
The irony is that one of them, Italy, has been the source of the most recent anguish.
Essentially, the funds available to the ECB fall short of meeting the debt purchases needed to save Italy and Spain. Europe will have to engage in quantitative easing, as was the case in the United States over the past two years, to stave off defaults and the threat of a cascading crisis which would envelop all of Europe and likely doom the 11-year-old Euro currency.
If the EU decides upon cheapening the currency - which it almost certainly will do - theknock-on effect will be to sink the Euro, probably close to parity with the US Dollar. As the dollar would grow in strength, commodities, particularly oil and gas for auto use, would plummet, a boon to US drivers and to the general economy. Costs of imports would also decline, on a relative basis, giving American consumers more purchasing power.
Within the same scenario, however, are pitfalls for the global manufacturers and companies that populate the S&P 500, NASDAQ and the Dow. A stronger US Dollar would make them less competitive in foreign markets, shrinking margins and thus, profits. Thus, the great selling rush today was more of a statement on the global condition rather than that of the debt downgrade, which, when all is said and done, won't amount to a hill of beans. In fact, treasuries were up sharply today, as yields fell to their lowest levels in over a year.
The benchmark 10-year note fell 25 basis points in just one day, from 2.56% on Friday to 2.31% on Monday. The 30-year bond fell 19 basis points, to 3.65% as the yield curve continues to flatten. Money is going out of stocks and into bonds, and whether they're AAA or AA+ doesn't matter to those seeking a safe haven. The ridiculously low yields offered are a moot point. As one trader put it, "Investors aren't looking at making money; they're more concerned with getting their money back."
And, therein, the next crisis, in bonds, especially if the US government doesn't get its house in order soon. Higher rates and another downgrade could trigger a default of impossible proportions as the US would be unable to roll over its debt and fund itself without incurring higher borrowing costs. Ditto for Europe. Rising interest rates signals the end game for fiat currencies globally and back to some form of honest money, most likely on a gold standard.
The market events of the past few days, in which the major indices lost more than 10% are not the end of the crisis, but rather the beginning of the end of a great generational bear market that began in 2007 and will eviscerate all risk assets until nobody wants to hold anything any more.
Markets have entered the final stages of the third leg down. QE 1 and 2 staved off the collapse, but there will be no bailouts this time around. It's every man, woman, child and company for itself. There will be some winners, but mostly there will be losers, anguish, agony and the disappearance of great hordes of wealth.
Dow 10,809.85, -634.76 (5.55%)
NASDAQ 2,357.69, -174.72 (6.90%)
S&P 500 1,119.46, -79.92 (6.66%)
NYSE Composite 6,895.97, -523.10 (7.05%)
The internals were equally as stunning as the headline numbers. Declining issues decimated advancers, 6553-375, a ratio of 17.5:1. It was truly one of the deepest, broadest declines in stock market history. On the NASDAQ, there were four (4) new highs next to 725 new lows. The NYSE had just three (3) new highs, but 1292 stocks making new 52-week lows. The combined total of seven (7) new highs and 2017 new lows rivals or exceeds the figures presented during the fallout of 2008-2009.
Volume was at the highest levels of the year, exceeding that of last Thursday, which was then the high volume day of the year. Investors aren't just scared, they are trampling each other running through the exits at breakneck speed.
NASDAQ Volume 4,002,857,250
NYSE Volume 11,046,384,000
Crude oil futures were pounded again, as the front-month contract on WTI crude fell $5.57, to $81.31. Gas prices will soon fall below $3.50 - and possibly below $3.00 - a gallon as current supplies are depleted and replaced by less expensive distillates. According to AAA, the average price of gas in the US is now $3.66 per gallon, but the deep declines have not yet been factored into the equation. That will happen over the next two to three weeks.
Gold was the big winner of the day, soaring $61.30, to $1,713.20, another all-time record price as investors, companies, nations, central banks and housewives scrambled to find reliable assets. Silver, still constrained by high margin requirements, gained $1.17, to $39.38. Silver is almost certainly the most under-appreciated asset in the world, though that will soon change. As the crisis escalates and governments make more and more bad moves, the precious metals will skyrocket to unforeseen heights.
The banking sector took it on the chin, but none more than Bank of America (BAC) which is on the verge of a well-deserved bankruptcy. shares of the nation's largest banks fell 20% on the day, losing 1.66, to close at 6.51. Just a few weeks ago, BofA was trading at a price nearly double that. The unfolding mortgage crisis, brought about by Bank of America's 2008 purchase of Countrywide, has become a fatal blow to the once proud institution.
David Tepper's Appaloosa Management Fund has reportedly sold its stake in Bank of America (BAC) and Wells Fargo (WFC), while significantly trimming Citigroup (C) from the portfolio.
Adding to the irony, AIG has sued Bank of America for $10 billion, citing "massive fraud" in its representations of mortgage-backed securities (MBS).
However, Citigroup analyst Keith Horowitz takes the booby prize for reiterating a "buy" rating on Bank of America shares this morning. Timing is not one of Mr. Horowitz's strong points, it would appear.
On top of all this, the FOMC of the Federal Reserve will issue a policy statement Tuesday at 2:00 pm EDT, followed by a news conference from Chairman Ben Bernanke. That alone should equate to another 300-point decline in the Dow.
For those with a morbid curiosity, check out the slideshow of the 10 worst days on the Dow, already outdated, as August 8, 2011, will go down in the history books as the 6th worst day for the blue chip index of all time.
Henry Blodgett and Aaron Task have a nice summation of the situation in the video below:
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