The Rise and Fall of US Stocks All in One Day; Making a Budget and Sticking to It

The Markets

Stocks did an about-face midday on Tuesday, shaving away all of the morning gains as the afternoon wore on and word from Europe was mixed. The Dow Jones Industrials and S&P 500 each made a run at the lower end of their 50-day moving averages, hit resistance and failed, badly.

All of the averages made suspicious-looking early moves between 10 and 11 am EDT, hovered near the highs, made new highs around 2:00 pm and then fell remarkably into the close, with not even a hint of a closing bounce.

From a technical point of view, meeting resistance at the 50-day MA makes perfect sense and the indices will likely take another run at it in coming days, though it seems a hurdle too high to surpass, considering all of the significant headwinds facing companies (lowered earnings forecasts) and nations, especially those in the Eurozone - Greece, Italy, Portugal, Ireland - to say nothing about the current poor economic conditions in the USA.

Stocks have been mired in a basically directionless trading range for the better part of two months and that's making people even more nervous and keeping significant amounts of money out of stocks and into treasuries, corporate paper, cash and equivalents, gold and other tangible assets. The fear surrounding a default by Greece and the associated fallout to other European countries and banks has the market in a condition of near paralysis.

Until the sovereign debt issues are resolved one way or another, stocks will be unlikely to advance as investors are simply too afraid to stake out new, large positions.

On the data front, housing starts fell to a three-month low, from 601,000 annualized in July to 571,000 in August. With such a glut of cheap foreclosures and bank REO property on the market, in addition to the nearly 300,000 residential homes held by Fannie Mae, hope for a recovery by the end of this year are fading fast. With the onset of colder weather and the usual seasonal downturn, one could easily suggest that housing will dive even lower or bounce around the bottom until Spring of 2012 at the earliest. Of course, such numbers didn't faze Wall Street in the least. Optimists pointed out that building permits rose from 601K in July to 620K in August, though it's only a 3% move, barely more than a rounding error.

So, with Europe still a basket case and the US close behind, the markets are stuck in neutral, awaiting some kind of announcement from the FOMC, which began a two-day meeting today with a rate announcement due out tomorrow around 2:15 pm. The wording of the FOMC statement is unlikely to change dramatically, though many on the street believe the Fed will either outline some new policy such as "operation twist" in which they purchase longer-dated securities in order to drive long rates lower, or announce another round of quantitative easing, which would be dubbed QE3, though that concept, having already failed to goose the economy twice in the past two years, is unlikely to gather much traction within the Fed circle.

All should be expecting something from the Fed, even though many believe that they have exhausted nearly all of their policy tools.

Dow 11,408.66, +7.65 (0.07%)
NASDAQ 2,590.24, -22.59 (0.86%)
S&P 500 1,202.09, -2.00 (0.17%)
NYSE Composite 7,217.11, -17.52 (0.24%)
NASDAQ Volume 1,942,335,500
NYSE Volume 4,250,461,500
Combined NYSE & NASDAQ Advance - Decline: 2261-4207
Combined NYSE & NASDAQ New highs - New lows: 85-189
WTI crude oil: 86.89, +1.19
Gold: 1804.80, +26.30
Silver: 39.74, +0.09

Idea: Making and Sticking to a Budget

We've all heard forever that making a budget for household and/or business expenses and income is a smart and necessary step toward financial freedom and fiscal responsibility, but, taking our lead from Washington, few people seem able to keep the process honest or reach desired outcomes. Our federal government is probably the worst example of budgeting known to man, as the process is riddled with partisan politics, fudged calculations, unrealistic expectations and projections and extraneous falderol like earmarks, off-balance sheet expenditures and unfunded liabilities like Social Security and Medicare.

Household budgets are a bit simpler to make though not quite as difficult to keep. The best approach is to go for a monthly outlook, as most of us have recurring expenses that serve as a baseline. Things like utility bills, phone and cable bills, car payments, mortgage payments (though some of us have eliminated those recently) and credit card expenses come due at some time or another during the month and have to be paid in a reasonably timely manner.

After that, items such as food, clothing, entertainment, (liquor and cigarettes if so inclined) and other variable expenses should be calculated out on a monthly basis as best as possible. That way, one can readily see where overspending or potential savings might occur. The regular bills, known in the business world as "fixed expenses" aren't going to change much, if at all, month to month, and one will find that over time, even variable expenses don't bounce around very much.

Once one has all the monthly expenses lined up, then it's time to match it against income (if one still has any) and see how it balances out. If you are one of the lucky few who have an extra $5,000-$2,000,000 on the income side of the ledger, you can stop reading right here. You don't need a budget; you need a financial advisor or a beach house.

If, however, you're like most people, you'll see where all that money goes, and when you stop crying, you might find a little bit left over. Anything more than 10-20% above your monthly regular expenses would be a great sign. If you find yourself a few hundred dollars short each month, then there's work to do.

Where most people get into trouble is in making exceptions, overspending (usually caused by not thinking and acting on emotion), and bogus projections, like "I'll get a raise soon," or the classic fail, "when I start receiving Social Security checks..." as wishful thinking almost never returns positive results.

Another trap is not counting the little things that add up to big headaches without one noticing. Things like that morning latte - and doughnut, bagel, croissant or McDonald's McBiscuit - the extra tip for the heavenly lunch waitress or waiter, tolls, parking fees, snacks, bottled water, the occasional needed home item, more expensive gas than calculated, all contribute to budget busting in all but the most frugal environments.

There are remedies for those items, such as keeping receipts for everything or a log book exclusively for "little" expenses, but the best way is to take your monthly expense total and add 10% to it, calling it the miscellaneous expense column. If you're judicious and cautious, you'll find yourself spending less than that 10%, but it's doubtful it will add up to very much. The key concept is that every dime and dollar counts, even those $200 binge nights out with the guys or gals.

In the end, we'd all like to earn more and save more, the goal eventually being filthy rich and not having to worry about money any more. Since that's an unlikely event for the vast majority, taking a little time each month to review and preview income and expenses gives one a clearer outlook on where one's been, where one's money is going and what can be done about it.

There are an assortment of online tools and sites which can provide some assistance. Here's a good place to start, with brief reviews of some of the best budgeting websites.

Stocks Down on Greece, Bank Issues

The Markets

There were just two simple reasons for stocks to start out the week as miserably as they did: banks and Greece.

Naturally, there's more to it than just that, though those two catalysts have been driving the markets - in one direction or the other - for about the past year-and-a-half. There was also the concept, disclosed here on Friday, that last week's five-day rally was based upon pure nothingness, much like our fiat American currency. Coming at the end of options expiration, the market action for the week was completely suspect, and today market participants were treated to the big winners squaring their books.

But fears of a Greek default (it will happen. It must, because Greece is broke.) and its effects on the banking community worldwide clearly pushed Eurpean stocks lower and so too with US indices. The Dow dove more than 250 points in the early going, taking the rest of the market down with it. Of course, there was the obligatory, short-covering, melt-up rally at 3:00 pm, which cut the day's losses roughly in half, but today will look like a picnic compared to what's on the event horizon in the not-so-distant future.

That's really it. There was no real substantive news of any kind, outside of President Obama droning on about taxing the rich in a morning speech. The markets continue to experience great stress, but if the banks in this country are feeling the pain, all one can say is that it couldn't happen to a more-deserving group.

In news you won't see covered in any depth by the mainstream media, Ron Paul took the California Republican Party straw poll by a landslide, winning 44.9% of the vote, and seven are arrested during third day of Wall Street protests.

The latter story was reported by Bloomberg, and, as much as we like the company founded by the current New York mayor, they're still a bit outside the establishment mainstream of the large TV network apparatus.

Dow 11,401.01, -108.08 (0.94%)
NASDAQ 2,612.83, -9.48 (0.36%)
S&P 500 1,204.09, -11.92 (0.98%)
NYSE Composite 7,234.63, -113.55 (1.55%)
NASDAQ Volume 1,900,534,375
NYSE Volume 4,224,766,500
Combined NYSE & NASDAQ Advance - Decline: 1497-5053
Combined NYSE & NASDAQ New highs - New lows: 47-185
WTI crude oil: 85.70, -2.26
Gold: 1778.50, -34.00
Silver: 39.65, -1.01

A Most Unimpressive Five-Day Rally Built on Sand

Even the excitement of options expiration on Friday - which explains just about everything about the week-long rally - could not keep stocks from registering a fairly unimpressive Friday showing.

Normally, on options expiration days, like today, volume spikes and the market generally takes off or sells off. Today's trade could best be characterized as choppy and sloppy, with all the major indices finishing close to their highs of the day thanks only to a spirited short-covering-into-the-weekend sprint in the final fifteen minutes of trading. The Wall Street criminal syndicate must have had their computers whirring at warp 10 at the end of the day.

The main reason the week-long rally was so unimpressive was threefold: first, the starting point came off a three-week low, the averages are stuck in a fairly enduring trading range, and the fact that options expired at the end of the week gives the impression that smallish short-term gains were all the focus. Nothing about the "sharp" rally was particularly exciting or indicative of any longer term trend.

The following recap shows, with links to charts, that trading stocks has been even less than a zero-sum game for the better part of the past two months.

First, the Dow, which closed today less than 25 points from its daily high, started off the week from a low point of 10,992, gaining what looks, at first glance, to be an impressive 517 points for the week, though considering it is still hovering below its falling 50-day moving average, which itself is blow the 200-day MA, shows that it's just another cyclical bear market, momentum move. Actually the recent rally from August 22 to 31 - 8 trading days - was broader and larger. Look what happened to that. It fell apart.

Besides that, the Dow remains well below the mid-July high of 12724 and even further down from the April 29 high 2011 high.

The NASDAQ was a bit more robust, the best-performing index of the bunch, today finally getting past its 50-day MA, though it remains below the flat-lined 200-day MA. It kicked up 154 points for the week, but, like the Dow, is still far short of the 2858 close on July 22 and down further from the April 29 high.

As for the most widely-watched S&P 500 index, it too came off a three-week low at the end of last week, picked up 62 points and is touching its 50-day MA. Like the other major indices, the 50-day has crossed under the 200-day MA. The S&P is 140 points below its early July high and that's a long way to go.

Obviously, the factors influencing the market movements this week were largely concerning Europe, which is still a basket case on the verge of total calamity, despite the best efforts of central bankers to paint a rosier picture than the stark reality of a Lehman-like debt implosion. The other factor, which should not be discounted in the least, was the quadruple-witching options expiration on Friday. With risk still quite high in the current environment, many a hedge fund and major trading firm is heavily invested in the options market and pushed their positions to winning spots all during the week. To see a continuation of this rally on Monday would be quite remarkable, considering that it is wholly fabricated by the few remaining players with the ability to move more than just individual stocks, but entire indices whichever way they please.

Since the correction which began in early July, stocks have gone sideways for the past six weeks, and, despite this marvelous, low-volume pump job, show no real signs of breaking out, over and beyond the 200-day moving averages and above the recent highs. Traders made money here, but investors are just as nervous as they were at the end of last week. Considering the dour economic data and the continuing credit, sovereign and currency crunch on the European banking establishment, any elongated upside should be considered a long shot.

Dow 11,509.09, +75.91 (0.66%)
NASDAQ 2,622.31, +15.24 (0.58%)
S&P 500 1,216.01, +6.90 (0.57%)
NYSE Composite 7,348.18, +19.08 (0.26%)
NASDAQ Volume 2,662,978,250
NYSE Volume 5,098,945,000
Combined NYSE & NASDAQ Advance - Decline: 3404-3109 (no breadth)
Combined NYSE & NASDAQ New highs - New lows: 69-69 (seriously!)
WTI crude oil futures: 87.96, -1.44 (hurrah!)
Gold: 1810.10, +20.30
Silver: 40.65, +0.74

Coordinated Central Bank Intervention to Save European Banking System

The Markets

Yes, matters in the European banking sector were getting just a bit panicky over the past few weeks; so much so that the world's largest central banks were forced to step in and provide liquidity to pressured banks across the European continent.

Striking like a lightning bolt, the European Central Bank, Bank of England, Bank of Japan, Swiss National Bank and the US Federal Reserve jointly vowed to provide three-month loans denominated in dollars for the remainder of the year.

With this move, the worlds inhabitants can clearly see that the empire of debt has now encompassed the entire planet, and not only do we have zombie banks in Japan, England and the United States, but now the major banking institutions of Europe have joined the club. France's Societe General and BNP Paribas, Germany's Commerzbank and Deutsche Bank are among the largest banks needing a fresh infusion of capital in order to service maturing debt and continue providing loans to the nations of Greece, Portugal, Ireland, Italy and others. Many of these same large banks and smaller ones already have been the recipients of US and Central Bank largesse in the past, receiving trillions of dollars in 2009 and 2010, when the financial contagion begun in the United States spread globally.

Oddly enough, this stunning development occurred three years to the day that Lehman Brothers failed, sending economic shock waves around the world, and it is proof enough that all Central Bank intervention, loans, guarantees, swaps and programs have not solved the fundamental problem facing most major banks and sovereign states: solvency.

Zombie banks, like Bank of America and Citigroup in the US, are customarily burdened with bad loans, have trouble borrowing in the open market and will only advance loans to the biggest and most financially secure customers in a severe risk avoidance maneuver. Expect the same results from this action as what happened in the US after TARP, TALF and a dozen other Fed programs designed to stimulate economic activity merely provides a cushion for the banks, bigger bonuses for their executives and no relief for the general population or small business, the engine of job creation.

Europe, like Japan over the past twenty years and the US for the last three, will suffer the same kind of economic stagnation. Of this, there is little doubt because the nations the loan to are nothing more than deadbeat borrowers, who fail to address the fundamental issues facing their governments, which is simply too much debt and not enough revenue, a condition that is likely to only worsen in months and years ahead.

The Central Bank intervention today will only provide some cover for a short time. Eventually, bad debts need to be written off, investors take losses and the financial system cleansed. It is one part of the business cycle the central banks continually deny and have not addressed, preferring instead to paper over losses with more debt, delaying and dampening any chance of real economic recovery. It is indeed unfortunate that these grand macro-economic thinkers have so embraced the Keynesian principles of borrowing, taxing and spending, they've forgotten that households constitute the backbone of all economies, not the banks, which they are so eager to keep from failing while millions - perhaps billions - of people are thrust from the middle class into abject poverty.

Along these same lines we have the president's proposed American Jobs Act, which is currently dead on arrival in the congress. House Republican leader John Boehner predictably took aim at the president's proposed $447 billion jobs package, labeling it as a "poor substitute" for polices Boehner and many House members prefer. Boehner referred to the president's policies as "short-term gimmicks" as opposed to fundamental changes in tax laws and reductions in regulations that are strangling American businesses.

As expected, Boehner and other Republican leaders have said that Obama's plan to pay for his jobs program with tax increases is a non-starter on the Hill, effectively killing Obama's plan before it even reaches the committee level. Once again, we will be witness to great wrangling for weeks or months over what's needed to kick-start the economy. While some of Obama's ideas are worthwhile, they are still likely to be ineffective in solving the nation's burgeoning employment crisis.

Additionally, in the early part of the day, both before the market opened and during trading hours, a stream of economic news and data - most of it bad - made its way to the Street. Included was another week of initial unemployment claims at 428,000, a jump of 11,000 from the previous week and the 21st week of the last 22 that initial claims have been over 400,000. CPI came in with a rise of 0.4% for August, a 4.8% inflation rate, annualized. Industrial Production inched up 0.2% and capacity utilization was nearly flat, with an increase of only 0.1%.

Two Fed districts reported sour economic data. The New York Fed released its monthly Empire Manufacturing Index, showing economic activity in New York state falling again, at -8.8 in September after a -7.7 reading in August. The Philadelphia Fed's Economic Index improved, but only form a horrifying -30.7 in August to a less-frightening - though still deteriorating - 17.5 in September.

With those sad numbers serving as a backdrop, Wall Street once again proved that it only pays heed to what it perceives as positive news, ramping up right out of the gate and posting large gains for the day on the promise of more free money for all banks, particularly those in Europe.

With all the momentum being built into the coming holiday season and the presidential election season due to heat up shortly after that, the chances of a catastrophic collapse are now more evident than ever. The bankers and politicians have contrived solutions that serve only them well and do little if any good to the common working man or woman. Institutions globally are under attack by angry citizens who have lost nearly all faith in the current regime of world leaders to actually make laws and progress that will heal the deep economic wounds that continue to be inflicted on once-great nations.

While the politicians focus on making speeches and posturing against each other in hopes of winning re-election, the rest of us are left wondering who will be around to cast the needed votes for these fools. Our economic malaise deepens daily and the fiat money system grows weaker with every new plan designed to keep banks and nations from facing reality. Denial is alive and well at the apex of our political and economic structure.

Dow 11,433.18 186.45 (1.66%)
NASDAQ 2,607.07 34.52 (1.34%)
S&P 500 1,209.11 20.43 (1.72%)
NYSE Compos 7,329.10 129.98 (1.81%)
NASDAQ Volume 1,986,520,875.00
NYSE Volume 4,462,452,500
Combined NYSE & NASDAQ Advance - Decline: 4642-1857
Combined NYSE & NASDAQ New highs - New lows: 50-74
WTI crude oil futures: 89.40, +0.49
Gold: 1788.10, -33.00
Silver: 39.84, -0.91

Chemical Investment M&A a Highly Specialized Field

In the high stakes world with mergers and acquisitions, investment banking is a highly specialized field in which industry knowledge and experience are the key elements in making deals work to the benefit of the acquirer and the company being acquired.

This specialty is usually relegated to a handful of well-capitalized and expert companies, most of which do deals in the multi-millions to billions of dollars range. One cannot walk into just any bank to do these kinds of deals. While many financial institutions may claim that they are "full service," in reality they are not equipped to handle complex mergers and large-scale deals.

M&A gets more complicated depending upon the industry. Expertise and years of hands-on experience is needed to understand the particular nuances and specific needs of various industry groups. Just as one would never go to an orthopedic surgeon to deliver a baby, companies undergoing a merger in the aerospace, computer or any other industry grouping would not go to a commercial bank.

That is why companies such as the Valence Group specialize in chemical investment banking. They offer a wide range of services including buy and sell-side advisories, expertise in dealing across international borders, defense of bids and unsolicited offers and the ability to properly value any deal in the chemical mergers and acquisitions space.

An independent company with offices in London, New York and Shanghai, the Valence Group offers investment banking origination and execution with a team of experts from the chemical industry alongside senior investment bankers.

Anyone considering a large-scale merger or acquisition in the chemical industry would do themselves a good turn by taking the time to meet with one of the Valence Group company advisors as they have successfully completed similar deals with a multitude of companies such as Wyeth, Johnson & Johnson, Celanese, and Hoechst.