Tuesday, October 25, 2011

Euro Finance Ministers Meeting Cancelled; US Stocks Take a Dive

Anybody with half a brain and even a cursory understanding of Europe's debt crisis (or, circus) could have and should have seen this coming a mile away: the meeting of European finance ministers, scheduled for Wednesday, has been cancelled. While the general summit of Euro zone nation leaders will still occur, as planned, the finance minister meeting was supposed to issue some kind of document or plan outlining the strategy of saving Greece and other nations from defaulting.

The 27 member ecofin meeting was supposed to have dealt with the recapitalization of many of Europe's largest banks, most of which have been decimated by ongoing debt issues in Greece, Portugal and Ireland. While this particular piece of the Euro puzzle has temporarily been put on hold, the general summit of Eurozone leaders will combine the bank issues with two other important elements: how to deal with the losses incurred by banks which loaned to Greece (the bond "haircut") and how large (and leveraged) the bailout EFSF fund will be.

As has been the case in the recent past, US stocks took a major hit on news that Europe was still inching toward a comprehensive solution. Expert opinion now believes that the Euro situation will take months and probably years to be worked out; any proposed solutions will have to go through a rigorous process of scrutiny and ratification by member nations. In the meantime, Europe is sinking faster and faster into recession and citizens are rightfully angered over the inability of leaders to come to any kind of meaningful consensus on the various great problems.

If this seems like deja vu all over again, it's because the Europeans are master foot-draggers, routinely missing deadlines and making delays - for any manner of reasons - on important, pressing issues. This is just more of the same, and the game is getting very old, very quickly.

Here in the US, the S&P/Case-Shiller 20-city and 10-city composite readings for August came in below their year-ago levels by 3.8 percent and 3.5 percent, respectively, though both indices edged up slightly over July, posting a gain of 0.2%. In essence, what the Case-Shiller survey found was that while home prices are still falling, year-over-year, they are not falling as quickly, though that's of little comfort to the millions of homeowners whose homes are worth well less than what they paid for them, a condition known as being underwater.

At 10:00 am EDT, the Conference Board released its latest consumer confidence reading, finding that confidence was at a level not seen since the depths of the 2008-09 recession, at 39.8. Also, only 9.1% of respondents are expecting business conditions to improve over the next six months, a depressing figure considering that the US is supposed to be a good 12-18 months into recovery.

Stock traders sense that things are not going well, despite the markets in October having one of their best months of the year. Sooner or later the truth will set everyone free.

Dow 11,706.62 207.00 (1.74%)
NASDAQ 2,638.42 61.02 (2.26%)
S&P 500 1,229.05 25.14 (2.00%)
NYSE Compos 7,400.82 146.81 (1.95%)
NASDAQ Volume 1,810,687,875.00
NYSE Volume 4,406,436,500
Combined NYSE & NASDAQ Advance - Decline: 1024-4602
Combined NYSE & NASDAQ New highs - New lows: 67-35
WTI crude oil: 93.17, +1.90
Gold: 1,700.40, +48.10
Silver: 33.05, +1.41



Monday, October 24, 2011

Euro Rising Amid Escalating Debt Crisis; Gold Worth $11,000/Ounce?

There are now differing views over the ongoing European debt crisis, which made Monday a banner day for the pair trade of short US dollar/long US stocks.

The view widely held by Wall Street influencers is the one promoted by the well-compromised "news" organization, Reuters, a proxy for the Wall Street/Washington oligarchy currently under attack by the Occupy Wall Street and other, spawned protest movements. Reuters reports that there is growing confidence that the EU leaders will forge a broad agreement with which to deal with the Euro-zone's debt issues by Wednesday of this week. Such wishful thinking pushed the Euro to a six-week high against the dollar, sparking the rally in US equities on the cheaper - for now - US dollar.

Alternately, NPR, in the embedded radio clip below, headlined its story Agreement On Debt Crisis Eludes EU Leaders, citing differences in approach by the various leaders amid calls for austere cutbacks in Italy to stem its own set of problems.



Realistically, nobody has a very good handle on where this is all headed, though widespread agreement seems a long shot. Greece has needed two rounds of bailout money already, and the country has been forced to suffer through doubt, derision, protests, strikes and riots in recent days as the government agreed to severe austerity measures, cutbacks in services and layoffs to help the government avoid running out of money.

Some kind of European plan is supposed to be released to the public by Wednesday, so there's probably no reason for stocks or the Euro/Dollar trade to deviate much until then. Details of the plan have been hashed about, though nothing is for certain except that it will include bailout money for some of Europe's largest banks (called: recapitalization) and some funding and dispersal mechanisms for the EFSF, the newly-created sovereign debt fund that is supposed to provide much-needed liquidity to the Euro system. Of course, the Euro money machine is beginning to look a lot like another global Ponzi scheme, with indebted countries providing funding through various channels to even-worse indebted nations like Greece, Ireland, Italy, Spain and Portugal.

Anyone with a view of history longer than his or her current lifespan might have a better idea of where the Greek crisis is headed and it is most certainly not a happy place. Usually, when governments spend or steal too much of their citizens' money, overtaxing and under-delivering on promises and services, it means the end of the reigning regime, either trough violent overthrow or peaceful negotiation, though the former, albeit it's bloody features, has been more successful through the pantheon of history in securing the absolute rights of individuals while removing parasitic forces of government from the inflicted nation.

In Greece, it appears that the rowdy protesters have slowly but steadily been gaining ground and, with the emergence of Occupy Wall Street and other such groups, populist movements seem to be spreading faster than government efforts to defame or derail the groups. One interesting development was Michael Moore's appearance on CNBC this morning.

While the interview was not a first for Moore on CNBC, the filmmaker and champion of the "little guy" was allowed on air for over 11 minutes, and made some strong points on the inequitable economic situation facing all but America's wealthiest people. The piece is well worth the viewing time, as Moore made his case to Carl Quintanilla, a reporter and anchor who might just have something of a conscience.



One other story of note on the day is James Turk's elegant arithmetic in making his case why gold should be $11,000 an ounce. (PS: at a 16:1 gold:silver ratio - the traditional ratio - that would make the current silver price of around $31 per ounce, seem even more ridiculous. Something along the lines of $687/ounce would be appropriate.

Dow 11,913.62, +104.83 (0.89%)
NASDAQ 2,699.44, +61.98 (2.35%)
S&P 500 1,254.19, +15.94 (1.29%)
NYSE Composite 7,547.63, +116.53 (1.57%)
NASDAQ Volume 1,988,391,000
NYSE Volume 4,291,371,500
Combined NYSE & NASDAQ Advance - Decline: 4660-1018
Combined NYSE & NASDAQ New highs - New lows: 125-24
WTI crude oil: 91.27, +3.87
Gold: 1,652.30, +16.20
Silver: 31.64, +0.45

Friday, October 21, 2011

US Equities Rise 4th Straight Week on Euro-phoria, Earnings

Whatever happens in Europe over the next week or so apparently is going to be positive, if one reads the tea leaves of Wall Street correctly. Either that, or, a lot of people cashed in on some front-end options contracts, as today was October options expiration.

While a 200+ point gain on the Dow Jones Industrials is always a good way to end the week, in the current environment, there are still skeptics about, though caution has not been a solid strategy these past four weeks as the Dow put in its fourth consecutive weekly gain, amidst positive earnings news from a host of companies, including McDonald's (MCD), Honeywell (HON) and Verizon (VZ).

Thumbing their collective noses at naysayers and the protesters of the Occupy Wall Street movement, Wall Streeters pushed stocks to their highest levels since August 8th, and beyond the recent range that had kept the major indices bottled up for the past two-and-a-half months.

The Dow would have been down for the week without Friday's huge upswing, as Monday's 247-point decline took some getting past. For the week the Dow ended up 164 points, the S&P added 38, but the NASDAQ actually lost 30 points, mostly on the earnings miss by market leader Apple (AAPL).

Overall sentiment has turned bullish, though headwinds still prevail and caution is still advised by many. At least on this day, worries over the future of Greece, Italy and the Euro nations were out of focus and the market traded somewhat on fundamentals provided by strong earnings from a host of companies.

It was an odd day in that almost everything was up, including favored commodities, oil, gold and even silver.

Economic data continued to suggest sluggish growth as unemployment claims were down, though not by much, and leading indicators edged 0.2% higher. Existing home sales were disappointing, reported on Thursday at an annual rate of 4.91M for September. The US economy is still balanced on a precipice, buoyed on one side by smashing results from corporations, but weighed down by housing, employment and the European debt crisis.

For today, at least, the stock market shrugged off the negativity and moved ahead boldly. That will likely change in coming weeks as Europe continues to grapple with its over-leveraged conditions and US banks try to hide behind earnings manipulations. This is still not a bear market, though it could become one with more ease than most realize, though it is in everyone's best interests to keep the carousel turning.

Dow 11,808.79, +267.01 (2.31%)
NASDAQ 2,637.46, +38.84 (1.49%)
S&P 500 1,238.25, +22.86 (1.88%)
NYSE Composite 7,431.10, +157.20 (2.16%)
NASDAQ Volume 1,976,088,875
NYSE Volume 4,858,157,000
Combined NYSE & NASDAQ Advance - Decline: 5308-1180
Combined NYSE & NASDAQ New highs - New lows: 98-33
WTI crude oil: 87.40, +1.33
Gold: 1,636.10, +23.20
Silver: 31.19, +0.91


Thursday, October 20, 2011

Citi, Bank of America in Massive Fail Mode; Euro Leaders Diddle Over EFSF

The European mess got so badly confused it crashed this writer's browser and about half the post was washed into the ether. In any case, conflicting reports from the Eurozone make this weekend's EFSF-fest look something like this: Finance ministers of the various Euro nations will meet on Friday; German Chencellor Angela Merkel and French President Nicolas Sarkozy will meet on Saturday; the rest is somewhat hazy due to conflicting reports, but the whole she-band of the 2 trillion Euro bailout fund (which may include 5:1 leverage) should be wrapped up and delivered to the panting, waiting world on Sunday, or Wednesday, maybe.

That is the kind of music the Europeans are playing above the din of Wall Street's stressed markets, making them zig-zag with even more amplitude than under the normal rigging of the HFT computers. Stocks were down, then up, then sideways, then finally finished mostly flat.

What is on one hand frustrating and on the other wildly amusing is that all the nations of Europe don't have 2 trillion Euros to rub together, much less 10 trillion once the fund goes the leverage route. Get ready for massive currency devaluation and market disruptions as the Eurozone embarks on an experiment in quantitative easing (money printing) that makes Ben Bernanke's Federal Reserve look like amateurs.

While all the noise and fury from Europe was making trading something resembling a kindergarten face-painting class, a couple of items concerning a couple of US banks the media forgot to mention appeared on the web.

Apparently aiming for the honor of headline of the month, the New York Post reports, Citi fined $285M for selling dog$#!t paper.

It appears that the SEC stopped watching porn for a few minutes to slap a fine on Citigroup for selling mortgage-backed securities (MBS) to their clients they knew were dog$#!t and, a la Goldman Sachs, bet against them in the derivatives market. The fine amounts to a small fraction of the beating investors continue to take and a spec of dust compared to what Citi and the other TBTF banks did to the US and global financial and housing markets.

Good for those few non-porn-addicted officials at the SEC for finally waking up, albeit three years late, and doing somewhat of the right thing, though, as usual, Citi admits no wrongdoing and no executives have been fined, jailed or slaughtered for public delight... yet. That's why we have the Occupy Wall Street movement. They may not have defined demands, but, in general they hate the mega-banks and the people who run them.

Then there's Bank of America, which has been shuckin' and jivin' so much they seem to be shadowboxing with themselves in a mirror inside a kaleidoscope. Their recent maladies are summed up in an article by the erudite by barely comprehensible Chris Whalen of Risk Analytics, in an article entitled, Is Bank of America preparing for a Chapter 11? published by Reuters UK, because apparently the average reader in America probably won't understand a word of it, though we are pleased to give everyone a try.

Basically, BofA is getting rough press over their recent decision to charge debit card users a fee for the service and now, they're making it harder to avoid the $5/month fee.

Additionally, the $8.5 billion settlement the bank had worked out with various MBS trusts, including Pimco and the NY Fed, has unraveled and is being sent to a federal court. Boo-hoo.

And, completing the trifecta, Bank of America has moved Merrill Lynch derivatives into it's banking unit, putting over $1 trillion of deposits at imminent risk.

Nice.

Dow 11,541.78, +37.16 (0.32%)
NASDAQ 2,598.62, -5.42 (0.21%)
S&P 500 1,215.39, +5.51 (0.46%)
NYSE Composite 7,273.90, +33.64 (0.46%)
NASDAQ Volume 2,095,450,875
NYSE Volume 4,870,291,500
Combined NYSE & NASDAQ Advance - Decline: 3404-2984
Combined NYSE & NASDAQ New highs - New lows: 26-71 (finally, something that makes sense)
WTI crude oil: 85.30, -0.81
Gold: 1,612.90, -34.10
Silver: 30.28, -1.00

Wednesday, October 19, 2011

No Rest for the Wicked (or Corrupt, or Criminal); Beige Book Sinks Stocks

No news out of Europe to goose or grouse the markets? No problem, the Fed's October Beige Book provided yet another dim view of current financial, business and economic conditions across the United States.

As one might expect, the reporting in the 12 Federal Reserve districts was mixed, with business conditions showing slight improvement in most, but housing and employment remaining weak across most. Here is a good summary of each of the districts, from Dow Jones Newswires.

That was about all that mattered. CPI showed a jump of 0.3% in consumer prices, while the housing market showed a mixed picture. The Mortgage Bankers Association saw a 14.9% decline in mortgage applications in the most recent week (ended October 14) for new purchases and refinancing combined. Housing starts shot up to 658K in September after reporting only 572K in August, the figures based on an annualized model.

However, building permits dropped from 625K in August to 594K in September, suggesting a slight contraction in new home construction.

A huge drawdown in crude inventories last week of 4.729M barrels caused oil prices to dive, citing weaker than normal demand as the cause.

In a best-case scenario, most economists believe that the US will not suffer another recession, though growth remains flat to slightly improved. That is why the banking and debt crisis in Europe moves the markets. If Europe cannot solve its problems, there would be enough of a contagion to effect the US economy negatively.

The NASDAQ took the biggest hit on the day, following Apple's (AAPL) earnings miss, reported after the closing bell on Tuesday.

Dow 11,504.62, -72.43 (0.63%)
NASDAQ 2,604.04, -53.39 (2.01%)
S&P 500 1,209.88, -15.50 (1.26%)
NYSE Composite 7,240.26, -101.47 (1.38%)
NASDAQ Volume 2,013,483,875.00
NYSE Volume 4,869,994,500
Combined NYSE & NASDAQ Advance - Decline: 1752-4763
Combined NYSE & NASDAQ New highs - New lows: 82-43
WTI crude oil: 86.11, -2.23
Gold: 1,647.00, -5.80
Silver: 31.28, -0.55