Mad Hatter Market; Euro Nations Threatened with Downgrades

Perhaps Lewis Carroll, whimsical author of Alice's Adventures in Wonderland and its sequel, Through the Looking-Glass might be a great stock picker and market analyst today were he to be revived from the dead and paid a handsome fee for his words of wisdom.

He certainly would find today's whirring trading machines and digitized billions of dollars quite the flight of fancy and he might conjure up one of his more famous characters - the Mad Hatter - to explain what's worth watching and what is mere perception and imagination.

Carroll might be as good at picking stocks as, say, Dick Bove, who keeps recommending Bank of America (BAC) at 7, no, 6, no, 5 and change and he'd be sure to have a more sanguine world view than the liar ex-presidential candidate, Herman (no, no sex, never) Cain, because the world is a weird and dangerous place and investing is an art that might lend itself more to psychedelics and naked speculation than to fundamental analysis and prudent timing.

A bit of amusement Carroll might find in the continuing saga of sick Europe, with it's fanciful money, the Euro and the equally absurd idea that 17 nations might work together for a common good without finding considerable argument and dispute.

And that's where we leave Carroll, laughing all the way to the bank, and digest what weirdness the world's leaders and financial firms played on markets today.

First, German Chancellor Angela Merkel and French President Nicolas Sarkozy (now there's an odd couple) brought the markets some hope with a Monday morning (US time) statement, the latest in a series of promises, hints and innuendo that essentially said nothing except that they are hopeful to have an agreement sometime soon, but definitely by March (we should all live so long).

The most humorous part of the statement is that all parties should agree to mandatory limits on budget deficits that eurozone members must adhere to, or risk possible sanctions. Budget deficit limits were part of the original plan, and we are well aware of just how well that worked out.

US markets responded favorably to the latest promise of stability as all the major indices broke sharply to the upside on the open and continued in rally mode into the afternoon.

Then, the cruel, evil and ruthless Standard and Poors came along and spoiled the festive tea party on Wall Street, saying that France, Germany, the Netherlands, Finland, Austria and Luxembourg have been placed on credit watch negative and that they all may lose their current AAA rating within 90 days if the European debt crisis (or circus) isn't resolved.

Moments later, the Wall Street Journal reported that European officials were awaiting word that all 17 Euro zone members might be downgraded, and that's when the Chesire Cat tripped over and fell onto the stock markets, taking them down many points, though leaving them with some hope and dreaming in positive territory for the day.

(Mad hatters love this stuff. People whose money is tied into the stock market through retirement accounts or other investment vehicles are not so easily amused.)

That's where our story leaves off for today. We're hoping that Sarkozy, who looks a bit mad himself, might make mention of the IMF or SDRs tomorrow, making for even more hilarity and wide-eyed, crazed speculation.

Take the red pill, Alice.

Dow 12,097.83, +78.41 (0.65%)
NASDAQ 2,655.76, +28.83 (1.10%)
S&P 500 1,257.08, +12.80 (1.03%)
NYSE Composite 7,531.01, +77.46 (1.04%)
NASDAQ Volume 1,678,879,250
NYSE Volume 4,154,232,000
Combined NYSE & NASDAQ Advance - Decline: 4177-1469
Combined NYSE & NASDAQ New highs - New lows: 183-42
WTI crude oil: 100.99, +0.03
Gold: 1,734.50, -16.80
Silver: 32.37, -0.31

For today's musical finale, we happily go through the looking glass back to Grace Slick and Jefferson Airplane performing White Rabbit on the Smothers Brothers Comedy Hour in 1967, when things were just a bit different... the Smothers Brothers were funny and offbeat, Grace Slick was young and pretty and Jefferson Airplane was, well, a little bit weird, though musically, quite talented.

At least there were no terrorist-check lines at airports, public buildings and courthouses, banks paid five percent interest on savings and the stock market was mostly for rich people. The rest of us bought savings bonds or baseball cards and hoped for the best.

Stocks Finish Flat After Suspect Non-Farm Payroll Data; Super Week for Stocks

By now, the "official" BLS non-farm payroll figures for November have been digested, sliced, diced and regurgitated by radio talk shows, blogs and financial news outlets.

While the headline numbers of 8.6% unemployment - a big drop from last month's 9.0 - and a gain of 120,000 net new jobs created (140,000 in the private sector) looked good on the surface, a peek under the hood revealed that the unemployment rate did not drop due to new jobs, but rather on the scurrilous assertion that 315,000 people dropped out of the civilian labor force.

These 315,000 are often described as "discouraged" workers, who have fallen off the unemployment roles and are no longer seeking employment. Of course, this assumption that just because your unemployment benefits have run out you're no longer seeking employment is nearly a complete fantasy. The truth of the matter is that many of these people will be filling up the welfare and food stamp roles in a New York minute, while others will take menial day jobs, work off the books, move in with friends or relatives or join the swelling ranks of the homeless.

Additionally, the BLS reported that the participation rate (the percentage of adults in the labor force) fell from 64.2% to 64.0%, with those not in the labor force growing by 487,000. That number includes retirees (a number that will only continue to grow as Baby Boomers begin to retire), long term disabled and, supposedly, lottery winners who no longer have to toil for a wage.

So, while the White House does a victory lap, claiming unemployment at its lowest rate in more than 2 1/2 years, the reality of working in America is vastly different from what the media would have one believe.

More than eight million fewer people are employed than before the last recession began in the 4th quarter of 2007. Employment is at levels last seen in 2000. Long-term unemployment remains a persistent problem. The average time out of work is now over 40 weeks, the highest in history.

That's why Wall Street was not wowed with the report. The statistically-misleading headline 8.6% unemployment was achieved primarily due to a faltering workforce and over 300,000 falling off the roles. Stocks began the day with healthy gains, but after a week full of encouraging and cheerleading, profit-taking was the order of the day and volume was a mere dribble.

Still, the week as a whole was impressive for equity investors. The Dow rang up a gain of 788 points, one of the best weeks ever. The S&P 500 gained 85 points and the NASDAQ was up a whopping 187 points.

Wall Street can cheer for now, as the economy seems to be limping steadily along, but longer term problems remain, especially in the middle class, where the general result of a layoff or firing and subsequent successful job search results in working for less and a lower standard of living.

Politicians may crow about the continued "job creation," but the hard truth is that America is not creating enough jobs to satisfy the needs of what used to be a robust, mobile labor force. Adjustments are being made, as unreported income and cash transactions in the so-called "underground economy" are on the rise. What's keeping America going is, as usual, not the jury-rigging of the political class, but the ingenuity of the American populace and their will to live free and unfettered by the rigors of an oppressive federal government.

The long and short of it is that for all the official numbers and statistics the government produces, they don't add up to a strong economy. It is what lies underneath that is really making a difference. At some point, government must admit that they cannot create jobs or centrally plan the economy and the size and scope of the governments at all levels must be reduced. The US economy is too big, too diverse and too dynamic for it to be controlled from Washington, DC or even state capitols. People work, get paid and maybe, pay taxes, though how they go about those various processes is of too much complexity and granularity for government statisticians to capture.

There's a lot of untapped wealth and resource in the United States, mostly in the hands and minds of American workers. Government needs only to get out of the way and allow Americans to live and earn honestly and with hope for the future.

Dow 12,019.42, -0.61 (0.01%)
NASDAQ 2,626.93, +0.73 (0.03%)
S&P 500 1,244.28, -0.30 (0.02%)
NYSE Composite 7,453.55, +3.12 (0.04%)
NASDAQ Volume 1,656,224,750
NYSE Volume 4,137,980,750
Combined NYSE & NASDAQ Advance - Decline: 3407-2204
Combined NYSE & NASDAQ New highs - New lows: 158-56
WTI crude oil: 100.96, +0.76
Gold: 1,751.30, +11.50
Silver: 32.69, +0.07

Stocks on Hold Ahead of November Non-Farm Payroll Data

As opposed to the risk on, risk off mantra so frequently used on up or down days, Thursday's markets could best be described as risk neutral.

Stocks criss-crossed the flat line in a narrow range, the Dow Jones Industrials never better than 17 points to the good in a range of less than 90 points.

Europe delivered no new information, though US data continued to roll in with some strength. The closely-watched ISM Index popped up to 52.7 in November after a reading of 50.8 in October.

Auto sales were strong in the month just ended, though General Motors (GM) lagged most rivals, showing a 6.9% increase from a year ago. Ford (F) said sales were up 13%, though all numbers reported paled by comparison to Chrysler's 45% increase from last November.

Recent sales and economic data continue to indicate that, despite the drag on the market from financial stocks and European worries, the US economy is rebounding quite strongly. Even though lawmakers in Washington are resembling the infamous "Gang That Couldn't Shoot Straight" with their continual posturing over tax and spending issues, Americans have taken matters into their own hands this holiday season and appear to be spending with gusto.

Whether the current momentum will be maintained is a matter to be worked out in the final three weeks of the holiday season and during January's traditional post-holiday discount period.

After Wednesday's hug upside move, traders seemed to have little interest in much of anything other than Friday's expected non-farm payroll data, due out one hour before the opening bell.

While ADP presaged the number with a solid 207,000 net private payroll increase on Wednesday, initial unemployment claims of 402,000 announced prior to Thursday's open threw a bit of cold water on investor optimism. Estimates range from 80,000 to 200,000 new jobs created in November, though the high end of the range is more an extrapolation from the ADP figures, which are often far afield from the BLS data.

Dow 12,020.03, -25.65 (0.21%)
NASDAQ 2,626.20, +5.86 (0.22%)
S&P 500 1,244.58, -2.38 (0.19%)
NYSE Composite 7,450.43, -34.07 (0.46%)
NASDAQ Volume 1,826,260,375
NYSE Volume 3,853,659,000
Combined NYSE & NASDAQ Advance - Decline: 2139-3481
Combined NYSE & NASDAQ New highs - New lows: 144-76
WTI crude oil: 100.20, -0.16
Gold: 1,739.80, -10.50
Silver: 32.76, -0.05

Santa (Ben Bernanke) Arrives Early in Europe; Gold, Silver Surge

Stocks worldwide were up sharply Wednesday on the news that the Federal Reserve, in conjunction with the Central Banks of Canada, England, Japan, Switzerland and the European Central Bank (ECB) agreed to lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements by 50 basis points.

It was an early Christmas gift that sparked a speculative rally and kept Europe from unraveling, again.

What we've repeatedly heard is that the current calamities of the Euro-zone are nothing like those encountered on American soil in 2008.

The plain fact that banks in Europe are under dire stress and in need of liquidity not only reprises 2008, but adds a crescendo affect that's akin to adding the NY Philharmonic, the Ohio State marching band and the Mormon Tabernacle Choir to the efforts of the Boston Pops.

Stresses on European banks, especially those in France, Belgium and Italy, have been exacerbating on a near-daily basis, with the potential for global contagion even greater than when Lehman Bros. was allowed to flail and fail.

Thus, as some unknown Europe-based bank was about to go under - rumors say $265 million in overnight borrowings from the ECB was the tip-off - the global elitist Central Bankers conspired to lift liquidity by lowering the borrowing rates on US Dollar swap arrangements by 50 basis points (1/2 percent).

Magically, not only was the global Ponzi financial system saved for the day, week or month, but the added benefit of having global equity markets spike 3-4% higher came along as an intended consequence. Yes, the globalists know what they're doing. Too bad for them that it doesn't work long term, as we know so well from recent history, circa September, 2008.

Here's a post, by none other than some character calling himself John Galt, that has both the 2008 and current Federal Reserve press releases. The similarities are striking, but also magnificent was the 2008 aftermath, the worst financial crisis of the last 70 or so years, and the resultant crash of the equity markets.

So, Santa came to town (Europe) dressed as Ben Bernanke, with his trusty elf, Tim Geithner, in tow, passing off presents to the good (and bad) bankers across the continent. While this constitutes Christmas and a Santa Claus Rally about a month prematurely, what can Europe and the global economy expect when the holiday actually arrives on December 25, lumps of coal, or perhaps soaring gold and silver prices?

The actual timing of the eventual collapse is still unknown, though this desperation move seems to indicate that the global financial structure is crumbling faster than the "unseen hands" of the central banks can prop it up. A dive in equities may not coincide with Christmas - that would be a shame - but rather sometime in early 2012, likely in the first quarter and quite possibly in January as profits are taken early in the year on stocks pumped to unwieldy heights in December. The net results being a relatively weaker dollar and higher prices for just about anything one consumes or needs. When the crash comes, of course, the Euro will descend and the dollar will rise, though the effect is probably short-term, until the Easter Bunny fills up those empty bank liquidity baskets again.

As the adage implies, this massive liquidity gift may indeed have a silver lining, encrusted with much-higher-priced gold.

Prior to the Fed's announcement, the People's Bank of China cut bank reserve requirements for the first time in three years, by 0.5%, amid signs that the Chinese economy is slowing due to slack demand for China's exports, particularly from Europe.

After the announcement, with futures up dramatically, ADP released its November Employment Change results, showing the creation of 206,000 private sector jobs during the month. The private survey is a regular precursor to Friday's BLS non-farm payroll data.

Third quarter productivity was measured as up 2.3%, while unit labor costs fell 2.5% as companies hunker down, doing more with fewer employees.

Fifteen minutes into the trading session, Chicago PMI reported a big jump, from 58.4 in October to 62.6 in November. It was an unnecessary boost to a market which had already spiked higher at the open.

There was no fade in this one-day rally, coming conveniently on the last day of the month, traditionally the day reserved for "window dressing" by fund managers. Stocks were up monstrously on the open and continued along a high, flat line for the rest of the session, until a final short-covering episode in the final fifteen minutes pushed indices even higher.

Just speculating, but it had to be one of the best market moves of the year, if not the best. Volume was sufficient, though not overwhelming. The late-day surge may be indicating that even more easy money will flow from the Fed to the hampered Eurozone.

As to whether the moves in stocks are sustainable and the even more important question of whether or not Europe is "fixed," the answers will only be known at some future date. The most cogent commentaries on Europe suggest that today's coordinated central bank motivation only covers over a dire condition in the European banking sector and is nothing more than a liquidity band-aid on a solvency open gash. Europe's funding problems remain unresolved, though any mention of default or collapse has probably been delayed by a few weeks or a month.

And just in case you're worried about food shortages or another recession, the Obama administration and congress actually did accomplish something, recently having lifted the five-year-old ban on slaughtering horses in America. Not to worry, though. Americans won't be eating Little Red Pony or Trigger any time soon (we hope). The meat will likely be shipped to Japan or Europe. However, if this is a trend-setter, cans of Lassie, Rin Tin Tin or Boo Boo Kitty may be in supermarkets soon. Dog food and cat food may take on newer, twisted meanings.

Dow 12,045.68, +490.05 (4.24%)
NASDAQ 2,620.34, +104.83 (4.17%)
S&P 500 1,246.96, +51.77 (4.33%)
NYSE Composite 7,484.49, +334.78 (4.68%)
NASDAQ Volume 2,386,048,000
NYSE Volume 5,808,163,500
Combined NYSE & NASDAQ Advance - Decline: 4913-861
Combined NYSE & NASDAQ New highs - New lows: 161-68 (this has rolled over)
WTI crude oil: 100.36. +0.56
Gold: 1,745.50, +32.10
Silver: 32.73, +0.88

American Airlines Goes Belly Up; Housing Slides, but Confidence is Up?

AMR, parent company of American Airlines, filed for Chapter 11 bankruptcy protection Tuesday morning in federal bankruptcy court in the Southern district of New York.

While it seems an inappropriate time for an airline to file for bankruptcy, the timing could prove beneficial to the airline, the last of the major carriers to undergo reorganization. The company, while it has over $4 bllion in unrestricted cash, has $9 to $12 billion in debts.

The company announced that flights would not be disrupted and no immediate layoffs were announced. AMR lost $162 million in the third quarter and has posted losses in 14 of the last 16 quarters.

A pre-packaged bankruptcy such as this sure sounds all bright and cheery on the surface, but these things have ripple effects, as some vendors and creditors are surely to get stiffed or be forced to take pennies or dimes on their dollars. American Airlines will survive, but unseen companies will be hurt down the line and many employees will likely lose their jobs. The American recovery lives on, but why didn't the government bail out AMR like they did General Motors? Maybe they've lost interest in business.

The current S&P/Case-Shiller 10-and-20-city indices both fell month-to-month and year-over-year, as housing continues to deteriorate Despite the lowest mortgage rates in decades, potential homeowners are largely shut out of the market by stringent underwriting standards and, more importantly, the lack of jobs needed to finance and support the payments on a home purchase.

Declining by 3.9% in the third quarter, the index showed a bit of relief from the second quarter's 5.8% decline, though there wasn't much hope in the report, which tracked sales through September. Only Detroit and Washington, DC reported gains during the period, of 3.7 and 1 percent, respectively. Home prices have fallen back to 2003 levels nationally.

Wall Street shrugged off the bad housing data and focused instead on the Conference Board's index of consumer confidence which rocketed up to 56 in October, from a revised 40.9 in September. It was the largest monthly gain in confidence since April 2003, though the current reading comes off a two-year low for the gauge.

Meanwhile, over in Euro-land, finance ministers kicked off a two-day summit designed to define a framework for the various entities - countries, the ECB and the ESFS - to deal with the ongoing debt crisis. Some of the ideas being floated around this time involve countries trading a bit of sovereignty for more bailout funding, and leveraging the ESFS roughly 2.5 times, to provide funding for stressed economies, mostly in the Southern part of the continent.

As usual, nothing concrete has - or will - come from these meetings, as European leaders inch closer to a complete currency collapse, which now, along with the breakup of the Euro currency partners, is rated by top economists as a 50/50 chance.

Here in America, the few traders still not completely scared away pushed stocks higher for a second straight day on the Dow and S&P, though the NASDAQ finished in the red. Trading volume was extremely thin. If there is to be a so-called Santa Claus Rally, it's not likely to awaken any sleeping children and will probably be sold off in a session or two, as the choppiness and extreme volatility is not likely to abate before the European crisis either is resolved or blows up completely.


Dow 11,555.63, +32.62 (0.28%)
NASDAQ 2,515.51, -11.83 (0.47%)
S&P 500 1,195.19, -2.64 (0.22%)
NYSE Composite 7,149.71, +29.16 (+0.41%)
NASDAQ Volume 1,621,070,500
NYSE Volume 3,951,292,750
Combined NYSE & NASDAQ Advance - Decline: 2486-3131
Combined NYSE & NASDAQ New highs - New lows: 65-166
WTI crude oil: 99.79, +1.58
Gold: 1,713.40, +2.60
Silver: 31.85, -0.31