US Markets Stalled Out, Waiting for Europe's Next Gambit

There's an old Wall Street adage that goes something like, "don't short a dull market," but, if this market goes any higher and gets any duller, the adage might as well be thrown out along with most long positions in stocks.

After Tuesday's snooze-fest, Wednesday's market was even sleepier, with participation at low ebb. Volume has nearly completely dried up, but the thin trading has reduced volatility somewhat. In fact, the VIX, which measures implied volatility in the S&P 500, hasn't pitched above 30 (an abnormally high level to begin with) since November 30, or one week ago.

What traders are most concerned with is once again Europe, but more specifically, the two days of meetings scheduled in Europe, one by the ECB, tomorrow, and the other a crisis summit of leaders of the Euro-zone nations on Friday that is hoped to pave the way toward an end of the two-year-old debt crisis that has gripped European markets and locked down US markets for the past two days.

As is the usual case with relying on Europe to fix our own stock market, it's probably a bad idea. Some leading economists of the region, particularly those from Germany, who have the best view of the situation, are saying that whatever solutions come out of this week's crisis summit, Europe's problems are likely to remain contentious for another eighteen months to two years.

Noting that, and understanding that debt issues which took decades to produce are not going to be solved at one meeting (it has been promised before and not been delivered), so one has to question both the positioning in US stocks, which have been essentially flat since the middle of August, and the reliability of ancient words of wisdom in an era that has been marked by unusual actions from the Fed and other central banks in developed countries.

If everybody's waiting on Europe, just what do they expect? A grand plan which all 17 countries that use the Euro as currency can agree to? Good luck with that. European leaders are now calling for majority consensus rather than unanimity. Meanwhile the ratings agencies, specifically Standard & Poor's, are scaring the daylights out of each and every one of them, threatening credit rating downgrades across the continent if there's no substantial progress come Friday.

What this telegraphed sucker punch from S&P is saying is more political than economic, essentially telling all of Europe to stop playing around the periphery and get to the core of the matter, which would entail some countries (think Spain, Portugal, Italy and Greece) having to give up some degree of sovereignty in order to remain in the good graces of the European Union and the ECB. And while fiscal unity, or, at least some semblance of fiscal responsibility would be a step in the right direction, the citizenry of those countries might not take lightly to having new masters above their own elected leaders somewhere in Germany, Brussels or France.

Since the crisis meeting isn't until Friday, that's probably when US markets might perk up, but, if the game plan remains the same in Europe - promise much, deliver little - they will be sending a message to markets around the world that the issues present are too large, too diverse and too complex for all 17 Euro-zone nations to reach agreement on any unifying principles laid down.

In that scenario, we may just get another two days of slumber on the street as even more participants make a premature exit from stocks in 2011, fleeing to cash or bonds until the dust settles after the holidays.

And what about that Santa Claus rally that usually commences over the final two weeks of the year? There may be one, but it won't have much gusto on low volume and it's not likely to last long. Stocks are already creeping back toward their late July - early August levels and there's just not enough economic "juice" in the system for which a rally can be sustained. The major US indices have flirted recently with the flat line for the year and that's probably where they're going to remain.

Meanwhile, all one can do is hold one's breath waiting for Europe's next move. Everyone is waiting to exhale.

Dow 12,196.37, +46.24 (0.38%)
NASDAQ 2,649.21, -0.35 (0.01%)
S&P 500 1,261.01, +2.54 (0.20%)
NYSE Composite 7,559.71, +20.39 (0.27%)
NASDAQ Volume 1,654,001,000
NYSE Volume 4,158,213,000
Combined NYSE & NASDAQ Advance - Decline: 2804-2747
Combined NYSE & NASDAQ New highs - New lows: 119-63
WTI crude oil: 100.49, -0.79
Gold: 1,744.80, +13.00
Silver: 32.63, -0.12

Equities Drift, Then Rally on More False Hope from Europe

Following events in Europe's ongoing credit crisis is becoming counter-productive and in many ways, simply stupid.

Today's duller-than-usual session (and that's saying a lot, because it's been pretty dull the past few days) caught a bit of fire mid-afternoon when the Financial Times reported that European leaders were considering a permanent fund with which to deal with sovereign debt issues in addition to the "temporary" EFSF. The new, European Stability Mechanism (ESM) is proposed to come on line mid-2012 and roughly double the firepower Euro financiers will have to deal with any exploding budgets in Euro-zone countries.

While that's all well and good, it's yet another proposal - not anything concrete - from the foot-draggers across the pond who have neither the wherewithal, the money, nor the will to effectively deal with their generational debt issues. Still, Wall Streeters wait with baited breath on every syllable from European leaders as though they are all that matters here in the United States.

The truth is that Europe's problems are large, but America's may prove to be much larger. Besides, stocks moving up and down on the whims of our friends on the continent has little to do with fundamental strength or weakness of individual stocks traded on US markets. While it's almost a certainty that Europe will enter a recession early in 2012, companies doing business over there will adjust, but the situation is not getting materially better.

To think that just throwing more money at their problems, or, the mention of throwing said money, raises stocks in the US on a correlation trade of a stronger Euro and a weaker US dollar is simplistic as well as not rooted in reality. If Europe is headed for a recession, their currency should weaken and US officials should welcome the relative strengthening of the US dollar, though it's become quite clear that Mr. Bernanke and Mr. Geithner see things differently than the rest of US. Their future and the future of the US economy has been and continues to be predicated on a continually weakening US dollar, a condition that eventually is ruinous to our economy and probably that of many other developed nations.

The Europe-watching-and-waiting needs to come to a head, an end, a conclusion, though it's probably not in the cards any time soon.

The farce of 21st century economics continues, it should be noted, on extremely low volume.

Dow 12,150.13, +52.30 (0.43%)
NASDAQ 2,649.56, -6.20 (0.23%)
S&P 500 1,258.47, +1.39 (0.11%)
NYSE Composite 7,539.32, +8.31 (0.11%)
NASDAQ Volume 1,495,232,875
NYSE Volume 3,732,697,000
Combined NYSE & NASDAQ Advance - Decline: 2659-2918
Combined NYSE & NASDAQ New highs - New lows: 111-58
WTI crude oil: 101.28, +0.29
Gold: 1,731.80, -2.70
Silver: 32.74, +0.37

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