Certainly, nobody is going to feel sorry for the Wall Street lemmings, vultures and whales for another losing day on stocks. After all, the major averages are up more than 25% on the year and a good number of individual issues are up much more than that, many having doubled in price over the past 48 weeks.
So, excuse us if we cry crocodile tears for well-heeled investors and speculators.
There is, however, a little bit of a problem in the markets, and it is completely and everlastingly tied to the Federal reserve and their Zero Interest Rate Policy (ZIRP) and continuing quantitative easing (QE), about which there is much debate, constrnation and confusion.
The final meeting of the year for the FOMC is slated for next Tuesday and Wednesday, and, while nobody in their right mind expects this august body to announce any rate policy changes, there is the small matter of decreasing the amount of securities the Fed is buying every month (QE) from the current $85 billion to something less than that, otherwise known as "tapering."
CNBCs Steve Liesman, who has a pipeline directly to and from the Fed, announced today that tapering would be announced at the December meeting. That news, and the final acceptance and future implementation of the Volker Rule, sent stocks backpedaling from the outset. The Volker Rule, in essence, disallows banks from engaging in speculative trading with depositors' money, something the various agencies feel was responsible for at least a part of the financial crisis of the past five years.
The rule puts severe restrictions on what banks can and can't do in terms of proprietary trading (i.e., speculating), but it is dense, long, deep, and riddled with potential loopholes for crafty lawyers and bankers to slither all kinds of nefarious doings through. The Volker Rule document - three years and 585 pages in the making - is, in reality, nothing more than a full-employment bill for litigation attorneys. Bully for them.
QE, and, more specifically, the tapering of QE, is another animal altogether. The Fed has been jawboning about the possibility of scaling back their bond purchases - $45 billion in treasuries and $40 billion in MBS - since May, with varying degrees of success. Wall Street banks, being the main beneficiaries of the program, would like the policy to extend to infinity and beyond, though they know in their dark heart of hearts that it must come to some kind of conclusion. The US economy cannot be force-fed money by the central bank forever.
Besides the program being excessively beneficial to banks and somewhat harmful to small businesses, consumers and emerging market nations, there is another problem that the Fed may never have considered. Due to their monopolizing of the MBS and treasury markets, the available bond issuance is dwindling, so much so, that the Fed may have no choice but to wind down such programs.
The other side of the equation is such that the Fed has so far crowded out potential bidders that there may not be many who actually want to participate. Thus, many in the bond world see even a slight decrease of buying by the Fed as a potential for higher interest rates, including interest on government debt itself, which is already a large portion of the Federal budget but could grow into a behemoth should the federal government have to begin paying back interest at higher and higher rates.
These are the unforeseen, though somewhat predictable, ramifications of the Fed's actions, actions that forestalled an implosion of the financial system and the insolvency of many of the world's largest financial institutions, dating back to the halcyon days of 2008 and $800 billion in TARP money and then-Fed Chairman Hank Paulson holding a gun to the economy's head.
So, Liesman may be bluffing at the behest of the Fed, or he could have just issued the warning shot to the markets that the plundering of assets with free money is about to come to an end.
The signs that the policy has run its course are profligate: record art and collectible car auctions, record high-end real estate prices, record stock prices.
Enough is enough. The party is about to come to a crashing, cataclysmic conclusion, and as cataclysms usually are, this one is not likely to be pretty.
Technically speaking, the advance-decline line deteriorated again today, the gap between new highs and new lows continues to show signs of shrinking and potentially flipping, and outside of Friday's massive vapor-rise, stocks have fallen every day since Thanksgiving.
The good news (for some) is that commodity prices took a lift today, with silver and gold leading the way.
DOW 15,973.13, -52.40 (-0.33%)
NASDAQ 4,060.49, -8.26 (-0.20%)
S&P 1,802.62, -5.75, (-0.32%)
10-Yr Note 99.43, +0.37 (+0.37%), Yield: 2.80%
NASDAQ Volume 1.71 Bil
NYSE Volume 3.07 Bil
Combined NYSE & NASDAQ Advance - Decline: 2115-3553
Combined NYSE & NASDAQ New highs - New lows: 206-113
WTI crude oil: 98.51, +1.17
Gold: 1,261.10, +26.90
Silver: 20.32, +0.614
Corn: 436.00, -2.00
On December 16, 1773, the Sons of Liberty - disguised as Mohawk Indians,dumped 342 chests of tea into Boston Harbor as a nonviolent political protest of the Tea Act of 1773. The action, known as the "Boston Tea Party" is widely recognized as the initial protest of American colonists against the oppressive "taxation without representation" of the British crown which resulted in the Revolutionary War and the founding of the new Republic of the United States of America.
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