Saturday Afternoon Quarterback: The Day After the Great January Stock Slide

OK, it's Saturday, and the world hasn't ended, but what's important is to keep abreast of developments over the weekend in places like Argentina and Turkey, both of which are experiencing significant currency issues.

The other part of today's exercise is to see if there is anything that might give a clue to the future, and as to whether the massive selloff on Friday (and all week on the Dow) was a one-off, or if it is going to lead to more dislocations in stocks, a further decline, a 10% correction, or a bear market, which is where the fun really starts for those bent on restoring some semblance of sanity to stock valuations.

Yes, Cry for Argentina

Argentina, a country already shut off from foreign credit markets (could be a blessing in disguise) after the financial collapse of 2001-2002, has been in crisis mode for most of the past three years, with citizens unable to purchase US Dollars with their local currency, the peso, except on black markets, where the going rate is roughly 11-1 or 12-1.

Other restrictions on the movement of money have been imposed by the autocratic government of Christina Kirchner during the recent past, but on Friday, the government was said to be lifting the ban on the purchase of dollars, with an official rate of 8-to-1, and a 20% surcharge, pushing the "official" exchange rate closer to black market prices, though not equal to them. The new policy is said to take effect on Monday, though local chatter is that the government won't have enough dollars available by then to meet expected demand.

The black market is thriving in Argentina's cities, the Euro and US Dollar being the main currencies accepted for millions in hidden transactions. With inflation running at about 30% over the past year, this crisis seems to have legs, eventually resulting in full-blown currency rejection, prompting various economic, social and political problems, likely precisely what the overlords at the World Bank and IMF have in mind.

Argentina is Greece writ large, without bailouts. The take-away is that this is nothing short of economic warfare, with the citizenry being the victims via inflation, social unrest, political uncertainty, with the goal being having the government succumb to the demands of international bankers, who will grind the country down with crushing debt packages disguised as "aid."

Turkey Stew?

In a nutshell, Turkey, a country that is a geographic crossroad between Europe, Asia and the Middle East, is at more crossroads - economic, social and political - than its current leaders can handle. While the country is mostly Sunni Muslim, most of its neighbors to the South (Syria, Iran and Iraq) are Shiite. On the other side to the West is Europe, and the struggle to admit Turkey to the EU has been ongoing for nearly a decade.

The rapid devaluation of the lira, the country's official currency, was a design of European technocrats, who seek to weaken the country's finances to a point at which acceptance of the Euro as the "new" currency would be greeted with cheers of economic progress and stability, though opponents of entering into full-blown Euro acceptance consider that a move characteristic of failure, and point to the loss of sovereignty that would result.

To the North, lies Georgia, Russia and, across the Black Sea, the Ukraine, which has descended into a condition close to civil war, mostly over the issue of whether to join the European Union or throw in with Russia, which holds sway over the country's gas supply. This is somewhat of the same situation facing the Turks and makes the situation all the more confusing. With so much turmoil in the region already, it wouldn't take much of a spark to turn Turkey into a pretty large battlefield, some of it, mostly the southern region, already torn up by the Syrian conflict.

It doesn't take much imagination to see the Turkish situation spiraling wildly out of control. Al Queda already runs arms and terrorists through the country, and Russia also smuggles weaponry to Syria through it. If Turkey were to erupt into violence, one could easily see a wide swath of nations - from Egypt all the way to the Ukraine - as a war zone, much of it already engulfed by violence.

The Wider View

If the situation in Turkey, Syria and the Ukraine wasn't enough to destabilize markets, Argentina and the brewing banking crisis in China certainly have to be rankling the money-handlers.

Here is a brief clip and transcript (about eight minutes) that describes the shadow banking problems in China. Essentially, shadow banking enterprises are financing loans made to companies who borrowed from official channels and have run out of credit or the ability to borrow more on good terms from China's official banking system has been exhausted. The issue is one of rolling over credit in order to avoid default, but, as the article explains, China is going to slow and some industries will be negatively affected, and whole businesses shuttered.

With the difficulty of getting straight information out of China still a huge problem, it's unclear how bad China's debt-to-GDP ratio has become, though it is certainly more than the officially reported 125%.

Of course, with debt-to-GDP at that level or higher in the bulk of developed and emerging nations, China's problems just add to the mix, though it's like dropping a whole stick of butter into a small bowl of flour and milk. It's so big, it threatens to clog up the entire operation and that's what is most worrisome.

There are, naturally, many more reasons why stocks plunged on Friday, from Italy's unemployment at an all-time high of 12.7%, to Spain's unemployment dwarfing that, at 26.8%.

Other indicators include the Baltic Dry Index (BDI), which collapsed in the two weeks after the holidays by an unprecedented amount, and, China's most recent PMI, which the financial media give a wide berth for the cause of the selloff in US stocks. The PMI fell to 49.6, indicating contraction in the manufacturing sector, the lifeblood of the Chinese - and to a great degree, the global - economy.

Here at home, retailers are feeling the pinch from a horrid holiday shopping season, the worst since 2008. JC Penny and Sears have already announced store closings and layoffs. Target and Wal-Mart announced layoffs on Friday, though they were small in number.

Technicals Matter

Technically, US indices are in pretty good shape, overall. The Dow and S&P had been making new all-time highs at the end of 2013, but the performance in the first three full weeks of 2014 are not encouraging. With Friday's decline, the Dow ripped right through its 50-day moving average. On just Thursday and Friday, the Dow more than tripled its losses for the year. The two-day decline was more than 500 points, a number that represents a roughly 3% loss, but, since the index has risen so high, the point total of over 300 points on Friday has a psychological impact.

Imagine the Dow Jones Industrials as a 1600-pound animal, maybe a small hippo. A one-percent loss in weight - 16 pounds - wouldn't seem to matter much, but a 3% loss is close to 50 pounds, possibly worth notice. If the animal were to lose 10% (a correction, in market terms), or 160 pounds, veterinarians would be consulted, and, if a 20% loss in weight were to occur (indicative of a bear market), some might the 320-pound loss in weight was indicative of the animal having a severe disease.

The S&P likewise fell through its 50-day moving average, though the NASDAQ remained in suspended animation above its 50-day moving average, buoyed by Netflix and Google in recent days, though that position may be in jeopardy if the declines from the past few weeks persist and morph into something larger.

Key support areas on the Dow are at 15,450 and 1700 on the S&P, both the 200-day moving averages.

Also, the number of new lows exceeded new highs on Friday, the first time that has happened this year.

Forward Thinking

With earnings season in full gallop, next week should provide more fireworks. Apple and Google will be reporting, and those will be the big ones to watch. Since they are techs, they'll likely give the markets some pause and reason to ignore the declines of the past week, but the big enchilada is the two-day FOMC meeting on Tuesday and Wednesday, January 28 and 29, Ben Bernanke's last.

While the Fed didn't expressly say so when it announced the tapering of their bond purchase program by $10 billion last month, the fear on the Street is that they will announce another $10 billion reduction, bringing their monthly purchases down to $65 billion in February, from $85 billion in December.

Nowhere in its press release from last month
did the Fed even mention further cuts, so a reasonable expectation is that they will continue asset purchases at a rate of $75 billion per month, which, seriously, is more than enough, though market crybabies would like to see even more artificial stimulus.

Interest rates are also normalizing again, with the 10-year dropping to its lowest yield since prior to the "taper" announcement, closing Friday at a yield of 2.72%

Essentially, the turnback on Friday wasn't such a big deal, though any downturn is viewed with skepticism since the Fed is still supplying so much liquidity. If stocks can't maintain their current valuations, it means one of a couple of things. One, the Fed's policies are a complete failure, or, two, the economy is much weaker than anyone thought, or, three, stocks ran up to a highly overbought level and investors are just taking profits, albeit, at a rapid pace.

What's important to watch is how stocks act next week, the final week in January. The Fed announcement will be key, though they shouldn't influence markets considerably unless they taper even more, an unlikely event. If the major indices make it through the week without losing much or actually making gains, keep a close eye on the recent all-time highs on the S&P and the Dow. If these levels are not surpassed, that's a plain signal of a primary bear market. That should surprise nobody except perma-bulls, because this bull market will be a full five years old - 60 months - on March 9th. If the market makes a V bottom and rebounds past the highs (a correction and rebound), short at your own risk, because that would be a sign of a continuing liquidity-driven push higher.

One other indicator to consider is the January Barometer, which, at this juncture, looks certain to be negative. The direction of stocks in January has about a 90% correlation to direction for the rest of the year, so, unless there's a miracle rally this coming week, 2014 appears to be heading South.

For now, it's too early to call direction, but this brief summary of some of the key issues should provide background for all investors.

Mango! Stocks Rocked Again on Huge Volume Spike

Mango!

There is simply too much data swirling around today for an accurate assessment, but, if anything, this looks like the absolute end of the bull market, now in its 59th month.

Believe it or not, there was actually an analyst on CNBC saying they're advising clients to buy! The VIX was down more than 30% at certain points during the day.

The January Barometer is predicting a sour 2014.

We'll have a special report by noon Saturday, which should not be missed as it will provide more granularity about this week's market events.

Just for starters, the new highs-new lows flipped over today, the 10-year note closed at 2.72%.

Here are the indices, at the close, for the week:
Dow -579.45 (-3.52%)
NASDAQ -69.41 (-1.65%)
S&P 500 -48.41 (-2.63%)

All this is just today:
DOW 15,879.11, -318.24 (-1.96%)
NASDAQ 4,128.17, -90.70 (-2.15%)
S&P 1,790.29, -38.17 (-2.09%)
10-Yr Note 100.23, +1.00 (+1.00%) Yield: 2.72%
NASDAQ Volume 2.32 Bil
NYSE Volume 4.61 Bil
Combined NYSE & NASDAQ Advance - Decline: 803-4983
Combined NYSE & NASDAQ New highs - New lows: 72-106
WTI crude oil: 96.64, -0.68
Gold: 1,264.30, +2.00
Silver: 19.76, -0.245
Corn: 430.00 +0.50

Why the Boom Went Bust Today; Stocks Rocked; Gold, Silver, Bonds Higher

Despite a pair of great earnings reports after the bell Wednesday - Netflix and eBay - stocks sold off dramatically on Thursday, starting even before the opening bell, as futures pointed to a grim opening.

When trading began, the Dow slumped an immediate 135 points, while the S&P and NASDAQ took on deep losses. The negative condition persisted throughout the day, actually getting worse in the afternoon.

While stocks have already begun the year on a less-than-enthusiastic note, today's drops were the worse seen since last August and quite possibly are foretelling of further declines to come.

Commentators in the financial media mostly failed to comprehend the causes for today's collapse in equities, which were, in no particular order, the Chinese banking system becoming unglued, Turkey's economy falling apart at the seams, heightened tensions in the Ukraine, fear over terrorist attacks at the Olympics in Soshi, Russia, continuing civil war in Syria and 1.37 million people dropping off of the Emergency Unemployment Compensation roles.

Let's examine this last bit of news first, because it is so US-centric and is a troubling sign of the ongoing impotence of the federal government. Recall, the noises out of Washington, DC, earlier this month about restoring the aid to the people whose 99 weeks of unemployment were ending. Democrats were screaming "unfair," and that we need to help these people, as the money for these continuing unemployment benefits was eliminated by the widely-hailed budget "deal" that passed through congress in December.

Recall, also, that pension and benefits for military retirees and disabled vets was also slashed by that budget and roundly criticized by congress-people on the left and the right. The cuts were said to be "unpatriotic", and many vowed to restore them. A month has gone by and those cuts are still in place. Veterans are getting the shaft, and now, the long-term unemployed, without the media (controlled by the government) raising as much as an eyebrow over these issues, proving, without any shadow of a doubt, that the politicians in Washington have not only lost all sense of justice, decency or propriety, but they are also quickly losing their ability to make coherent policy.

What politicians in Washington, DC, have accomplished, however, is the uncanny ability to lie ruthlessly about anything at all, and to now lose what little support remained from the people of the United States. With the approval rating of congress already at multi-generational lows, it's about to go even lower. People should have been in the streets already, but their voices have been silenced by the Federal Reserve, together with the false statistics about the "improving economy" bantered about the past four to five years.

What will be lost next by the politicians is their ability to rule. They have lost all credibility and the consent of the people has long since been quietly withdrawn by many. The federal government, either by design or incompetence, has been failing and is about to fail completely. Without somebody stepping up to right the ship - and don't count on it - the ship of state, already rudderless and with torn sails, has begun to sink. Special interests to which the politicians have catered, have blown a hole in the hull, and it's not readily repairable. The United States is rapidly devolving into a fascist, welfare/police state, and, making matters worse and more worrisome, this is only the beginning.

Other than the United States collapsing in a major hurry, the rest of the world doesn't look much rosier. If nobody gets killed at the Olympics - if they even go off as planned - it will be nothing short of a miracle.

The other major events of the day were the widespread devaluation in the value of the Turkish Lira and a bank failure in China, also just beginning.

Turkey's currency fell three percent against the dollar, the most of any currency outside of Argentina (already a basket case, down 14% just today), despite intervention by the central bank, which was reportedly in the process of unloading $3 billion in foreign reserves.

In China, the evolving shadow banking crisis just went from bad to worse as it was reported today that some rural credit unions have been unable to pay back depositors for over a year. This would, in most countries, have been major news, prompting a flight of money from banks (bank run), but the circumspect Chinese media suppresses most of this kind of information from the outside world. In a nutshell, China's dubious "boom" economy may be going bust, or, realistically, may already be well down the path of self-immolation.

Taking just these few "newsy" items into perspective, it just might be time to return to "clinging to their guns and bibles," for more than just a few Americans. As for the rest of the world, well, their guns have largely already been confiscated and bibles don't offer much protection. Pitchforks and torches, anyone? God save them.

Others may be taking some time to polish up the gold and silver, which were the main winners on the day, along with the 10-year note, which fell to 2.80, the lowest yield in roughly two months.

As if that wasn't enough, teen idol, Justin Beiber, was arrested last night for DUI. Oh, the horror!... and, no, we're not linking to that story.

DOW 16,197.35, -175.99 (-1.07%)
NASDAQ 4,218.87, -24.13 (-0.57%)
S&P 1,828.46, -16.40 (-0.89%)
10-Yr Note 99.56, +1.25 (+1.27%) Yield: 2.80%
NASDAQ Volume 2.00 Bil
NYSE Volume 3.91 Bil
Combined NYSE & NASDAQ Advance - Decline: 1829-3918
Combined NYSE & NASDAQ New highs - New lows: 196-62
WTI crude oil: 97.32, +0.59
Gold: 1,262.30. +23.70
Silver: 20.01, +0.171
Corn: 429.00, +2.75

Market Direction Is Decidedly Indecisive; Ebay, NetFlix Report, Soar

For the second straight session, the Dow was down while the S&P and NASDAQ sported small gains.

A bifurcated market is often one which is about to change direction, so, since the general direction has been up, up and up, a change would indicate, what, lower prices for stocks?

Bernanke, Yellen and company simply cannot have that, thus, like everything else since 2008, everything depends solely upon the whims of the central bank. So sad.

Aftre the bell, eBay announced 4Q earnings, which were decidedly upbeat, with revenues up 14% from a year ago, and earnings per share of 81 cents, a decisive beat. Additionally, the company announced a $5 billion stock buyback program and also received a proposal from meddling Carl Icahn, who wants to see PayPal split out and an independent company, a move which would make a good deal of sense, since PayPal is the company's main profit driver. Shares soared more than eight percent in after-hours trading.

Netflix also announced fourth-quarter earnings after the bell and absolutely blew out the estimates. The company earned $48 million, or 79 cents per share, during final three months of 2013, compared to $8 million, or 13 cents per share, at the same time in 2012.

Revenue rose 24 percent from the previous year to nearly $1.2 billion and the US subscriber base grew by 2.3 million in the quarter. The stock was up more than 17% in the after-hours.

Look for NASDAQ futures to be up about 25 points prior to Thursday's open.

DOW 16,373.34, -41.10 (-0.25%)
NASDAQ 4,243.00, +17.24 (+0.41%)
S&P 1,844.86, +1.06 (+0.06%)
10-Yr Note 99.02, -0.06 (-0.06%) Yield: 2.87%
NASDAQ Volume 1.88 Bil
NYSE Volume 3.36 Bil
Combined NYSE & NASDAQ Advance - Decline: 3467-2224
Combined NYSE & NASDAQ New highs - New lows: 424-43
WTI crude oil: 96.73, +1.76
Gold: 1,238.60, -3.20
Silver: 19.84, 0.031
Corn: 426.00, +1.25

Many Signs Beginning to Appear That Signal the End of the Bull Run

These times, trying for some, are inscrutable for others.

While a small fraction of the population can see the changes in culture, society and technology clear as day, the majority only gets a grasp of the situation when the changes have taken hold and new trends already developed.

We are currently in a period of great change. Two years from today, one will not recognize America. Other countries will undergo massive upheavals. It is already underway.

Look around. The kinds of people - average, middle class folks - you used to see on a regular basis are gone, replaced by walking zombies on food stamps. Get used to it. The welfare-police state is upon us. Alternately, the people who have seen this coming are preparing to prosper. It will get worse before it improves, but, when the current power structure and domination of mega-corporations ultimately fails, small businesses, which have been under the thumb from competition from larger rivals and government regulations gone wild, will emerge, grow and prosper. It's just a matter of time.

As for today's roller-coaster on Wall Street, the movements were up, down, up, with the Dow closing at the mid-point of its 62-point high of the day and the -142-point lows, but still in the red. The S&P and NASDAQ finished with gains, though small.

Reporting prior to the opening bell, Johnson & Johnson (JNJ) reported better-than-expected earnings, but finished the day lower on poor guidance. A similar scenario played out for insurance giant, Travelers (TRV), and cell carrier, Verizon (VZ).

Following the trading close, IBM reported an earnings beat (6.13 ex-items vs. 5.99 est.), but a huge miss on revenues. Analysts were looking for $28.25 billion and got only $27.70 billion.

Sadly, for Big Blue, they are trading at roughly an 11 P/E multiple. The company is a dinosaur and headed for extinction, though that reality is still a way off.

Another slow-footed beast, Texas Instruments (TXN) reported 0.46 per share on revenue of $3.03 billion. Both of these tech behemoths were trading lower in after-hours, with IBM down nearly three percent. Dead money. It's what's not for dinner.

Among the more obvious signs that change is permanent and the bull market in stocks is coming ever closer to a crashing climax:

• Sears, JC Penny and Target.
• Analyst on CNBC says stocks will fall 10%, then fumbles targets of 16,000 on the Dow and 1800 on the S&P. Basic math: FAIL.
• Chris Christie
• Hillary
• Mohamed El-Erian steps down as Pimco CEO
• Another former Pimco exec, Neel Kashkari announces he is running for governor of California.
• Complaints that the Dow is down because some stocks are priced too high. (At least there's a solution for that.)

More are certain to follow.

DOW 16,414.44, -44.12 (-0.27%)
NASDAQ 4,225.76, +28.18 (+0.67%)
S&P 1,843.80, +5.10 (+0.28%)
10-Yr Note 99.30, +0.18 (+0.18%) Yield: 2.83%
NASDAQ Volume 1.91 Bil
NYSE Volume 3.75 Bil
Combined NYSE & NASDAQ Advance - Decline: 3649-2079
Combined NYSE & NASDAQ New highs - New lows: 466-36
WTI crude oil: 94.99, +0.62
Gold: 1,241.80, -10.10
Silver: 19.87, -0.434
Corn: 425.00, +1.00