The Big Give-Back

After rocketing ahead early in the week, the markets gave back all of the gains and then some. The Dow, which closed Monday at 12,548.64, lost ground four consecutive sessions, finishing 145 points lower for the week.

Dow 12,216.40 -86.06; NASDAQ 2,261.18 -19.65; S&P 500 1,315.22 -10.44; NYSE Composite 8,762.12 -55.05

Volume was on the very low end of the scale, indicative of an end-of-month wait-and-see attitude all around, though Monday's final day of the quarter could prove significant.

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It seems that no matter what moves the Fed makes and how much happy talk the Fox News and CNBC pundits produce, nothing can stop stocks from falling. Just glancing at the charts of the major indices shows that they are still in a holding pattern above recent lows and retests and retreats are inevitable.

Declining issues overwhelmed advancers once again, 4120-2075. Only 39 stocks made new 52-week highs, while 165 made new lows. The string of days with more new lows than new highs stretches back to October 31 of last year, except for two days in December. That's a very long run and the streak is now unlikely to be unbroken until we reach the original falling-off point in August.

Commodities continue to trade very uncertainly, with oil down $1.96 to $105.62, gold off $17.50 to $936.50, and silver down 61 cents to $17.94. Deflation is taking hold in a big way, which is expressly what the Fed sought to avoid with its interest rate cuts and interventions into the credit markets.

Obviously, it's not working.

NYSE Volume 3,610,889,000
NASDAQ Volume 1,739,376,375

Another Dose of Volatility

In the absence of any more devastating financial news, stocks took the path of least resistance and put on healthy gains on Thursday.

Dow 12,361.32 +261.66; NASDAQ 2,258.11 +48.15; S&P 500 1,329.51 +31.09; NYSE Composite 8,717.56 +168.06

While the unemployment figures delivered this morning prior to the opening bell showed more people applying for benefits, investors chose to overlook that and point to the idea that the Fed is allowing the banks to put up shaky collateral for its Term Securities Lending Facility (TSFL) loans in the form of CMOs (Collateralized Mortgage Obligations).

In other words, the Fed is going to swap good liquid money for toxic, illiquid assets. Those mortgage loans are the same structured vehicles that started the entire mess. Now the Fed is willing to accept these bad investments as collateral.

With any luck, other central banks around the globe will not want to trade with the Fed or hold dollars, since the Fed is wiling to risk its own credit standing and confidence in exchange for bailing out the banks and investment houses which made the ill-advised investments in the first place.

Bernanke's desperate solutions are bound to make matters even worse, albeit further down the road.

As for equities investors, what buyers at these levels must not comprehend is that there is hard resistance at 12,450 on the Dow and the market is very close to attaining that point, meaning that in all likelihood today's gains will have been made in a vacuum and will soon be swept away by more waves of selling.

Advancing issues swamped decliners by a 4406-1895 margin. New lows beat new highs once again, 374-48.

Commodities were in the spotlight once again as recent gains continued to unravel. Oil traded below $100 before closing down just 70 cents at $101.84. The metals were under more severe pressure. Gold fell $25.30 to $920.00, while silver took its second significant tumble in as many days, losing $1.60 to $16.85.

So-called "hot" money is being diverted from the metals into stocks. Fools rush in where angels dare to tread, and there are more than this market's fair share of fools out there.

NYSE Volume 6,158,374,000
NASDAQ Volume 2,652,208,500

Now It's Commodities Turn to Dance with Stocks

Following Tuesday's spirited rally, stocks quickly gave up the ghost in a broad retreat which ended up with stocks closing at their lows of the day.

Dow 12,099.66 -293.00; NASDAQ 2,209.96 -58.30; S&P 500 1,298.42 -32.32; NYSE Composite 8,549.50 -276.94

In what has been already a tumultuous week, the bears on the Street seem to have finally exerted themselves on the market while behind the scenes there may have been some serious liquidation of assets which resulted in a major sell-off in gold. Reports were circulating that a number of hedge funds had margin calls to meet, prompting the gold rush, but others pointed to more central bank and government intervention aimed at propping up the US economy.

A key was the a release by Federal Housing Enterprise Oversight to allow Freddie-Mac and Fannie-Mae to relax excess capital requirements, which would free up more than $200 billion into the US housing market. The dollar also broke a string of declines with a strong rally against the Yen and Euro.

It certainly seems the government and the Federal Reserve have taken off the kid gloves and are prepared to fight a downturn in the economy with every weapon at their disposal, and they have plenty with which to inject further liquidity into the general economy.

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Of course, while such actions may be politically expedient for the administration in power, the longer term effects are difficult to gauge.

Like the stock and commodities markets this week, we may be seeing the very early signs of disruptions in an economy being ripped from its economic moorings. Volatility is usually emblematic of uncertainty, and markets certainly won't accept uncertainty for long, but we are a a point of maximum doubt and a crisis of confidence which is only now getting underway.

Declining issues took back the leadership positive over advancers, 4467-1846. New lows buried new highs yet again, 308-69.

The real story was in commodities, especially gold. While oil fell $4.94 to $104.48, gold dropped more than 6%, losing $59.00 to close at $945.30. Silver also was battered, dropping an unprecedented $1.52, to $18.45, a 7.5% loss.

It seems, just a day after the Fed cut rates and two days after Bear Stearns, a major investment bank, was rescued by the Fed, the action is about to get hotter than ever. Just keeping up with the changes to come will be a challenge for the average American, to say nothing of the economic punditry which likely will be wrong more often than right.

Use short stops, try to stay at least 60% in cash and stay tuned. This party's just getting started.

NYSE Volume 5,499,307,000
NASDAQ Volume 2,327,522,250

Market Love From Fed, Goldman, Lehman

Investors were treated to an unusually heavy dose of good news today, as two investment banks Goldman Sachs and Lehman Brothers, reported better than expected earnings and the Fed cut the federal funds rate by 3/4s of a percent, to 2.25, the lowest rate since December, 2004.

Wall Street, desperate for short-term gains, rode stocks higher at the open and maintained a buying posture throughout the session. Markets dove shortly after the Fed announcement in apparent dissent that the Fed didn't cut rates a full point, but that was quickly overcome by more buying and some expected short covering, which likely contributed to much of the day's gains.

Dow 12,392.66 +420.41; NASDAQ 2,268.26 +91.25; S&P 500 1,330.74 +54.14; NYSE Composite 8,826.44 +337.06

What the market chose to ignore were a pair of pre-open economic reports which portrayed the economy in a much more sober and realistic vein.

Housing starts in the U.S. slumped in February and building permits fell to the lowest level in more than 16 years. The PPI (Producer Price Index) rose another 0.3% in February, and core PPI - which excludes food and energy - rose an unprecedented 0.5%, signaling that inflationary pressures from rising energy prices have infected the rest of the economic landscape.

Contributing to the rampant inflation is the Fed itself, by its de facto devaluation of the currency through a cumulative 3% cut in the federal funds rate in just the last six months.

What the Fed should have fully understood in gauging their various actions, was that inflation will eventually lead to lower demand, precipitating and aggravating a deflationary cycle that is largely manifested in the housing crash.

Unfortunately, the Fed is a very active political participant, dead set on keeping the economy and the stock markets afloat near term at all costs. Their actions, when viewed in retrospect, will surely be seen to be largely reckless and short-sighted. Long term, they are causing more distortions and damage in markets than acting as a stabilizing force, weakening their own influence.

Because of yesterday's dramatic salvation of Bear Stearns dominating the news, some other key economic reports were largely ignored.

On Monday, the NY Empire State Index fell to -22.2 in March, a record low. Industrial production fell 0.5%, while capacity utilization for February fell 0.6% to 80.9%.

Separate or together, those are not rosy figures.

Tuesday's outsize gains are likely to be short-lived. A significant resistance level exists at Dow 12,450, and the market nearly met that today. Obviously, the nature of the Fed's recent actions speaks to the severity of the credit crisis and it's unlikely that just one large investment bank failure is the end of it.

Lehman Brothers (LEH 44.88, +13.13), Bear Stearns (BSC 6.38, +1.57), Fannie Mae (FNM 28.18, +5.97) and Countrywide (CFC 5.07, +0.97) posted their record one day percentage gains. That's particularly interesting because two of the companies - Bear Stearns and Countrywide - have already lost more than 95% of their value and are both in the midst of takeovers.

As expected, advancing issues soared past decliners, 5289-1084. New lows, however, continued to dominate new highs, 345-62.

While the Fed may be helping out its banking buddies with lower interest rates, don't expect any relief at the gas pump. Oil soared another $3.74 to $109.42 on the NY Merc. Gold rose another $1.70 to $1004.30. Silver continued to pare back recent gains, falling 34 cents to $19.96.

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NYSE Volume 5,458,751,000
NASDAQ Volume 2,351,646,250

Bear Stearns Fire Sale; PPT Goes Into Overdrive

US stock markets get stranger and stranger every day. On Monday, the strangeness just went completely off the charts into new areas of weirdness.

Prior to the markets opening on Monday, the Federal Reserve took some specific actions. First, they lent tacit approval to the fire sale of Bear Stearns (BSC) to JP Morgan for $2 per share by announcing that the Fed would guarantee up to $30 billion in Bears' debt. Second, they lowered the discount rate a quarter point (25 basis points) to 3.25%; third, they extended the term of "discount window" lendings from 30 to 90 days, and fourth, they opened the discount window to brokerages and securities dealers.

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This last maneuver was the real cake-taker. The discount window has always been reserved to borrowing by member banks. All others were excluded. By opening the discount window to brokerages, the Fed has now become not just the lender of last resort, but the ultimate bailout arbiter for all the corrupt practitioners in the brokerage business.

With that, the Fed is telling the American public that the health and welfare of Wall Street is more important than the actual value of the currency.

In other words, Americans can kiss their dollars good bye. Already worth less than half of what they were 10 years ago, US greenbacks will soon be worth almost nothing in comparison to other established currencies such as the Euro, Yen, Yuan and Swiss Franc. Anyone close to the Canadian border would be well advised to convert all US treasury notes into Loonies, and soon.

Essentially, the Fed has no plan to save the nation from falling into recession other than to prop up failed Wall Street brokerages. We should all be reminded that the Federal Reserve, the nation's central bank, issues nothing but scrip, or fiat money, backed by nothing more than good will and blind faith.

The Fed has acted as the nation's bank since 1913, before the Great Depression, and since it wasn't summarily discarded during that fiasco, the Fed has been allowed to act illegally as the main minter of money ever since.

The US Constitution, Article 1, Section 8 clearly defines the powers of Congress (not the Federal Reserve): "To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;"

The dollar fell to historic lows against the Euro and the Yen. Officials from Japan and at major banking interests called the dollar's decline "concerning, dangerous and unwelcome."

Foreign markets were battered well before the US stock exchanges opened, and when the US exchanges did open, they collapsed immediately. The Dow tumbled nearly 200 points within the first ten minutes, marking the last "normal" move of the day.

By 11:00 am the Dow was at the unchanged mark and it crisscrossed the break even line until finally closing positively.

Dow 11,972.25 +21.16; NASDAQ 2,177.01 -35.48; S&P 500 1,276.60 -11.54; NYSE Composite 8,489.38 -146.54

No matter how you slice and dice the news, when the NYSE Composite is down nearly 150 points, there's no way the Dow should be up at all. It's completely ludicrous and suggestive of more manipulation by the Fed and their clandestine agents to prevent what we all know is imminent: a crash.

Volume raged today as declining issues submerged advancers, 4993-1300. New lows swamped new highs, 1183-57. Just about one in five stocks hit a new 52-week low today. But those 30 Dow stocks are still safe bets, right? Sure.

With so much negative news concerning global economics, oil finally began selling off on demand concerns, losing $4.53 to $105.68. The distress only bolstered gold's price, which gained $3.10 to another new record close of $1002.60. Silver, which had been rising at an unprecedented pace, was slowed due to its use in industry, falling 36 cents to $20.30, still a remarkable figure.

After today's flamboyant Dow Jones display by the Wall Street crowd, stocks should be expected to fly tomorrow when the Fed announces yet another cut in the federal funds rate of anywhere from 50 to 100 basis points, which will lower that key rate from 3% to 2.50 or even a flat 2%.

The Fed is trying to borrow its way out of a credit crisis, which is like saving drowning victims by pouring more water upon them. It's a complete and utter mess, and sadly enough, the very same people who created the problems are now being called upon to right it. They can't, they won't and they are living and working on borrowed time and borrowed money. All of this is going to end very, very badly, and sooner rather than later.

NYSE Volume 5,783,798,000
NASDAQ Volume 2,381,058,250