US Markets the World's Laughing Stock; Second Great Depression Still Looming

US equity markets must be the laughing stock of the entire planet. Whenever there's a risk of a serious downturn, especially on days in which Asian and European markets have already taken a hit, the globalists can count on a comedic interlude supplied by insider trading schemes run amok here in the cradle of free market economics and democracy.

Tuesday was just another shining example of how rigged and moronic US stock markets have become after years of manipulation by government operatives generally identified as the President's Working Group on Financial Markets, created in 1988 after the blowup of Long-Term Capital Management (LTCM), by then-president Ronald Reagan with Executive Order 13621, along with complicity by major banking and trading firms such as Goldman Sachs, JP Morgan Chase, Bank of America and Citigroup.

While the existence of the "Working Group" (or PWG, as it has evolved) is a matter of fact, some decry the operations of the group as clandestine market participants (formerly known as the Plunge Protection Team, or PPT), such as this blog entry by Barry Ritholtz, complete with an array of illuminating comments and links.

It's more than plain and obvious that government is working in collusion with major banks, though whether or not they are involved in significant "market pumping" is still an unresolved question. Market volatility has become a semi-permanent fixture in US equity (and other) markets for many years, and recent policy decisions mostly made by the Federal Reserve, to ensure liquidity, and the Senate, to bail out generally-insolvent banks and states suffering from enormous budget shortfalls, beg the question.

The Fed's official federal funds interest rate has been at it's lowest level in history for 18 months (since December 2008) and while equity markets have bounced off their March 2009 significantly, there's worry that the momentum cannot be maintained. The Fed is pretty much out of bullets, but underhanded trading schemes should be able to avert another major market collapse for the near term.

That's the general condition of US equity markets today: volatile, manipulated and operating on the adrenaline of fear while the talking heads on CNBC glad-hand the purveyors of the pump all day, every day, relentlessly trotting out this or that analyst or trader with positive spin, keeping the whole charade of "recovery, growth and prosperity" churning along.

Meanwhile, the major indices have fallen below their 50-day moving averages and a sitting upon their 200-day MAs for the most part. Like all other government work, whatever the PWG is doing to prop up markets, they're doing a pretty shabby job of it. The entire US - and, to a large extent, global - financial system resembles a creaking ship adrift at sea, burdened by an overload of bad debt, faulty rigging and deficits billowing out of its hold.

Intra-day market actions only help to keep the ship afloat, hoping it can reach shallow enough waters so that when it does sink, it won't be resting too far below the surface.

In sum, market manipulation always fails. One only has to bear witness to the magnificent drops in markets in 2000 and 2008 to verify that point. Government intervention only works in the near-term, pushing the longer-term, systemic issues further out into the future, for another generation or another government to handle. The game cannot continue for long without some major disruption. We've just been through the worst month of May on the markets since 1940, and while the "double-dipsters" have been effectively silenced by the media, the level of fear and apprehension is still palpable.

Pushing markets off their lows through whatever conception available still seems to be bad business and one that cannot eventually, effectively halt the onslaught of dreadful deflation in assets of all classes. Globalization began the deflation process; the banks and inept or corrupt government operators witlessly helped it along. With no way out of what has morphed into a global currency "race to the bottom," equities will eventually falter, flat line or die. The only question is how long it's going to take.

History, always a great guide and usually ignored, provides the best answer, with the operative time period being the Great Depression of 1929-1942. Taking Fall of 2008 as the starting point, we're at roughly the equivalent of September, 1930.

On August 3, 1929, the Dow closed at 381.17. Then came the crash in October and November, with the Dow falling from aournd 352.86 on the 10th of October to 198.69 on the 13th of November, a 44% drop in just over a month, which compares to the Fall of 2008 and Winter, 2009, quite favorably. On the 17th of April, 1930, the Dow rebounded and stood at 294.07, a 48% gain off the lows and a level it would not approach again for nearly 24 years.

Yes, you read that right, 24 years. After the crash of 1929, the market rebounded, just as it did in recent history, from its bottom of 6,547.05, on March 9, 2009, to a peak of 10,725.43 on January 19, 2010, a gain of nearly 64%, though still well short of its all-time high of 14,164.53 on October 9, 2007.

President Herbert Hoover and his Republican counterparts in the banking community and the congress could not revive the slumping US economy, however. On July 8, 1932, the Dow Jones Industrial Average fell to it's all-time low of 41.22, helping usher in FDR and his New Deal policies. Elected in November, 1932, Roosevelt worked quickly to keep Americans out of financial misery, but for many it was too late. The country survived, barely, through the 30s and into World War II, which had been raging in Europe for more than 5 years before the US formally became involved in 1942. It wasn't until February 26, 1954 that the Dow surpassed that 1930 high, closing on that date at 294.54.

Thus, contrary to widely-held beliefs, the crash of 1929 was just a prelude for more pain to come. From the peak in August, 1929, to the bottom in July of 1932, the Dow lost nearly 90% of its value. A similar slide in today's terms would wipe the Dow all the way down to 1450.00, a number not seen since late November 1985, about 9 months into Ronald Reagan's second term as president, in the full throes of the supply side financial revolution.

It's an interesting point in history. From November 1985 to October, 2007, a period of nearly 23 years, the Dow Jones Industrials increased in value some ten-fold. That kind of expansion is unprecedented in economic history and it was largely fueled by low tax rates on wealthy individuals, lax tax compliance by major corporations, and, notably, little advance in the overall wealth, prosperity or wages of the middle class. So, a major, dramatic fall, similar to that of 1930-1932, might still be ahead for those of us who still give a damn.

The timeline of history is not without flaws, to be certain, but, taking the case of a largely manipulated market which is the current, dominant theme in American finances, the overhang of burgeoning federal and state deficits, unresolved banking issues from 2008, it is not outside the realm of possibility that stock markets and the global economy could suffer a blow even more dreadful than the shock of 2008-09. In fact, we are looking at January, 2010 as comparable to April 1930, we have an eerily-similar timeline, with the worst yet to come.

Just as in the Spring of 1930, politicians and financial experts explain how we averted crisis and survived a major financial event. Back then, just as today, nobody knew what was ahead, though today's "experts" apparently have not done a detailed analysis of history, though the one man who may know more about the subject than anyone on the planet, Fed Chairman Ben Bernanke, hasn't exactly sounded the "all-clear" alert. In fact, Bernanke has been assiduously most cautious during this critical period. Though he has reassured the nation that the recession has ended, his remarks of late - few that they are - have been quite tempered and reasoned. Certainly, he reasons that more trouble may lie ahead and his actions - keeping rates low and maintaining full liquidity - speak volumes about his inner thinking.

Should the "recovery" stumble and the economy remain weak, stocks could face armageddon again, though this time, it will be long-lasting and severe, making the episode of 2008-09 look like a walk in the park by comparison.

I'm going to reiterate some of the things I've said repeatedly in various posts over the past three to four years, but they should be maintained within the context of the foregoing discussion. Jobs will continue to be scarce. Prices for everything from gold, to homes, to food, to shoes, will fall demonstrably. The goals of many will be survival, not prosperity. By the time the bulk of the baby boomer generation reaches retirement age - within the next 5-7 years, the Social Security system - already broke - will be running a deficit so large that it will break the will of the markets and the government completely. That event could come sooner, though by no means later than 2017, unless radical changes are made today, and, considering the dithering aspect of the current congress, that doesn't seem likely.

Mortgage interest rates will likely fall to below 3%. Some friends have already told me that their home equity lines are hovering around 2%. Most banks cannot make money with rates at 3-4% long term. More bank failures are a near certainty, possibly peaking in 2012, with the number in the thousands, rather than today's hundreds. Foreclosures and bankruptcies will overwhelm court systems which are already stressed beyond a level at which they can operate efficiently. Inner cities, many already slums of third world order, will become hell-holes of crime and depravity. Suburbs will become vacuous spaces for survivors of the crisis. Most people will cash out of their retirement plans if they can, because they need the cash. The next few years will be telling times indeed.

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Now, back to our normally scheduled daily market recap:

The number of bank failures in 2010 reached 78 on Friday, with the FDIC closing down 5 more - three in Florida and one each in Nevada and California.

At the current pace, bank failures this year will easily surpass the total of 140 from 2009. Regulators will likely shut down between 180 and 200 banks this year as the real estate and banking bust widens and deepens.

When markets opened for trading following the three-day holiday, futures pointed to a lower open and that's exactly what occurred, with the Dow off by 80 points and the other major indices following suit... for about five minutes. That's when the usual/unusual pattern reappeared, buyers emerged and by 10:00 am - just 1/2 hour into the trading day - the indices were all either positive or close to it. With the Dow gaining steadily, then leveling off, finally reaching a peak of 10,218, some 84 points above the previous close, the chicanery was in full blossom.

But, by 1:30 in the afternoon, the bloom was off the rose, and stocks began to sell off, just as Asian and European markets had earlier in the day. Finally settling at the break even line about 3:30 pm, the Dow and other indices took on all of their losses in the final half hour of trading, closing at their lowest levels of the day. One can only wonder where stocks might have been had it not been for the underhanded intervention which has become commonplace and remarkably humorous.

Dow 10,024.02, -112.61 (1.11%)
NASDAQ 2,222.33, -34.71 (1.54%)
S&P 500 1,070.71, -18.70 (1.72%)
NYSE Composite 6,661.10, -130.47 (1.92%)

Declining issues eventually overcame advancers, 5170-1374, and the pattern of new lows surpassing new highs emerged once more, 121-98. Volume was very light, a feature that could endure the entire summer and possibly extend deeper into the year.

NYSE Volume 5,695,913,500.00
NASDAQ Volume 2,001,166,750.00

Commodities tried to play along, though there seems to be no saving grace for the price of oil, which fell again today, losing $1.39, to $72.58 on the July contract. Gold bugs were busy at work, snatching up hat they believe to be the "new" currency (and they may be right), boosting the price $12.60, to $1,224.80. Silver also sported a gain, of 13 cents, to $18.54. Prices for gold and silver should be stable to higher at worst, until deflation grabs hold of them and their ardent admirers as well.

With the action on our horribly-manipulated markets notwithstanding, the global economic crisis seems to have entered a new phase, with governments seriously looking at options from reflation to default and everything in between. It's becoming a something of a game of chicken as currencies take turns being beaten down to levels at which their products can compete in various foreign markets.

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Here's a new feature:
Death Spiral Watch List:

I'm opening this one up with two companies which seem to be living on borrowed time. One is obvious, that being British Petroleum (BP), which lost another 15% today, down 6.43, to $36.52, as the federal government announced today that it was opening investigations into potential criminal and civil lawsuits (about time). TARGET=6.00

The second may not be such an apparent loser, but it is eBay (EBAY), formerly the world's online auction giant, which, through a series of ill-conceived management decisions launched by CEO John Donahoe, has effectively destroyed the trust of millions of small merchants globally. Ebay has embarked upon a path of dealing comfortably with larger concerns, offering them much lower fees than are afforded the average small business or occasional seller. It's a long, sad and sordid tale, but ebay has been turning the screws on small business with great force for the past two years, and sellers are actively seeking other platforms, tired of the endless game-changing and lack of responsible management. ebay closed down 0.45, to 20.96. Target=4.50

I call this the death spiral syndrome, recalling the demise of Countrywide Financial in 2007-08. The company was once the darling of Wall Street, at one time originating more than 50% of all mortgage loans nationally. Then came the sub-prime crisis and the company, and the rest, as they say, was history. Bank of America finally took over the company for $2/share, which makes one believe that maybe BofA might someday make this list itself. Time will tell.

The death spiral watch list tracks companies which I believe are headed for insolvency - a list that may grow to unprecedented levels should economic conditions continue to worsen.

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An interesting point made today on Yahoo! Tech Ticker, which points to the uncertainty we all face:

Nose-Diving into the Weekend

At least stocks didn't gap up or down radically at the open today. Instead, they automatically reversed course against Thursday's gains, sending the major averages into a week-ending tailspin under pressure from foreign as well as domestic turbulence.

Prior to the open, personal income was shown to have grown 0.4% in April, most of the gain due to increases in government payrolls. Just before 10:00 am, the markets were dealt another blow of reality when both the Chicago PMI and University of Michigan comsumer sentiment index came in below expectations. Added to the 460,000 initial unemployment claims and lowered GDP estimate for the first quarter (to 3.0% from 3.2%) from Thursday, stocks were indeed lucky to receive any bids as the month of May for 2010 went down in the record books as the worst for stocks since 1940 - 70 whole years!

Those who insist that the US is on the road to recovery, or, already well down that road, are either not telling the truth or just too damn stupid to see the all-too-obvious signs on the road to ruin, the one the US has actually embarked upon.

The current and future fate of these United States was summed up brilliantly by casino-operator and real estate mogul, Steve Wynn, who, along with other gems of insight invoked Alexis de Touqueville, who predicted in 1909 that "the American system of democracy will prevail until that moment when the politicians discover that they can bribe the electorate with their own money." More of Wynn's caustic, cutting remarks can be viewed in the video below.

Dow 10,136.63, -122.36 (1.19%)
NASDAQ 2,257.04, -20.64 (0.91%)
S&P 500 1,089.41, -13.65 (1.24%)
NYSE Composite 6,791.57, -101.72 (1.48%)

Decliners laid over advancers largely, 4332-2135, or better than 2:1. New highs edged new lows, 107-73, but the margin being so close that it favors a negative outlook short term. So too, Friday's volume, which partly could be blamed on complacency and early departures, though it has been heading lower all week long.

NYSE Volume 5,757,302,000.00
NASDAQ Volume 2,185,725,000.00

The commodity complex was little changed, perhaps offering a glimpse at a more sober understanding of supply-demand dynamics for the coming months. Crude fell 58 cents, to a goosed-up $73.97. Gold gained 40 cents, to $1,212.20. Silver fell a nickel, to $18.41.

Remember, this weekend, those who served to make America great and gave their lives in defense of liberty, especially when driving through a police check-point or being harassed by some pompous low-level government official who wants to ruin your outing with nonsensical regulations. Remember that liberty is gained, not given. Earned, not handed out.

Ups! They Did It Again; Stocks Streak at Open, Stay High

Stocks gapped up again at the open, this time to the tune of 140 points on the Dow Jones Industrials, shutting out the small players to - no doubt - the grand delight of the insiders weaving this month of May madness.

The big upside opening move was not unprecedented, as most of May trading has witnessed wild swings at the open, all predicated on overseas news flows, markets or even nothing at all.

Today, stocks held their gains and tacked on even more in an impressive performance of the "greater fool" theory - that being the kind of market action in which one sells, seeking a greater fool to buy at a new, higher price level. In a microcosm, Thursday's action was reminiscent of late 1999 or early 2000, where there seemed to be an absolute absence of sellers (that actually was the case, then), though the timing and duration are almost completely different.

Dow 10,258.99, +284.54 (2.85%)
NASDAQ 2,277.68, +81.80 (3.73%)
S&P 500 1,103.06, +35.11 (3.29%)
NYSE Composite 6,893.29, +261.93 (3.95%)

The trade was decidedly one-sided, with advancing issues absolutely pummeling losers, 5885-754. The margin of new highs to new lows was not as dramatic, with highs taking the lead, 108-64. What was different was the volume, quite a bit lower than recent days and notable that it slowed on the market's biggest advance in months. Conventional wisdom would assume that participation was low due to the surprise nature and overall point gain of the move, both of which were well out of ordinary ranges.

NYSE Volume 6,289,912,500
NASDAQ Volume 2,392,074,250

Commodities also were unsurprising, especially the highly-manipulated crude oil futures, which soared again, up $3.04, to $74.55, just in the nick of time to gouge motorists traveling on the first long holiday weekend of Summer. Anybody who believes that the oil companies are run by the greediest bastards ever to walk the earth (excepting maybe our current crop of bankers), gets a gold star for good judgement. Bear in mind that oil was selling for under $68/barrel less than a week ago.

Gold lost $1.50, to $1,211.90, while silver added 16 cents, to $18.46.

The roller coaster of May continues, fortunately ending tomorrow. There's no guarantee that June will be any better, but one can only hope that the extremely unfair gap-up and gap-lower openings and wild intra-day swings will soon diminish.

Down, then Up; Up, then Down; Market is a Total Scam

Anybody who hasn't kept up with my daily diatribe ought to read yesterday's post, or any of the last three hundred or so, many of which described how completely rigged and corrupted US equity trading markets have become.

Today was no different than any of the usual scam trading days which favor the Wall Street professionals over the average investor, who, naturally, holds no chance of success in such a manipulated and under-regulated environment.

Stocks gapped up at the open, just like they gapped lower at the open yesterday, freezing out everybody but insiders and forcing up bids. By 10:45, the Dow and other indices had generally reached their peaks, with the Dow up 135 points, but from there it was Chinese water torture in a slow, steady decline which finally put stocks in the red about fifteen minutes after three o'clock, eventually closing at the lows of the day.

Closing for the first time under the magic 10,000 mark since February 8, the major indices are in treacherous territory, which, again, I've been spouting off about for the past three weeks. Our nascent recovery isn't going all that well, despite some very strong numbers released today on new home sales and a steady report on durable goods.

The April new homes sales data were skewed by the April 30 deadline for the federal $8000 tax credit for new home buyers. Many buyers rushed in to take advantage, just as they did last year when the first stimulus credit expired in November. May figures, therefore, are almost certain to be disappointing, so today's release was severely discounted.

Durable goods are still at a run rate well below those of anything resembling a robust economy, so comparisons to last year are just whistling in the wind. If they were not improved, that would be a story. As it is, the manufacturing sector is mainly holding its own and not expanding.

Dow 9,974.45, -69.30 (0.69%)
NASDAQ 2,195.88, -15.07 (0.68%)
S&P 500 1,067.95, -6.08 (0.57%)
NYSE Composite 6,631.36, -34.47 (0.52%)

Surprisingly, advancers beat decliners by a healthy margin, 3827-2713, so some truly organized selling of specific issues has been undertaken by the insider syndicate currently in control of the world's money. New lows maintained their edge over new highs, 109-96, with elevated volume once again.

NYSE Volume 7,941,076,500
NASDAQ Volume 3,047,107,250

Oil popped back to life, just in time to keep fuel prices high over the upcoming Memorial Day weekend in America. July crude surged $2.76, to $71.51. Gold gained $15.50, to $1,213.30, while silver pushed 53 cents higher, to $18.29.

Investors need not bother watching markets for the remainder of the week as it's a good bet that they'll maintain a somewhat neutral stance heading into a long weekend. On the other hand, as well-oiled as is the machinery of manipulation, anything could happen, but chances of a global meltdown just prior to the kick-off of summer is a long shot. Chances of some major event that would roil markets when they re-open on Tuesday, however, is a strong possibility.

Money At Risk: Dow Plunges 290, Recovers, Gives Investors False Hope

Just like the "flash crash" of May 6, there will be no explanation given for the reversal of fortunes today in stocks. When all of the other major global markets - Japan, China, Hong Kong, Korea, France, Great Britain, Germany, Brazil - were down anywhere from two to four per cent, and US markets initially crash, but then recover to walk away barely bruised, what does that tell you?

That we're special, somehow? That the US is in so much better shape than the rest of the world that if their economies all imploded, ours would receive hardly a scratch? Anyone who buys into such cockeyed logic should have "MORON" stamped upon their forehead.

No, what that tells anybody with any knowledge of how deeply corrupted our stock exchanges have become, is that they are a massively rigged game, and the winners are mostly insiders at banks and brokerages pushing the market in whichever ways delights their fancies and fattens their bottom lines.

Stocks fell to levels below both the 1000-point flash crash and below all preceding 2010 lows. That happened right out of the gate, within 15 minutes of the open. Stock futures had been forewarning a brutal open, with Dow futures down as much as 250 points prior to the bell-ringing. These kinds of gap opens serve only to benefit inside traders, to the detriment of individual investors and fund managers who cannot move massive amounts of stock without really rattling markets.

The average Jane or Joe who doesn't keep an eye peeled on CNBC all day long may only notice the Dow was down 20 points and be happy with that, never knowing that it was lower by 290 just 15 minutes into the session. The S&P 500 actually finished with a fractional gain, after being down by as many as 32 points.

Possibly the most egregious display of manipulation was in the NASDAQ, which was down by as many as 73 points but recovered to finish down only two points.

Did the issues which hammered all other markets simply go away by the time US markets were trading? No. Those issues were belligerent behavior by North Korea toward their neighbors to the South, a slowdown of economic activity and a potential real estate bubble in China and the continuing fiscal woes of the entire continent of Europe, though more specifically, the potential default of the governments of Greece and Spain.

What most casual observers and investors may not realize is that the markets will return to those lows. Whether they do that tomorrow, Thursday, Friday, next week or next month is immaterial. The major indices all fell below their 200-day moving averages last week and continue to mostly reside there. One day's action will not change the fact that new lows were set in place and such lows will almost always be retested. The Dow and S&P were in the throes of a triple bottom breakdown, falling below the lows of February and early May. That kind of violation of support just doesn't go away, stocks have to be handled to erase losses and fresh bottoms.

Call it whatever you like, but today set up a new bottom and one of the more severe head fakes ever seen. Downside risk is still predominant and there's a high likelihood that the final push - after 3:00 - was caused mostly by short covering. US markets should not be considered a safe haven for any investor, simply because they are so obviously rigged. They may move strongly in one direction or the other - or both, like today - without reason.

Dow 10,043.75, -22.82 (0.23%)
NASDAQ 2,210.95, -2.60 (0.12%)
S&P 500 1,074.03, +0.38 (0.04%)
NYSE Composite 6,665.83, -0.91 (0.01%)

Market internals offer much better perspective. Declining issues were dominant over advancers, 4334-2242. New lows maintained their advantage over new highs and actually expanded their edge, 369-88. Volume was heavy, owing to the fact that a lot of stock had to be moved around to erase those early losses.

NYSE Volume 8,458,538,000.00
NASDAQ Volume 2,893,359,500.00

Another indication of what really happened today in markets comes from the commodity pits, where July Crude was down $1.68, to $68.75, a fresh closing contract low. Gold finished up $4.00, to $1,197.80, though silver closed down 22 cents, at $17.76.

The deflation trade is still on, meaning one should be either in cash or equivalents, short, living in another country, or all of the above. Money at risk stays at risk, especially in markets so obviously flawed.

Please pay particular attention to anyone who tells you that 1140 on the S&P is a "bottom." You are advised to run - as quickly as possible - as far away as possible from anyone holding that point of view.