Stocks End January in Ugly Fashion with All Major Indices Down for the Month and Year

Whew!

Friday capped off an extremely volatile week in stocks and world economics, though astute investors and money managers should have known this kind of activity was coming all along, as soon as the Fed began reducing its bond purchases last month.

With January in the can, one might be obligated to kick it, for it was one of the worst months in some time, in fact, the January decline was the worst since February of 2009. It was also the first January decline for stocks since 2011, and that turned out to be a very rocky year, so caution is advised for those with a bullish bent. Fund flows from emerging market stock and bond funds were massive over the past two weeks, as were equity outflows in US-based funds.

What really troubled markets this morning, when the Dow fell by more than 220 points in early trading, were outflows of capital from emerging markets everywhere, from Russia, to Hungary, to Poland, South Africa, Turkey, Argentina, Indonesia, India, Brazil and China, and that's just a partial list.

Adding to the woes was an earnings warning from Wal-Mart (WMT), which is viewing the passage of the farm bill in the House of Representatives as very detrimental to their business, as it will strip out $8 billion in food stamps, the life-blood of the Wally World economy.

As the Fed is committed to slowing their bond purchases and eventually ending quantitative easing (QE) over the next six to eight months, it will be instructive to view the new chairmanship of Janet Yellen, who has inherited the legacy of Ben Bernanke's reckless money printing and zero-interest rate policies of the past five years. Yellen, who by some measures is even more dovish than the white-tailed Bernanke, will, as is usually the case with a new Fed head, have to deal with a crisis condition in her first days as chairwoman and beyond, and there's really no telling how she may react to financial upheaval in not only the emerging economies, but also the developed ones.

Looking forward to next week, markets will have to digest official China PMI, released later tonight, then work through central bank policy meetings in England, the EU, Australia, Poland and the Czeck Republic before dealing with the potentially-devastating January non-farm payroll report on US jobs, due prior to the bell on Friday, making the first week of February no less nerve-wracking than all of January.

Here's how the major averages ended the week:
Dow -180.26 (-1.14%)
S&P 500 -7.70 (-0.43%)
NASDAQ -24.29 (-0.59%)

...and the month:
Dow -877.81 (5.3%)
S&P 500 -65.77 (-3.6%)
NASDAQ -72.71 (-1.7%)

It's not pretty, and, as expressed through post after post on Money Daily this month, it's almost certain to get worse, as huge imbalances turn into ugly dislocations of capital in every nook and cranny of the finance. The Fed, in its infinite wisdom, has gone too far since 2009 in trying to fix things that were broken by covering them up with wild slugs of capital and debt. Now, it is time to pay the piper, so to speak.

View the video below for Jim Grant's explanation of how the Fed distorts markets. His simple explanations provide deep insight for anyone who believe Keynesian economics has met its match in Ben Bernanke and the current crop of central bank "experimenters."

While this short clip is indeed concise and to the point, perhaps the most eloquent statement made on live TV by Mr. Grant was when he chided the erstwhile Steve Liesman with this pithy piece of pragmatism: "The FED can change what things look like, but, the FED can never change what things are." Our hats are permanently tipped to Mr. Grant. And with that, enjoy the weekend and the Super Bowl. The world may look the same come Monday, but, if one could see through eyes unclouded by hubris and propaganda, what a wonderful world it might be. DOW 15,698.85, -149.76 (-0.94%) NASDAQ 4,103.88, -19.25 (-0.47%) S&P 1,782.59, -11.60 (-0.65%) 10-Yr Note 100.86 +0.71 (+0.71%) Yield: 2.66 NASDAQ Volume 2.09 Bil NYSE Volume 4.05 Bil Combined NYSE & NASDAQ Advance - Decline: 1941-3780 Combined NYSE & NASDAQ New highs - New lows: 129-128 WTI crude oil: 97.49, -0.74 Gold: 1,240.10, -2.10 Silver: 19.12, -0.006 Corn: 435.00, +0.50

3.2% Fourth Quarter GDP Sparks Relief Rally

Nothing really changed since Wednesday. The Fed is still going to purchase $65 billion in treasuries and mortgage-backed securities in February, $20 billion less than they did in December and in each month of 2013.

As a result, emerging markets are still struggling with reduced liquidity and runs on their various currencies.

We learned, prior to the opening bell, that fourth quarter GDP increased by 3.2%, slightly less than expected, and that 19,000 more people signed up for unemployment benefits last week, pushing the total to 348,000, the highest in about a month.

The unemployment number was widely disregarded and blamed - like everything else these days - on the weather, as the market saw plenty of alpha in a buy-the-dip mentality in what has been a down January and a choppy week of scary trading.

How the markets recover the losses incurred over the past three weeks is the big question, especially with the Fed stomping on the QE brakes. Earnings season has been nothing to get excited about, especially when, after the bell, Google and Amazon reported some very mixed results.

Google (GOOG) missed on the bottom line but beat on revenues, posting profits of just $12.01 per share on expectations of $12.26,reporting actual sales of $16.86 billion on forecasts for $16.75 billion. Shares of the giant search and technology company. Despite the miss, shares were traing about four percent higher in the after hours.

Amazon (AMZN) reported earnings of 51 cents per share, short of estimates of 69 cents, a big swing and a miss. Revenues were just short of estimates - up 20% from a year ago - at $25.59 billion when analysts were seeking $26.08 billion. Shares of the shopping megalith were down between four and eight percent in after-hours trading.

With January concluding tomorrow, it's a slam-dunk that the month will end lower, setting expectations for the full year back to "reasonable" levels. The current churn is that the "January Barometer" is not all that reliable for predicting full-year results. Of course, were stocks higher at this juncture, the barometer would be hailed as the most accurate of all investing tools and stock jockeys would be adjusting their year-end estimates towards the moon.

And, with stocks juiced, straight off the opening bell, what better time could there have been to slam gold and silver lower, as they were, unjustifiably. Still, from the perspective of gold and silver holders and buyers, the precious metals, even with higher premiums everywhere, are considered bargains at current prices.

Such is the world in a contrived environment controlled by issuance of play money to the world's elite. Fundamentals being what they are, however, reality may make a comeback in the weeks and months ahead.

DOW 15,848.61, +109.82 (+0.70%)
NASDAQ 4,123.13, +71.69 (+1.77%)
S&P 1,794.19, +19.99 (+1.13%)
10-Yr Note 100.46, +0.27 (+0.27%) Yield: 2.70%
NASDAQ Volume 1.94 Bil
NYSE Volume 3.54 Bil
Combined NYSE & NASDAQ Advance - Decline: 4329-1390
Combined NYSE & NASDAQ New highs - New lows: 156-67
WTI crude oil: 98.23, +0.87
Gold: 1,242.20, -20.00
Silver: 19.13, -0.426
Corn: 434.00, +6/00

Bernanke's Departure Marks the End of the Bull Market as Stocks Slump Again

There were so many moving parts to the economic and trading landscape since yesterday's close, it may be most instructive to review them in chronological order.

First, around 5:00 pm ET, the Turkish central bank raised overnight lending rates - along with all other key rates - from 7.75% to 12%. That's the overnight rate, the rate at which the central bank lends to member banks. Ouch! The move immediately sent US stock futures soaring, as though the global economy had been saved by this one clumsy, desperate stroke of policy.

At 9:00 pm ET, the impostor-in-chief, Barrack Obama, gave his fifth state of he union address, grossly misrepresenting the overall health and stability of the United States and glibly calling on American businesses to give employees a raise.

The euphoria spread to Asian markets, which were higher on the day, the Nikkei gaining more than 400 points on the session.

However, by the time the sun began to rise on Europe, the glad tidings had turned back to fear, as the Turkish Lira began to come under continued pressure from other currencies. Most European indices were trending lower, though marginally, with losses of under one percent on the majors.

By early morning in the US, the trend had completely reversed course, with stock futures deeply negative. At the open, the Dow Jones Industrials fell by roughly 120 points and held in that range until the 2:00 pm ET Fed policy announcement.

Widely expected to taper their bond purchases by another $10 billion per month, dropping the total to $65 billion, the Fed did exactly that, to the ultimate dismay of equity investors. Those who had made the correct call prior to the action continued pulling money out of stocks, rotating, as it seemed prudent, into bonds, which continued to fall in the aftermath of the Fed's announcement.

By the end of the session, stocks had put in severe losses once again, with the Dow leading the way lower. Bonds reacted by rallying sharply, the 10-year-note finishing at its lowest yield - 2.68% - in more than two months. In addition to bonds, the main beneficiary of the Fed's reckless monetary policy at this juncture were precious metals, as gold and silver rallied throughout the day.

What becomes of equities, sovereign currencies and the global economy as the Federal Reserve says good-bye to Ben Bernanke (this was his final FOMC meeting as Fed chairman) and hello to Janet Yellen, is now an open question, though with obvious clues.

If the Fed continues to taper its bond purchases by an additional $10 billion per month, they would be completely out of the market sometime around September, though it is unlikely that the Fed's path will be so resolute and straightforward. Already, it's apparent that stocks are going to suffer in the short term, while bonds enjoy a day or two in the sun. With returns on equities becoming more and more risky endeavors, bonds will appear as a safe have, forcing more investors to rush in, thus, sending yields lower.

While a crash in the equity market may not exactly be what the fed had in mind, it may be unavoidable, as there is no neat way to unwind their massive QE program which unfolded over the past five years and should come to an end. As reckless as was Bernanke's policy directives of QE and ZIRP, unwinding these programs is going to cause massive economic disruptions and further fuel a gathering global deflation trade. It only makes sense. If the Fed withdraws liquidity, economies will suffer. At least it's a plan that makes some sense, though nobody really wants to endure the pain that comes from such an unwinding. In the long run, it may be the only way back to something resembling normalcy.

The pain will be acute - and already has been so - in emerging markets, where most of the hot money had been headed during the Fed's money-printing spree. Look for developed nations to maintain an aura of stability, while the rest of the world, in places as diverse as South Africa, Turkey, Argentina, Brazil, Indonesia, Mexico, India and eventually, China, become somewhat ungled, economically-speaking.

With money fleeing these former hotbeds of investment, their currencies will devalue against the rest of the developed world, Japan, the US and Europe remaining as the centrist states and most stable currencies... for a while. The risk is contagion from the emerging markets into the developed, as the destruction of deflation engulfs the globe.

Bonds should fare well. An expectation of the US 10-year note below two percent would be rational. However, carry trades, such as a Euro-Yen or Dollar-Yen might lose much of their luster, the better plays to be short the emerging currencies.

Of course, with dislocations of capital everywhere, gold and silver should be afforded a top-shelf position, though their advance will, as always, be suppressed by the concerted efforts of the central banks. Still, in a devaluing environment, the ultimate price of the precious metals, as measured against various currencies, may indeed become a top choice for wealth preservation.

With the current path of the Fed set in place (for now, because they can, have, and will move the goal posts), it would be safe to conclude that the bull market in stocks has come to an abrupt end and money in 401k and other accounts of storage will become victims of a nasty, clawing bear that has no regard for the future, only a perception of the unfolding present, complete with companies that are presently overvalued, have limited earnings growth potential and have to be unwound.

Unless the major indices can find a way to turn the tide and rally past recent highs, the bull market, spurred on by vast wasted sums of money from the Federal Reserve and other sources, is over.

From a technical perspective, Wednesday's trade was an outright disaster. Declining issues led advancers by a 7:2 margin and new lows exceeded new highs for the third day in the last four.

DOW 15,738.79, -189.77 (-1.19%)
NASDAQ 4,051.43, -46.53 (-1.14%)
S&P 1,774.20, -18.30 (-1.02%)
10-Yr Note 100.26, +0.97 (+0.97%) Yield: 2.68%
NASDAQ Volume 2.05 Bil
NYSE Volume 3.93 Bil
Combined NYSE & NASDAQ Advance - Decline: 1289-4441
Combined NYSE & NASDAQ New highs - New lows: 66-128
WTI crude oil: 97.36, -0.05
Gold: 1,262.20, +11.40
Silver: 19.55, +0.049
Corn: 427.50, -4.50

Stocks Higher on Assumption That Fed Will NOT Immediately Taper Further

On the eve of Ben Bernanke's final FOMC meeting as Chairman of the Fed, stocks perked up in anticipation that the Fed will NOT decrease their monthly bond buying by another $10 billion.

The reasonings behind this are numerous, but mostly rely upon some poor economic data, dating back to early January's release of December non-farm payrolls, which were an admitted disaster.

Piling upon the low job creation and further decline in the workforce participation rate were Monday's new home sales for December, which fell by seven percent in the month, to a seasonally adjusted annual rate of 414,000, as reported by the Commerce Department. In November, sales fell 3.9 percent, making December the second consecutive monthly decline.

Hopping on the decline bandwagon Tuesday morning, the Case-Shiller housing index showed a month-over-month decline in November, something professor Shiller had been warning about since last May. The Standard & Poor's Case-Shiller index of home prices in 20 top cities fell 0.1% in November. A separate 10-city index also fell by 0.1%, though prices were higher by more than 13% on year-over-year data.

Perhaps the most overlooked piece of data also came forward prior to the opening bell, in the form of a massive miss on Durable Goods for December, down 4.3%. The decline was the largest since July. November was also revised lower, from 3.5% to 2.6%.

What that did for stocks was give investors further confidence that the Fed would not decrease their monthly allotment of bond purchases past the $75 billion mark come tomorrow afternoon, when the rate policy announcement is offered at 2:00 pm ET. The currency splashdown in various emerging economies - Venezuela, Argentina and Turkey, in particular - has been, in part, caused by the Fed's "tapering", withdrawing liquidity at a time when most sovereign economies are weak, at best.

A further tapering come tomorrow seems to be out of the question, according to the stock market's "bad news is good news" reaction on Tuesday. The rally could prove to be quite ephemeral, however, as stocks may very well add on more gains Wednesday after the Fed's announcement, but the condition persists. The Fed and most of their central banker brethren have been backed into a corner, wherein they cannot exit their market-propping QE policy, lest markets collapse.

With Bernanke handing over the chairmanship to Janet Yellen, there's at least some good odds that the new Fed chairwoman might even reverse course and begin adding even more QE to the mix, which would, naturally, lead to even more speculation in equities, commodities and rare works of art and real estate, sending the global economy further into the debt spiral from which it seems escape is impossible.

After the bell, AT&T modestly beat earnings expectations, and Yahoo beat on the bottom line, showing fourth quarter earnings of 46 cents on expectations of 39 cents. Revenues were in line, though shares of the oldest search portal were seen down more than five percent in after hours trading. Rumors that profit expectations fell short were being discussed as a primary cause for the selloff.

Additionally, the central bank of Turkey was expected to raise interest rates by as much as two to three percent in order to stave off further decline in the value of the Turkish Lira. The midnight meeting was taking place as of this writing though no news reports were available at the time of this posting.

DOW 15,928.56, +90.68 (+0.57%)
NASDAQ 4,097.96, +14.35 (+0.35%)
S&P 1,792.50, +10.94 (+0.61%)
10-Yr Note 99.93, +0.62 (+0.63%) Yield: 2.76%
NASDAQ Volume 1.85 Bil
NYSE Volume 3.35 Bil
Combined NYSE & NASDAQ Advance - Decline: 4069-1635
Combined NYSE & NASDAQ New highs - New lows: 68-64
WTI crude oil: 97.41, +1.69
Gold: 1,250.80, -12.60
Silver: 19.50, -0.29
Corn: 432.00, +0.25

Global Markets Tanking, US Stocks Down Again as Emerging Market Crisis Deepens

Little changed over the weekend to affect stocks, though the major issues remained. If you missed out Saturday Special Edition, it gives a good overview of what's occurring in world markets and what to expect.

Monday's action started on ominous beginnings as the Nikkei tumbled, along with all other Asian indices, most of them sporting losses of between one and two percent. When the world turned to European bourses, selling was the primary move, though losses in Europe were less severe than in Asia.

US indices opened higher, but quickly gave up their paltry gains. The NASDAQ was hardest hit, going negative and staying below the flat line for almost the entire session. The Dow - which closed lower for a fifth straight day - and S&P were up in the morning, down by midday, back up in the afternoon, but late-day selling finished them lower.

Word out of Turkey that the central bank is about to ratchet up interest rates offered some encouragement, and in Argentina, capital controls were announced, to the effect that citizens can buy up to $2,000 of US Dollars per month if their monthly salary is over 7,200 pesos ($900), after a two-year ban on buying dollars. Large businesses and investors were still barred from purchasing US Dollars as a hedge against Argentina's spiraling inflation.

The reaction to Friday's steep decline was more selling of US stocks, with declining issues beating advancers by more than a 3:1 ratio and new 52-week lows surpassing new highs for a second straight session.

The raging currency crisis did not prevent the powers that be from standing on precious metals, which were pounded down after gains in the Far East and again smoked at the NYMEX close and into the thinly-traded Globex session. At 4:00 pm ET, gold was down nearly $10 from its NYMEX high, with silver down more than 15 cents from its high mark.

After the close, tech monster Apple (AAPL) announced earnings that narrowly beat estimates, but, lagging iphone sales and a downbeat guidance for the current quarter sent shares down in after-hours trading by more than five percent.

If the Apple earnings are viewed negatively, it will only add fuel to the fire sale in stocks going forward. More companies are reporting this week, though much of investor focus is on the Fed meeting Tuesday and Wednesday. If the Fed maintains their stance of purchasing $75 billion in bonds per month - which is likely - that could provide some relief, though there seems to be a generally-mistaken idea that the Fed plans on cutting an additional $10 billion from their bond purchasing program each month. Such a move would, under current conditions, only exacerbate the flight of capital from equity markets and possibly plnge the global economy into a wide-ranging recession, which, on its own, may not be avoidable.

DOW 15,837.88, -41.23 (-0.26%)
NASDAQ 4,083.61, -44.56 (-1.08%)
S&P 1,781.56, -8.73 (-0.49%)
10-Yr Note 100.21, +0.13 (+0.13%) Yield: 2.76%
NASDAQ Volume 2.21 Bil
NYSE Volume 3.98 Bil
Combined NYSE & NASDAQ Advance - Decline: 1410-4350
Combined NYSE & NASDAQ New highs - New lows: 63-119
WTI crude oil: 95.72, -0.92
Gold: 1,263.40, -0.90
Silver: 19.79, +0.028
Corn: 431.75, +2.25