Short Session, Small Gains

US equity markets closed early (1:00 pm), ahead of Christmas Eve, but investors took the opportunity to make some small purchases despite more gloomy economic news.

Dow 8,468.48, +48.99 (0.58%)
NASDAQ 1,524.90, +3.36 (0.22%)
S&P 500 865.42, +2.26 (0.26%)
NYSE Composite 5,487.33, +19.05 (0.35%)

New unemployment claims ratcheted higher in the most recent week, adding 586,000 to the roles of the unemployed. In a related note, much later in the day, Hilary Kramer predicted on PBS's Nightly Business Report that while government data would show unemployment at 10% in 2009, though the "real" unemployment - including discouraged workers the government does not count - may go as high as 20%.

Folks, those are near-depression numbers. during the Great Depression of the 1930s, unemployment was as high as 25% at some of the worst depths of the downturn. One of of five workers idled in today's economy is going to have a huge ripple effect, some of which we're seeing even now. With the official rate at 6.7% (a trifling) today, the "real" rate is likely closer to 13 or 14% already with no end in sight.

January should prove interesting in the least, when retailers add up their paltry results from the worst Christmas shopping season since 1968. There could be wholesale shuttering of stores across vast swaths of the retail landscape, leaving malls with gaping holes and no new tenants.

Other economic figures weren't spreading much holiday cheer. Personal spending slowed by 0.6% in November, and durable goods orders slipped 1.0%, though that number is seasonally-adjusted, and just plain missed the mark. The drop in durables was probably closer to 2.5-3%.

On the day, advancers beat back decliners, 3591-2773. New lows retained their advantage over new highs, 181-19. Volume was slim due to the 1:00 pm closure.

NYSE Volume 403,769,000
NASDAQ Volume 517,176,281

Oil slipped another $3.63, to $35.35. The metals improved, however. Gold was higher by $9.90, to $848.00. Silver added 9 cents, to $10.35.

That's a wrap. The Santa Claus rally seems to have fallen victim to deflation. Merry Christmas.

The End is Here... and Now

American Express (AXP) has received preliminary approval for $3.39 billion in TARP funds along with CIT Group (CIT), which was also approved for $2.33 billion on Monday. Both companies have recently changed their status to bank holding companies, in order to qualify for the TARP money and other goodies from the Federal Reserve Bank and Treasury Department.

One wonders how the application-and-approval process actually works. Imagine a sleek CEO or CFO going to Paulson and Bernanke for money. Q: Are you and your firm both financially and morally bankrupt? A: Absolutely!

Ding, ding, ding! We have a winner!

Sadly, the entire US - and most of the world's - banking system is now defunct. Citigroup (C), Morgan Stanley (MS), Goldman Sachs (GS) and JP Morgan Chase (JPM) are all illiquid and have been for some time. Their status won't change. They all have to be broken up and sold off to healthier regional or local banks. Many of their "assets" will be liquidated, as the buyers will not want toxic structured financial instruments on their books. Buh, bye, bonuses!

On Friday, Treasury Secretary Paulson urged Congress to release the remaining $350 billion of TARP funds approved earlier this year. Today, the only independent voice in the Senate, Vermont's Bernie Sanders, urged congress to reject his request, saying, "It is inconceivable that we would provide another $350 billion to the banks – supposedly to ease credit – when they are refusing to tell us how they’re spending the money they’ve already received."

The latter portion of his comment was in reference to a Monday AP story describing how 21 recipients of TARP funds - all major banking or financial institutions - were unwilling or unable to answer questions on how the money already handed out was being used.

Essentially, the TARP, turned out to be a TRAP, like so many other government-sponsored programs under the Bush regime, essentially handing out taxpayer money (on loan) to the failed banking institutions. It has been more than two months since the bill passed congress, yet the economy has continued to worsen. What's becoming plain to all is that government is not going to save the average American from this maelstrom. We're all about to get sucked into the vortex of fraud, lies and deceit which ends in foreclosures, bankruptcies and discontent on a scale rivaling the Great Depression.

Getting to the title of this post, the end is here, and it is now. Americans will be facing some seriously ugly choices in the months ahead, and there's no guarantee that Mr. Obama's "infrastructure stimulus" package is going to produce anything more than make-work jobs in the construction trades. How that is supposed to revive an economy of which 70% of GDP comes from consumer spending remains a mystery.

It's apparent that there needs to be structural changes in almost every aspect of the American experience. The banking system is kaput, the government is corrupt, the taxes too high, yet they fail to meet budget demands year after year. Federal, state and local budgets need to be slashed now, not later, as does the budget of just about every household in the country.

A new way of finance and work ethic needs to be promoted, either from the bottom up or the top down. All the financial chicanery of the past 30 years has resulted in a near-death experience.

In response to the unfolding melodrama that is world socio-economic politics, investors took flight again on Tuesday, with markets sinking for the fifth straight day, and the eighth in the past eleven sessions. Some of the more oblivious in the financial media have been wishing for a "Santa Claus Rally" when the probability of such an event occurring is about the same as the Detroit Lions winning the Super Bowl. Personally, I'll be glad - along with about 10 million retail workers and countless investors - when this Christmas is over. It should rank as one of the most miserable ever.

Dow 8,419.49, -100.28 (1.18%)
NASDAQ 1,521.54, -10.81 (0.71%)
S&P 500 863.15, -8.48 (0.97%)
NYSE Composite 5,468.32, -52.50 (0.95%)

As expected, decliners led advancing issues, 4153-2549, while new lows continued to dominate new highs, 237-20, numbers that are becoming numbingly commonplace. Volume was again far below the norm, but the losses are so significant that volume isn't really part of the equation any more. So many hedge funds and individuals have already shut down for the holidays or longer that the remaining participants are being pushed by blind, naked fear, as that is the only emotion that hasn't already been fully drained, except possibly, desperation.

NYSE Volume 984,406,000
NASDAQ Volume 1,323,355,000

Oil slipped another $0.93, to $38.98. Gold fell $9.10, to $838.10. Silver slithered another sixty cents lower, closing at $10.26.

Underscoring the collapse of all asset values, the National Association of Realtors announced today that November existing home sales fell at a record pace of 8.6% and the median price of a home fell 13%, to $181,300 from $208,000 last year. The declines were the worst ever seen since the NAR began keeping records four decades ago.

At the peak of the housing market, in mid-2006, the median home price was $230,000. Since then, prices are off a shade more than 21%. In the short term, that's a large amount, though taking the longer view, there is surely more pain to come. Housing prices should fall another 25-40% over the next 3-5 years, and if that isn't the most pessimistic forecast you've ever heard, and are thinking I'm out of my mind, consider the following calculations.

Evan at the inflated value of 4 times annual pre-tax income, a person earning $40,000 a year could own a home worth $160,000. Now, let's do the new math: The average American will be (or already is) earning $35,000 or less in 2009, 2010, 2011 and beyond. At a more reasonable valuation of 3.5X annual income (and this is even pre-tax, assuming almost no income tax), that puts the "affordable" home at $122,500. That is 32.6% below today's median price. Of course, it could get worse, and probably will, since there aren't going to be that many banks willing to lend much of anything to anyone anytime soon.

Happy Holidays!

Low Volume, Lower Prices

With Christmas just three days off and investors already disgusted with stock performance over the past three months, Monday got off to a bad start and got worse as the day wore on. Only a sharp, short-covering rally in the final minutes kept markets from having a really dismal day.

Since this week will likely be among the slowest of the year, these posts are equally likely to be short, though no less instructive to astute traders.

Dow 8,519.69, -59.42 (0.69%)
Nasdaq 1,532.35, -31.97 (2.04%)
S&P 500 871.63, -16.25 (1.83%)
NYSE Composite 5,520.82, -95.30 (1.70%)

For the session, gainers were beaten badly by losers, 4584-2157, belying the generally tame losses. New lows expanded their edge over new highs, to 234-18, another significant development. Since volume this week will be inconsequential, those numbers are giving off strong sell signals. The markets are on the verge of another rush to the bottom, which could happen at any time over the next three weeks, and, if the November lows are not tested this week or next, January will be a slaughterhouse.

NYSE Volume 1,219,524,000
Nasdaq Volume 1,661,136,000

Commodities continued to display the deflationary bent. Oil futures, which are now in the February contract, fell $2.45, to $39.91. Gold managed to gain $9.80, to $847.20. Silver picked up a penny on the bid, closing at $10.86. None of the prices quoted today seem sustainable in the undeniably deflationary environment.

As the Christmas shopping season winds down to the last two days, numbers from retailers are horrifying. Even with sales of merchandise at 60-70% off, gross receipts are expected to come in as much as 20-30% below last year's results. January will witness the shuttering of huge swaths of retail stores. Many will be forced into bankruptcy, some to reorganize, but many others will simply liquidate. After that, the fallout from a commercial real estate glut will sour the economy even further.

A few weeks ago, President-elect Obama said the economy would get worse before it got better. He is so very right about that.

USA, UK DOWNGRADED!

If the US financial media, the government and Wall Street less corrupt, the top news story of the day would be how Standard & Poor's downgraded 11 financial institutions and cut the ratings on the banking systems of both the United States and the United Kingdom.

S&P cut ratings on Bank of America, Barclays Bank, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase Bank, Morgan Stanley, Royal Bank of Scotland, UBS and Wells Fargo Bank.

Of course, were the titanic institutions of our nations less corrupt, none of this would have happened in the first place. The stock market would not have gone wild, with the Dow advancing to 14,250 in the longest bull market in history. Banks would not have been able to loan $500,000 to people with no jobs to buy houses, the Fed would not have inflated the money supply, yada, yada, yada.

But, the government regulators proved to be as malleable and corrupt as their counterparts on Wall Street, likely because most of them came from the very same firms which were packaging mortgages into SIVs, MBSs and backing their positions with credit default swaps (CDS) behind which was nothing, absolutely nothing.

So, seeing is believing. From the above-linked article:

The ratings agency also cut the bank industry country risk assessment of the U.S. and the United Kingdom to "Group 2" from "Group 1."

The United States is now a country with a second rate banking system. Of course, that assessment is from one of the very same firms which rated subprime MBS at AAA. The more money the Treasury insists on stuffing down the black hole of failed banking institutions via TARP, the sooner our Treasury debt will also be downgraded, to AA, A, B, and eventually to junk, which it is fast becoming.

And speaking of the TARP, Secretary Paulson of Treasury, bagman extraordinaire of Goldman Sachs, is now asking congress to release the rest of the money in the program, another $350 billion. Ostensibly, Paulson wants the money before the year ends or a new congress is seated, or before President-elect Obama is inaugurated. There is already discontent in congress over how the first half of the fund has been employed, and it's likely that congress - especially the Senate - will jawbone the issue to until after January 20.

I mention that the government and the media are corrupt because of the events of this morning, the final Friday before Christmas, but also a quadruple witching day. Prior to the US markets open, at about 7:30 am, all futures were trading lower. Foreign markets were down, reacting to the negative rumors of the S&P downgrades and the news that Japan's central bank was cutting its key lending rate to 0.1%.

At 9:00 am, President Bush announced a $17 billion loan provision for two the Big 3 Detroit automakers: Chrysler and GM. This was an action the lame duck dimwit president could have announced at any time over the past week. Why did he wait until today? To give cover to the options traders poised to rake in billions on this quad witching day. Once news broke that the administration would use the remaining TARP money to bail out the flagging auto companies (Ford has already stated publicly that it doesn't need a loan), the futures shot higher. The markets opened on a positive note, and quickly the Dow was up 180 points. Ka-ching! The Wall street crooks scored again, no doubt.

It didn't last, of course. By midday, stocks were once again bouncing off the flat line. The Dow spent most of the final hour in the red, dropping by as much as 50 points, though the NASDAQ maintained a positive bent all day.

By the close, it was a draw. The Dow and Comp. lower, NASDAQ and S&P higher. All were marginal moves.

Dow 8,579.11, -25.88 (0.30%)
NASDAQ 1,564.32, +11.95 (0.77%)
S&P 500 887.87, +2.59 (0.29%)
NYSE Composite 5,616.05, -1.71 (0.03%

Advancers led decliners slightly, 3730-3028. New lows continued to maintain an edge over new highs, 205-33. Of any pattern I have ever followed, the trend of consistently more new lows than new highs on a daily basis, now having run into its 14th month, has to be the most telling. That condition maintained every market day except five or six during that span. It is a truly persistent and dominant pattern, which cannot bode well. When that condition begins to modulate between the two extremes, then we will have likely found a bottom. Whether any long term recovery can proceed from there is questionable.

Volume was the heaviest in weeks, likely due to options expirations.

NYSE Volume 2,420,350,000
NASDAQ Volume 2,597,346,000

While stocks were dithering, commodity prices were being beaten to death. Oil was off another $2.35, closing out the January contract at $33.87. Gold lost $23.20, to $837.40. Silver slid another 27 cents, to $10.85. I continue to be fascinated at the gold and silver prices. They have maintained value best (they are down the least) in recent months, which is to be expected, though in a deflationary environment, their upside is limited. When inflation once again takes hold, which may not occur for 3-4 years, the metals will be able to surge higher. Not until then.

A few articles that are worth reading regarding the general malaise and the government's mishandling of the Wall Street mess are the latest from the Golden Jackass, which links to iTulip, where the question, Major US banks worse than Japan's zombies? is pondered and discussed at length. Finally, the Institutional Risk Analytics offers a glimpse of what may be coming to America in their most recent story on the US Bank Stress Index and CDS in Europe.

And, last but not least, the video is of Gary Schilling explaining why he sees the S&P 500 heading to 600 in 2009.

Bush and Madoff: Signs of Things to Come?

Angry mobs tend to occur most in times of high stress and their anger, more often than not is directed at two groups: the government and the rich.

Over the past few days we have witnessed an angry Iraqi journalist throw shoes at our outgoing president, Mr. Bush, and a photographer emerge from a mob to shove billionaire criminal Bernard Madoff, the man who stole billions of dollars from some of the most sophisticated investors in the world.

In less civilized times, more people would have joined in the effort. Imagine if other journalists had joined Muntadar al-Zeidi in his "shoe protest" or that ordinary citizens and scorned investors had been part of the media throng outside Madoff's tony Manhattan apartment. Bush may have been injured, or worse. Madoff might have been beaten to death on the street.

It may come to that.

The world economy is teetering on the brink of disaster and up to this point all of the remedies have been directed by the government toward the rich. These are the two groups most responsible for the economic calamities which have befallen us. Nary a nickel has been offered to homeowners, average working class Joes and Janes who are struggling to make ends meet in difficult times. If matters continue to spin out of control, would anyone be surprised to hear that a wall Street banker is gunned down in broad daylight or that workers' protests turn violent? does anyone not believe that rank-and-file union members at GM would not want to punch CEO Rick Waggoner squarely on the kisser, or poke a finger in the eye of his counterpart at Chrysler, Bob Nardelli?

That's why these people fly on private jets, ride in bullet-proof limousines and dine at the most exclusive restaurants. Not because they're rich and they can - that's surely part of it - but they must fear for their personal safety. A high-up executive dining at a worker-type diner would be taking his own physical well-being very much for granted at times like this, and chances are very good that conditions will worsen in coming days, weeks and months. Those execs, and especially the walled-in Wall Street types had better hope they don't become victims of their greed.

Angry people have a tendency to find company and turn into angry mobs, capable of all kinds of violence and disruptive behavior. Here in America, and surely, in places around the globe, we have seen it all before. Deteriorating economic conditions for large swathes of people can ignite mob passions into burning infernos. While that is the outcome we would least desire, the actions of the Iraqi journalist and the NY photographer may be the proverbial tip of the iceberg.

There's plenty of video of both events available, though the one Madoff video most circulated (aired o CNBC) doesn't really capture the scene well. I found these clips from ABC news to be of the highest quality, but since they are owned by ABC, I cannot embed them here. Here are links to the Bush incident and Bernie Madoff outside his apartment building. (Both links should open in new windows)

As for the state of the economy, investors are still not convinced of anything, especially since Chrysler announced plans to shut down all 30 of their US plants for a month, beginning Friday.

If there's anything that can cause the stock market to swoon, it's uncertainty, and in the final 33 days before George Bush leaves the White House and Barack Obama moves in, uncertainty is a commodity that will be in ample supply. There are only a handful of trading days left in the year, and of course, following that, this January may be one of the worst we've seen in a while, though last year's was certainly no picnic.

For today, investors got scared off early in the day. The major indices were marginally higher in early trading, but by 10 o'clock they were all flat lining. By noon they all began to sink and by the close of the session, the losses had extended, resulting in another bad day on the Street.

Dow 8,604.99, -219.35 (2.49%)
NASDAQ 1,552.37, -26.94 (1.71%)
S&P 500 885.28, -19.14 (2.12%)
NYSE Composite 5,617.76, -152.04 (2.64%

This should come as no surprise. stocks are essentially overbought, short term, and lows will once again be retested, since a new low was put in just a month ago, on November 20. We are due for another round of profit-taking, selling and options-related mischief. Friday, by the way, is a quadruple witching day, and the last of the year. It could turn into a whopper of a session.

For Thursday, the internals were as bloody as the headlines, with declining issues outpacing advancers, 4045-2670. New lows surpassed new highs by a margin of 163-34. Volume was moderate to low, especially on the NYSE.

NYSE Volume 1,382,620,000
NASDAQ Volume 2,064,510,000

In commodities trading, oil futures continued to drop precipitously, falling another 10%, or $3.84, to $36.22, the lowest price for a barrel of light crude in 4 1/2 years. Gold fell into line, dropping, $7.90, to $860.60, with silver following the trend, losing 30 cents to close at $11.12.

It was another day for deflation, and surely not the last. At least the executives of Exxon Mobil and Chevron will feel a little more secure in their mansions. Their counterparts in banking and finance may have reason to cower and hide in darkness.