For the third week in the past four, the major indices recored losses, which is especially poignant this week as the expiration of stock options usually encourages some upward momentum, but there was little to be found as another drab session marked the close of the week.
Stocks bottomed out just at the noon hour before rallying back somewhat, with fresh cash being put to use in what some must surely consider "bargains." There was some discussion on the internet Thursday about buying into Bank of America as the stock hit fresh 52-week lows, but broke down again on Friday to even lower levels.
Consistently the second most traded stock on the NYSE, Bank of America crumpled to a close of 12.87, marking a 34% decline from its closing high of 19.47 on April 15. In the span of four months, one of the most heavily traded stocks in the world has lost more than one third of its market cap. Something is definitely not right, and investors are voting with their feet, running away from the zombie bank as fast as they can.
What is wrong with Bank of America is also wrong with Citigroup (C), JP Mogan Chase (JPM) and Wells Fargo (WFC) to varying degrees. They are all victims of their own fortunes, made during the bubbly sub-prime housing boom days from 2003-2007 and crushed by the onslaught of those loans - and many more - going sour. These four banks share a raft of common themes, in that they all made fabulous amounts of money during the housing boom, executives were enriched grandly, all were TARP fund recipients and all were aided in the Spring of 2009 when the FASB allowed banks to employ significant judgement in "mark to market" accounting.
The rule allowed the banks enormous leeway in how they valued assets while at the same time reducing writedowns on impaired investments, including mortgage-backed securities. The rule change saved the banks from untold billions of dollars in impairment charges, but the same rule, as long as it remains in force, keeps bank capital bottled up and unable to be lent.
Honest accounting would probably put the nation's largest banks into receivership or bankruptcy and unleash a financial tsunami that would make the 2008 crash look like a gentle summer rain. In the meantime, many investors are apparently not about to wait for BofA and its counterparts to work out all of their bad, toxic and otherwise broken down investments. They are leaving the stock in droves.
BofA's brethren are in similar straits, taking on losses since mid-April of between 25-35%. Wells Fargo has dropped from 34.25 to as low as 24.27. JP Morgan Chase has gone from a high of 48.20 to as low as 35.16. And Citigroup, usually the most actively-traded stock on the NYSE, has dipped from 5 in mid-April to 3.75 today, a neat, 25% haircut.
While Wall Street pounds the table over Washington's inaction on the fiscal front, lawmakers in Washington are eerily quiet about the fate of the nation's largest banks, seeming to want the nightmare scenario of another Japan-style deflation to just go away. The truth is that they have no clue what to do next, relying on the Federal Reserve to sop up excesses in the default markets and keep interest rates at ZERO until something good happens, whatever that might be. Washington politicians are only interested in keeping their jobs, meaning that they will purposely mislead the public into a false sense of stability until the elections this November.
In the meantime, the nation suffers and America's fiscal problems become worse by the day as the corrective measures that would have already kicked these banks to the collective curbs have not been even mentioned. Bad assets need to be written down and the companies need to take their licks, but that solution is seen as messy and untenable by the ruling elite.
The entire situation reeks of insider deals, secrecy, mismanagement and falsehood, and it is killing the US economy, little by little, day in and day out.
Dow 10,213.62, -57.59 (0.56%)
NASDAQ 2,179.76, +0.81 (0.04%)
S&P 500 1,071.69, -3.94 (0.37%)
NYSE Composite 6,813.15, -37.30 (0.54%)
On the day, there were more losers than winners, by a 3567-2778 tally. Tellingly, new lows surpassed new highs, 259-226, signaling that those who were buying all afternoon were either delusional or just misguided. The markets appear ready to break down once again to fresh lows. Dipping below the 9680 mark on the Dow over the next month is certainly in the equation. Volume was a little better than most of this week, though that's another negative. Higher volume on losing days indicates, quite simply, that more stocks are being sold than bought.
NASDAQ Volume 1,913,865,250.00
NYSE Volume 4,309,225,000
Stocks were not the only asset class being beaten down. Crude oil for September delivery fell another 97 cents, to $73.46 on the NYMEX. Gold lost $6.60, to $1,227.20, and silver was hammered down nearly 2%, losing 37 cents to close the week at $17.98 the ounce.
Deflation has come, and has actually been pushing on stocks, bond yields and home prices for the past three years. Only the federal government's ability to throw large amounts of money around has kept the economy from complete collapse, though the band-aid approach seems to have failed miserably and the eventual downturn will be more severe than anyone can imagine.
Friday, August 20, 2010
Thursday, August 19, 2010
Jobless Claims Crush Stocks; Mergers Push Valuations
There's no escaping the obvious. Initial unemployment claims for the most recent week registered at a 10-month high, with half a million Americans filing for unemployment compensation.
That news, coupled with some hard-to-believe figures from the Philadelphia Fed, wiped out all of the week's prior gains and sent stocks reeling to their lowest close in a month. The major averages have been trading below their 200-week moving averages, and cannot seem to gather enough momentum to break out of the current trading range.
Significantly, trading volume reached its highest level in a week, also marking the fourth consecutive Thursday in which stocks have traded to the downside. Despite heavy play in stock options - which expire tomorrow - and some fairly significant attempts at late-day tape-painting (or, banging the close), current momentum in strictly on the side of the bears.
A couple of merger announcements caught the market's attention, specifically, Intel's (INTC) offer of $7.7 billion in cash for internet security firm, McAfee (MFE), which boosted shares of the company to be acquired by 17 points, a 57% gain.
Also on the merger block was First Niagara's (FNFG) offer to buy all of New Alliance Bankshares (NAL), a Connecticut-based regional bank, in an all-stock deal.
Both deals pushed valuations of the acquired companies to ratios of roughly 18-20 times earnings, which, by most standards might seem reasonable, though in today's liquidity-squeezed environment seem a bit on the overpriced side of the equation.
Valuation, more than ever, is going to have meaning once again for publicly-traded firms, though it's doubtful that the rich P-E ratios of the Fortune 500 companies and Dow 30 can remain in place for long, many of them trading at 20 times current earnings or higher. In a fast-paced environment, those valuations may be appropriate, but today, when all indications are for modest growth, if any at all, valuations would be more prudently placed in the 8-12 times earnings range. Should the economy continue to worsen, even those figures would seem rich.
Valuation and price discovery, the tools of any astute investor, have been shunned for years, with Wall Street assuming that 12 to 15 times earnings is the benchmark for a stable company. In the current environment, both investors and companies seeking to purchase rivals or valued additions, had better sharpen their pencils.
One other potential acquisition, that of Potash (POT), the Canadian-based fertilizer manufacturer, by Aussie giant BHP Billiton (BHP) for $130 per share - all cash - was rejected by the company to be acquired, calling the bid "woefully inadequate," though shares of Potash have zoomed up 36 points, or about 30% since the hostile offer was tendered on Tuesday.
The whole deal sounds cockeyed on the surface, and even if BHP is desperate, should not produce any tangible combination. with earnings in the previous four quarters of $4.64, even trading at $112 per share (prior to the offer), Potash was sporting a PE of 24, well into nose-bleed territory. With the stock up to 148 at last look, valuation has to just under 32 times earnings, meaning BHP will invest enough to generate a total return of capital by the year 2042, if Potash continues to perform as it has the past year.
Considering the global footprint of both companies, the deal would make sense, though Potash may have missed the boat ad says it is seeking other suitors. Obviously, some investors believe the company is worth much more than the $130 per share, though a value investor would normally walk away shaking his or her head. In this case, the value investor is running from the mob of momentum junkies crowding the trade. The valuations are ludicrous, even if they were put up in better times.
Outside the merger mania, most stocks were sinking slowly. Not a single stock on the Dow 30 showed a gain, as investors took cash out of just about every equity investment.
Dow 10,271.21, -144.33 (1.39%)
NASDAQ 2,178.95, -36.75 (1.66%)
S&P 500 1,075.63, -18.53 (1.69%)
NYSE Composite 6,855.14, -112.94 (1.62%)
Declining issues pounded advancers by an enormous margin, 5147-1322, though it could have been worse, and likely will be within days or weeks. New highs managed to stay ahead of new lows, but just barely, 275-220. It is worth noting that there was a tremendous run-up in stocks from mid-July through December of last year, so routinely making new 52-week highs is going to be a more difficult task in weeks and months ahead.
NASDAQ Volume 2,104,113,000
NYSE Volume 4,935,496,000
Crude futures continued to slide from their ridiculous levels of earlier in the month, losing 99 cents to close at $74.43, an odd occurrence for mid-summer driving season, though inventory levels continue to indicate slack demand. Gold caught another reasonable bid, up $4.10, to $1,233.80, with $1300 now the preferred price target. Silver slipped seven cents to $18.32. One wonders how long the gold boom - now in its tenth year - can last and whether these current levels indicate a topping pattern. Quadrupling your money by simply holding onto coins or bars over the past decade seems to have been the best of all trades, even though one would not have to as much as lift a finger.
Such is the condition of markets today. Idleness may be the best recipe for preservation of capital as deflation holds prices down and punishes speculation.
That news, coupled with some hard-to-believe figures from the Philadelphia Fed, wiped out all of the week's prior gains and sent stocks reeling to their lowest close in a month. The major averages have been trading below their 200-week moving averages, and cannot seem to gather enough momentum to break out of the current trading range.
Significantly, trading volume reached its highest level in a week, also marking the fourth consecutive Thursday in which stocks have traded to the downside. Despite heavy play in stock options - which expire tomorrow - and some fairly significant attempts at late-day tape-painting (or, banging the close), current momentum in strictly on the side of the bears.
A couple of merger announcements caught the market's attention, specifically, Intel's (INTC) offer of $7.7 billion in cash for internet security firm, McAfee (MFE), which boosted shares of the company to be acquired by 17 points, a 57% gain.
Also on the merger block was First Niagara's (FNFG) offer to buy all of New Alliance Bankshares (NAL), a Connecticut-based regional bank, in an all-stock deal.
Both deals pushed valuations of the acquired companies to ratios of roughly 18-20 times earnings, which, by most standards might seem reasonable, though in today's liquidity-squeezed environment seem a bit on the overpriced side of the equation.
Valuation, more than ever, is going to have meaning once again for publicly-traded firms, though it's doubtful that the rich P-E ratios of the Fortune 500 companies and Dow 30 can remain in place for long, many of them trading at 20 times current earnings or higher. In a fast-paced environment, those valuations may be appropriate, but today, when all indications are for modest growth, if any at all, valuations would be more prudently placed in the 8-12 times earnings range. Should the economy continue to worsen, even those figures would seem rich.
Valuation and price discovery, the tools of any astute investor, have been shunned for years, with Wall Street assuming that 12 to 15 times earnings is the benchmark for a stable company. In the current environment, both investors and companies seeking to purchase rivals or valued additions, had better sharpen their pencils.
One other potential acquisition, that of Potash (POT), the Canadian-based fertilizer manufacturer, by Aussie giant BHP Billiton (BHP) for $130 per share - all cash - was rejected by the company to be acquired, calling the bid "woefully inadequate," though shares of Potash have zoomed up 36 points, or about 30% since the hostile offer was tendered on Tuesday.
The whole deal sounds cockeyed on the surface, and even if BHP is desperate, should not produce any tangible combination. with earnings in the previous four quarters of $4.64, even trading at $112 per share (prior to the offer), Potash was sporting a PE of 24, well into nose-bleed territory. With the stock up to 148 at last look, valuation has to just under 32 times earnings, meaning BHP will invest enough to generate a total return of capital by the year 2042, if Potash continues to perform as it has the past year.
Considering the global footprint of both companies, the deal would make sense, though Potash may have missed the boat ad says it is seeking other suitors. Obviously, some investors believe the company is worth much more than the $130 per share, though a value investor would normally walk away shaking his or her head. In this case, the value investor is running from the mob of momentum junkies crowding the trade. The valuations are ludicrous, even if they were put up in better times.
Outside the merger mania, most stocks were sinking slowly. Not a single stock on the Dow 30 showed a gain, as investors took cash out of just about every equity investment.
Dow 10,271.21, -144.33 (1.39%)
NASDAQ 2,178.95, -36.75 (1.66%)
S&P 500 1,075.63, -18.53 (1.69%)
NYSE Composite 6,855.14, -112.94 (1.62%)
Declining issues pounded advancers by an enormous margin, 5147-1322, though it could have been worse, and likely will be within days or weeks. New highs managed to stay ahead of new lows, but just barely, 275-220. It is worth noting that there was a tremendous run-up in stocks from mid-July through December of last year, so routinely making new 52-week highs is going to be a more difficult task in weeks and months ahead.
NASDAQ Volume 2,104,113,000
NYSE Volume 4,935,496,000
Crude futures continued to slide from their ridiculous levels of earlier in the month, losing 99 cents to close at $74.43, an odd occurrence for mid-summer driving season, though inventory levels continue to indicate slack demand. Gold caught another reasonable bid, up $4.10, to $1,233.80, with $1300 now the preferred price target. Silver slipped seven cents to $18.32. One wonders how long the gold boom - now in its tenth year - can last and whether these current levels indicate a topping pattern. Quadrupling your money by simply holding onto coins or bars over the past decade seems to have been the best of all trades, even though one would not have to as much as lift a finger.
Such is the condition of markets today. Idleness may be the best recipe for preservation of capital as deflation holds prices down and punishes speculation.
Wednesday, August 18, 2010
That Giant Sucking Sound
I suppose this post should be dedicated to Ross Perot, whose words inspired today's title.
Ross Perot was the last of the great third party candidates for president way back in 1992 when he intoned those fateful words as part of his closing remarks during a debate with then-president George H.W. Bush and future leader of the free world, William Jefferson Clinton. The short video clip is embedded below.
Perot was describing the flight of US jobs to Mexico and boy, was he ever right. Not only did jobs flee the land of the free to South of the border, but eventually entire factories were dismantled and shipped to China, where wages were ever cheaper.
Now, with Washington on its knees before the giant banking interests of Wall Street and begging the Chinese to keep buying our Treasury bonds, the path has come full circle. America is bankrupt, without a reliable manufacturing base, and its citizens are being sucked dry by banks, utilities (many owned by foreign corporations, thanks in no small part to Senator "Sell Out" Schumer of New York), and giant multi-national corporations which could care less whether or not anyone has a job, only whether they can pay the cable bill or shop at Wal-Mart or finance the purchase of a brand-spanking new car from one of our bailed-out auto companies.
There are no jobs, though there's money spread across the fruited plain thanks to our glorious benefactors in Washington, who seem intent on putting all Americans on the dole. There are, however, many corporations whose shares are traded publicly on Wall Street, though interest in many of them seems to be waning, or, possibly all worn out.
Trading volumes reached new levels of apathy today, especially on the NASDAQ, recording its lowest volume of the year and lowest since December 30 of last year. It was abysmal. Maybe that giant sucking sound is the sound of your 401k plan going to an early death, prior to your retirement, or the vastly underfunded pension plans of many corporations and municipalities going down the tubes in a giant "whoosh."
As for yesterday's options-inspired rally, well, that's over, pending the release of initial unemployment claims tomorrow morning.
Dow 10,415.54, +9.69 (0.09%)
NASDAQ 2,215.70, +6.26 (0.28%)
S&P 500 1,094.16, +1.62 (0.15%)
NYSE Composite 6,968.08, +8.29 (0.12%)
Advancers beat decliners by a diminishing margin at the closing bell, 3511-2875. New highs held their own against new lows, 315-86. Volume was absurdly low. The insiders will begin the process of gnawing at each other's flesh presently.
NASDAQ Volume 1,547,742,875
NYSE Volume 4,239,987,500
Oil finished lower again, down 35 cents, to $75.42, though it traded below $74 earlier in the day. Gold gained $3.10, to $1,229.70. Silver finished down 20 cents, at $18.39.
That giant sucking sound may just be the sound of traders leaving Wall Street and joining the ranks of the unemployed. The double dip is on the way.
Ross Perot was the last of the great third party candidates for president way back in 1992 when he intoned those fateful words as part of his closing remarks during a debate with then-president George H.W. Bush and future leader of the free world, William Jefferson Clinton. The short video clip is embedded below.
Perot was describing the flight of US jobs to Mexico and boy, was he ever right. Not only did jobs flee the land of the free to South of the border, but eventually entire factories were dismantled and shipped to China, where wages were ever cheaper.
Now, with Washington on its knees before the giant banking interests of Wall Street and begging the Chinese to keep buying our Treasury bonds, the path has come full circle. America is bankrupt, without a reliable manufacturing base, and its citizens are being sucked dry by banks, utilities (many owned by foreign corporations, thanks in no small part to Senator "Sell Out" Schumer of New York), and giant multi-national corporations which could care less whether or not anyone has a job, only whether they can pay the cable bill or shop at Wal-Mart or finance the purchase of a brand-spanking new car from one of our bailed-out auto companies.
There are no jobs, though there's money spread across the fruited plain thanks to our glorious benefactors in Washington, who seem intent on putting all Americans on the dole. There are, however, many corporations whose shares are traded publicly on Wall Street, though interest in many of them seems to be waning, or, possibly all worn out.
Trading volumes reached new levels of apathy today, especially on the NASDAQ, recording its lowest volume of the year and lowest since December 30 of last year. It was abysmal. Maybe that giant sucking sound is the sound of your 401k plan going to an early death, prior to your retirement, or the vastly underfunded pension plans of many corporations and municipalities going down the tubes in a giant "whoosh."
As for yesterday's options-inspired rally, well, that's over, pending the release of initial unemployment claims tomorrow morning.
Dow 10,415.54, +9.69 (0.09%)
NASDAQ 2,215.70, +6.26 (0.28%)
S&P 500 1,094.16, +1.62 (0.15%)
NYSE Composite 6,968.08, +8.29 (0.12%)
Advancers beat decliners by a diminishing margin at the closing bell, 3511-2875. New highs held their own against new lows, 315-86. Volume was absurdly low. The insiders will begin the process of gnawing at each other's flesh presently.
NASDAQ Volume 1,547,742,875
NYSE Volume 4,239,987,500
Oil finished lower again, down 35 cents, to $75.42, though it traded below $74 earlier in the day. Gold gained $3.10, to $1,229.70. Silver finished down 20 cents, at $18.39.
That giant sucking sound may just be the sound of traders leaving Wall Street and joining the ranks of the unemployed. The double dip is on the way.
Tuesday, August 17, 2010
Why Stocks Were Up, in One Word
I'm going to keep today's notes brief, since it's a beautiful summer day and the market is, as usual, defying all logic.
Were stocks ahead because key economic data was better than expected? Possibly. The PPI for July was up 0.2%, with the core up a whopping 0.3%, allaying fears of deflation for the moment. Housing Starts and building permits were somewhat of a disappointment, however, though July industrial production was up by a full percentage point and Capacity Utilization stood at 74.8%, up from 74.1% in June.
Those numbers were benign, and volume was once again extremely sluggish, so there's only one reason stocks went up today: options. Or, more accurately, the expiration of stock options this Friday.
In recent trading - over the past 7 months which we bothered to check - the major indices have almost always shown some kind of gains early in the week leading up to options expiration, like clockwork, except in May, when stocks and the economy were actually showing real strain from problems. It's pretty simple, and an easy strategy for market-timers. But, is it investor sentiment or manipulation, and, does it matter?
Short term, trading moves matter, especially when you have money at risk, as in the options market. Long term, the blips obtained in weeks of options expirations or the weeks preceding them are more noise than valuable data points. As for whether the pattern arises out of investor sentiment or manipulation, which have been becoming more synonymous of late, the latter seems a too-obvious choice, but there it is, laid out for everyone to see.
Supposing you had some money riding on certain strike points, or you could make money on gains, and, if you were a major investment house, like Goldman Sachs, BofA, et. al., with tons of excess capital sitting around gathering dust, wouldn't it behoove you to invest some of that idle capital in the stocks you need to rise, thus ensuring short term gains in your options trading? Absolutely. Do the big firms do that? Positively.
While they call it astute trading discipline, others might figure it a little less than honest poker, but, since options are highly unregulated conveyances, nobody bothers to make a squeal about it. For the investor, it makes for a simple calendar rule: buy stocks near the end of the month or early in the month, preferably the first week, because the price you pay will almost always be lower than it will approaching options expiration.
And that's why stocks were up today, and the only reason why. For more proof, just take a gander at the volumes, which were again at "help me, I'm drowning" levels. The low volume regime persists, so higher closes, especially major advances, like today's, should be weighted accordingly. Better yet, compare the highs of the day to the close. A bit of a selloff there in the last hour, the tell-tale sign of options sales and/or redemption, and plenty of play on the intra-day movement. The Dow lost about 70 points in the final hour. Healthy markets don't do that, they close at or near the highs. Conclusion: this was yet another manipulated trading move; market weakness still exists; nobody is really buying.
Dow 10,405.85, +103.84 (1.01%)
NASDAQ 2,209.44, +27.57 (1.26%)
S&P 500 1,092.54, +13.16 (1.22%)
NYSE Composite 6,959.79, +88.21 (1.28%)
Naturally, advancers beat decliners handily, 5008-1490. New highs soared past new lows, 335-80.
NASDAQ Volume 1,631,266,000
NYSE Volume 4,241,545,500
Commodities were mostly higher. Oil traded up by 53 cents, to $75.77. Gold gained $2.10, to $1,226.60. Silver added 17 cents to $18.59.
Stocks should continue this pattern for another day or two, probably peaking on Thursday, which would be a great time to go short the market. By Monday of next week, everything should be trading at lower levels, if history proves correct.
Were stocks ahead because key economic data was better than expected? Possibly. The PPI for July was up 0.2%, with the core up a whopping 0.3%, allaying fears of deflation for the moment. Housing Starts and building permits were somewhat of a disappointment, however, though July industrial production was up by a full percentage point and Capacity Utilization stood at 74.8%, up from 74.1% in June.
Those numbers were benign, and volume was once again extremely sluggish, so there's only one reason stocks went up today: options. Or, more accurately, the expiration of stock options this Friday.
In recent trading - over the past 7 months which we bothered to check - the major indices have almost always shown some kind of gains early in the week leading up to options expiration, like clockwork, except in May, when stocks and the economy were actually showing real strain from problems. It's pretty simple, and an easy strategy for market-timers. But, is it investor sentiment or manipulation, and, does it matter?
Short term, trading moves matter, especially when you have money at risk, as in the options market. Long term, the blips obtained in weeks of options expirations or the weeks preceding them are more noise than valuable data points. As for whether the pattern arises out of investor sentiment or manipulation, which have been becoming more synonymous of late, the latter seems a too-obvious choice, but there it is, laid out for everyone to see.
Supposing you had some money riding on certain strike points, or you could make money on gains, and, if you were a major investment house, like Goldman Sachs, BofA, et. al., with tons of excess capital sitting around gathering dust, wouldn't it behoove you to invest some of that idle capital in the stocks you need to rise, thus ensuring short term gains in your options trading? Absolutely. Do the big firms do that? Positively.
While they call it astute trading discipline, others might figure it a little less than honest poker, but, since options are highly unregulated conveyances, nobody bothers to make a squeal about it. For the investor, it makes for a simple calendar rule: buy stocks near the end of the month or early in the month, preferably the first week, because the price you pay will almost always be lower than it will approaching options expiration.
And that's why stocks were up today, and the only reason why. For more proof, just take a gander at the volumes, which were again at "help me, I'm drowning" levels. The low volume regime persists, so higher closes, especially major advances, like today's, should be weighted accordingly. Better yet, compare the highs of the day to the close. A bit of a selloff there in the last hour, the tell-tale sign of options sales and/or redemption, and plenty of play on the intra-day movement. The Dow lost about 70 points in the final hour. Healthy markets don't do that, they close at or near the highs. Conclusion: this was yet another manipulated trading move; market weakness still exists; nobody is really buying.
Dow 10,405.85, +103.84 (1.01%)
NASDAQ 2,209.44, +27.57 (1.26%)
S&P 500 1,092.54, +13.16 (1.22%)
NYSE Composite 6,959.79, +88.21 (1.28%)
Naturally, advancers beat decliners handily, 5008-1490. New highs soared past new lows, 335-80.
NASDAQ Volume 1,631,266,000
NYSE Volume 4,241,545,500
Commodities were mostly higher. Oil traded up by 53 cents, to $75.77. Gold gained $2.10, to $1,226.60. Silver added 17 cents to $18.59.
Stocks should continue this pattern for another day or two, probably peaking on Thursday, which would be a great time to go short the market. By Monday of next week, everything should be trading at lower levels, if history proves correct.
Monday, August 16, 2010
Equities Remain Stuck in Liquidity Trap
What would you do if you threw a party and nobody showed up?
Well, that's how brokers on Wall Street must be feeling, because there's a serious lack of trading going on these days. For well over a week now, stocks have been stuck within the deafening silence of a liquidity trap, bought about by an overwhelming amount of distrust, absence of investable capital and uncertainty about the future.
Individual investors - and, to a growing degree, some fund managers - have found safety and serenity in the simplicity of cash. Others have opted for money market returns of less than one percent, still more have waded into the refreshing bond waters or ventured into gold or other commodities.
Stocks, for better or worse, have fallen out of favor in the aftermath of the 08-09 meltdown, aided by government programs which were designed to spur demand but instead have only created one-off events, like the cash for clunkers fiasco or the failed stimulus that gave $8000 tax breaks to home owners.
Sure, the people who took advantage of government largesse got their new cars or their new homes, more than likely at inflated prices (we'll know for sure in another 12-18 months), but there was no appreciable overall gain in new buyers. Maybe most folks just like keeping what they have, secure in the fact that - especially in the case of cars - it's paid for or, with a house, knowing what it's roughly worth.
Still others are stuck with properties at inflated values. Recent home-buyers of 2003-2007 vintage are nearly universally upside-down, stuck with payments on outrageous mortgages while the value of their real estate continues a precipitous decline.
In this disheveled state of affairs, the last thing on people's minds is putting more money into the stock market, either by buying individual stocks, mutual funds or increasing the funding of their 401k plan. The average American has gotten the message loud and clear: save and save more. Non-essential purchases are being put on hold more often and investment decisions are based upon more immediate needs rather than with a long-term perspective. Besides, there's a real feeling that Wall Street is rotten and crooked and that stocks, as they have gone nowhere for the past ten years, look more and more like losing propositions.
Trading volumes on the major exchanges have been in a prolonged decline, and even for August, the recent volumes speak of something more sinister and pernicious than simply everybody being on vacation. There's no excitement or impetus for stocks to rise, and Monday's trade was more than likely bolstered by a fresh infusion of cash from the banks and brokerages. The Dow dipped 70 points right at the open before a sudden reversal just minutes into the session.
Once the averages found a more suitable footing, they just churned in a narrow range of about 50 points on the Dow before another minor blip downward and another round of funding from the "masters of the universe" at Goldman Sachs, JP Morgan and Merrill Lynch, BofA's trading arm.
This is a very serious condition which is not going to be solved without another blood-letting in stocks. The absence of confidence has spread all the way from Main Street to Washington to the canyons of Wall Street and now it's locked in place. Until somebody proves that stocks are safe and the economy is really on a rebound (impossible), the direction will be down, down and then down some more. Today's minor gains are overshadowed by the paucity of trading.
Dow 10,302.01, -1.14 (0.01%)
NASDAQ 2,181.87, +8.39 (0.39%)
S&P 500 1,079.38, +0.13 (0.01%)
NYSE Composite 6,871.58, +10.54 (0.15%)
Advancing issues took command over decliners, 3980-2440. There were 311 new highs and 223 new lows, but nobody is really bothering to keep score. Volume reached a new low on Monday, below the abysmal numbers from the previous Monday, which was off-the-charts ugly. People simply aren't interested in stocks right now, and for many good reasons.
NASDAQ Volume 1,636,439,375
NYSE Volume 3,569,886,750
Oil was down again, losing 15 cents, to $75.24, but gold gained $9.60, to $1,224.50. Silver was also up, better by 32 cents, to $18.42.
There was some small economic data, including the NY Fed's Empire Manufacturing Index, which came in with a reading of 7.10 for August after a 5.8 posting in July. The index is stuck at extreme low levels, indicating very modest growth, if any, with falling prices and negative future outlooks. It's not a pretty picture and New York is one of the better-performing areas of the country.
Prior to the open Tuesday, a number of important economic indicators will be released, including July PPI, housing starts and building permits. The numbers are expected to be flat or even down from June, which is just the kind of news Wall Street does not need at this juncture.
The true picture being painted by this low-volume regime is one bereft of confidence and capital. Like just about everything else in the current climate, it is unsustainable for more than a very short period of time, one which will be coming to an abrupt end shortly.
Well, that's how brokers on Wall Street must be feeling, because there's a serious lack of trading going on these days. For well over a week now, stocks have been stuck within the deafening silence of a liquidity trap, bought about by an overwhelming amount of distrust, absence of investable capital and uncertainty about the future.
Individual investors - and, to a growing degree, some fund managers - have found safety and serenity in the simplicity of cash. Others have opted for money market returns of less than one percent, still more have waded into the refreshing bond waters or ventured into gold or other commodities.
Stocks, for better or worse, have fallen out of favor in the aftermath of the 08-09 meltdown, aided by government programs which were designed to spur demand but instead have only created one-off events, like the cash for clunkers fiasco or the failed stimulus that gave $8000 tax breaks to home owners.
Sure, the people who took advantage of government largesse got their new cars or their new homes, more than likely at inflated prices (we'll know for sure in another 12-18 months), but there was no appreciable overall gain in new buyers. Maybe most folks just like keeping what they have, secure in the fact that - especially in the case of cars - it's paid for or, with a house, knowing what it's roughly worth.
Still others are stuck with properties at inflated values. Recent home-buyers of 2003-2007 vintage are nearly universally upside-down, stuck with payments on outrageous mortgages while the value of their real estate continues a precipitous decline.
In this disheveled state of affairs, the last thing on people's minds is putting more money into the stock market, either by buying individual stocks, mutual funds or increasing the funding of their 401k plan. The average American has gotten the message loud and clear: save and save more. Non-essential purchases are being put on hold more often and investment decisions are based upon more immediate needs rather than with a long-term perspective. Besides, there's a real feeling that Wall Street is rotten and crooked and that stocks, as they have gone nowhere for the past ten years, look more and more like losing propositions.
Trading volumes on the major exchanges have been in a prolonged decline, and even for August, the recent volumes speak of something more sinister and pernicious than simply everybody being on vacation. There's no excitement or impetus for stocks to rise, and Monday's trade was more than likely bolstered by a fresh infusion of cash from the banks and brokerages. The Dow dipped 70 points right at the open before a sudden reversal just minutes into the session.
Once the averages found a more suitable footing, they just churned in a narrow range of about 50 points on the Dow before another minor blip downward and another round of funding from the "masters of the universe" at Goldman Sachs, JP Morgan and Merrill Lynch, BofA's trading arm.
This is a very serious condition which is not going to be solved without another blood-letting in stocks. The absence of confidence has spread all the way from Main Street to Washington to the canyons of Wall Street and now it's locked in place. Until somebody proves that stocks are safe and the economy is really on a rebound (impossible), the direction will be down, down and then down some more. Today's minor gains are overshadowed by the paucity of trading.
Dow 10,302.01, -1.14 (0.01%)
NASDAQ 2,181.87, +8.39 (0.39%)
S&P 500 1,079.38, +0.13 (0.01%)
NYSE Composite 6,871.58, +10.54 (0.15%)
Advancing issues took command over decliners, 3980-2440. There were 311 new highs and 223 new lows, but nobody is really bothering to keep score. Volume reached a new low on Monday, below the abysmal numbers from the previous Monday, which was off-the-charts ugly. People simply aren't interested in stocks right now, and for many good reasons.
NASDAQ Volume 1,636,439,375
NYSE Volume 3,569,886,750
Oil was down again, losing 15 cents, to $75.24, but gold gained $9.60, to $1,224.50. Silver was also up, better by 32 cents, to $18.42.
There was some small economic data, including the NY Fed's Empire Manufacturing Index, which came in with a reading of 7.10 for August after a 5.8 posting in July. The index is stuck at extreme low levels, indicating very modest growth, if any, with falling prices and negative future outlooks. It's not a pretty picture and New York is one of the better-performing areas of the country.
Prior to the open Tuesday, a number of important economic indicators will be released, including July PPI, housing starts and building permits. The numbers are expected to be flat or even down from June, which is just the kind of news Wall Street does not need at this juncture.
The true picture being painted by this low-volume regime is one bereft of confidence and capital. Like just about everything else in the current climate, it is unsustainable for more than a very short period of time, one which will be coming to an abrupt end shortly.
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