Monday, May 2, 2011

Death of Osama bin Laden Springs Bernanke Trap

Whether or not one accepts the story of the demise of Osama bin Laden as gospel or Golem, there is no doubting that the mainstream news media is treating it as the truth, and celebrating it with requisite aplomb.

It served as the leading commentary to an otherwise dull Monday, especially in the financial markets. At one time, the capture or death of the man who was widely recognized as the mastermind of the 9/11 attacks was thought to able to create a market rally of dizzying proportions, but today's response was muted, if not downright dismissive of the manhunt that took nearly ten years, untold thousands of lives and over a trillion dollars.

The euphoria felt at the White House on Sunday night was not reflected in the trading on Wall Street, though the death of the world's most infamous terrorist did manage to provide a suitable cover story for crashing silver, and, to some degree, calming the Midas effect in the gold pits.

Other than those obvious manipulations, the death of OBL did less to inspire confidence than it did to induce relief that the most evil person in the world had finally met his maker. The rest of the moves in the market could widely be attributed to nothing as earth-shattering as the ordinary movement of the US Dollar against other fiat currencies, particularly well=reflected by the dollar index (DXY).

Initially higher on the news, the DXY lost ground throughout the day, finally bottoming out at 72.72 in early afternoon before rallying back to 73.04 at the 4:00 pm NY close. The decline and subsequent rise in the dollar index was the primary mover of stocks throughout the session, in an inverse relationship that has been in effect since the first round of QE in 2009.

In essence - apply tin-foil hat here in appropriate degree - the timing of OBL's death came at the perfect time for the world's money men. The dollar had been in a vicious slide over the past three months, which fueled the commodity and stocks boom, but was also threatening to undermine the reserve status of the US dollar. The decision to "pull the trigger" - whether real or imagined - quieted dollar devaluation fears, for now, but also took down stocks, creating a Bernanke Trap, in which monetization of US debt and the associated demise of the dollar gives rise to inflation and commodity speculation but the inverse could foment a stock market correction or crash and more severe economic fallout.

Thus, with the death of Osama bin Laden, we have a new enemy, the evil genius chairman of the Federal Reserve, the man behind the curtain pulling the levers, Ben Bernanke, and he is hopelessly trapped into a scenario in which neither outcome is preferable or palatable. One might assume that the esteemed chairman will side momentarily with the monetarists who believe dollar hegemony is preferable to runaway inflation and rioting at gas stations, though making assumptions in the age of political markets is a dangerous game.

For today, the dollar and Bernanke have survived, barely, but tomorrow may be another story altogether. In the very least, we can be assured that the killing of Osama bin Laden represents a shared view at the very pinnacle of power that the the overarching narrative needed to be changed, and abruptly.

Mission Accomplished.

Dow 12,807.36, -3.18 (0.02%)
NASDAQ 2,861.84, -11.70 (0.41%)
S&P 500 1,361.22, -2.39 (0.18%)
NYSE Composite 8,641.56, -29.85 (0.34%)

Market internals belied the slight declines. Stocks which lost ground far outnumbered those gaining, 4135-2454. On the NASDAQ there were 177 new highs and 28 new lows. The NYSE had 337 stocks make new highs and just 13 reach new lows. Obviously, the new highs were made early in the session, before the dollar began to rise and kill the carry trade (now known as risk on). Volume could best be described as either laughable, embarrassing or just plain disinterested.

NASDAQ Volume 1,768,677,875
NYSE Volume 3,669,946,000

WTI crude futures actually fell 41 cents, to $113.52, though that hardly can be construed as relief for motorists already feeling the pinch from $4.00 gasoline. According to AAA, the average price for a gallon of unleaded regular gas is now $3.95, so, $5.00 by summer becomes a distinct possibility in at least 10 states. Already 14 states are experiencing average prices above $4.00, with Hawaii the highest, at $4.57. The lowest average price is in Wyoming, at $3.60, hardly a bargain.

Precious metals were hammered down by the movers and shakers at JP Morgan and the Fed, with gold getting hit with a $19.80 decline, down to $1545.90 as of this writing. Silver took the brunt of the action, with five margin hikes in the past two weeks putting the kibosh on larger speculation in the paper markets. Silver fell $4.39, to $43.55, a point which may actually trigger more paper selling and eventually result in ramped up physical buying.

There's little doubt that the masters of fiat money at the Federal Reserve will do anything to keep gold and silver from appreciating, though they've been an abject failure up to this point. The Fed simply cannot stomach competing currencies and gold and silver amply qualify. If it means the end of screenings at airports and reduction of global tensions, maybe it's a worthwhile tradeoff, but the other side of the Fed's coin is already painted red. Any squelching of precious metals by pumping up the US dollar is likely to have similar deleterious effects on the risk trade in stocks.

At the end of the trading day, Tim Giethner made his appearance and the purpose of all the frenetic activities of the past 18 hours suddenly became crystal clear. The Treasury outlined plans to extend the deadline for raising the debt ceiling to the first week of August, thus delaying or deferring a crisis in the congress.

America teetering on a debt default with the currency debased for the whole world to see must have appeared as the opportune moment to divert attention by killing public enemy #1.

Mission accomplished, indeed, but beware the ultimate costs.

Friday, April 29, 2011

Stocks End April Positive; Gold Screams, Silver Supressed

On the surface, it's safe to say that April was a pretty good month for stock holders and traders.

The Dow, S&P and NASDAQ are all at multiple-year highs and finished off what may have been one of the most mangled months in stock market history with another day of broad-based gains (with the slight exception of the NASDAQ, weighed down by some lofty valuations).

For the month of April, the Dow gained some 490 points (3.98%) as investors flocked to blue chips. The S&P 500 added 38 points (2.87%), while the NASDAQ moved 92 points to the upside. The NYSE Composite, the broadest measure of market health, grabbed 267 (3.18%) of gains.

Naturally, the assumption is that stocks gained on the back of easy Fed policies, and outpaced inflation, but were trampled by commodities, especially silver and gold, which continued to be among the safest and best-returning investments of the year.

Keeping some perspective, in relation to the weakening US dollar, stocks merely held their own, as the dollar index, which closed today at fresh 3-year lows of 73.12, lost 3.60%. Thus, when measured against an inflation indicator such as the Dollar Index (DXY), most stock traders lost money in real terms. The true measure of value was in the precious metals and other commodities, things that one can actually touch, feel, see, and potentially use for some other purpose.

April being traditionally the final month of the year to make profits in stocks before October, the gains across the swath of the indices are not surprising at all. In fact, had stocks not gone higher, it would have been a shocking event. With the Fed set to end QE2 in June and hinting of higher interest rates, the top may be close at hand for the majors.

However, being that all manner of policy is tied to a strong stock market, since every pension, trust and endowment has money invested in stocks, there's little likelihood of a summer crash, unless the deterioration in the dollar continues apace. The Fed's ending of QE2 will more than likely stop the slide in the dollar, though it's still a gamble that the economy is strong enough to get along without outside help. The Fed stands ready to intervene at any signs of weakness, and there are plenty of them.

Individuals, those sentient beings otherwise known as humans, who eat, sleep, and generally are the driving force behind all economics, are not faring as well as their investments. Personal income was reported to have increased at 0.5% in March and the same may be true for April, but it's hardly keeping pace with inflation, which is running at a rate of between six and nine per cent annually. Food and energy prices have been the biggest contributors to the poverty effect that has overtaken the middle class, and there seems to be no end, though tighter monetary policy may have a calming effect on rising prices.

This is all going to play out over the summer, which appears to be shaping up as something of a spectacle. Along with watching the Fed's every move, the adroit consumer/investor must keep an eye on our nefarious congress and the golf-fanatic president, and how they handle the debt ceiling and the 2012 budget.

There are also the twin monsters of the housing market and unemployment, two stubborn enemies that will not easily be vanquished. while housing is something of a double-edged sword, hurting existing homeowners while helping new ones with lower prices and record low interest rates, unemployment is a stickier issue. Jobs just don't spring up from the ground, though farming may become one of the better ways to lick the whole rat race from an individual standpoint.

Still, there are simply not enough new jobs being created in the US to sustain the population that is able and willing to work for a living and the ones being created are not as good as many just a decade ago.

Dow 12,810.54, +47.23 (0.37%)
NASDAQ 2,873.54, +1.01 (0.04%)
S&P 500 1,363.61, +3.13 (0.23%)
NYSE Composite 8,671.41, +31.68 (0.37%)

On the day, advancing issues outperformed decliners, 4084-2465. On the NASDAQ, there were 200 new highs and just 20 new lows. Over at the NYSE new highs beat new lows, 361-13. Volume was actually elevated, possibly due to window-dressing, or funds squaring positions and closing out EOM books.

NASDAQ Volume 2,486,112,500
NYSE Volume 4,012,242,750

Crude oil continued its relentless climb, adding $1.07, to $113.93 per barrel. Gold was the outright winner of the day, gaining, at the moment, $26.60, to $1562.40. Silver, however, did not follow, as the price-suppression machine kicked into high gear, supposedly to keep it from the $50 threshold and destroying April shorts. Silver is currently down 62 cents, at $47.86. Those calling for an investigation into price-rigging in both the gold and silver markets can use this day as an obvious example.

All of this is merely a dress rehearsal for the month of May however, which will start with non-farm payrolls for April next Friday and at some point include a hot debate of the federal debt ceiling. The old saw, "sell in May and stay away," will be tested.

Thursday, April 28, 2011

Jobless Claims Jump, 1st Q GDP Anemic, Stocks Surge?

We've been officially in a financial twilight zone since about the middle of 2007. It was unofficial until the wheels of George W. Bush's second term as president began to fall off and the evils of crony capitalism began to appear. We all know what happened after that, but today's economic data and stock market reaction defies explanation of any rational kind except that the markets are completely out of whack, fed by the Fed's ZIRP and POMO.

Initial jobless claims printed this morning at 429,000, when the estimate was for 390,000. A miss of 39,000, especially when the economy is supposed to be improving, is pretty wide of the target and normally would cause a sell-off in stocks, since it signals trouble ahead. The last three reports on jobless claims all have come in over the "official" estimates, adding to the worry.

At the same time, the government released the first estimate of first quarter GDP, which has been revised downward over the past three months from 4 1/2% growth, to 3 1/2, to 3, and finally to 2%.

It didn't even make that. Estimated GDP for the first quarter was 1.8%, this on the heels of a 4th quarter 2010 final estimate of 3.1%. Blended, that puts annualized GDP at about 2.5%, which, in any sensible world, is under-achieving in a big way.

Normally, coming out of a recession, the economy grows at a 5% or higher clip for a few quarters and the Fed has to then apply the brakes by increasing the federal funds rate. However, in our current quagmire economy, we're not even hitting 3% annualized and interest rates are as low as they can be, effectively ZERO. This is truly distressing news, and anyone who thinks we're not headed right back into another recession (some believe the first one never actually ended), might be concerned or even downright perturbed.

Let's set the record straight. When a person's unemployment benefits run out - be they after 26 weeks, 60 weeks or the current standard for millions, 99 weeks, they no longer count in the BLS data, so the non-farms payroll report for April, which will be released a week from tomorrow, really does not count all the unemployed when they say the unemployment rate is 8.8% or whatever number they feel is appropriate.

Currently, REAL unemployment, measuring all the current UI recipients, plus those who have exhausted their benefits and are still without a job, is around 16-17%, maybe higher, and it's been at that level for the better part of three years.

Next, GDP growth has completely stalled out (the cynic in me wants to believe this is so we'll get a Republican president in 2012) and may turn negative, and that's will somewhere between $12 and $20 TRILLION in various forms of stimulus. Keep in mind, whenever a politician projects government budgets over any time frame longer than three years, that GDP growth is likely to be 3% or lower for the foreseeable future.

In other words, we are royally screwed and I'm not talking about tomorrow's wedding night of Prince William the Tragic.

The masters of the universe on Wall Street, however, apparently don't see any issues here, as they ramped up stocks after a slightly-declining opening 20 minutes.

Twilight Zone, folks. Rod Serling and the creepy music and all that.

Dow 12,763.31, +72.35 (0.57%)
NASDAQ 2,872.53, +2.65 (0.09%)
S&P 500 1,360.48, +4.82 (0.36%)
NYSE Composite 8,639.73, +30.45 (0.35%)

Gainers outnumbered losers, 3915-2644. 171 new highs and 28 new lows was the order of the day on the NASDAQ. Over on the NYSE, there were 355 new highs and 13 new lows. Volume, oh, why bother?

NASDAQ Volume 1,993,865,125.00
NYSE Volume 4,519,197,000

Crude oil futures were up on 10 cents today, closing at $112.86 on the NYMEX. As of %;40 PM EDT, spot gold was bid up $8.50, at $1535.80, another new record. Silver was up 48 cents, to $48.48, though it traded more than a dollar higher earlier in the day.

The $50 mark for silver may take some time to finally break through, but when it does, it will be an all-time high, and will likely tack on about another $6-8 in short order. Breaking through an all-time high, especially when the forces of central bankers and JP Morgan are shorting it with everything at their disposal will be a seminal event and likely signal the resumption of the gathering second great depression, of which we are already two-and-a-half years into.

When silver breaks loose, all manner of nastiness will be released onto the global economy. Markets are already strained to their limits, but when central banks and large money center banks see their currency finally debased and routed by "poor man's gold" (silver), market disruptions will become continuous events and price discovery mechanisms priced in Dollars, Euros or Yen will be completely lost, forever shattered.

The $50 mark on silver is coming, and soon, so best be prepared for all manner of craziness.

BTW: the Dollar Index fell to 73.118, and was as low as 72.87 today. The dollar index is quickly reaching for the lows of Spring 2008, around 71.58, and it's likely that level will be breached about the same time silver rockets ahead and gas prices in the US exceed $4.00 per gallon nationally. We're almost there!

Wednesday, April 27, 2011

Everything Is Going Up, Except Your Wages and the US Dollar

On March 28, 2008 - about the time Bears Stearns was blowing up and before just about anyone was predicting a crisis - the Dollar Index bottomed out at 71.585.

Today, after the FOMC re-confirmed (for about the 16th time) that the federal funds rate would remain at "near" zero per cent, that very same index hit a three-year low at 73.26, closing just a touch above that level, at 73.317.

Some not suffering from the all-American malaise of short-term memory loss will recall that 2008 was not a very pretty time to be in stocks. Nor was it particularly good to be working for a Fortune 500 or other large corporation, as, by the end of the year, employees were being shed light so much dead weight off a beached ocean cruiser.

Comparing today to that sorry state of affairs is rather simple. Then, we were just heading into what would turn out to be one of the most devastating recession/depressions of modern times. Today, we are still not recovered from it.

Back in 2008, Ben Bernanke was saying that everything was OK, and soon he would glibly announce that the sub-prime crisis had been contained (insert laugh track here).

Today, the Bernanke delivered the very first of what we hope will be a short-lived experiment - a press conference following the announcement of the FOMC rate policy (no change). Once again, the Bernanke assured us that everything was just peachy, except that the economy was "recovering" a little bit slower than he'd like. We can all join him in that sentiment.

Today, Mr. Bernanke read some prepared remarks, bored us to tears and took questions from the assembled press corps, boring us even more. Today, Mr. Bernanke wants us to believe that core inflation is running at about a 1.6 to 2.2% rate, and while that may be true, core inflation leaves out food and energy, so with those included, real inflation is running at about 6-8%.

The Chairman also assured us that inflation risks were contained, just like he said the sub-prime situation was contained back in 2008. Many of us in the blogosphere didn't believe him then, and we don't believe him now, except this time we have proof.

All one has to do is go shopping, which means getting in a vehicle and driving somewhere and maybe buying some gas, which is more expensive than it was last week, and the week before that and the week before that...

Once one is over the shock of $4.00/gallon gasoline, one can go shopping for some food maybe, and find that prices are higher on fruits, vegetables, canned goods, meats, just about everything.

So, no, Mr. Bernanke, you and your Federal Reserve buddies, whose mandate is to provide price and wage stability and full employment, have failed on all accounts and your pronouncements to the press and the public are falling on deaf ears. Many don't bother to pay any attention to you at all, and even more don't even know who you are (that may come in handy when the pitchforks and torches come out). Another group believes you are lying and that you are ruining the economy and the nation with your mindless inflation-building, dollar-destroying policies.

And don't forget, we have proof. This time, we won't be fooled again.

On this day that the Fed reiterated its Zero Interest Rate Policy (ZIRP), everything went up while the dollar crashed and burned. Stocks were up. Interest rates were up. Gold was up, so too silver, oil, live cattle, cocoa and oil. The few commodities that did go down were already way up, and will likely go up more in the not-too-distant future.

The Fed is killing us, which it why is so refreshing to learn that Ron Paul is running for president. The Texas firebrand, if elected, will run Bernanke and his crew out of town.

Dow 12,690.96, +95.59 (0.76%)
NASDAQ 2,869.88, +22.34 (0.78%)
S&P 500 1,355.66, +8.42 (0.62%)
NYSE Composite 8,609.28, +54.29 (0.63%)

On the major stock indices, advancers pummeled declining issues, 4233-2315. NASDAQ pumped out 148 new highs and 25 new lows. The NYSE produced 290 stocks which hit new highs and 10 which made new lows. Volume was in line with expectations, which is a polite way of saying it was low, again, as usual.

NASDAQ Volume 2,083,155,500
NYSE Volume 4,525,766,000

Crude oil closed up 55 cents, to $112.76. The average price for a gallon of unleaded regular in the USA is now $3.88. Nine states are already averaging over $4/gallon, and West Virginia and Wisconsin are at $3.96 and $3.97, respectively. Soon that number will be 15, then 25 then 45. In time, even those states closest to the Gulf of Mexico - Alabama, Mississippi, South Carolina, Louisiana, Georgia, where prices are among the lowest in the nation, will be hovering near the $4 mark, the point at which the nation surrenders what little is left of its dignity - and money - to the global oil cartel.

Those adding to their stash of gold and/or silver yesterday on the rare pull-back, received instant gratification as both metals popped on the FOMC and Bernanke's policy announcement. It seems the gold bugs and silver liners also appreciate Bernanke's policies, except that theywish he'd take a break now and again to give them time to buy more precious metals before the prices go absolutely hyperbolic.

Gold hit another all-time record, currently trading at $1527.20, up a whopping $20.10 from Tuesday's close. Silver also regained its mojo, picking up $2.16, to $47.76, closing in on the magical Hunt brothers high of $50.25, achieved in 1980. Silver is expected to go right on past that point as long as Bernanke keeps interest rates at zero and the dollar continues to slide into oblivion.

Therefore, if you're feeling a bit squeezed, thank the Bernanke. He's our guy.

Tuesday, April 26, 2011

After the Ramp, Amazon Pigs Go to Slaughter

There's an old market adage, one oft-repeated by the notorious Jim Cramer of CNBC infamy, and it goes, Bulls make money, Bears make money, Pigs get slaughtered.

Today's top candidates for pig of the day were the anti-silver whore banks who shorted silver with May or June 40 puts (almost a sure slaughter there), the naive investors who purchased any of the momo-stocks - Apple, Netflix, Cipolte Mexican, etc. - and those who held their recently-purchased shares of Amazon (AMZN).

The winner - though all may be declared winners, by losing at a later date - for today has to be the Amazon playas who ignored the warnings of today's market action (from above 186 to a low of 181 against the backdrop of an accelerating market rally) and held on, hoping for another blowout quarter from the world's biggest bookseller.

Oops! Amazon reported just after the closing bell that it missed analyst targets by a pretty wide shot, coming in at 44 cents per share, when the market was looking for 61 cents. Some - most likely the fast talkers on Fast Money - will take solace in the fact that they beat revenue forecasts and were beaten up by increased operating costs, but it's earnings that matter, profits, son.

Amazon got the ramp-up treatment just this past Wednesday, soaring, on no particular news or for any good reason, from 178-and-change to just below 185, before noon. On Thursday and Monday, the stock drifted at the high end of the range until it was absolutely belted today during the regular session.

What changed? Precisely nothing, except that somebody got played, and good, and you can bet your last download on your Kindle that it wasn't anybody working at Goldman Sachs or Merrill Lynch or JP Morgan. Nope, the small investor who thought he/she had it all figured out got creamed and once again is left holding the bag (that bag being of the Firesign Theatre variety, and those who don't understand the 1970s reference, grow up!).

Amazon closed the day at 182.30, a loss of 3.12, and was trading below 180 in the after-hours. It's a pretty good bet that it opens tomorrow gapped lower, and trends South from there.

As for the rest of the market, it proved once again that nobody knows anything (other than Ben Bernanke and Jaime Dimon, that is) about short-term moves in the stock market, because, for all intents and purposes, this is an overbought, frothy market top, but this writer and many others have been calling tops for months. We are all equally fallible and ignorant in the face of SIRP and QE2. We are confident tomorrow, when the Fed announces no change in rate policy and Ben Bernanke makes history with a post-nothing-announcement news conference, will be either up, down or flat.

Dow 12,595.37, +115.49 (0.93%)
NASDAQ 2,847.54, +21.66 (0.77%)
S&P 500 1,347.24, +11.99 (0.90%)
NYSE Composite 8,554.99, +69.74 (0.82%)

Advancing issues, as one might have guess, clobbered decliners, 4561-2055. On the NASDAQ, new highs totaled 158, new lows, 28. There were 318 new highs and just six new lows on the NYSE. Volume was good on the NASDAQ, still depressed on the NYSE.

NASDAQ Volume 2,070,959,125
NYSE Volume 4,391,299,000

Commodities had a storied session, especially the precious metals. After making ferocious moves for months, the expected pull-back has begun. Gold lost $5.60, closing in NY at $1,503.50, but silver took a major hit, down $2.10, to $45.05. Crude oil lost a mere seven cents, to finish the session at $112.21. Food-related commodities were mostly lower.

The math on this is pretty straightforward. Since the global banking cartel can't allow gold and silver to defeat their paper monies, they suppress the precious metals with massive short positions in the fluid, over-leveraged paper market. Since most people don't own gold or silver, they can beat the price down when necessary, though physical holders won't actually care much about day-to-day movement since the trend has been up for the past decade and shows no signs of abatement. Oil stays high, as everybody has to put fuel into vehicles or distributed energy and since dead humans don't drive much, the cost of food must not rise severely.

It's all about oil, has been for many years and isn't going to change soon. That's why wise guys and gals like gold and silver. It's a hedge, it's real money and you can't eat it out of existence.

Tomorrow, the great and glorious Ben Bernanke will quiver and quake through a non-eventful press conference after the "no change" FOMC policy announcement. Maybe Ben will offer some tidbit about how he can stop inflation in 15 minutes or some other rubbish. Most likely, however, it will be snoozing as usual and the market will go... somewhere.