A Major Dose of Reality and the Beginning of the End of Paper Money

Confirming yesterday's hypothesis that "something is wrong," stocks righted themselves to the steady flow of horrible economic news on wednesday and took their largest losses in months.

What really sent the markets into a deep funk was the release of the ADP private payroll survey, which showed job gains for the month of May to be only 38,000, when most estimates ranged from 175,000 to as high as 300,000. That sent futures tumbling in the hour just prior to the open and stocks did a complete reversal from Tuesday's glorious rally, which, truth be told, was based on nothing but hot air, or even cold air, but air, nonetheless.

Once traders had tasted the bitter flavor of selling winners and losers alike, the ISM manufacturing index came in at 10:00 am, well below expectations of 57.0, at 53.5, after notching a 60.4 handle in April. Despite still being positive (above 50), it was the worst reading since the fall of 2009.

Lumped on top of Tuesday's Chicago PMI and Case-Shiller housing report, the first week of June looks like it may be a tide-turning one. The euphoria of Tuesday's happy-face rally all but extinguished, investors, economists and government talkers must face the grim reality that the economy is sputtering, even after trillions in stimulus over the past two-and-a-half years.

The fallout from the long series of poor to horrible economic reports was that the benchmark 10-year note fell to its lowest level since last summer, checking in at 2.94%, after closing at 3.06 yesterday. Sub-3% yields on the 10-year is swell for borrowers, but it also belies a grim truth: that the economy is dead in the water, and there is nowhere to go but into the relative safety of fixed income, albeit at very unattractive yields.

Dow 12,290.14, -279.65 (2.22%)
NASDAQ 2,769.19, -66.11 (2.33%)
S&P 500 1,314.55, -30.65 (2.28%)
NYSE Composite 8,281.59, -195.69 (2.31%)

Declining issues overwhelmed advancers, 5420-1222. It was the biggest rout of 2011. Still hanging on for dear life, the new high-new low indicator showed the NASDAQ dead even at 74 new highs and the same number of new lows. On the NYSE, a bit more resilience, with 101 new highs and 38 new lows, though once again, the margin is shrinking and it's only a matter of time before the market flips right over and a full-blown correction can be announced.

Naturally, since nobody wants or likes to face the reality of the situation, the US and global economies are almost completely kaput. Nothing more than wasted effort printing worthless Dollars, Euros and Yuan will be the requisite response from the league of central bankers whose policies have been exposed as outright disasters. A great reckoning is upon us, and those who have not prepared will be blind-sided and left in tears with paper assets worth nothing.

Volume was on a par with Tuesday's, unsurprisingly, though one could have expected even heavier selling. Apparently, not everyone is convinced that the game is over. The Too Big To Fail banks are still holding out hope for more dollar devaluation for the Fed and more handouts via the strapped and wrecked taxpayer base.

Of the more curious aspects of today's global melt-down was that the dollar actually looked like the best of a bad lot, rising 0.364 to 74.90, though that condition is - as the Chairman might express - transitory. Eventually, all paper money will be debased to nothing as the world sinks into global depression.

NASDAQ Volume 2,316,268,250
NYSE Volume 4,920,608,500

Of some small consolation to millions of consumers, oil fell abruptly, down $2.41, to $100.29. While still about $25 higher than it should be, the price of crude and the resultant price of gasoline should ease over the coming days and weeks to reflect the true status of the economy. Nothing kills growth as quickly or completely as high oil and gasoline prices, and, even though demand has been falling steadily since the average price of a gallon of unleaded gas hit just below $4.00, the price still remains a drag on the overall economy, at $3.77.

Gold was the greatest beneficiary of Wall Street's loathsome session, hitting a two-month high at $1551.20, before falling back to $1539.10, up $4.10 on the day. Naturally, the central banking cartel could not let silver go untouched, smashing the second precious metal down $1.65, to $36.82. Of course, in a deflationary depression, the metals offer no great relief, though they will tend to outperform all other asset classes and when the collapse of all fiat money occurs, they will shine as saviors.

June is shaping up to be a killer for the stock markets. Even though the ADP employment report has been widely criticized, there's little doubt that Friday's non-farm payroll report for May will be nothing short of disastrous, showing quite clearly that all the stimulus and wanton speculation of the past two years has done nothing to repair the deep wounds to the Main Street economy.

What little hope there is can be found amongst those who believe it is time for honesty and a change of policy, that people be favored over wealthy banks and their criminal CEOs and that government, if unable to serve the needs of the people, will be left behind. As during other times of hardship, the American public will turn to barter, black markets and other underground economies. Governments at all levels will be left holding onto unwieldy deficits as tax receipts fail to materialize.

The more one pays attention to what comes out of the mouths of bankers, government officials and elected legislators, the more one comes to realize that they have no interest but their own at heart and the American people will carry on without them, even if it means wholesale tax rebellion at every level. The system is burdened with unassailable costs and debts that cannot be paid. When and if congress decides to actually come to grips with these harsh realities, we will begin healing, though most with any sense of history feel that government has lost all control and the people are about to begin fending more or less for themselves.

Of course, the government will continue kiting checks to the "needy" and keeping the masses at bay with food stamps and other entitlement outlays, but the value will continue to erode and the already well-entrenched, wretched sub-class of welfare and government dole recipients will suffer even more.

It is truly a remarkable time in the world's history, and probably better to be young than old, for the young have the advantage of time - to repair, replenish and rebuild that which our absent leaders have destroyed.

ISM Data, Home Sales Rattle Markets: Deflation Clearly Evident

The relentless slide in the markets continued on Thursday as the series of data releases evidencing poor economic performance across the entire global swath of markets added even more dour numbers.

Prior to the opening bell, the government-affiliated PMI for China fell to 52.1 in June from 53.9 in May and 55.7 in April, and the HSBC China Manufacturing PMI fell to 50.4 in June from 52.7 in May. HSBC reports their figure the lowest in a year, even though readings over 50 do indicate expansion.

First time unemployment claims came in at 472,000, a rise above the prior week's revised reading of 459,000 new claimants.

Once markets were open for trading, matters turned even worse when the US ISM Index dropped to 52.6 in June from 59.7 in May and pending home sales registered a 30% decline month-over-month.

Revealing in the ISM data was the 20.5% decline in prices. Overall, production slipped 5.2% and new orders were off 7.2%.

Much of the decline in housing starts was credited to the end of the government's tax credit on home purchases in April, but the 30% decline was more than twice what was expected, sending the index to an all-time low of 77.6 from a reading of 110.9 in April. The index is also is 15.9% below the May 2009 figure.

Stocks plunged when that disastrous duo came off the news wires, with the Dow quickly plummeting to its intra-day low of 9,621.89, with other indices following the path lower.

Markets tore through all levels of support, but regained composure midday and closed with relatively minor losses.

But serious technical damage had been done this day, as in days past. Concern over the shaky health of the US economy continued to dog investors at every turn and tomorrow's release of non-farms payroll from June hasn't offered much hope, though many are wondering whether or not the market is seriously oversold and the impact of the employment data already factored into prices.

More than likely, that is not the case, but rather the market was guided by insiders on the short side of many trades, covering today and re-instituting positions in anticipation of a tepid report before the beginning of Friday's trade. while that may seem cynical to some, it's how the market has been running for some time. It's a big boy's game and small investors do not stand a chance.

Unless, by some miracle of accounting, the government shows 50,000 or more private sector jobs created over the month just past, the markets are on course for one of their worst weeks in quite some time.

Dow 9,732.53, -41.49 (0.42%)
NASDAQ 2,101.36, -7.88 (0.37%)
S&P 500 1,027.37, -3.34 (0.32%)
NYSE Composite 6,462.03, -7.62 (0.12%)

Giving more credence to the bearish camp, decliners outstripped advancers by an unhealthy margin, 4052-2496, and new lows ramped past new highs, 439-101, the third straight day in which the lows have buried the highs and the largest margin of the three. Volume was also very heavy, the best showing of the week.

NASDAQ Volume 2,678,066,750
NYSE Volume 7,533,900,500

Today's sudden decline caused liquidation and winding down of many trades, particularly in the highly-hedged commodity arena. Oil saw its worst price decline in at least three months, losing $2.68, to $72.95. Gold was completely devastated, dropping $39.00, to $1,206.30 and even further - below $1200 - after the NY close. Silver also disappointed, dropping 91 cents (4.88%), to $17.76. Prices for the precious metals fell to levels not seen in over a month.

Continued weakness in global markets continue to stir fears of widening deflationary trends, particularly worrisome to those who carry heavy debt burdens, such as almost all government entities, hedge funds, banks and other financial institutions.

Global deflation, begun in earnest in August 2007, continues to gain momentum and shake existing financial infrastruture.

Stocks Start 3rd Quarter with Modest Gains

After closing out what was a very good quarter with a final bummer of a day, investors toed the waters at the opening of the third quarter, nibbling at positions in a very slow session. Stocks finished with solid gains on low volume, after a slew of economic reports showed the economy remaining in the throes of recession, though clearly not in as rough shape as 3 to 6 months ago.

The Chicago Purchasing Manager's Index (PMI) was up sharply in June, to 39.9, after a reading of 34.9 in May. Still, the number was well below 50, which is the threshold for expansion. The report confirmed continued weakness in manufacturing, though slightly improved on a month-to-month basis.

The Institute for Supply Management (ISM) index was also up in June, with a reading of 44.8 following a 42.8 number in May.

Construction spending for May was off 0.9%, offsetting a gain of 0.6% in the prior month. Pending home sales were up a marginal 0.1% in May, after April's surprisingly good showing of a 7.1% gain.

Finally, the ADP Employment Report [PDF}, an unbiased snapshot of the private labor market, recorded a loss of 473,000 jobs in May, slightly better than the 485,000 jobs lost in May.

With all that to chew on, stocks were up sharply right out of the gate, but peaked early in the day. After 10:30 am, the major indices lost value for the remainder of the session.

Dow 8,504.06, +57.06 (0.68%)
NASDAQ 1,845.72, +10.68 (0.58%)
S&P 500 923.31, +3.99 (0.43%)
NYSE Composite 5,953.82, +48.67 (0.82%)

Advancing issues took back the initiative over decliners, beating them, 4476-1870. New highs outnumbered new lows, 74-62, but volume was depressingly low, not uncommon in a holiday-shortened week. The markets will be closed on Friday.

NYSE Volume 950,845,000
NASDAQ Volume 2,000,025,000

Crude oil futures fell 58 cents, to $69.31, after the government reported a build in gasoline inventory of as much as 2.3 million barrels. That kind of data could spark a real rout in oil futures, as prices traditionally peak nearing the 4th of july holiday. With that much of a glut on the market and the economy generally weak, demand for oil and gas may remain slack for months, cutting into prices. One would normally think that in a true open market, but the futures market is anything but, dominated by hedge funds and large traders who can exert enormous control over price movements.

Gold shot up $13.90, to $941.30, while silver tacked on 16 cents, to $13.76.

The Commerce Department releases June Non-farm payroll data tomorrow morning prior to the market open. With the ADP figures already in hand, the government's massaged figures may prove anti-climactic. Still, we're off and running in the quarter which was promised to be the one in which recovery really began. There are still signs that the recession is easing off, but actual recovery may still be as many as 6 months away, if not more. Investors may find themselves hoping for more than companies can deliver, though there have been reports of analysts raising estimates for a large number of companies. If they can meet those numbers, stocks could actually advance further. We are now in the 23rd month of the bear market, so a turn could actually occur at any time, though I'd hedge my bets against it. Another sharp decline, and possibly a retest of the March lows are probably more likely.

Dow -370, Worst Loss of 2008; Top Ten Declines of the Year

This is how it goes n bear markets: sharp rallies followed by devastating declines. As New Yorkers toasted the Super Bowl champion Giants with a ticker-tape parade, Tuesday's action on Wall Street was nothing short of a bloodbath.

By the time the closing bell rang, the Dow had registered its worst performance in what's turning out, so far, to be a very difficult year for bullish investors.

On the Dow, stocks opened 100 points below the previous close and slipped 200 points within the first 20 minutes. From there, all the indices drifted lower for the remainder of the session without even a hint of a rally.

What set the markets on their collective ears was the January reading by the Institute for Supply Management's (ISM) Services index, which drooped to 41.9, from a revised 53.2 the previous month. A reading below 50 indicates contraction; the unexpected decline reignited recessionary fears.

The ISM noted that its new non-manufacturing index measured 44.6% using a new methodology. Nevertheless, the number was devastating no matter how it was computed.

Dow 12,265.13 -370.03; NASDAQ 2,309.57 -73.28; S&P 500 1,336.64 -44.18; NYSE Composite 8,874.50 -327.61

As the day wound to a close, volume accelerated and the indices closed at, or very close to, their lows of the day. Though the weight of trade was somewhat moderate, there was absolutely no doubt as to the direction.

All 30 of the blue chips closed in the red, an indication of the carnage. Leading the way was beleaguered Cititgroup (C) -2.12 (-7.43), with 8 other Dow stocks down more than 4%. The only standout was McDonald's (MCD), which closed only 0.04 lower.

Here's a list of the ten largest losses on the Dow so far in 2008:

Feb. 5: -370 points
Jan. 17: -307
Jan. 15: -277
Jan. 4: -256
Jan. 10: -247
Jan. 9: -238
Jan. 2: -221
Jan. 25: -171
Jan. 22: -128
Feb. 4: -108

Bear in mind, there have only been 24 trading sessions thus far into the new year.

Losing issues beat back gainers, 5022-1275. New lows expanded the gap over new highs, 180-61.

Commodity traders were equally discouraged. Oil futures slipped $1.61, to $88.41. Gold was hammered down $19.10, to $890.30, while sister silver fell 44 cents to $16.35.

After a 1300+ intra-day point run on the Dow, the index has given back nearly 500 points in the past two sessions. All indicators are lining up in favor of a recession. The only people not yet convinced are the hopelessly clueless and the dead.

In a related issue, Downtown Magazine's (parent publication of Money Daily) new Misery News Index showed gains of between 10 and 20% week over week for most of the referenced terms. The Misery News Index tracks news stories containing one of twelve search words, such as inflation, layoffs, recession and homeless.

NYSE Volume 4,142,740,000
NASDAQ Volume 2,435,409,000