Debt Downgrade Fallout: Stocks Shattered, Gold Soars, Europe a Wasteland

At 9:00 pm Eastern time on Friday night, August 5, S&P officially released their downgrade of US debt from AAA to AA+, prompting widespread panic and sharp rebukes from the White House, who claimed, in effect, that S&P had made what amounted to "math errors."

Over the weekend, much was made of the downgrade, as the Obama hit the airwaves with gusto, rebuking the call from the ratings agency. Fitch and Moody's had previously reaffirmed the US debt as AAA, the highest possible sovereign bond rating, but S&P would not back down, and the downgrade remained in effect.

What S&P reasoned was that the US government did not take the necessary steps - in its theatrical production of waiting until the last possible moment to pass a debt ceiling increase - to address the structural problems facing it. S&P rightly concluded that US debt levels were and continue to rise and discretionary spending levels have not been controlled. Therefore, they downgraded the nation's debt and threaten to do it a second time, sometime around November, if the 12-member congressional committee charged with dealing with long term debt does not come up with actionable, concrete, debt reduction proposals.

As markets opened on Monday, the effects of a global panic were evident, especially on the heels of a 10% decline in US indices over the past two weeks and Thursday's dramatic sell-off of over four per cent on major markets.

First, it was the Asian markets which tanked at their various openings and continued through the day to sell off anywhere from 1.5 to 4.0%. Next up was Europe, where the crisis over bailing out Italy and Spain have reached a point of no return. EU officials stressed that they would be in the market with the ECB, buying up italian and Spanish debt, but that did little to change the outlook of investors, which had turned sour over the past fortnight.

Appetite for risk was at a low, as European markets suffered steep losses. England's FTSE was the best of the lot, down only 2.62%. France's CAC-40 took a 4.68% loss and Germany's DAX shed 5.02%. Other Euro-zone markets fell between 3.76 and 6.11%.

By the time US markets were to open, index futures had been hammered down to presage an inauspicious opening. Within minutes of the bell, the Dow was down more than 200 points, the S&P had taken a 25-point hit and the NASDAQ fell more than 70 points, though those declines were nothing compared to the carnage that lay ahead.

By the end of the day, after a minor rally in the first 15 minutes of the final hour, stocks were trading at or near their lows, with the Dow Jones Industrials surrendering the 6th-worst performance in its history. While the Dow suffered a 5.5% decline on the day, the other indices were actually much worse, with the NYSE Composite topping them all, coming home with a 7.05% loss.

It wasn't just the debt downgrade that spurred the sell-off. Conditions in Europe have worsened significantly over the past few months, to the point that European Union officials are without reasonable solutions to the debt contagion spreading across the region. While the ECB has managed to prop up smaller countries like Greece, Portugal and Ireland, Italy especially poses a much larger concern.

All the European leaders could muster on Monday was a terse statement which offered no concrete proposals but plenty of assurances, which was be roundly written off by markets. To wit:

We are committed to taking coordinated action where needed, to ensuring liquidity, and to supporting financial market functioning, financial stability and economic growth

That was the extent of the communique from the magnificent seven of the United States, Canada, Great Britain, France, Germany, Italy and Japan.

The irony is that one of them, Italy, has been the source of the most recent anguish.

Essentially, the funds available to the ECB fall short of meeting the debt purchases needed to save Italy and Spain. Europe will have to engage in quantitative easing, as was the case in the United States over the past two years, to stave off defaults and the threat of a cascading crisis which would envelop all of Europe and likely doom the 11-year-old Euro currency.

If the EU decides upon cheapening the currency - which it almost certainly will do - theknock-on effect will be to sink the Euro, probably close to parity with the US Dollar. As the dollar would grow in strength, commodities, particularly oil and gas for auto use, would plummet, a boon to US drivers and to the general economy. Costs of imports would also decline, on a relative basis, giving American consumers more purchasing power.

Within the same scenario, however, are pitfalls for the global manufacturers and companies that populate the S&P 500, NASDAQ and the Dow. A stronger US Dollar would make them less competitive in foreign markets, shrinking margins and thus, profits. Thus, the great selling rush today was more of a statement on the global condition rather than that of the debt downgrade, which, when all is said and done, won't amount to a hill of beans. In fact, treasuries were up sharply today, as yields fell to their lowest levels in over a year.

The benchmark 10-year note fell 25 basis points in just one day, from 2.56% on Friday to 2.31% on Monday. The 30-year bond fell 19 basis points, to 3.65% as the yield curve continues to flatten. Money is going out of stocks and into bonds, and whether they're AAA or AA+ doesn't matter to those seeking a safe haven. The ridiculously low yields offered are a moot point. As one trader put it, "Investors aren't looking at making money; they're more concerned with getting their money back."

And, therein, the next crisis, in bonds, especially if the US government doesn't get its house in order soon. Higher rates and another downgrade could trigger a default of impossible proportions as the US would be unable to roll over its debt and fund itself without incurring higher borrowing costs. Ditto for Europe. Rising interest rates signals the end game for fiat currencies globally and back to some form of honest money, most likely on a gold standard.

The market events of the past few days, in which the major indices lost more than 10% are not the end of the crisis, but rather the beginning of the end of a great generational bear market that began in 2007 and will eviscerate all risk assets until nobody wants to hold anything any more.

Markets have entered the final stages of the third leg down. QE 1 and 2 staved off the collapse, but there will be no bailouts this time around. It's every man, woman, child and company for itself. There will be some winners, but mostly there will be losers, anguish, agony and the disappearance of great hordes of wealth.

Dow 10,809.85, -634.76 (5.55%)
NASDAQ 2,357.69, -174.72 (6.90%)
S&P 500 1,119.46, -79.92 (6.66%)
NYSE Composite 6,895.97, -523.10 (7.05%)

The internals were equally as stunning as the headline numbers. Declining issues decimated advancers, 6553-375, a ratio of 17.5:1. It was truly one of the deepest, broadest declines in stock market history. On the NASDAQ, there were four (4) new highs next to 725 new lows. The NYSE had just three (3) new highs, but 1292 stocks making new 52-week lows. The combined total of seven (7) new highs and 2017 new lows rivals or exceeds the figures presented during the fallout of 2008-2009.

Volume was at the highest levels of the year, exceeding that of last Thursday, which was then the high volume day of the year. Investors aren't just scared, they are trampling each other running through the exits at breakneck speed.

NASDAQ Volume 4,002,857,250
NYSE Volume 11,046,384,000

Crude oil futures were pounded again, as the front-month contract on WTI crude fell $5.57, to $81.31. Gas prices will soon fall below $3.50 - and possibly below $3.00 - a gallon as current supplies are depleted and replaced by less expensive distillates. According to AAA, the average price of gas in the US is now $3.66 per gallon, but the deep declines have not yet been factored into the equation. That will happen over the next two to three weeks.

Gold was the big winner of the day, soaring $61.30, to $1,713.20, another all-time record price as investors, companies, nations, central banks and housewives scrambled to find reliable assets. Silver, still constrained by high margin requirements, gained $1.17, to $39.38. Silver is almost certainly the most under-appreciated asset in the world, though that will soon change. As the crisis escalates and governments make more and more bad moves, the precious metals will skyrocket to unforeseen heights.

The banking sector took it on the chin, but none more than Bank of America (BAC) which is on the verge of a well-deserved bankruptcy. shares of the nation's largest banks fell 20% on the day, losing 1.66, to close at 6.51. Just a few weeks ago, BofA was trading at a price nearly double that. The unfolding mortgage crisis, brought about by Bank of America's 2008 purchase of Countrywide, has become a fatal blow to the once proud institution.

David Tepper's Appaloosa Management Fund has reportedly sold its stake in Bank of America (BAC) and Wells Fargo (WFC), while significantly trimming Citigroup (C) from the portfolio.

Adding to the irony, AIG has sued Bank of America for $10 billion, citing "massive fraud" in its representations of mortgage-backed securities (MBS).

However, Citigroup analyst Keith Horowitz takes the booby prize for reiterating a "buy" rating on Bank of America shares this morning. Timing is not one of Mr. Horowitz's strong points, it would appear.

On top of all this, the FOMC of the Federal Reserve will issue a policy statement Tuesday at 2:00 pm EDT, followed by a news conference from Chairman Ben Bernanke. That alone should equate to another 300-point decline in the Dow.

For those with a morbid curiosity, check out the slideshow of the 10 worst days on the Dow, already outdated, as August 8, 2011, will go down in the history books as the 6th worst day for the blue chip index of all time.

Henry Blodgett and Aaron Task have a nice summation of the situation in the video below:

American Sheeple Love to Be Fleeced and Played

The lies, half-truths and material obfuscation by the government has reached new heights with the latest flip-flop on the "Osama bin Laden is dead" story.

Now the president won't release a picture of a dead bin Laden because it might inflame the Jihadists of the world. Rubbish! Pure, unadulterated nonsense from the man who is supposed to be the leader of the greatest nation on the planet, but is now exposed as nothing more than a simple liar.

Lies, lies and more lies are all the American people can expect from the most corrupt government the world has ever seen. The details of this entire, "we got him" affair have changed so often as to strain credulity until it doubles over in laughter or vomiting, or both.

First, the story originally released by AP on Sunday night, May 1, was that bin Laden was killed a week prior and that the White House had been waiting for DNA tests to confirm that the victim was indeed the world's bogeyman. Anyone watching the news scroll on FoxNews or CNN saw it, undeniably. That story vanished as soon as the president stepped up to the podium that Sunday night.

Then there were reports of a firefight, now, no firefight. Osama was armed, then he wasn't; he used his wife as a human shield, then he didn't and it wasn't even his wife, then it was his wife and she was shot because she rushed one of the Seals. There were two helicopters, no, three, no, there were four. Then Osama bin Laden is taken out of the compound to Afghanistan and rushed to an aircraft carrier for a proper burial at sea. Sure, that's completely understandable, especially if you believe Osama bin Laden was a seaman or a pirate.

Of course, there's the implausibility factor of a huge compound with 18-foot high walls, topped by barbed wire in a town populated by retired Pakistani military people, which never raised any suspicion for five or six years. That's certainly believable.

The entire episode is one huge farce and sadly, the iPad buying American sheeple public-at-large will gooble up every last sound bite of it, all the while chanting, USA, USA, USA! because the American sheeple actually love being conned, swindled, cheated, fleeced and sheared by their government. After all, this is the culmination of the 9/11 attacks, the major farce that has to this day never been adequately explained.

But, so what? Osama the Terrible is dead, right, and whether he's been dead for five, six or seven years is really immaterial because the powers that be are changing the narrative. They had to, because the most recent narrative of borrow and spend and gas at $4.00 a gallon and rising food prices and war on three fronts wasn't really going all that well, was it?

So, now, we have crashing commodity prices, falling stocks and oil down seven bucks in three days. Get ready for the new AUSTERITY coming to America. The sheeple will be fleeced from an entirely different direction and instead of calling it a recession or a depression, it will be known as a period of "slow growth" or "stagnation." Anything but calling a spade a spade, a recession a recession, a depression a depression.

The American sheeple will receive less in government service and be taxed more for it all in a "shared sacrifice" decade of austerity that is evolving even as we sit back and watch the latest American Idol or Star Dancing. America has been permanently dumbed-down and defeated, and the government loves it because an ignorant public is a well-behaved public. Give them their bread and circuses, today known as food stamps and football, and they'll just blindly follow along.

That's just the way it is, sheeple, one and all. You love being played.

Dow 12,723.58, -83.93 (0.66%)
NASDAQ 2,828.23, -13.39 (0.47%)
S&P 500 1,347.32, -9.30 (0.69%)
NYSE Composite 8,506.61, -78.07 (0.91%)

For a change, everything (except bonds) went down. Declining issues overwhelmed advancers - for the third day in a row - by a score of 4700-1904. On the NASDAQ, the flip required to shake the markets from rally mode to selling spree occurred today with 52 new highs, but 53 new lows. On the NYSE, stubbornness prevailed with 89 new highs and 28 new lows, but it's getting closer. Volume, unsurprisingly, was up again today, on a down day, an ominous warning that more selling is on the way.

NASDAQ Volume 2,250,185,000
NYSE Volume 5,078,037,500

Commodities continued to be whipped into submission. WTI crude oil futures fell another $1.81, to $109.24, the lowest price in two weeks. Gold tumbled another $20.60, to $1516.50 and silver took another massive beating, down $2.27, to $39.39. And, this just in after the close, margin requirements on silver are being raised again by the CME. Apparently sending the price of silver down $11 in three days isn't enough to square all of HSBC's and JP Morgan's short positions.

The often-discredited ADP Payroll report for April was released prior to the open today, showing private payrolls increasing by 179,000, short of consensus. But the real news was that the ISM Services index fell from 57.3 in March to 52.8 in April, a pretty big loss and well below consensus estimates of 57.5.

Tomorrow comes another week of initial unemployment and continuing claims, which precedes the BLS non-farm payroll report on Friday.

Prepare for disaster because we've been living one for the past three years.

Fear and the 10-Year Treasury Yield

Talk is rampant in financial circles over the trending 10-year bond yield, the benchmark Treasury that touched the 4.00% mark on Monday. In general terms, rising bond yields mean rising interest rates overall, from everything from credit cards to home mortgages and also serves as a early warning sign for inflation.

The run-up of the 10-year bond yield has sparked new widespread fears that inflation may return to US markets, crimping the year-long rally in stocks and pounding down any hope for recovery in the housing sector. These fears are largely unfounded, however, because the alignment of Treasury yields to the real economy is simply not sensible at this time.

First, the Fed isn't going to move on interest rates any time soon, even though they merely follow the direction of the markets as a normal course of operations. Second, higher interest for loans is something of a mystical chimera, since only mortgage loans have been held lower by the unprecedented slump in residential housing. Credit card rates for most Americans are already sky-high, with no relief in sight from the immoral banks and credit lending companies.

Third, as an inducement to inflation, bond yields should work as a dead weight on equities, as investors can make worry-free money on Treasuries as opposed to stocks. If stocks, and their underlying companies are forced to pay more for money that is going to slow down everything, from sea to shining sea. Additionally, high unemployment is underpinning the entire economy, producing slack demand, though the incredible sums of stimulus money has worked as an inducement to spend, baby, spend.

Treasury yields on the 10-year have been abnormally low for some time and will probably remain so, until there are real, powerful signs of a sustained recovery. The 160,000 jobs created in March are a one-off, hardly indicative of a trend, though one would have to believe that businesses simply cannot cut many more workers.

There are more factors at work, including flat wage growth and tight lending standards which are keeping robust economic growth in check. The 10-year hit 4%, and backed off immediately, as is the cyclical nature of the beast. The chances that it will surpass that mark and remain there are about as good as they are for yields to fall back into the 4.4 to 4.6% range, which is where they're likely to head in coming weeks and months.

What may be the real concern not finding any voice anywhere, is that foreign investors have soured on the longer-term Treasury offerings, the 10 and 30-year bonds, and are demanding a better payout. That would make more sense than any other argument recently being offered.

Investors on Wall Street still don't seem very afraid of anything, as stocks fell early in the day but rebounded on US dollar weakness. The weak dollar - strong stocks trade continues to be the height of Spring fashion, even as wrong-headed as that condition appears to be.

Dow 10,969.99, -3.56 (0.03%)
NASDAQ 2,436.81, +7.28 (0.30%)
S&P 500 1,189.43, +1.99 (0.17%)
NYSE Composite 7,604.44, +3.51 (0.05%)

Volume remained subdued as advancing issues soared past decliners late in the day, 3706-2731. New highs beat new lows by better-than a 10-1 margin, 917-90.

NYSE Volume 4,615,025,000
NASDAQ Volume 2,122,137,250

Oil rose for the sixth straight day, as though the warmer weather would serve as an inducement for everyone in America to go out for a leisurely drive. Crude for May delivery rose 22 cents, to $86.84, based entirely on nothing. There's are better arguments for oil selling for lower prices than there exists for supporting higher ones: higher prices for energy serve as a tax on consumers and takes away from other discretionary spending. But, being summer in America and the media foisting the parlance of "recovery" upon us, $3.00 a gallon is already standard in larger metropolitan areas.

Gold finsihed ahead by $2.20, to $1,135.10, though silver fell 19 cents to $17.92. We may be close to a temporary top in metals and most other commodities as well. The global economy cannot withstand a bout of inflation at this juncture, especially with entire nations suffering from the debt bomb. Consumers seem to be still pretty well entrenched, so where the spending is coming from is anybody's guess.

The bond yield bulls have it all wrong. Longer-dated instruments aren't going to exacerbate an already steep yield curve.

Deflation Storm Raging Globally

Thursday, February 4, 2010, may be a date to mark down as a pivotal one in the global economic cycle. As companies, consumers and nations struggle to rebound and refocus from the financial catastrophe of 2008 (actually the end result of decades of loose credit), more and more negative signs point to continued deterioration in capital, labor, commodity and equity markets.

What set the wheels in motion for a disastrous trading day in almost every global stock market, was the failed bond auction in tiny Portugal on Wednesday. The country failed to sell an expected 500 million Euros worth of one-year notes, as participation yielded the sale of only 300 million.

Early in the morning on Thursday, Moody's downgraded the outlook on the government of another tiny Eurozone nation, Lithuania, to negative, citing increased pressure due to a long-lingering recession and high debt-to-GDP ratio.

The two nations join Greece on the European list of sick economies, with no relief in sight. The global credit crunch continues to hamper the governments of smaller countries to borrow and spend. Fewer and fewer participants in government bond functions is like a loud bell clanging the death knell of debt-financed capitalist nations. Despite efforts by the US media to paper over our own failures in the bond market, news is gradually emerging, primarily from sources such as Robert Prechter of Elliott Wave and Jim Willie of Golden Jackass, that the entire US bond-debt function is a colossal sham, with government bonds being purchased by primary dealers and then repurchased by the Fed within a week's time.

The Chinese have virtually ceased participation in anything but the shortest-duration auctions, and other foreigners have followed suit. The Fed's policy of "quantitative easing" (printing money with no backing) was supposed to have ended in November, and, according to the Fed, it has stopped outright purchases of Treasuries, but the quiet, behind-the-scenes purchases of bonds from primary dealers - who cannot sell what they bought - works out to being exactly the same thing in practice.

All of these events are part of the positive feedback loop caused by the over-extension of credit without controls or proper risk analysis. What began in 2007 as the sub-prime mortgage crisis has extended to prime loans, commercial loans, junk bonds, corporate bonds, and finally all the way up the food chain to government bonds. Both Prechter and Willie predict that US Treasury bond defaults are bound to occur, though not until significant damage is done to other nations, particularly in Europe, already well underway.

What our "best and brightest" economists fail to either understand or are unwilling to admit, is that all of this nasty unwinding of credit and economy is the natural outcome of failed credit policies. Everyone, from college students all the way to the federal government, borrowed too much and now servicing the interest and principle payments are killing them. Residential and commercial real estate defaults are continuing to rise, another natural outcome of a bloated (by easy credit), overextended, mythical real estate boom. Today's global events are just another symptom of the same sickness, only to a greater degree.

Barely noticed amid the pre-market futures meltdown caused by another horrific reading of initial jobless claims - 480K - were the postponment of a pair of IPOs that were supposed to have priced overnight and sold into the market today. FriendFinder Networks (FFN) and Imperial Capital Group Inc (ICG) both were supposed to have gone off this week, but, due to weak market demand, neither went ahead with their offerings. Meanwhile, Ironwood Pharmaceuticals priced its offering of 16.7 million shares for $11.25 after its offering at $14 to $16 per share had met with considerable resistance. At the lowered price, Ironwood raised only 75% of their expected amount.

IPOs are having a truly difficult time coming to market. Investors are already highly risk-averse, and new issuance is seen as too risky. This is yet another deflationary signal as assets of all variety are put under microscopes and downgraded.

Then there's the firestorm surrounding Toyota. Problems keep propping up for the world's leading automaker. First, sticking gas pedals have forced a gigantic recall, and now, the brakes on their premium "green" maching, the Prius, are under scrutiny after having been the proximate cause for at least four US crashes. It's interesting speculation, but worth noting in an age of skulldruggery at the highest levels, that these problems should be happening to a foreign automaker just as American car companies find themselves in severe economic conditions. Most of the accidents are occurring in the US, where, incidentally, the parts, and, to some extent, the entire vehicles, were manufactured.

The next case is commodities. Oil, gold and silver are being hammered yet again, though this should come as no surprise. Oil consumption continues to be driven down by slack demand, in addition to artificial overpricing, and, while gold and silver are fine hedges against inflation, they can't escape the inevitable vortex of deflation. Like any other asset, they will be devalued, especially gold, which has been on a tear to the upside for the past decade. All those companies which were advertising "cash for gold" are going to end up just like buyers of overpriced homes in Southern California, upside-down and hopelessly in debt, though some may fare better than others as the metals are at least a somewhat reliable store of value, better than beanie babies, stocks or lawn furniture, though neither, in their raw investment form, have any functional purpose.

All of this sent investors scrambling on Thursday in advance of Friday morning's Non-farm payroll data. Anyone with half a brain is getting out of the way today, selling shares in anticipation of yet another disappointment.

Here's another mention of Great Depression II, only this time, it's in the mainstream.

I sold all my gold today before it went any lower. I received a good price, all cash, and now will watch as its price erodes. Cash is KING!

On Wall Street, they're beginning to run scared. All the talk this AM on CNBC (pays to watch it so you know what NOT to do) was about retail sales, and how the major chain stores reported better-than-expected results for January. But, let's ask, better than what? Last January, which stuck to high heaven? Exactly, and nobody bothered to mention that people who are shopping at Kohl's, Macy's et.al. are idiots with free money from unemployment, SS, disability, etc. The real carnage came from unemployment and the Sovereign Debt crisis mentioned at the beginning of this post.

Here's how stocks looked at the end of the day:

Dow 10,002.18, -268.37 (2.61%)
NASDAQ 2,125.43, -65.48 (2.99%)
S&P 500 1,063.11, -34.17 (3.11%)
NYSE Composite 6,787.86, -254.76 (3.62%)

Those are some pug-ugly numbers, and the volume was elevated, meaning the rush for the exits has begun. You, and your silly 401k or retirement plan, are trapped. Get ready for another colossal blow to your dreams and aspirations, because it's coming and this time it has been telegraphed loud and clear. Declining issues trampled all over the few gainers, 5566-828, a huge 7-1 ratio. And, as I've been saying would happen the past few weeks, the new highs-new lows indicators finally rolled over. There were 117 new lows and just 96 new highs. Folks, it's OVER.

NYSE Volume 6,857,842,500
NASDAQ Volume 2,819,441,000

The Dow finished at its lowest level since November 4, 2009, almost exactly 3 months. The S&P broke through key support levels at 1071 and 1065 and appears doomed for a return to 960 in short order. The NASDAQ didn't do any better, finishing just above its November 6 close.

Commodities were savaged as investors sold to raise cash. Oil lost $4.01, to $72.97. Gold fell $48.00, to $1064 per ounce. Silver shed 99 cents - an enormous 7% decline - to finish at $15.33.

What's truly frightening this time around is that this is only the beginning. All talk of the V-shaped recovery is now being laughed right out of town. Owning anything - stocks, bonds, homes, commercial real estate, art, gold, silver, barrels of oil, sports cards, you name it - may prove fatal to your financial health.

Here's a tip: If you're buying anything today, look at the price, offer 25% less, and you just may get it. One caveat, it still may not be a good deal six months from now. Be careful.

READ THE POST BELOW

Stocks, Commodities Belted; New Highs-Lows Indicator Calls Shot

After a week of listless trading which ended Friday with an upside-down condition between the headline number and the market internals, the measurement of new highs vs. new lows indicated that a reversal was at hand. On Friday, June 12, the Dow reached its highest level since January 6 of this year, and true to form, marked an interim market top from which a fall was not only predictable, but almost too obvious.

The Dow index was trapped between the last vestiges of a long bear market rally and the nearly-impossible condition of making new highs, converting to a new bull market. Since the transportation index failed to confirm the highs on the Industrial, there seemed to be no other direction but down, and on Monday, investors took the bearish signal and ran with it.

The major indices fall in line with the Dow decline, the worst hit being the Composite, with the broadest base of stocks. As usual, market participants tried to force a last-hour rally, as has been their behavior on nearly every down day, but their efforts failed to recover much of the ground lost during the session. At the low point of the day, the Dow was down 223 points, rallied from 3 pm to 3:45 pm to -175 points, but lost traction in the final 15 minutes of trade with all of the major indices ending near their lows for the day.

As concerns our most valued (and simple) indicator, the new highs-new lows measure went positive for five straight sessions, reversing a 21-month-old pattern, before rolling over into the negative (more new lows than highs) on Friday, in stark contradiction to the upside move on the Dow. Interestingly, the advance-decline line on Friday also went negative, nearly telegraphing Monday's direction.

Dow 8,612.13, -187.13 (2.13%)
NASDAQ 1,816.38, -42.42 (2.28%)
S&P 500 923.72, -22.49 (2.38%)
NYSE Composite 5,967.26, -181.35 (2.95%)

On the day, declining issues led advancers by an enormous margin, 5283-1174, (9-2); while new lows remained in control over new highs, 65-34. Volume was once more in the negligible range, close to levels seen last week, so, not influential. It may be that we are witnessing the summer level of activity on the market. Many participants may have already retreated to the sidelines, and will seek re-entry points at some later date. There are still large amounts of profits to be taken as the markets have not yet gone into "gran mal seizure" mode, though that may occur at any time.

Refreshingly, the new lows-new highs indicator rang true and maintained the negative bias from Friday, restoring faith in the one simple indicator that has been absolutely dead on throughout the market decline of the past 22 months.

NYSE Volume 1,150,418,000
NASDAQ Volume 2,178,292,000

While stocks were sliding, commodities were doing the same, with losses across the spectrum. Notable contrarians were Natural Gas and Pork Belly futures, both up sharply. Crude oil for July delivery fell $1.42, to $70.62. Further pullback, to the $55-62 level is expected, unless there's evidence of increased demand. One can safely assume that the recent rise in oil prices was the result of naked speculation of a seasonal variety, and thus, unlikely to produce long-lasting gains.

Gold was sent southward once more, dipping $13.20, to $927.50. Silver also took a large hit, losing 85 cents (a massive one-day loss), to $14.03. It's likely that the metals may remain somewhat range-bound, much of the trade dependent upon this week's PPI (tomorrow) and CPI (Wednesday) figures. If gains in both are sizable, that would indicate inflation, taking up all commodity prices, but there seems to be unfolding evidence that markets have cooled considerably and will remain moribund for the foreseeable future, making speculation difficult, it not foolish.

The world's economies are not as badly damaged as they appeared to be back in the fall of 2008, though the stresses to the overall global system has been significant. Market players are discovering that the recent rally in stocks may have been quite overdone and without justification, forcing many investors into a more defensive posture. Additionally, with the recent Treasury data indicating that foreign involvement has dried up considerably, there's increased pressure on bonds, forcing yields higher, and, thus, moving money away from riskier stocks and commodities.

Given the current conditions, there appears to be few places to make money, so a flight to the relative safely of bonds may be the preferred route for many.

Inflation, Anyone?

Stocks on US indices closed lower again on Tuesday following a lackluster performance to open the week's trading. While investors hunt for bargains, search for insight and generally take whatever profits are available, many were glued to the bond bourses, which pushed yields to recently-unprecedented levels. The 10-year note closed with a yield of 5.248%, up more than 100 basis points from yesterday.

Dow 13,295.01 -129.95; NASDAQ 2,549.77 -22.38; S&P 500 1,493.00 -16.12; NYSE Composite 9,724.49 -117.24

As interest rates rise, so do inflation fears, or vice versa, depending upon which side of the fence you're so inclined. Consumers have watched energy - and to some extent, food - prices climb without pause for the past six months, and the pain at the pump is finally spreading to stocks and bonds.

It's little wonder that bond yields are rising. They've been at or below the level of inflation for years. The current upticking indicates a number of thorny issues are about to slap the US economy in the face: a slumping housing market, stagnant wages, China's floating of the Yuan and the twin deficits produced by the government in trade and budget, to name just a few.

The price increases in just about everything, juxtaposed against a weak dollar, are making investments in US stocks somewhat difficult to swallow for foreigners who must fund US excess or watch as the entire global economy dissipates into the ether. They don't have much of a choice, but there are moments - like the past few weeks - in which they take stock, pause, and sell. It isn't perfect science, but it does make as much sense as any other explanation for recent market ups-and-downs.

Today's dip certainly cannot be laid at the feet of the oil barons. The price of their filthy, slimy lucre actually declined by 62 cents, though it's still a pricey $65.35. The mini-rally in metals was cut short as both gold and silver gave back much of yesterday's gains.

Tracking the internals, today's market losses were indeed as bad as they looked. Declining issues overwhelmed advancers at nearly a 5-1 rate. New lows were over the top at 236 as compared to the paltry number of new highs: 124. Not to worry. We've been down this particular road before and won't become concerned until the new lows reach and remain above 320.

Relax, we're in an adjustment/consolidation phase.