Poor Data Undermines Fed Pumping Effort

Well, there's nothing the Federal Reserve can do about a collapsing economy, after all.

Data from the housing sector today suggests that despite pumping literally trillions into the US financial system, the original canary in the coal mine, residential real estate, is still lying prone on the operating table, unable to move, dead as a doornail. And yet, the Fed and the federal government still insists that spending more money (creating more debt) is the ultimate fix-all.

One has to wonder just when the American public will have had enough of this disaster in centrally-planned economics. The banks have been spared, though they remain among the worst investments listed. The government has exceeded the debt limit (yesterday), and is now raiding the retirement funds of public employees. The federal employees are the first to be robbed. Next will be state pension funds, so you teachers out there, adjust your lifestyle pans accordingly as you're about to receive a very unwanted haircut.

The numbers coming from the real estate sector can be characterized as nothing less than a national disaster. Housing starts and building permits fell to unprecedented lows at 523,000 and 521,000 (annualized), respectively. The numbers for housing starts (new homes) represents a 23% decline from a year ago, while the permit figures for new home construction fell 4% from March.

All in all, it's simply horrible environment in which to be building new homes. The level of new home construction has been at the lowest level since the government began keeping track and continued to decline. There's simply too much shadow inventory being held onto by the banks, who don't want to realize losses on the many homes that are either already REO, in the foreclosure process or where the homeowner is already more than three months behind.

The market for new homes is absolutely the thinnest it's ever been and it doesn't appear to be getting any better.

Adding to the ongoing economic catastrophe were figures on industrial production - flat for April - and capacity utilization, which may have peaked in March, at 77%. April's figure came in at 76.9%, and will likely be revised lower.

Thus, we have a stalled industrial sector, a dead residential housing market, slow to no job creation and the recession was supposed to have ended more than two years ago.

Face it, folks, your government is not in favor of prosperity for the average American. If congress and the administration were serious about jobs and growth and not preoccupied with fighting wars on drugs and terror and meddling into the affairs of other countries, none of this would be happening. We've been sold out, lied to and yet there are fewer and fewer voices of protest. One supposes that Americans have had enough, yet are so worn down by joblessness, violence, foreclosures, regulations and intrusions that they haven't got the energy to complain.

Wall Street is feeling the stress as well. The Dow Jones Industrials were down a nifty 170 points in the early going, but, as usual, when the Fed money comes into play, reversed course and finished with a smaller loss. The other indices were down as well, except the NASDAQ, which posted a fractional gain, probably from being so viciously sold off the prior two sessions.

The "go away in May" crowd seems to have it about right. During the month - today being the 12th trading day in May of 21 total, so we're past the mid-point - the NASDQ is down 90 points, the Dow is off 330 and the S&P has shed some 34 points. It's not a great amount, yet, though it is already a 2-3% decline. Slow death. The S&P has been down eight of the 12 sessions in May. The correction is underway.

Dow 12,479.42, -68.95 (0.55%)
NASDAQ 2,783.21, +0.90 (0.03%)
S&P 500 1,328.98, -0.49 (0.04%)
NYSE Compos 8,333.07, -3.52 (0.04%)

Declining issues danced past advancers, 3815-2713. NASDAQ recorded just 28 new highs and 83 new lows, the second day in succession that the lows have been on the high side. The NYSE continues to resist flipping negative, as new highs outnumbered new lows, 80-47. Volume was moderate, another ominous signal on a down day.

NASDAQ Volume 2,190,797,000
NYSE Volume 4,459,555,500

WTI crude dropped 46 cents, to $96.91, though it traded significantly lower for much of the session. High gas prices, in spite of slack demand and 15% lower crude, persists, however, with the US average at $3.94, down only a few cents from its peak. Just a few hours ago, a group of Democratic Senators called for an FTC probe of oil refiners, suggesting that price-fixing has occurred. Rest assured that it is nothing more than a dog-and-pony show as the senators are merely grandstanding, knowing full well that their campaigns are largely financed by these very companies.

The hit squad was out in full riot gear in the metals markets, sending gold down $4.80, to $1485.00 and sending silver below $33/ounce, before it rebounded to post a gain of 35 cents, currently at $33.95. It should be apparent to all that the forced de-leveraging in precious metals is not about to abate, and prices could tumble quite a bit further, especially where gold is concerned.

A discussion is underway in Washington as to whether it would be prudent to sell some of the gold held at Fort Knox to keep the government running. Presidential candidate Ron Paul feels it's a good idea, though he faces opposition, notably from President Obama. The US gold reserves are valued presently at roughly $370 billion.

All along, the government sits back and watches in a silent stupor, as the United States of America, and its constitution, is slowly ground to dust. And not a word of protest was heard.

Extending Gains, Stocks at 18-month Highs

Oh, Happy Day! If you haven't bothered to pay much attention to this space, you should be well off following the seventh straight advance for the Dow Jones Industrials, which broke and closed above the January highs and now sit at their best levels since October, 2008, when the bear market took its most prominent downside path.

What this would infer is that the financial crisis is fully behind us, recovered from and prosperity is now priced into the market to a substantial degree. Never mind that high unemployment persists and that housing remains in the throes of its worst extended period since the 1930s, money - as measured by the Fed funds rate of ZERO - is dirt cheap and stocks are flying.

Instead of looking this gift horse squarely in the mouth and playing this leg of the rally for all its worth, some of us have serious doubts going forward, though naysayers during spectacular bull trends (this is a bear market rally) are usually shuffled onto the last trains to loserville. No difference this time around, as sentiment has grown overwhelmingly positive. Stocks are the only investment with little risk and high reward, and that's what on everyone's plate.

While those viewing the macro-economic condition as less-than-healthy and still riddled with structural time-bombs, short-term, stocks have provided a great deal of upside action and quality trading plays. Note that the word "trading" was substituted for "investment," as the latter is no longer viewed with much respect. The money is there for the taking today, and take it is what most traders will do.

One tiny detail many may have missed here is that Friday marks a quad-witching day in which stock index options and futures and individual stock options and futures all expire. Being that the betting (note "betting" rather than "investment") has uniformly been to the high side, insider market participants will conclude their self-fulfilling prophecy with healthy gains, just as they have nearly every month and on every such quadruple-witching event of the past four quarters.

Also of note is that the Dow Industrials have now confirmed the breakout by the Transports, keeping Dow Theorists firmly in the back of the bus until such time as another aberration is recognized and then swiftly reconciled. If you expected stocks to rise, then you've hit the bulls-eye, though the reasons for gains may matter more than the actual finished product.

In other words, with easy money, bullish sentiment and no headwinds blowing against them, stocks had little to do but wait until people bid them higher. It's all so neat and simple when a plan comes so sweetly to fruition, no matter the underlying fundamentals.

Dow 10,733.67, +47.69 (0.45%)
NASDAQ 2,389.09, +11.08 (0.47%)
S&P 500 1,166.21, +6.75 (0.58%)
NYSE Composite 7,474.02, +47.32 (0.64%)

The internals were possibly even better than the headline numbers, with 4328 advancing stocks to 2196 losing value. New highs exploded to 1073, versus 77 new lows. That's the largest margin of difference - in either direction - in 16 months, and the best showing for new highs since prior to the bear market which began in late Summer of 2007.

Volume was very strong, owing again to the quad-witching condition.

NYSE Volume 5,549,815,500
NASDAQ Volume 2,166,110,750

Crude oil traders must be thinking there's a boom coming soon, because their pricing is out of this world. Crude closed up another $1.23, to $82.93, close to 18 month-highs itself. Gold was not so lustrous, but still up $1.80, to $1,124.00. Silver closed higher by 17 cents, to $17.50.

A few of the less-noticed economic data sets from the past few days may shed light upon why not everyone is sold on the recovery story. Capacity utilization ticked up a fraction in February, to 72.7%, still horrible. In a robust economy, that number would be over 90%. Consequently, industrial production saw a gain of only 0.1% in February, barely moving the needle.

Housing starts fell to 575,000 in January, again, a feeble number, and PPI, released this morning, showed a decline of 0.6%, or, in other words, outright deflation. However, instead of considering this a portent of a weak, stumbling, or at best, stagnant economy, the take was to call it "tame inflation" as though inflation would magically re-appear in time to rescue the pricing power of businesses.

This bear-market rally has now gone on for 13 months with only two near-corrections of 9% - in June, 2009 and February of this year - hardly the kind of performance one would expect from economic conditions such as exist today. But, Wall Street does as it pleases, and what pleases it most is stuffing more money into it's already lavishly-lined pockets.

Party on, Garth.

Tired Markets End Week Mixed; Economy Remains Top Concern

The floor traders weren't the only ones tuckered out as another volatile week came to an end. Economists and financial news journalists tired themselves out dissecting Thursday's remarks to Congress by Fed Chairman Ben Bernanke.

There was more substance than style to the Chairman's message. He basically held nothing back, telling anyone within earshot (read: the entire civilized world) that the American economy was in a very rough patch.

Forex Beginner's Resource Website
Forex Foreign Currency Exchange Trading Beginner's Resource Center.

forexforexforexforex.com

Most of the action in stocks took place during and immediately after his testimony, leaving little to the imaginative traders who might have been looking for a bounce on Friday.

Sadly for those on the bullish side of the trade, Friday began in the red and remained there all day. There was some indication of PPT activity near the close, though it could just as easily have been short-covering that boosted the markets in the final hour.

The overall tone of trade was as dull as a old spoon, as the day's volume tapered off to merely a trickle, and with nearly no resistance, the insiders saw an easy path to offering some small glimmer of hope and goosed the indices up in the final fifteen minutes of the session.

The S&P popped over to positive with just ten minutes left to trade. With the markets closed on Monday in observance of President's Day, there weren't many traders left to compete with whomever was driving the mini-rally.

The overall effort was half-hearted and meant nothing in the larger scheme, still biased to the downside.

Dow 12,348.21 -28.77; NASDAQ 2,321.80 -10.74; S&P 500 1,349.99 +1.13; NYSE Composite 8,970.76 +2.35

Friday's main driver was industrial production, a figure released prior to the market opening, which showed an economy flat lining, with growth of 0.1%, essentially nothing. Capacity utilization remained flat at 81.5%, and that's a number that bears watching. If production tails off, that will be a prime indicator with layoffs following quickly behind.

Adding to the Street's bad mood, the Reuters/University of Michigan index of consumer sentiment fell to 69.6 in February from 78.4 in January, the lowest level since 1992.

The shocker from the New York Empire State Index, which fell to a level not seen since March of 2003 (the end of the last bear market and recession), at -11.7, was just more grist for the recession mill and certainly aided in the pervasively dour mood that clouded markets as the week ended.

Declining issues actually registered somewhat of an outsize edge over gainers, 3765-2456, and new lows trumped new highs once more, 275-56. The highs vs. lows reading implied that more stocks were being dumped on Friday and some sector adjustments were being made in larger portfolios. Difficult to tell with any degree of accuracy, but the shift seemed to be away from small cap techs (especially those in need of capital) toward larger caps with positive balance sheets.

Money on hand is going to be all the rage as economic forces push lenders closer to illiquid levels and insolvency in coming months. Cash will indeed be king, which also goes to explain the low volume of late. Smart money is sitting this dance out.

Commodities, even oil, languished. Oil was up just 4 cents to close at 95.50. Gold dipped $4.70 to $906.10 and silver fell 14 cents to $17.12.

Economic issues will take center stage again for the next four to six weeks, now that most companies have reported earnings. The outlook, including, somewhat amazingly, appears more dire than ever as America tilts closer the low end of the business cycle.

NYSE Volume 3,485,640,750
NASDAQ Volume 1,999,531,625