As has been the ongoing motif of this blog for many months, the grand Bernanke experiment is now experiencing some of the nasty side effects. Today's action in commodities, particularly silver and crude oil, came as a stark reminder that leveraged positions can go very, very badly in very, very short spans of time.
It was just last Friday that silver stood at the precipice of $50/ounce, approaching the all-time high. As of this writing it is now trading on the spot market at $34.76, a drop of 30% over just four days. WTI crude oil futures were at $116 on Monday, and today it closed on the NYMEX at $99.80. All those sheiks and oil robber-barons drooling over $4/gall gas across the USA can now wipe their chins with their sell tickets.
Stocks were also not immune from the liquidity trap. The Dow was down as many as 200 points around midday, but recovered a bit into the close. Still, leveraged bets (margin) on selected stocks have finally begun to display inherent risk and the carnage has only begun.
What set off today's massive selling spree were a number of unrelated events which combined to turn the trading day into an economic tornado, tearing through asset classes like a Midwestern twister. First, a series of margin tightenings on silver speculation that has been ongoing from Sunday night began the unwinding process. Silver had been hammered for three straight days without buyers on the downside. Then, with the 8:30 am release of some truly horrible weekly unemployment claims, the spring was coiled tighter.
Initial claims for the most recent week (last week in April) came in at 474,000, the highest since August of 2010, off expectations for a number around 400,000. So much for Hope and Change, Bernanke's Zero Interest Rate Policy (ZIRP) and QE2. The smart money has made its way out of Dodge and the rest of the pilgrims are scrambling to leave town with whatever they can salvage.
While commodities were being ravaged one after another, stocks were salvaged from the brunt of the storm, though they eventually faced capitulation and will likely be under pressure from the opening bell on Friday, after the April non-farm payroll report goes public at 8:30 am EDT. Following the unemployment number, expectations have been ratcheted lower. The expected number of new jobs created during the month was supposed to be around 200,000, though that's been trimmed to 185,000 and even lower by some analysts. Anything under 185,000 will produce a bloodbath. Even anything over that will likely induce more selling, on a faster pace than today's, because this is a liquidity trap, and economic numbers - good, bad or indifferent - may not matter at all.
The winners on the day were the US dollar, which majestically made its move all the way from a low of 72.81 (about the point at which Mssrs. Bernanke and Geithner were having accidents in their pantaloons) to a close at 74.08, a move of roughly 1.5%, which, in the world of currencies, is enormous. This created a vicious, self-reinforcing virtuous loop, with the dollar's rise causing commodity margin calls, and a risk-off scramble in stocks.
The other winner was bonds, which explains much. Bonds are the lifeblood of the Ponzi scheme between the Treasury, Primary Dealers and the Federal Reserve which gave us the illusion of prosperity against the backdrop of an eroding dollar. Bumping right up to the debt ceiling, the Fed intervened in a very big way today - behind the scenes, of course - to dampen risk appetite and make fixed income investments the choice for the foreseeable future. They had to, being backed into an untenable position.
It was truly a momentous day, one which we've been preparing you for with our reminders all week that the narrative was changing with the (fictitious) slaying of Osama bin Laden. And now, change has come to us all.
Dow 12,584.17, -139.41 (1.10%)
NASDAQ 2,814.72, -13.51 (0.48%)
S&P 500 1,335.10, -12.22 (0.91%)
NYSE Composite 8,397.40, -109.21 (1.28%)
Advancing issued were submerged by decliners overall, 4183-2412. The NASDAQ recorded 48 new highs and 52 new lows, the second straight day of high-low reversal. On the NYSE, there were 100 new highs and 36 new lows, mostly due to the elevated levels reached recently. It's hard to imagine the daily lows not overtaking the highs within the next week. Volume was magnificently higher as sellers sold with both hands.
NASDAQ Volume 2,241,177,750
NYSE Volume 5,510,796,500
Crude oil took an earth-shattering drop of over 8%, losing $9.44, to finish at $99.80. The selling is certainly far from over as the tempering of emotions in the Middle East after the slaying of OBL will surely push prices back to some level of sanity and take out the majority of the risk premium and speculative fever.
Gold, which had been holding up relatively well with respect to other precious metals, finally took a beating, losing $43.40 (nearly 3%), to its current trading level of $1473.10. Silver took the worst of it again, falling another $4.73, to $34.66, but there is a silver lining for the faithful in precious metals. Most of the true believers - who only hold physical metal and use the futures and ETFs only as a hedge - have a cost basis below $20/ounce.
Technically, they've lost nothing, and could still sell right here for a hefty profit. But they won't, and are actually looking at this momentous correction as a buying opportunity, hoping to snatch up more metal at what they perceive as bargain-basement prices. The general strategy is to buy once everything has more or less settled out. Nobody is really worried about catching the absolute volume, and a few days of upwards trending will not entice the hardiest of the breed. They will wait until a bottom is confirmed. Like love, they'll know it when they see it. The same strategy holds more or less true for gold bugs worldwide.
The holders of gold and silver will eventually rule the world as we approach - at breakneck speed - the eventual destruction of the global fiat money regime and the likely collapse of more than a few governments. What has happened in Greece, Iceland, Ireland and Portugal will eventually visit the shores of Japan, the USA, Great Britain, France and even China.
We are still reeling from the catastrophe of the housing bubble and collapse and the general liquidity and solvency crisis of 2008. The measures taken by the Federal Reserve and other central banks has been to throw more money at the credit monster they created, but it has resulted in extreme imbalances everywhere. The thinking at the top of government is focused already on the elections of 2012. The betting is that the US government and the financial community will have a time making it there unscathed.
If this looks anything like 2008 to those wizened enough to learn from history, those people would be on the right track, except, this time, it's likely to be worse and without any magic bullets, because the Fed is all out of them.
Showing posts with label liquidity. Show all posts
Showing posts with label liquidity. Show all posts
Thursday, May 05, 2011
Monday, March 28, 2011
Late Selling Sends Indices to Losses
Make no mistake about it, something was up when all the major indices did an abrupt about-face in the final half hour of trading.
There was no earth-shattering news, no announcements, nothing, except some of the big players pulling their bids to see what would happen on what turned out to be the lowest volume day of the year.
It didn't take long for the results to be seen: immediate capitulation. There is absolutely no faith in stocks, in this market, in the US economy or the global economy. Everything has been gliding along on top of bank bailout, trillions of dollars in liquidity injections and stimulus, and yet, the economy is still weak, possibly about to roll over into the second phase of the depression, without the backstop of global money-printing by central banks.
Today was a test run. The test revealed what everybody with at least half a functioning cerebral cortex already knew: we're screwed. Once the Fed stops its daily injection of liquidity through POMO and other behind-the-scenes operations, the market crashes. It's exactly why the Fed would not allow Bank of America to increase its dividend from the absurd (.01) to the ridiculous (.02) last week. They're a victim, about to be sucked under by bad debt, never written down properly and put-backs by the various parties to whom they sold the toxic MBS in the first place.
The death of Bank of America will not be a pretty sight, but it is overdue by some two years and is eventually unavoidable. The only question remaining is exactly when the plug is finally pulled and that is something nobody can predict with confidence.
What was truly remarkable about today's 30-minute nuke test was the overall number of decliners as compared to advancers. The ratio was far out of the range expected in such a small decline. Losers led gainers, 3843-2674.
Dow 12,197.88, -22.71 (0.19%)
NASDAQ 2,730.68, -12.38 (0.45%)
S&P 500 1,310.19, -3.61 (0.27%)
NYSE Composite 8,296.52, -25.26 (0.30%)
On the NASDAQ, there were 109 new highs and 22 new lows. There were 114 new highs and 16 new lows on the NYSE. Be prepared for these numbers to converge again and possibly roll over. The falls from the February 18 highs were truncated when buyers stepped in at support levels over the last two weeks. Capitulation never occurred and the market correction of 10-15% turned out to be only a 4-6% decline. Resumption of the correction could have begun late today, but look for any tell-tale signs in the A-D line (like today) and of course volume and the new high-new low readings.
NASDAQ Volume 1,687,059,000
NYSE Volume 3,583,604,000
Crude oil dipped again today, as the ground conditions in Libya seem to be improving, meaning that NATO air strikes have taken their toll on the rogue government's advances and the rebels are gaining an upper hand. WTI crude fell $1.42, to $103.98. Relief at the gas pump would be welcome, but the Middle east situation is still largely unresolved and volatile. Expect crude to trade around $100 per barrel for the foreseeable future with gas prices in the US hovering in the $3.40-3.80 range through the Spring. Summer could witness a complete reversal due to easing tensions and slack demand.
Gold finished slightly lower, losing $6.30, to $1,419.90. Silver gained 4 cents, holding at $37.09.
There are key releases of economic data this week, beginning with the S&P/Case-Shiller 10 and 20-city indices on Tuesday and the BLS non-farm payroll data on Friday. Of course, Thursday is the end of month and first quarter, so portfolio realignment should cause more volatility and another spike in the VIX is more probable this week than over the past two when it was pounded down by Fed liquidity.
Reality is taking a firm footing here and around the world. The containment of the Fukushima Daiichi nuclear disaster is far from over and needs to be handled much more diligently than it has been to this point. It is not under control still and needs to be handled as a global threat because it is.
The news coming out of Japan on all matters related to the nuclear plant that has become now nothing more than a toxic, nuclear dump site leeching radioactive isotopes into the air, into ground water and the ocean. This should have been completely handled at least a week ago. It is now closing in on three weeks since the quake and the situation is still worsening despite what may be reported by major news sources.
There was no earth-shattering news, no announcements, nothing, except some of the big players pulling their bids to see what would happen on what turned out to be the lowest volume day of the year.
It didn't take long for the results to be seen: immediate capitulation. There is absolutely no faith in stocks, in this market, in the US economy or the global economy. Everything has been gliding along on top of bank bailout, trillions of dollars in liquidity injections and stimulus, and yet, the economy is still weak, possibly about to roll over into the second phase of the depression, without the backstop of global money-printing by central banks.
Today was a test run. The test revealed what everybody with at least half a functioning cerebral cortex already knew: we're screwed. Once the Fed stops its daily injection of liquidity through POMO and other behind-the-scenes operations, the market crashes. It's exactly why the Fed would not allow Bank of America to increase its dividend from the absurd (.01) to the ridiculous (.02) last week. They're a victim, about to be sucked under by bad debt, never written down properly and put-backs by the various parties to whom they sold the toxic MBS in the first place.
The death of Bank of America will not be a pretty sight, but it is overdue by some two years and is eventually unavoidable. The only question remaining is exactly when the plug is finally pulled and that is something nobody can predict with confidence.
What was truly remarkable about today's 30-minute nuke test was the overall number of decliners as compared to advancers. The ratio was far out of the range expected in such a small decline. Losers led gainers, 3843-2674.
Dow 12,197.88, -22.71 (0.19%)
NASDAQ 2,730.68, -12.38 (0.45%)
S&P 500 1,310.19, -3.61 (0.27%)
NYSE Composite 8,296.52, -25.26 (0.30%)
On the NASDAQ, there were 109 new highs and 22 new lows. There were 114 new highs and 16 new lows on the NYSE. Be prepared for these numbers to converge again and possibly roll over. The falls from the February 18 highs were truncated when buyers stepped in at support levels over the last two weeks. Capitulation never occurred and the market correction of 10-15% turned out to be only a 4-6% decline. Resumption of the correction could have begun late today, but look for any tell-tale signs in the A-D line (like today) and of course volume and the new high-new low readings.
NASDAQ Volume 1,687,059,000
NYSE Volume 3,583,604,000
Crude oil dipped again today, as the ground conditions in Libya seem to be improving, meaning that NATO air strikes have taken their toll on the rogue government's advances and the rebels are gaining an upper hand. WTI crude fell $1.42, to $103.98. Relief at the gas pump would be welcome, but the Middle east situation is still largely unresolved and volatile. Expect crude to trade around $100 per barrel for the foreseeable future with gas prices in the US hovering in the $3.40-3.80 range through the Spring. Summer could witness a complete reversal due to easing tensions and slack demand.
Gold finished slightly lower, losing $6.30, to $1,419.90. Silver gained 4 cents, holding at $37.09.
There are key releases of economic data this week, beginning with the S&P/Case-Shiller 10 and 20-city indices on Tuesday and the BLS non-farm payroll data on Friday. Of course, Thursday is the end of month and first quarter, so portfolio realignment should cause more volatility and another spike in the VIX is more probable this week than over the past two when it was pounded down by Fed liquidity.
Reality is taking a firm footing here and around the world. The containment of the Fukushima Daiichi nuclear disaster is far from over and needs to be handled much more diligently than it has been to this point. It is not under control still and needs to be handled as a global threat because it is.
The news coming out of Japan on all matters related to the nuclear plant that has become now nothing more than a toxic, nuclear dump site leeching radioactive isotopes into the air, into ground water and the ocean. This should have been completely handled at least a week ago. It is now closing in on three weeks since the quake and the situation is still worsening despite what may be reported by major news sources.
Wednesday, November 10, 2010
Fed Plans Not Going So Smoothly; Harrisburg, PA on the Edge
Since the Federal Reserve announced last Wednesday that they would be injecting $600-900 billion into the monetary system through outright purchases of Treasury bond issuance, the cacophony of protest and derision has been boisterous and unrelenting. Chairman Ben Bernanke's purposeful nuking of the value of the world's reserve currency, the US Dollar, has raised eyebrows and voices from Shanghai to Sao Paulo as global finance leaders attempt to adjust their currencies to meet the expected influx of freshly-printed greenbacks.
Along with complaints from the global financial community, voices inside the United States have also weighed in, mostly condemning the action as unneeded, unwanted and eventually, inflationary.
What's worse, it doesn't seem to be working very well, as evidenced by today's 30-year bond auction, which saw lowered levels of participation and the highest yield in five months, exactly the opposite of what the liquidity tsunami was supposed to accomplish.
It's likely too early to tell, as the Fed has only today set down their Tentative Outright Treasury Operation Schedule, or TOTO, which as we all know, was the name of Dorothy's little dog in the movie, "The Wizard of Oz," an appropriate, if not slightly cynical metaphor for Mr. Bernanke standing behind a curtain pulling the levels and strings of the global economy.
Interested investors may want to print out the Fed's schedule as it should provide some guidance into which days would be better to buy or sell (warning: the Fed does not want you to sell) stocks. Those days with "operations" should be the prime selling days, and those without, opportunities to buy as the market will, no doubt, be on hold or falling. So much for free, fair and open markets. The Fed's interventionist policies have made Wall Street even more of a casino than it already was, and now they're using stocked decks and loaded die.
Things got off to another bad start for Bennie and his buddies this morning, as stocks backslid right out of the open, with the Dow falling 91 points, to its low of the day, shortly after 10:00 am. After that, however, with the banks holding firmly to the silver shorts which torpedoed a wicked rally in the precious metals late yesterday, it was once again off to the races, though the markets' pace more resembled that of a snail than a thoroughbred.
After two days of losses, the markets shrugged off middling new unemployment claims at 435,000 (below estimates, but sure to be revised higher next week), and, having convinced the sixteen suckers still trading via their e-trade accounts that the direction was negative, began the process of fleecing the sheep, all led to slaughter by the Fed-Wall Street money crunching machine.
Dow 11,357.04, +10.29 (0.09%)
NASDAQ 2,578.78, +15.80 (0.62%)
S&P 500 1,218.71, +5.31 (0.44%)
NYSE Composite 7,747.46, +45.15 (0.59%)
NASDAQ Volume 2,023,686,125
NYSE Volume 5,268,140,500
Advancing issues turned the tide on decliners, 4158-2329. New highs numbered only 362, a notable change from the kinds of numbers reported over the past three weeks. Only 49 stocks made new lows. Volume was right about average on a day in which the dollar was up against most other currencies.
So, the Fed may be getting what it wants when it turns on the money spigot on Friday with the first of 18 monetary injections. They'll keep at it every day except the days immediately before and after Thanksgiving, for a total of about $105 billion, through December 9. If that doesn't get stocks flying higher than a redneck on meth, nothing will, and that's just the Fed's point, to make asset values climb, staving off the dastardly deflation, a condition that would suit most Americans just fine. A big THANK YOU VERY MUCH to Mr. Bernanke from the middle class.
Most commodity prices are already much higher than they were just two months ago, when Bernanke first began to whisper loudly about the now-imminent liquidity push. Cotton, corn, wheat and almost all foodstuffs have been on a tear, so much so that the exchanges have been slapping on tighter margin requirements for many.
Crude oil was up $1.09 on the day, to a 2010 high of $87.81. Just in time for Christmas, the Fed's policies are about to send gas prices through the roof. Thanks again, Mr. Ben! After yesterday's drubbing, gold gained $10.70, to $1403.40 at last print. Silver also caught a bid, trading at $27.14, up 19 cents on the day.
Meanwhile in the aftermath of mortgage insurer Ambac's bankruptcy filing Monday (and delisting as of today),the city of Harrisburg, PA, the state capitol, hired the law firm of Cravath, Swaine & Moore to advise on a potential municipal bankruptcy, which has been rumored for many months. with the fall of Ambac, the dominoes may begin tumbling, first among other mortgage insurers, then to municipalities and into credit default swaps mostly in the hands of the nation's largest banks.
Considering the timing of the Fed's dramatic money creation scheme, might these funds be nothing more than a backdoor backstop to the banks again? They certainly were aware of Ambac's condition and that of the handful of other illiquid mortgage insurers. If this were the case, then all bets are off concerning market gains, as the money will never see the light of day. It will be parceled out among the nation's greatest criminals to cover their corrosive and rapidly depreciating swaps and guarantees between each other.
While Ambac's portfolio may be only a few billion short, the forward effect is to cause other defaults along the chain, and once the genie gets out of the unregulated CDS bottle, there's likely no putting her back in. The cascading effect of illiquid assets turning enterprises wholly insolvent could happen within split seconds, without warning, and it's already apparent that the band-aids applied to the insolvent banks thus far have not proved remedial.
Higher interest rates on Treasuries going forward will be a sure sign that the financial structure is about to topple, with over $600 TRILLION of notional exposure ready to come crashing down. This is the conditions under which we watch our financial markets these final days of 2010. If Bernanke's plan does not cause stocks to rise, interest rates to fall and general inflation (bad enough), it's a safe bet that financial reckoning day may come sooner rather than later.
Tracing out the scenario, the Fed would probably not allow everything to simply collapse in a heap. After a few days of severe declines in the stock markets, highlighted by drops in financial stocks, the president would likely call a bank holiday stretching anywhere from a week to a month in an effort toward calmness. Unfortunately, the effect of that would be wide-eyed panic, as most people would be without cash and maybe denied access to credit cards as well.
After that, who knows? Emergency powers? Martial law? A complete overhaul of the Fed and Treasury? The ripples would be worldwide.
It's the nightmare scenario, but in the current climate, the possibility of a massive failure is possible and palpable.
Along with complaints from the global financial community, voices inside the United States have also weighed in, mostly condemning the action as unneeded, unwanted and eventually, inflationary.
What's worse, it doesn't seem to be working very well, as evidenced by today's 30-year bond auction, which saw lowered levels of participation and the highest yield in five months, exactly the opposite of what the liquidity tsunami was supposed to accomplish.
It's likely too early to tell, as the Fed has only today set down their Tentative Outright Treasury Operation Schedule, or TOTO, which as we all know, was the name of Dorothy's little dog in the movie, "The Wizard of Oz," an appropriate, if not slightly cynical metaphor for Mr. Bernanke standing behind a curtain pulling the levels and strings of the global economy.
Interested investors may want to print out the Fed's schedule as it should provide some guidance into which days would be better to buy or sell (warning: the Fed does not want you to sell) stocks. Those days with "operations" should be the prime selling days, and those without, opportunities to buy as the market will, no doubt, be on hold or falling. So much for free, fair and open markets. The Fed's interventionist policies have made Wall Street even more of a casino than it already was, and now they're using stocked decks and loaded die.
Things got off to another bad start for Bennie and his buddies this morning, as stocks backslid right out of the open, with the Dow falling 91 points, to its low of the day, shortly after 10:00 am. After that, however, with the banks holding firmly to the silver shorts which torpedoed a wicked rally in the precious metals late yesterday, it was once again off to the races, though the markets' pace more resembled that of a snail than a thoroughbred.
After two days of losses, the markets shrugged off middling new unemployment claims at 435,000 (below estimates, but sure to be revised higher next week), and, having convinced the sixteen suckers still trading via their e-trade accounts that the direction was negative, began the process of fleecing the sheep, all led to slaughter by the Fed-Wall Street money crunching machine.
Dow 11,357.04, +10.29 (0.09%)
NASDAQ 2,578.78, +15.80 (0.62%)
S&P 500 1,218.71, +5.31 (0.44%)
NYSE Composite 7,747.46, +45.15 (0.59%)
NASDAQ Volume 2,023,686,125
NYSE Volume 5,268,140,500
Advancing issues turned the tide on decliners, 4158-2329. New highs numbered only 362, a notable change from the kinds of numbers reported over the past three weeks. Only 49 stocks made new lows. Volume was right about average on a day in which the dollar was up against most other currencies.
So, the Fed may be getting what it wants when it turns on the money spigot on Friday with the first of 18 monetary injections. They'll keep at it every day except the days immediately before and after Thanksgiving, for a total of about $105 billion, through December 9. If that doesn't get stocks flying higher than a redneck on meth, nothing will, and that's just the Fed's point, to make asset values climb, staving off the dastardly deflation, a condition that would suit most Americans just fine. A big THANK YOU VERY MUCH to Mr. Bernanke from the middle class.
Most commodity prices are already much higher than they were just two months ago, when Bernanke first began to whisper loudly about the now-imminent liquidity push. Cotton, corn, wheat and almost all foodstuffs have been on a tear, so much so that the exchanges have been slapping on tighter margin requirements for many.
Crude oil was up $1.09 on the day, to a 2010 high of $87.81. Just in time for Christmas, the Fed's policies are about to send gas prices through the roof. Thanks again, Mr. Ben! After yesterday's drubbing, gold gained $10.70, to $1403.40 at last print. Silver also caught a bid, trading at $27.14, up 19 cents on the day.
Meanwhile in the aftermath of mortgage insurer Ambac's bankruptcy filing Monday (and delisting as of today),the city of Harrisburg, PA, the state capitol, hired the law firm of Cravath, Swaine & Moore to advise on a potential municipal bankruptcy, which has been rumored for many months. with the fall of Ambac, the dominoes may begin tumbling, first among other mortgage insurers, then to municipalities and into credit default swaps mostly in the hands of the nation's largest banks.
Considering the timing of the Fed's dramatic money creation scheme, might these funds be nothing more than a backdoor backstop to the banks again? They certainly were aware of Ambac's condition and that of the handful of other illiquid mortgage insurers. If this were the case, then all bets are off concerning market gains, as the money will never see the light of day. It will be parceled out among the nation's greatest criminals to cover their corrosive and rapidly depreciating swaps and guarantees between each other.
While Ambac's portfolio may be only a few billion short, the forward effect is to cause other defaults along the chain, and once the genie gets out of the unregulated CDS bottle, there's likely no putting her back in. The cascading effect of illiquid assets turning enterprises wholly insolvent could happen within split seconds, without warning, and it's already apparent that the band-aids applied to the insolvent banks thus far have not proved remedial.
Higher interest rates on Treasuries going forward will be a sure sign that the financial structure is about to topple, with over $600 TRILLION of notional exposure ready to come crashing down. This is the conditions under which we watch our financial markets these final days of 2010. If Bernanke's plan does not cause stocks to rise, interest rates to fall and general inflation (bad enough), it's a safe bet that financial reckoning day may come sooner rather than later.
Tracing out the scenario, the Fed would probably not allow everything to simply collapse in a heap. After a few days of severe declines in the stock markets, highlighted by drops in financial stocks, the president would likely call a bank holiday stretching anywhere from a week to a month in an effort toward calmness. Unfortunately, the effect of that would be wide-eyed panic, as most people would be without cash and maybe denied access to credit cards as well.
After that, who knows? Emergency powers? Martial law? A complete overhaul of the Fed and Treasury? The ripples would be worldwide.
It's the nightmare scenario, but in the current climate, the possibility of a massive failure is possible and palpable.
Label:
Ambac,
bankruptcy,
Ben Bernanke,
commodities,
gold,
liquidity,
silver
Monday, August 16, 2010
Equities Remain Stuck in Liquidity Trap
What would you do if you threw a party and nobody showed up?
Well, that's how brokers on Wall Street must be feeling, because there's a serious lack of trading going on these days. For well over a week now, stocks have been stuck within the deafening silence of a liquidity trap, bought about by an overwhelming amount of distrust, absence of investable capital and uncertainty about the future.
Individual investors - and, to a growing degree, some fund managers - have found safety and serenity in the simplicity of cash. Others have opted for money market returns of less than one percent, still more have waded into the refreshing bond waters or ventured into gold or other commodities.
Stocks, for better or worse, have fallen out of favor in the aftermath of the 08-09 meltdown, aided by government programs which were designed to spur demand but instead have only created one-off events, like the cash for clunkers fiasco or the failed stimulus that gave $8000 tax breaks to home owners.
Sure, the people who took advantage of government largesse got their new cars or their new homes, more than likely at inflated prices (we'll know for sure in another 12-18 months), but there was no appreciable overall gain in new buyers. Maybe most folks just like keeping what they have, secure in the fact that - especially in the case of cars - it's paid for or, with a house, knowing what it's roughly worth.
Still others are stuck with properties at inflated values. Recent home-buyers of 2003-2007 vintage are nearly universally upside-down, stuck with payments on outrageous mortgages while the value of their real estate continues a precipitous decline.
In this disheveled state of affairs, the last thing on people's minds is putting more money into the stock market, either by buying individual stocks, mutual funds or increasing the funding of their 401k plan. The average American has gotten the message loud and clear: save and save more. Non-essential purchases are being put on hold more often and investment decisions are based upon more immediate needs rather than with a long-term perspective. Besides, there's a real feeling that Wall Street is rotten and crooked and that stocks, as they have gone nowhere for the past ten years, look more and more like losing propositions.
Trading volumes on the major exchanges have been in a prolonged decline, and even for August, the recent volumes speak of something more sinister and pernicious than simply everybody being on vacation. There's no excitement or impetus for stocks to rise, and Monday's trade was more than likely bolstered by a fresh infusion of cash from the banks and brokerages. The Dow dipped 70 points right at the open before a sudden reversal just minutes into the session.
Once the averages found a more suitable footing, they just churned in a narrow range of about 50 points on the Dow before another minor blip downward and another round of funding from the "masters of the universe" at Goldman Sachs, JP Morgan and Merrill Lynch, BofA's trading arm.
This is a very serious condition which is not going to be solved without another blood-letting in stocks. The absence of confidence has spread all the way from Main Street to Washington to the canyons of Wall Street and now it's locked in place. Until somebody proves that stocks are safe and the economy is really on a rebound (impossible), the direction will be down, down and then down some more. Today's minor gains are overshadowed by the paucity of trading.
Dow 10,302.01, -1.14 (0.01%)
NASDAQ 2,181.87, +8.39 (0.39%)
S&P 500 1,079.38, +0.13 (0.01%)
NYSE Composite 6,871.58, +10.54 (0.15%)
Advancing issues took command over decliners, 3980-2440. There were 311 new highs and 223 new lows, but nobody is really bothering to keep score. Volume reached a new low on Monday, below the abysmal numbers from the previous Monday, which was off-the-charts ugly. People simply aren't interested in stocks right now, and for many good reasons.
NASDAQ Volume 1,636,439,375
NYSE Volume 3,569,886,750
Oil was down again, losing 15 cents, to $75.24, but gold gained $9.60, to $1,224.50. Silver was also up, better by 32 cents, to $18.42.
There was some small economic data, including the NY Fed's Empire Manufacturing Index, which came in with a reading of 7.10 for August after a 5.8 posting in July. The index is stuck at extreme low levels, indicating very modest growth, if any, with falling prices and negative future outlooks. It's not a pretty picture and New York is one of the better-performing areas of the country.
Prior to the open Tuesday, a number of important economic indicators will be released, including July PPI, housing starts and building permits. The numbers are expected to be flat or even down from June, which is just the kind of news Wall Street does not need at this juncture.
The true picture being painted by this low-volume regime is one bereft of confidence and capital. Like just about everything else in the current climate, it is unsustainable for more than a very short period of time, one which will be coming to an abrupt end shortly.
Well, that's how brokers on Wall Street must be feeling, because there's a serious lack of trading going on these days. For well over a week now, stocks have been stuck within the deafening silence of a liquidity trap, bought about by an overwhelming amount of distrust, absence of investable capital and uncertainty about the future.
Individual investors - and, to a growing degree, some fund managers - have found safety and serenity in the simplicity of cash. Others have opted for money market returns of less than one percent, still more have waded into the refreshing bond waters or ventured into gold or other commodities.
Stocks, for better or worse, have fallen out of favor in the aftermath of the 08-09 meltdown, aided by government programs which were designed to spur demand but instead have only created one-off events, like the cash for clunkers fiasco or the failed stimulus that gave $8000 tax breaks to home owners.
Sure, the people who took advantage of government largesse got their new cars or their new homes, more than likely at inflated prices (we'll know for sure in another 12-18 months), but there was no appreciable overall gain in new buyers. Maybe most folks just like keeping what they have, secure in the fact that - especially in the case of cars - it's paid for or, with a house, knowing what it's roughly worth.
Still others are stuck with properties at inflated values. Recent home-buyers of 2003-2007 vintage are nearly universally upside-down, stuck with payments on outrageous mortgages while the value of their real estate continues a precipitous decline.
In this disheveled state of affairs, the last thing on people's minds is putting more money into the stock market, either by buying individual stocks, mutual funds or increasing the funding of their 401k plan. The average American has gotten the message loud and clear: save and save more. Non-essential purchases are being put on hold more often and investment decisions are based upon more immediate needs rather than with a long-term perspective. Besides, there's a real feeling that Wall Street is rotten and crooked and that stocks, as they have gone nowhere for the past ten years, look more and more like losing propositions.
Trading volumes on the major exchanges have been in a prolonged decline, and even for August, the recent volumes speak of something more sinister and pernicious than simply everybody being on vacation. There's no excitement or impetus for stocks to rise, and Monday's trade was more than likely bolstered by a fresh infusion of cash from the banks and brokerages. The Dow dipped 70 points right at the open before a sudden reversal just minutes into the session.
Once the averages found a more suitable footing, they just churned in a narrow range of about 50 points on the Dow before another minor blip downward and another round of funding from the "masters of the universe" at Goldman Sachs, JP Morgan and Merrill Lynch, BofA's trading arm.
This is a very serious condition which is not going to be solved without another blood-letting in stocks. The absence of confidence has spread all the way from Main Street to Washington to the canyons of Wall Street and now it's locked in place. Until somebody proves that stocks are safe and the economy is really on a rebound (impossible), the direction will be down, down and then down some more. Today's minor gains are overshadowed by the paucity of trading.
Dow 10,302.01, -1.14 (0.01%)
NASDAQ 2,181.87, +8.39 (0.39%)
S&P 500 1,079.38, +0.13 (0.01%)
NYSE Composite 6,871.58, +10.54 (0.15%)
Advancing issues took command over decliners, 3980-2440. There were 311 new highs and 223 new lows, but nobody is really bothering to keep score. Volume reached a new low on Monday, below the abysmal numbers from the previous Monday, which was off-the-charts ugly. People simply aren't interested in stocks right now, and for many good reasons.
NASDAQ Volume 1,636,439,375
NYSE Volume 3,569,886,750
Oil was down again, losing 15 cents, to $75.24, but gold gained $9.60, to $1,224.50. Silver was also up, better by 32 cents, to $18.42.
There was some small economic data, including the NY Fed's Empire Manufacturing Index, which came in with a reading of 7.10 for August after a 5.8 posting in July. The index is stuck at extreme low levels, indicating very modest growth, if any, with falling prices and negative future outlooks. It's not a pretty picture and New York is one of the better-performing areas of the country.
Prior to the open Tuesday, a number of important economic indicators will be released, including July PPI, housing starts and building permits. The numbers are expected to be flat or even down from June, which is just the kind of news Wall Street does not need at this juncture.
The true picture being painted by this low-volume regime is one bereft of confidence and capital. Like just about everything else in the current climate, it is unsustainable for more than a very short period of time, one which will be coming to an abrupt end shortly.
Label:
BofA,
Goldman Sachs,
JP Morgan Chase,
liquidity
Thursday, August 05, 2010
Dead Money Littering Wall Street as Suckers Flee
When you buy into a stock that refuses to go up in a meaningful way (Pfizer over the past five years is a good example) you have what is known among traders as "dead money." It's just sitting there doing nothing, not earning interest, just kind of lying around.
Now, that might be a good thing during a deflationary debacle like the one we're currently undertaking, so, maybe the dead money issue isn't all that earth-shattering a concept, after all, though, if you're used to the usual 15% returns that Wall Street hucksters promise, money lying around isn't your typical bag.
For the rest of us, those smart enough to stick our money in a coffee can or inside a wall safe, it's all well and good, so long as prices don't go ridiculously higher all of a sudden. There are a slew of misconceptions about money and its uses and usefulness, most of them aimed at baby-boomers with excess cash they're supposedly saving for a child's college, or a wedding or retirement, and most of those misconceptions usually involve keeping your money at work and not lazing around in a lounge chair in the back yard getting a tan.
However, based on the trading (in)activity the past few days, the concept of dead money might just be catching on. Stocks have just undergone a pretty significant rally - first, off the lows of March 2009, and more recently, about an 11% move back to where they now have settled, and nobody seems willing to sell, or to buy. Volume has dried up rather abruptly over the past two days, leaving open the question of whether Wall Street is even relevant anymore.
It seems that the majority of Americans who don't really have a whole lot of faith in the publicly-traded equity markets and have moved, over the past two years, into largely bond-related funds, are more than content with just keeping what they have instead of risking it in stocks. With the small investor clearly out of the market, that leaves mostly professionals and the very wealthy to do most of he trading on a day-to-day basis, but even they have become significantly more risk-averse of late, which means that the bulk of the trading has been left in the rather unstable hands of hedge fund managers and high-frequency traders.
Now, when these boys slow down there's really nothing left to keep markets bubbling, creating a sea of dead money, or more in the vernacular of economists, a liquidity crunch, which is precisely what we're staring at today.
It would seem, after the worst weekly unemployment claims figures since April came out this morning, and retail sales from a wide variety of chain stores showed poorly, that stocks would be sold off rather dramatically, and that seemed to be the case early on, but, buyers stepped in midday to soak up some of the losses, leaving the markets in a rather untidy state of affairs, with all indices down slightly, spending the entire session in the red, on volume that has to be one of the lightest five days of the year.
Truly pathetic, it was.
Dow 10,674.98, -5.45 (0.05%)
NASDAQ 2,293.06, -10.51 (0.46%)
S&P 500 1,125.81, -1.43 (0.13%)
NYSE Composite 7,174.27, -7.87 (0.11%)
Market internals showed a different side of the story as declining issues ran rampant over advancers, 3898-2509. New highs managed to maintain their sizable edge over new lows, 372-92.
NASDAQ Volume 1,704,054,000
NYSE Volume 4,089,902,750
In commodities, the September light crude oil futures contract fell by 48 cents, to $82.01. Gold gained $3.50, to finish at $1,197.20. Silver was up 4 cents, to $18.31.
With the July non-farm payroll report out tomorrow prior to the open, one would have expected a little more excitement, especially in light of the dreary economic data that seems to roll onto the street every day, but there was little movement overall, suggesting that these markets are suffering from a lack of interest bordering on apathy, due to a number of factors, but mostly, distrust, fear, uncertainty of the future and having been burned once too often.
It's the same kind of thing that happens with crooked card games. In the early stages, there a pigeons a'plenty. But, once word begins to get around and a few mouthy types get taken to the cleaners, the game dries up, and the cheaters end up playing penny-ante games amongst themselves, wiling away the hours, days and weeks.
We may be witnessing the initial stages of the final collapse of the Wall Street Ponzi scheme. They may have run out of suckers.
Now, that might be a good thing during a deflationary debacle like the one we're currently undertaking, so, maybe the dead money issue isn't all that earth-shattering a concept, after all, though, if you're used to the usual 15% returns that Wall Street hucksters promise, money lying around isn't your typical bag.
For the rest of us, those smart enough to stick our money in a coffee can or inside a wall safe, it's all well and good, so long as prices don't go ridiculously higher all of a sudden. There are a slew of misconceptions about money and its uses and usefulness, most of them aimed at baby-boomers with excess cash they're supposedly saving for a child's college, or a wedding or retirement, and most of those misconceptions usually involve keeping your money at work and not lazing around in a lounge chair in the back yard getting a tan.
However, based on the trading (in)activity the past few days, the concept of dead money might just be catching on. Stocks have just undergone a pretty significant rally - first, off the lows of March 2009, and more recently, about an 11% move back to where they now have settled, and nobody seems willing to sell, or to buy. Volume has dried up rather abruptly over the past two days, leaving open the question of whether Wall Street is even relevant anymore.
It seems that the majority of Americans who don't really have a whole lot of faith in the publicly-traded equity markets and have moved, over the past two years, into largely bond-related funds, are more than content with just keeping what they have instead of risking it in stocks. With the small investor clearly out of the market, that leaves mostly professionals and the very wealthy to do most of he trading on a day-to-day basis, but even they have become significantly more risk-averse of late, which means that the bulk of the trading has been left in the rather unstable hands of hedge fund managers and high-frequency traders.
Now, when these boys slow down there's really nothing left to keep markets bubbling, creating a sea of dead money, or more in the vernacular of economists, a liquidity crunch, which is precisely what we're staring at today.
It would seem, after the worst weekly unemployment claims figures since April came out this morning, and retail sales from a wide variety of chain stores showed poorly, that stocks would be sold off rather dramatically, and that seemed to be the case early on, but, buyers stepped in midday to soak up some of the losses, leaving the markets in a rather untidy state of affairs, with all indices down slightly, spending the entire session in the red, on volume that has to be one of the lightest five days of the year.
Truly pathetic, it was.
Dow 10,674.98, -5.45 (0.05%)
NASDAQ 2,293.06, -10.51 (0.46%)
S&P 500 1,125.81, -1.43 (0.13%)
NYSE Composite 7,174.27, -7.87 (0.11%)
Market internals showed a different side of the story as declining issues ran rampant over advancers, 3898-2509. New highs managed to maintain their sizable edge over new lows, 372-92.
NASDAQ Volume 1,704,054,000
NYSE Volume 4,089,902,750
In commodities, the September light crude oil futures contract fell by 48 cents, to $82.01. Gold gained $3.50, to finish at $1,197.20. Silver was up 4 cents, to $18.31.
With the July non-farm payroll report out tomorrow prior to the open, one would have expected a little more excitement, especially in light of the dreary economic data that seems to roll onto the street every day, but there was little movement overall, suggesting that these markets are suffering from a lack of interest bordering on apathy, due to a number of factors, but mostly, distrust, fear, uncertainty of the future and having been burned once too often.
It's the same kind of thing that happens with crooked card games. In the early stages, there a pigeons a'plenty. But, once word begins to get around and a few mouthy types get taken to the cleaners, the game dries up, and the cheaters end up playing penny-ante games amongst themselves, wiling away the hours, days and weeks.
We may be witnessing the initial stages of the final collapse of the Wall Street Ponzi scheme. They may have run out of suckers.
Label:
liquidity,
suckers,
Wall Street
Thursday, July 02, 2009
Stocks Hammered on Unemployment Data
Taking its queue from another back-sliding non-farms payroll report, stocks sold off right from the opening bell and finished with a loss rivaling the June 15 and June 22 losses of 28 and 22 points, respectively, the difference being that those prior losses occurred on Mondays, opening weeks, whereas this one ended a week, and was leading into a holiday weekend to boot, an ominous sign.
The data from the Bureau of Labor Statistics (BLS), released an hour prior to the market's opening bell, showed a worsening condition in the labor market, with a loss of 467,000 jobs for the month of June. Expectations were for many fewer job losses, in the range of 385,000. May job losses of were revised positively, to -322,000, from -345,000. The unemployment rate rose to 9.5%. True unemployment, including those whose unemployment insurance had expired without securing a new job, was estimated at 16.5%.
First time claims came in at 614,000 for the most recent week, another blow to the recovery crowd.
President Obama called the numbers, "sobering," while many others were calling the increased unemployment predictable and Obama's recovery plans ineffective. The administration is facing increased pressure to right the economy, as most average Americans are not seeing any improvement in their standards of living, better job prospects or assistance meeting mortgage and credit obligations.
Major indices fell for the third consecutive week, confirming beliefs that the market has made a short term negative turn. The Dow, NASDAQ and S&P all finished within support ranges - 8300, 1800 and 900, respectively.
Factory orders were up 1.2% in May after a revised gain of 0.5% in April, but the employment numbers overshadowed those marginally improved results.
Dow 8,284.21, -219.85 (2.59%)
NASDAQ 1,796.52, -49.20 (2.67%)
S&P 500 897.04, -26.29 (2.85%)
NYSE Composite 5,779.64, -174.37 (2.93%)
Losers beat gainers by a huge margin (5206-1155) and new lows overtook new highs, 59-29. Perhaps the most "sobering" figure was that of the day's volume of trade, which hit levels so low as to ring the liquidity alarm. Markets are so turgid and corrupted, that, in addition to the normal summer slowdown, trading volumes have hit multi-year lows. If US markets cannot be relied upon as providing some degree of flexibility and volatility, traders will seek out more pliant markets.
It is quite possible that the low volume levels are reflective of net outflows from US equities into other markets. This was the fear in Treasuries, though the poor liquidity scenario may have struck Wall Street instead. If that is the case, one could hardly blame an investor for seeking safer havens offering better returns. As the new high-new low indicator has been relevant throughout the market's decline, now volume is becoming more intriguing by the day.
NYSE Volume 626,027,000
NASDAQ Volume 1,955,272,000
Sentiment from the unemployment numbers spilled over into the commodity market, where crude oil stumbled badly, off $2.58, to $66.73. Gold slipped $10.30, to $931.00, with silver finishing lower by 35 cents, at $13.41.
Earnings reports will begin to fill the news hole next week. Judging by current data, some expectations may have to be lowered and the start date for recovery pushed back to a more realistic date, some time next year.
Enjoy the 4th, remembering that the holiday is all about FREEDOM.
The data from the Bureau of Labor Statistics (BLS), released an hour prior to the market's opening bell, showed a worsening condition in the labor market, with a loss of 467,000 jobs for the month of June. Expectations were for many fewer job losses, in the range of 385,000. May job losses of were revised positively, to -322,000, from -345,000. The unemployment rate rose to 9.5%. True unemployment, including those whose unemployment insurance had expired without securing a new job, was estimated at 16.5%.
First time claims came in at 614,000 for the most recent week, another blow to the recovery crowd.
President Obama called the numbers, "sobering," while many others were calling the increased unemployment predictable and Obama's recovery plans ineffective. The administration is facing increased pressure to right the economy, as most average Americans are not seeing any improvement in their standards of living, better job prospects or assistance meeting mortgage and credit obligations.
Major indices fell for the third consecutive week, confirming beliefs that the market has made a short term negative turn. The Dow, NASDAQ and S&P all finished within support ranges - 8300, 1800 and 900, respectively.
Factory orders were up 1.2% in May after a revised gain of 0.5% in April, but the employment numbers overshadowed those marginally improved results.
Dow 8,284.21, -219.85 (2.59%)
NASDAQ 1,796.52, -49.20 (2.67%)
S&P 500 897.04, -26.29 (2.85%)
NYSE Composite 5,779.64, -174.37 (2.93%)
Losers beat gainers by a huge margin (5206-1155) and new lows overtook new highs, 59-29. Perhaps the most "sobering" figure was that of the day's volume of trade, which hit levels so low as to ring the liquidity alarm. Markets are so turgid and corrupted, that, in addition to the normal summer slowdown, trading volumes have hit multi-year lows. If US markets cannot be relied upon as providing some degree of flexibility and volatility, traders will seek out more pliant markets.
It is quite possible that the low volume levels are reflective of net outflows from US equities into other markets. This was the fear in Treasuries, though the poor liquidity scenario may have struck Wall Street instead. If that is the case, one could hardly blame an investor for seeking safer havens offering better returns. As the new high-new low indicator has been relevant throughout the market's decline, now volume is becoming more intriguing by the day.
NYSE Volume 626,027,000
NASDAQ Volume 1,955,272,000
Sentiment from the unemployment numbers spilled over into the commodity market, where crude oil stumbled badly, off $2.58, to $66.73. Gold slipped $10.30, to $931.00, with silver finishing lower by 35 cents, at $13.41.
Earnings reports will begin to fill the news hole next week. Judging by current data, some expectations may have to be lowered and the start date for recovery pushed back to a more realistic date, some time next year.
Enjoy the 4th, remembering that the holiday is all about FREEDOM.
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