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Government Policies Coming Home to Roost - Money Matters for 12/27/05
As hope for a year-end Santa rally failed to materialize, investors took the first day of trading after the Christmas holiday as an opportunity to take profits and sell with gusto.
The Dow Jones Industrial Average registered its largest point loss since October 27 and approached the break even mark for the year. The Dow stood at 10,738.01 on the final trade of 2004, and closed at 10,777,77. Though today's volume was light - typical for the last week of the year - the advance-decline line was hardly filled with good tidings as nearly 2 out of every three stocks on the combined NYSE and Nasdaq exchanges finished the day in the red.
What was moving the Dow and the other indices was a combination of outright profit taking, extremely mixed indications from the retail sector, continued profligate government spending and the inversion of the 2 and 10-year treasury yields, which became official a couple of times today. It was the first instance of a true inverted yield curve since 2000, months before recession ravaged the US economy.
While it's difficult to pinpoint exactly what caused the massive exodus from stocks today, it's probably safe to say that the inverted yield curve has even the crustiest of traders hedging their bets or dumping with abandon. Nobody wants to raise the specter of recession, though an inverted yield curve is a highly predictive measure that one is on the way.
We're certain to hear the usual round of analysis from the poseurs who call themselves economists, saying that yields on 2-year notes being higher than on 10-year bills is nothing more than an aberration or a passing trend caused by a slowdown in the housing market. What anyone who cares to call themselves an unbiased commentator has to take into account is that government spending is completely out of control, consumer credit has reached catastrophic proportions and the US economy is being systematically downgraded under a mountain of debt.
Those who wish to sing the praises of the soon-to-be-gone-but-not-forgotten Fed Chairman Alan Greenspan, such as the moronic, ancient Keynesian Milton Friedman, do so at their own peril, ignoring the massive debt in both the the private and public sectors. Greenspan, whose legacy will include his final run of 13 consecutive interest rate increases at a time when the economy was fragile at best, can go on to retire wherever it is former Fed Chairman go, but his monument will surely be a monolith of dollar-denominated indebtedness.
If there's any indication that the economy is about to fall down, it is the reliability of both gold and silver as effective hedges against inflation and official government malaise and mismanagement. Both of the precious metals finished higher today and are about to go parabolic as the stock market seeks a bottom.
Dow Jones: -105.50; 10,777.77 close
NYSE Advancers: 1037
Nasdaq Advancers: 849
NYSE New Highs: 126
Nasdaq New Highs: 119
Gold: +4.90; 510.10 close
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