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Market Matters A daily recap of all things financial Don Bravo Searching for Words - April 15, 2005
While investors are scratching their heads, I've run out of words to use as headlines. As the week ended, the major indices practically collapsed with the Dow closing down a whopping 191.24 points to close at 10087.51. The two exchanges were equally as distressed, with the Nasdaq losing 38.56 to end at 1908.15, and the NYSE Composite dropping a staggering 105.39 to end the day - and this awful week - at 6958.35.
How bad was it? Consider that prior to yesterday, the lowest closing price on the Dow was 10368.61 on January 24. It now stands nearly 300 points below that and is off 6.5% for 2005. Today's close is the lowest for the Dow since election day of last year, November 2nd, which to some may seem fitting.
Should one look to any one person or event for the sorry condition of the US economy, one may choose to stop at the front of the president's desk. Behind it sits the man (sometimes) who in the end is responsible for much of our nation's fiscal policy, including excesses in government spending. George W. Bush never saw a spending bill he didn't like. He has earned his place in history as the only president to not veto any bill crossing his desk. Bush has given tax breaks to the wealthiest Americans while running the largest deficits of any government in the history of the world, to say nothing of the supplemental spending on his pet project, the War in Iraq.
Though the president may not be entirely at fault for a worsening economy (and anyone who doesn't believe it's getting worse instead of better... I'd like to meet you so you can tell me your secret), he certainly doesn't seem overly concerned to do anything about it, nor do his colleagues in Congress. Establishment of a cogent trade policy and an honest commitment to cut the federal deficit are not only desirable, but, at this juncture, a requirement which the American public must demand.
In the meantime, and for the foreseeable future, owning stocks will not be a very good idea (so much for the president's "private accounts" fix for Social Security). Until the runaway government is reigned in, no investment is safe in the United States, be it stocks, bonds, housing or art. Possibly, only gold and silver are safe, though they too have seen their share of ups and downs in a market that many say is rigged by central banking interests.
The NYSE also fell into the negative for the year, joining the Nasdaq which had already been there for some time. Once again, for something like the 20th straight session, NYSE volume outpaced that on the Nasdaq, an anomaly so persistent now that it has become the norm.
Market internals were devastating, as one might suspect. Down volume on the NYSE outdid up volume by a 5-1 ratio; on the Nasdaq it approached 7-1. Advancing issues were dwarfed by ones declining, by more than 3-1 on both averages. The most eye-opening number may have been new highs vs. new lows. On the NYSE there were a mere 17 new highs, while 187 reached new lows. On the Nasdaq, the figures were even worse, with only 19 new highs compared to 267 new lows.
Naturally, bonds rallied on the stock market's demise. All flavors priced higher, paced by the 10-year, which added 19/32, dropping the yield to 4.24%.
Gold added 1.10 to $424.30, though silver actually declined 4 cents to close at an even $7.00 per ounce. Even oil, lower by 64 cents to $50.49 per barrel, did little to slow the avalanche of stock selling.
The US Dollar was broadly lower against foreign currencies.
It was a startling week on Wall Street for many, especially people holding long positions in stocks. The devastating effects of such a gargantuan week of declines will be shuddering through the economy for months. Money flows out of mutual funds and ETFs should be accelerating as the markets grind ever lower. This spectacle of downward motion is gaining momentum and is not about to abate any time soon.
Stocks Socked Once Again - April 14, 2005
The lyrics to Kenny Rogers' hit, The Gambler are rolling through my mind as I digest the latest figures from the land of the winless and witless on Wall Street who are finally giving up the ghost... you got to know when to hold, know when to fold 'em, know when to walk away, know when to run...
If Kenny Rogers were still around and playing the market, I'd wager that he'd have already folded and would be on the run. The slippery slope upon which US equities has been sliding just got a lot steeper over the past two days. Cumulative losses of over 200 points on the darling Dow, close to 60 on the nebulous Nasdaq and 145 on the nefarious NYSE. The past two days make the "Phearless Phoney Phed Rally" of Tuesday seem like a real wasted effort, if not a scam of the highest order.
Today's numbers look like this: Dow, down 125; Nasdaq, down 27.66; NYSE, down 70.25. There's really no need for me to continue, is there? But I will anyway, since I've been saying that the market was overpriced since mid-November - and people kept buying stocks like they were Christmas presents (I hope nobody gave you stock for Christmas because it's not such a great gift now) - right through to the end of the year.
Even during the February rally, I was screaming sell and I continue to scream it even now. This is not a time to be buying stocks; it's a time to be cutting losses. There may be a bounce soon, but it won't last.
How low will we go? Good question. For a clue, consider that the US House of Representatives voted yesterday to eliminate the estate tax, which, if the Senate goes along, will cost the feds about $290 million over the next ten years, and meanwhile, the Congress and the adamantly stupid administration keep spending us into the poorhouse. I would estimate that stocks will trend lower as long as morons in the federal government keep cutting taxes and spending more, creating a deficit burden that's killing the economy. It could go on for a while. Thank heavens stocks can only go to zero.
Analysts and economists can get out their calculators, graphs, charts and historical data and start figuring where this current decline will end. All of them should use March of 2003 - just before our aggressive military action in Iraq began - as a starting point for any retracement calculations. Let's take a look:
On March 12, 2003, the NYSE Composite closed at 4486.70
These indices all hit tops in the first week of March, 2005, just over a month ago. The Dow peaked at 10940.55, the NYSE at 7441.18 and the Nasdaq at 2090.21.
The closing figures today were 10,278.75 on the Dow, 7,063.74 on the NYSE and 1,946.71 for the Nasdaq. Another deceased singer, Karen Carpenter, might have said, we've only just begun. In truth, we are just getting started on the Bear's path, who seems to have found his way again after two years of slumber.
If you like round numbers - and who doesn't? - look for at least a 50% retracement before even thinking of jumping back in. There's precedent for this, and considering the state of the US economy in comparison to the rest of the world (they sell, we buy, for now), a mere 50% reduction in the value of all US equity assets would probably be an understatement. Nevertheless, that would be roughly Dow 9225, NYSE 5965 and Nasdaq 1680. Mark those numbers down and don't buy any stocks until we get there, which may be sooner than you think.
And when we do get there, WAIT! Don't just jump in, because the decline may have more life. There's no rule which says we can't go lower than the last low. In fact, barring any unforeseen events that might turn things around (can't think of any at the moment) I expect US equities to go much lower than even the 2003 lows, but that's still a way off.
Today's internals were truly ugly for those of the Bull camp. Decliners outpaced advancing issues by a more than 3-1 margin on both the NYSE and the Nasdaq. Down volume held a 4-1 edge over up volume on both indices. Spectacularly, new lows on the NYSE were 118, compared to 18 new highs, and similarly 160 to 24 on the Nasdaq.
While these figures may seem bad, one might do well to adjust to seeing similar as earnings reports continue to come to the fore with future profit warnings attached.
With the slack in stocks, bonds rallied, especially on the short end of the curve, pushing the yield lower on the 2-year note to 3.54%, while the 10-year lost 5 BPs, to 4.31%.
The greenback was the big winner, sharply higher against all major currencies while gold and silver were severely beaten back. Gold lost 5.50 to 423.70; silver slipped 16 cents to 7.06.
The week comes to a welcome end tomorrow, with more earnings announcements and little in the way of economic reports. Brokers may be mulling the words from Jim Morrison's "Love Her Madly": ...don't you love her as she's walking out the door...
And your point is...? - April 13, 2005
Following up on yesterday's rant over the preplanned late-day buying on Wall Street, I feel even more confident in expressing my disgust with the manipulative measures apparently being employed by some big-money players.
If you'll recall (see yesterday's Market Matters column below), I lambasted the Wall Street rigged buying apparatus after the major indices experienced a substantial "melt-up" beginning precisely at 2:00 pm. Seeing today's carnage on the Street, one has to ask, "what was the point?"
If the intention was to artificially create what looked like a rally, assuaging the fears of small investors and the American public, today's resultant declines make that effort appear to be a horrible, absolute failure.
What's worse, I believe it had even more of a negative effect; that being the abysmal results of the government's 5-year note auction today, specifically, the low foreign participation of 28%. My hunch is that foreign bondholders, especially those in the Asian markets, see such market rigging as deceptive and detrimental to honest investors and used what recourse they had available, that being a noticeably low participation rate in our treasury auctions.
It's no secret that if the central banks of Japan and China stop supporting our extravagant habits of spending above and beyond our means, the American economy is, in a word, toast. If the Asian central banks were sending such a message today, whether it be in response to blatant market manipulation as witnessed yesterday or to our involvement in Iraq or just as a subtle warning to Mr. Bush to get his fiscal house in order, then kudos to them. It's about time somebody started doing something about our out-of-control government's budget and trade deficits. The government itself is doing nothing, so a little "foreign intervention" may be welcome relief.
In any case, today's deep decline may signal a serious new development for US equities. The game is up, over and out. It's becoming more and more apparent every day that fewer and fewer people want any part of US stocks at their current prices and that the market, as it is so defined, will be nearly the exclusive domain of large funds, brokers and investment houses who can then go about tearing at each other's flesh in a race to the eventual bottom.
It's been said that markets as large and as fluid as the US equity market cannot be manipulated, though I think one needs to add a caveat to that statement. The US equity markets can and have been manipulated, but all manipulation eventually fails and this one is failing even as I write. Serious investors have seen enough of the so-called "Plunge Protection Team", officially known as the Working Group on Financial Markets, and the shenanigans of the Fed in concert with Goldman-Sachs, Merrill Lynch and other large brokerages, and they mystifying rallies that appear out of nowhere, mysterious trades on futures contracts and other market-distorting behavior.
Investors want a fair shake and if the market is obviously going down, then they want it to go down, without intervention, stabilization or any other devices they deem "necessary" for our "safety and security." If the market is going to crash, let it crash! At least honest, good people will then be made aware of the risks of investing on Wall Street and act accordingly. Besides, there are already enough mechanisms, such as curbs, in the market to ease any panics, and, after all, when stocks decline and do become cheap, they're actually affordable, and isn't that the point?
Certainly there are abundant perils in markets, but investors, especially individual investors, don't need to be shielded by an artificial safety blanket that only serves to delay the inevitable. Anyone with half a brain knows that the US economy is currently not as healthy as it could be, but sugar-coating by the government, "for our own good" is a complete sham. Americans are a tough breed, as proven time and again, through wars, depressions, terror and dangers from within. We can certainly accept a little financial damage in stride.
Well, let's examine the details of today's spectacular sell-off on Wall Street.
First, the absurdly overvalued and antiquated Dow Jones Industrial Average lost 104.14 points to close at 10403.93, nestling into a key area which now forms a triple bottom. The Dow closed at 10404.30 on April 1st and 10405.70 on March 29. We have to go all the way back to January 24 for a lower closing number, that being 10368.61, the market bottom for the year. We will likely see that number again in the next few weeks, if not days, if not as early as tomorrow.
The Nasdaq, which has been taking the brunt of the sellers' rage as it did again today, slid 31.03, closing at 1974.37, nearly matching it's own closing low of 2005 of 1973.88, achieved on March 29. We'll call this a double bottom. One has to go all the way back to October 27, 2004 to find a closing number lower than those two.
The NYSE Composite dipped a nifty 74.05, closing at 7133.99. That number has company in similar closes on March 23, 24, 28 and April 1 and 4. I realize that most people don't even follow this index, though I consider it the most balanced and important of them all, in that it is composed of all stocks traded on the Big Board and thus, is the most valid and true barometer of the market.
The NYSE is poised to fall further, along with the other indices, and that's becoming a fairly safe bet as earnings thus far have been falling short of expectations and more than a few companies have issued warnings for the remainder of the year in a variety of industries. With the vast bulk of companies reporting within the next ten trading days, the news may get even worse as larger, more closely-watched companies, like those on the Dow, plus internet bellwethers eBay, Yahoo, Google and Amazon are up against strong comparisons from 2004.
In a continuing display of market weakness, today's internals were nothing short of alarming. The A/D lines were severely slanted to the downside, with the NYSE showing decliners leading advancers by a 12-5 ratio, with a corresponding 7-3 ratio on the Nasdaq. New lows on the Nasdaq numbered 100, to a mere 36 new highs. On the NYSE there were 53 new lows to 52 new highs.
The real news, however, was in the up and down volume. On the Nasdaq, up volume was only 15%, compared to 84% down. On the NYSE, the numbers were similar: 19% up, 78% down. There is surely some serious selling going on.
The aforementioned bond market was all over the place, with the shorter yields falling while the longer yields, the 10 and 30-year were higher by 1 and 2 basis points, respectively.
Crude oil fell to a multi-week low of $50.22/bbl. though it's recent decline has failed to ignite the imagination of investors. Retail sales for March came in at a weaker than expected +0.3%, another indication that the economy is stumbling forward instead of racing ahead. The good news is that with lower consumer demand, inflation will be kept in check; the bad news is that companies will not be making very much money.
This kind of stability, though just dandy for consumers and benign overall, is still a negative for stocks.
Once again, the US Dollar was all over the map, though the gains and losses against other currencies were small. All of the bad news for stocks, was, predictably, good for precious metals. Gold rose 1.90 to 429.20, while silver notched up 6 cents to close at 7.22.
The Planned Buying Greenspan Rally - April 12, 2005
Activity today on Wall Street presented more evidence of just how controlled, contrived and rigged the entire market is. After opening below yesterday's close and trading sharply lower for the first hour, the major indices managed to contain losses and hover just above the day's lows from 10:00 am until 2:00 pm, at which point the indices collectively sunk to their lows of the day and promptly began to rise.
In the course of an hour, from 2-3 pm, the day's declines were erased and replaced by positive readings on the Dow, Nasdaq and NYSE Composite. Such a demonstration of concerted, concentrated buying would, in days long gone, have been attributable to some world-changing event of great magnitude. To the untrained eye, viewing the spectacle of a 150-point rise on the Dow Jones Industrial Average might have engendered thoughts of the possible capture of Osama bin Laden or the end of the War in Iraq.
Obviously, neither of those events occurred today. In fact, the miracle hour-long rally (one of so many lately that they have become commonplace) was attributed to the release of the minutes of the Federal Reserve Open Market Committee held three weeks ago, on March 22nd, to which I say, "rubbish, baloney, and more rubbish."
To believe that market participants would be so moved by the underlying verbiage of a policy tightening made three weeks ago is to believe that Peter Pan does indeed exist and can fly and further, that he's Michael Jackson. In essence, one would have to believe in fairy tales, witches, the Easter Bunny and Santa Claus to believe that trained market professionals, mutual fund and pension managers (often one and the same person), stock specialists and broker/dealers would all act in concert, on the same stocks at the same time, in the same direction. That this could happen in an open, free and fair market is simply beyond the limits of imagination. There is but one explanation: this buying spree, which was accompanied by a massive volume spike, was nothing but preplanned, preordained organized market rigging.
You can read for yourself the earth-shattering, market-moving minutes of the FOMC for yourself at http://www.federalreserve.gov/fomc/minutes/20050322.htm
What was contained in the minutes was little if anything that hadn't already been rehashed a number of times and discounted by the markets. The basic contention by the somnambulant financial press (CNBC in particular) is that market participants gleaned from these minutes - at the moment they were released to the public! - that the Fed saw inflationary pressures as still somewhat contained and that a 50 basis point hike in rates was not in the cards come May 3, the next such meeting.
A blind, deaf person in a coma could have come to the same conclusion weeks ago!
There is nothing new in these minutes. Not one scintilla of evidence is present in them to suggest that the economy is robust, though balanced enough, to buy all the stock available in any company anywhere, immediately. But that is what the geniuses, the managers of your 401K, your pension fund, your mutual fund, did today, like a pack of jackals surprising a gaggle of ducklings, they gorged themselves on the pleasures of stocks... for an hour... and then they went back to whatever it is they do when they are not participating in gangland style kamikaze trading.
It's absurd to think that these masters of stock trading would act in such a manner. Not a single one of them thought buying today was a good idea prior to 2:00? They were all content with selling this morning? If I was invested in stocks (I'm presently not), I would surely have been on the phone to whatever nitwit was handling my account and demanding he or she close it immediately, for surely they are not capable of handling other people's money. Anyone whose broker told them to sell this morning should be similarly angered, annoyed and dismayed. Being a broker, trader or fund manager these days requires no more critical thinking than what's needed to boil water. Following the pack is not what makes markets and this market, once the real investors (the millions of individuals whose money is entrusted to these fools in IRAs, 401Ks, mutual funds, pension funds, et. al.) realize what a precooked bag of shake and bake it really is, this nonsense will end.
Of course, the legions of small-fry will preempt my ramblings with mutterings that the market was down and this "rally" made "our" stocks go up. Sure as air is two parts hydrogen, this balloon will pop too. The same pack of cheats, liars and crooks who brought you this rally will surely bring about a "correction" when least expected. Count on that.
As abrupt as today's event was, it is now over, and most stocks are only marginally higher than they were yesterday, so it's really, in the big scheme, no big deal. The downtrend is still intact, without a doubt. Today's "event" did little but convince the bears that the bulls are ripe for slaughter. Witness the ruminations of one Bill Gross, chief investment officer at Pacific Investment Management Co., "Our read here at Pimco is that the economy may be slowing rather than gaining strength.'' Gross's firm oversees the world's largest bond fund, so maybe, just maybe, he might be on the right track.
Gross's assessment, along with other juicy tidbits of information regarding the FOMC and today's market movement can be found in this Bloomberg article.
Stocks weren't the only investment vehicles affected by today's 3-weeks-later reading. Bonds went on a terrific ride at the same time as did stocks, driving yields back to depression-era levels. The 30-year yield dipped to 4.65, the 10-year to 4.35, and the curve flattened a bit more, as the spread between the 2 and 10-year shrunk to 68 basis points. A week ago the spread was 71; a month ago, 83. The shortest term interest rates, the 3 and 6-month variety, actually rose.
For the session, the Dow was up 59 points, the NYSE composite 18 and the Nasdaq 13. To further illustrate my point that this was purely a manipulated event, the percentage gains: Dow: .57%; Nasdaq: .67; NYSE: .26. It doesn't take a genius to figure out which stocks the pumpers were pumping. I do wish the players could be a bit more creative and less obvious as these dramatic moves are becoming somewhat predictable.
Volume on the NYSE surpassed the Nasdaq once again but new lows were the order du jour all around, with a whopping 114 on the Nasdaq and 89 on the NYSE. New highs were 30 and 63, respectively. Advancing issues beat declining ones by a 5-3 margin on the NYSE and roughly 8-7 on the Nasdaq. Gold and silver gained slightly, oil was lower once again (though US gasoline prices are at an all-time high), and the US Dollar all over the map - up against some currencies, lower against others.
Of course, I have been saving the best part for last, the news of which was actually announced prior to the market open. The US trade deficit soared to an all-time high of $61.04 billion in February. It was on that news that level-headed traders headed for the hills in the morning and now you know why the timing of what I will forever call the "Phoney Phed Rally" was so vitally important.
Listless Start to Earnings Season on the Street - April 11, 2005
With quarterly earnings reports beginning to flow, investors took a wait-and-see attitude on Monday, registering the lowest volume day of the near on the Nasdaq and the lowest since March 15 on the NYSE.
Nasdaq volume was a mere 1.39 billion shares, while NYSE Volume was just over 1.5 billion. Strong volume on either exchange is usually in the range of 1.8 to over 2 billion shares. Once again, NYSE volume was higher than that of the Nasdaq, a continuing anomaly now stretching into its 4th week.
For the day, the Nasdaq dropped 7.23 points, while the NYSE gained 7.92. The Dow slipped 12.78. Market internals were once again pointing in a negative direction where advancing issues were outnumbered by decliners, by a nearly 2-1 margin on the Nasdaq and 9-7 on the NYSE. Volume on both exchanges was solidly on the downside, while new lows overwhelmed new highs, 104 to 25 on the Nasdaq and 76 to 49 on the NYSE.
While those few investors remaining interested in equities await signs of growth from mainstream companies, the continuing decline, and now the lack of trading volume are clearly signs of a flagging economy.
Bonds ended the day on a high note, pushing yields lower, especially on the long end. The 10 year ended at 4.42, the 30 year at 4.71, both multi-week lows.
Oil was marginally higher, but the big winners of the day were the lustrous metals. Gold traded as high as $429/ounce, ending the day at $428.40. Silver gained more ground, closing at 7.24, its highest level in a month.
The US dollar fell against other major currencies, excepting the Canadian, against which it rose.
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