Friday, May 21, 2010

Stock Market Review - 05/21/2010

Markets on Fire

Below is a chart of the DIA for the week ending 5/21/10 with 30-minute bars. Obviously, the markets were burning down all week. It was ugly. The markets took a pounding for whatever reason you would like to sell. Europe is still over-indebted, US joblessness increased, financial reform was on every politicians lips, and the Euro was under fire. Of course, the markets were on fire in the other direction in the last half hour of trading on Friday. The Dow suddenly rocketed higher by some 125 points on very heavy volume. Yes, that's right. It happened in the last half hour of trading. You know what that means, right? Yep, I'm sure the PPT was determined to pull the markets up and keep the Dow away from the 10,000 level. Since the markets were down all week, I suspect investors were all sitting around waiting for a trillion dollar stimulus from some central bank in the world. Come on, Santa Claus - uh, I mean Bernanke - throw another trillion at us! Hey, don't get cocky if you managed to hold some stocks to enjoy the half hour rally. Even the Spain ETF was up strongly at the close. So was every piece of garbage on the planet. So was the moon or Mars or anything else the central banks could buy. Oddly, the US village idiot collection we call Congress passed some 'financial reform' package and the financial sector rebounded very strongly. Yep, the market is on fire. Unfortunately, the one thing that has already burned up is the brain. There is no sense or logic to the market's behavior anymore. It's a gambling casino. Get your chips ready for Monday morning. It looks like Benjamin Shalom Bernanke wants the stock market to go up. And, he has a printing press.

One week ending 5/21/10 - DIA 30-min bars
Charts courtesy

Friday, May 14, 2010

Stock Market Review - 05/14/2010

Trillions Don't Grow on Trees

What happened? That's the question everyone has been asking since the stock swoon of May 6. I don't know if 'swoon' is the right word but the Dow dropped almost 1,000 points in less than an hour and 600 points in about five minutes. The Dow quickly gained about 640 points back in about an hour. So what happened? Was it a mistake? Sure, it had to be. Anytime the stock market drops, it has to be a mistake. There have been all kinds of ridiculous explanations tossed out and everyone's opinion is about as valid as the next. Oddly, the Dow's subsequent 600 point one-hour rally was not even mentioned as a mistake. So here is my theory.

On Monday, May 10, the Dow opened up 400 points higher based on a trillion dollar ECB (European Central Bank) bailout of European banks. All this was for Greece. Remember that I said weeks ago that the original $30 billion dollar Greece debt was not the point. The point was the derivatives tied to the debt. Remember the debate before May 10. Greece needed $30 billion. Then it was $50 billion. $80 billion tops. $125 billion would more than cover it. After chatting with bailout Barrack over the weekend, the ECB decided to supply a cool trillion. Boom! The markets of the world rallied. Don't get excited people who were bullish. Even Spain rallied. So where did the ECB get the trillion?

My guess is this was all a coordinated banker scam. The ECB needed to unload a ton of stock to build cash. So, they probably coordinated the selling on May 6 so the Fed and their cabal of JP Morgan and BofA would stand ready to buy the market back up raking up profits for all. Don't you love a free 'market'?

So, after the euphoria wore off, everyone realized that Europe was still broke and the bailout would only help the banks. The same held true in the US with TARP. Oddly, Monday's gains were the best since March of '09. Gee, what happened back then? Oh yeah, the Fed dumped a trillion on the banker's doorstep. But trillions don't grow on trees. The money has to come from somewhere.

But here is the deal. If we make $100 dollars a week, we will spend a hundred dollars a week at the store. If someone (a bank) were to loan us an extra five dollars, we would spend that too. That makes it look like the store gained sales amounting to 5% and consumer spending was rising. That's good for the economy and the stock market likes it. But, since we only make $100 dollars per week, we can't pay back the $5 dollar loan from the bank. So, to keep the game going, the banker cabal has to either eat the loan loss, foreclose us, or give us another loan. The first two actions restrict the money supply and ultimately the profits of the cabal. The third solution is the only one that keeps the game going. The conditions placed on Greece for the ECB trillion dollar line of credit are akin to cutting spending and contracting GDP. Ultimately, every country in the world will have to do this because we have all spent more than we have made. The markets realized this and the rest of the week was disaster.

Curiously, the world is now looking to China to save us. Yes, China is supposedly growing at a rapid pace but the Shanghai Composite is now officially in a bear market. I thought for this week, I would include a chart of the Chinese index on top of the Dow for the past 15 months. As you can see, China has been declining while the Dow has been rising. This relationship cannot continue. One of the two must change direction. This week, investors decided it was the Dow that needed a change. The bankers can print all the money they want to print and they can create the biggest credit bubble in history. But the fact of the matter is simple. We can't repay any of the loans and we can't maintain our spending habits. This could be the crack in the dam that leads to the flood in the valley. But don't fear. Since the Dow was down on Friday, I would expect another trillion dollar rescue package to be announced first thing Monday morning by Ben Bernanke. Or, maybe it is Brazil's turn to announce a trillion dollar bailout. China? The moral hazard of what the Fed did has now become pure stupidity. Now that I think about it, it was pure stupidity from the start.

One last thing. Austerity is going to be imposed on Greece. They are going to have to cut back. One thing they have to cut out is their government run health care program. They will have to privatize it. Is anybody listening? Are all the idiots in Washington deaf? We already know they are all profoundly stupid. It is indeed apparent that socialism works until you run out of other people's money.

Past 15 mths - Dow in candlestick and Shanghai Composite in green
Chart courtesy

Sunday, May 9, 2010

Stock Market Review - 05/07/2010

The Market gets a Mulligan

The chart below is the Dow ETF, DIA, in the first week of May, 2010. It is no ordinary week. It is the worst first week of May in history. The year's gains were gone. It all happened in a flash. In about ten minutes on Thursday afternoon, the Dow fell some one thousand points. To complete the picture, the Dow then rose some six-hundred points in less than an hour. What the heck is going on?

The huge drop was blamed on a lot of things including an error entered by a trader. Supposedly, somebody pushed the 'B' on the keyboard rather than an 'M' for a sale order of P&G. Of course, Greece's debt troubles continued to weigh on the minds of traders throughout the world. When all investors realize at the same time that no one has the money to pay for the goods and services purchased, the crap hits the fan. The markets cave in. But then something curious happens.

It was a mistake. The market needed a mulligan. Surely the Dow could not fall a thousand points in a matter of minutes. The fact that the Dow could fall in the Fed intervention era is startling enough. But a thousand points? It had to be a mistake. But does any trader actually press the letter keys for sales? Maybe the Dow fell because a lot of people wanted to sell at any price and there weren't any buyers. Maybe Bernanke had to go to the bathroom and got detained from his job of boosting the stock market. Maybe a lot of things happened. Regardless, this was the biggest intraday drop on record. Gee, right in the middle of a economic recovery with a string of Commerce Department statistical ebullience. Yes, the drop was scary but there is one thing that no one is addressing.

As the Dow fell below 10,000, it suddenly rallied some 600 points. Presto! The Dow recovered two-thirds of it drop and it did so without a powerful volume spike. It seems that the market controllers simply 'adjusted' the index, stopped the selling for an hour, and juiced the markets back up. It was one of those crazy days but debt is the cancer that is eating the worlds' financial heart. Maybe the selling was the first warning that a total collapse could be around the corner.

Friday, the market's continued selling in spite of an increase of 290,000 new jobs in the US. Of course no one with any intelligence actually believed that number. The birth/death ratio supplied almost 200,000 of those new 'jobs'. Whatever. The market is the ultimate barometer. And it's going down. The only thing that can save the market now is Bernanke. Are you coming to work Monday morning, Ben?

DIA - 10 minute bars May 3, 2010 thru May 7, 2010
Chart courtesy

Saturday, May 1, 2010

Stock Market Review - 04/30/2010

The Road to Austerity or Zimbabwe

The economies and the governments of the world are all approaching a fork in the road. The right fork leads to the land of austerity and the left fork leads to the land of Zimbabwe. Greece's brakes have failed and they must choose left or right. Their problem is that though they are a sovereign nation, they don't control their own currency. The European Union does. Otherwise, Greece would no doubt follow Zimbabwe and the US to the left in an effort to print their way to prosperity and debt reduction. The EU will of course print the money but austere conditions will be required from Greece in return. This weekend will be consumed by meetings about austerity and printing. Therefore, I have decided to start another company to serve as a consultant to sovereign nations. The company will be called 1-800-BAI-LOUT and here's what I anticipate.

Greece is broke but German banks are the one's holding their debt. Other banks throughout the world are no doubt holding derivatives and credit default swaps related to the sovereign debt and they stand to lose as well. Since German specifically is poised to be the biggest loser, Chancellor Angela Merkel is busy trying on the Ben Bernanke mask. How will she solve the Greek debt problem? I could make things easy for her. She could just call me at 1-800-BAI-LOUT and I could fill her in. Here's what she needs to do.

1) Put on a comfortable pair of shoes.
2) Put one of those floor pads in front of the money printing machine.
3) Check the ink jets to make sure the are full.
4) Position the feet so they are slightly wider than shoulder width.
5) Locate the lever that says, 'Maximum Velocity'
6) Start yanking like monkey on crack trying to get another rock.

Now, what does 'austerity' mean? Basically is means living within one's means. It means no luxuries as provided by a government. As abhorrent as it sounds, austerity will be imposed upon Greece. This is the horrible result of debt addiction. Somehow, someway, someone will impose austerity. Debt cannot be infinite. There, I said it. The Truth. I know, I know - a lot of people that just read that last line probably went blind. But the truth has to be told. Hey Angela, are you reading this yet? You don't have a choice. There is nothing for you to decide. You are no longer in control. The banks are and they will get what they want. You don't have the guts or the intelligence to stop derivatives so you will give in to the banks' desires. Come on, A Merk - ring me up and I'll give it to you straight. Print, baby, print.

You see, we are all headed to Zimbabwe. The human species is too stupid and too greedy to turn away from derivatives. In order for all of us to live beyond our means, we have to have credit and leverage. Derivatives are the product that fosters credit and leverage. We cannot terminate their use and live within our means. We are entitled to the illusion of wealth. After Greece is bailed out, Portugal and Spain will be right behind them. If not, banks could lose money and that is just not allowed. The good thing is that none of us need a road map to get to Zimbabwe. Our governments will drive us there.

Speaking of stupid, our illustrious Congress was on display this past week as a few of them grilled the Goldman Sachs brigade of morally bankrupt executives. Mr. Coborn told one of the Goldman gang to not address him in the current tone as 'he (Mr. Coborn) was not that stupid'. Sir, I beg to differ. Senator Levin looked over his spectacles and accused Goldman of selling 'crap'. Let's review.

The questioning Senators helped to surrender the country in August of 2007 to the Central Bank. They proceeded to vote for the bailout of institutions like Goldman that sold 'crap', they allowed the institutions that sold 'crap' like Goldman to re-charter as a bank so they could receive Treasury money, they voted to subvert the Constitution and allow the Treasury to lend money to institutions that sold 'crap', they voted to nationalize Fannie and Freddie to perpetuate the subsidization of 'crap' mortgages, and they also voted to expand the debt of the country on the back of 'crap' derivatives. I think these pontificating blowhards should just sit down and keep their pie holes closed. Else, they look stupider than Jethro Bodine in a 6th grade graduation ceremony.

We are doomed. We will not accept austerity. The lies sound better. Derivatives will be continued and debt will be extended to economic oblivion. At least the banks will get their money. That road leads to Zimbabwe. Come on, Angela. Start printing. I've got a feeling that you're going to be busy for quite a while.

The chart below is the Spain ETF in blue and the S&P ETF in red for the past week with 30-minute bars. The chart can distort things a bit as Spain was down about 5% for the week while the S&P was down about half of that. I wanted to include this because Spain is hurtling towards bankruptcy and will soon be in the same line as Greece - waiting for a bailout. Yet, they still trade as if they are a viable sovereign concern. For that matter, the world is bankrupt but the stock rally continues. Some day the illusion will vaporize and so too will the market. Brace yourselves. Austerity is likely to become a hated word. So too is reality.

April 26 - 30 EWP = blue line, SPY = red line
Chart Courtesy