Friday, June 25, 2010

Stock Market Review - 06/24/2010

Stock Markets Yield to Currencies

The chart below is the DIA showing an intraday look at the past week. The Dow lost some 4% so it was rather nasty. A look at the volume at the bottom of the chart shows several strong buying attempts as denoted by the green volume bars. Comically, the PPT continues to try and jigger the indexes higher. June 22 gave us the strongest PPT attempt of the week. The Fed concluded their scheduled meeting by leaving rates at zero and saying that the economy looked a bit weaker. That was at 2:15 PM. With an already declining market, they stood ready at 2:20 PM to blast the market with a swarm of buying. In ten minutes time, over a million shares of the DIA traded. At $103 per share, that comes to about $100 million dollars. And that's just for one index. They goosed all the other indexes similarly so apparently they didn't think any of us would notice the extra half trillion or so pumped into the markets in a ten minute span. The Dow of course rose 70 points in that ten minutes only to surrender all of the gains by the end of the day. Again, all the big volume attempts of the week came at the beginning of the trading day, the end of the trading day, or at points where it looked like the markets would 'mistakenly' crash triple digits. Need more proof?

New home sales were announced Wednesday. They were down 33% - the most since recording began in 1963. Permits were down. Starts were down. Previous months' starts were 'revised' down. However, the real estate sector, IYR, was up strongly. So were the home builders.

On Friday, Barney Frank and the other village idiots finalized a 'financial reform' package that was sold as the most 'sweeping since the Great Depression'. Supposedly it cracked down on the banks that have been Madoffing the public for the past decade. You know Barney. He's the fellow that has co-piloted Fannie Mae and Freddie Mac to the black hole of eternal losses in an attempt to subsidize the US housing industry. Of course, the tax payer now subsidizes both losers that would not exist under true capitalism. So now Mr. Frank has crafted new financial legislation that was of course jammed through on Thursday night so Mr. Obama would have something to crow about with his G-8 leaders at their meeting in Canada. It was all for the show. The reaction of the market told the story. The financial sector rallied rather smartly on Friday as traders determined that the torpedo fired at the financials was pass by without impact. Hopefully there weren't any South Korean subs nearby to absorb the punishment. Maybe we have already sunk enough of their boats. Hey, that downed sub kept the US on the peninsula of Okinawa! Mystery solved!

So now, banks can get back to their business of fleecing the world and controlling unctuous government leaders. Meanwhile, austerity reigns supreme in Europe and foreclosure reigns supreme in America. All is well. For the first time in history, banks now own more real estate than the private sector. Of course, their end game is not complete until they own it all so those of us who are fortunate enough to still pay our mortgages have a few more years to enjoy our illusion of security and wealth. Letting Barney Frank write any legislation is like letting Ray Charles play goalie for the soccer team. The banks are going to continue to score. That's what the market said with its money. All of this is transpiring as yields on US Treasuries continue to fall. If all was well, why would investors continue to buy Treasuries that yield 3%? One reason, of course is that investors don't feel confident that they could make 3% in the stock market. A second reason is since governments all over the world handed over the Treasury Department of their citizens to the banks, the banks just plow the money back into Treasuries. The last reason is a lot of people, like me, are seeing the end game rather clearly. You want to buy government bonds now because you can still get 3% and the governments will print money to avoid default. Eventually, all debt yield issued by governments will yield zero so banks can manufacture money a zero cost to lend to their customers at something above zero producing a 100% profit.

In the end, the debt is not the issue. The issue is the debt creates the master profit maker - the derivatives that are tied to sovereign debt. As long as derivatives can be used to churn profits, the debt can not only stay on the books forever, but it can grow to the sky! The big banks will continue to write and trade derivatives as they become the sacred cow of profits. Eventually, the banks won't have any reason whatsoever to lend money to you or me. Their business will be sustaining sovereign debt with derivatives. Most importantly to them, they must continue to promote leaders like Mr. Obama who sees no evil in debt. Why does this matter? Eventually, the banks won't even need a stock market either.

DIA - 1 week intraday, 5-minute bars
Chart Courtesy

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