Wednesday, May 27, 2009

Hints and allegations

Greetings good citizen,

“You do the Hokey Pokey and you turn yourself around, that’s what it’s all about!”

Apparently I am not alone in being puzzled by the disturbing contortions being performed by the financial markets.

Perhaps more ‘damning’ is the fact that if you don’t like one commentator’s ‘opinion’ just keep browsing, you’re sure to find someone that agrees with you!

It would be one thing if the ‘confusion’ were limited to um, ‘civilian commentators’, reading bloggers like my humble self only provides you with a filter to assess what the ‘average Joe’ makes of things.

No irony should be lost on the fact that we ‘average Joe’s’ are more united in our opinions than the so-called pro’s.

I will provide my ‘assessment’ of the current perplexing situation after we examine this ‘I foretold you so’ article…

After Quiet Morning, U.S. Markets Begin to Slip

Published: May 27, 2009

After a big gain on Tuesday, Wall Street turned lower Wednesday afternoon as General Motors took another step toward bankruptcy court. [Um, does this ‘surprise’ anyone? Couldn’t see this coming yesterday?]

Stocks slipped after spending much of the morning trading within a narrow range. General Motors said not enough bondholders agreed to swap their debt for company stock, meaning the automaker is almost definitely headed for bankruptcy protection.

G.M. has until Monday to either finish restructuring outside of court or face a Chapter 11 filing. The announcement dampened the mood of investors who had grown more optimistic about the economy after Tuesday’s positive reading on consumer confidence.

“While consumer confidence looking forward is improving, the reality is the economy is still very weak,” said Alan Gayle, senior investment strategist at RidgeWorth Capital Management. [No kidding Sherlock, when did you come to this conclusion?]

Many investors have been expecting G.M. to enter Chapter 11 for some time, but the reality of it happening could still deal Wall Street a psychological blow. Any remaining value in the shares, which are currently trading just above $1, would be wiped out.

Some analysts say the market should be able to withstand an eventual bankruptcy filing. Mark Coffelt, portfolio manager at Empiric Funds, thinks Wall Street’s recovery since hitting 12-year lows in early March leaves stocks better suited to shrug off G.M.’s troubles. [Fat lot of good that will do the ‘real economy’!]

“The market has come a long way in a short period. I would expect it to settle out a little bit,” he said, predicting more back-and-forth days rather than a speedy recovery.

In early afternoon trading, the Dow Jones industrial average was down 108 points or 1.2 percent. The broader Standard & Poor’s 500-stock index was about 1 percent lower and the technology-laden Nasdaq was off 0.4 percent. [I’m writing this before the market close and it’s the S&P and the Nasdaq that are taking a pounding, the Dow is off…well, more than 108…let’s just say its poised to give back all of yesterday’s gains.]

On Tuesday, after an initial dip on worries about North Korea’s nuclear testing in Asia, stocks soared on the Conference Board’s surprisingly high [So ‘surprising’ that it borders on ‘unbelievable’] reading of consumer confidence. The May index was the highest since September. Consumer sentiment does not always correspond to consumer spending, but the data nevertheless fueled investors’ hopes for an economic rebound later this year. [So we brush upon the topic that is the ‘source’ of so much ‘confusion’.]

The Dow is 29.4 percent above the lows it reached in early March, but still 40.2 percent below the record high it hit in October 2007. [Depending on how you look at it, the Dow is still 6,000 points too high as far as being a measure of the ‘real economy’.]

Investors did not find relief in a bigger-than-expected increase in home sales because a rise in inventories fanned worries that homes languishing on the market would continue to crimp the economy by hurting consumers and banks that hold mortgages. [Chalk up one for ‘sanity’…it’s hard to go wild over an uptick in foreclosure auction sales when foreclosures are outpacing sales!]

The National Association of Realtors said sales of previously occupied homes rose from March to April as buyers hunted for bargains. Sales rose 2.9 percent to an annual rate of 4.68 million last month. But the trade group also said the number of unsold homes on the market at the end of April rose almost 9 percent to nearly 4 million. That’s a 10-month supply at the current sales pace.

Some analysts worry that rising prices could prompt some homeowners who had been holding off to put their homes on the market. The increase in available homes could short-circuit a recovery in prices and trip up the economy’s recovery. [There’s little chance of this happening as most homeowners are ‘underwater’ and ‘retirees’ are leery of selling a paid for property under the current economic conditions.]

Overseas, Japan’s Nikkei stock average rebounded 1.4 percent. In afternoon trading, Britain’s FTSE 100 rose 0.1 percent, Germany’s DAX index rose 0.3 percent, and France’s CAC-40 rose 0.5 percent.

Bonds were narrowly mixed ahead of an auction of $35 billion in five-year notes, part of the $101 billion in debt the government is issuing this week. The yield on the benchmark 10-year Treasury note fell, pushing its yield up to 3.56 percent from 3.55 percent late Tuesday.

The dollar rose against other major currencies. Gold prices rose.

Oil and gasoline prices continued their push higher Wednesday. Benchmark crude for July delivery rose $1.06 to $63.51 a barrel in New York trading.

Gasoline prices, which are up 19 percent in the past month, rose 0.9 cents overnight to $2.434 a gallon, according to auto club AAA, Wright Express and Oil Price Information Service. Prices are now 10 cents higher than a week ago and 38.4 cents a gallon higher than a month ago.

In the credit market, the cost of three-month dollar loans edged up from record lows Wednesday after falling consistently for the last month amid rising hopes that the worst of the global recession has passed.

The British Bankers’ Association said the rate on three-month loans in dollars — known as the London Interbank Offered Rate, or Libor — rose 0.01 of a percentage point to 0.67 percent.

Back to the narrative:

As we saw during the last (actually, pretty much every economic downturn, although I’m referring to the last huge downturn that lasted nine years) Investors are wired to think in terms of cycles.

They ignore fundamentals in favor of examining the past for clues as to when the markets ‘usually’ rebound.

Thus we have debacles like yesterday.

It’s been nearly 16 months since the ‘official’ beginning of this economic ‘downturn’. Investor logic dictates that the markets ‘should be’ bottoming out. Strangely, this is the identical ‘logic’ that was used to ‘predict’ recovery in the second half of this year.

Worse, every branch of the US government is pumping ‘funny money’ into the economy, providing investors with sufficient ‘ammo’ to keep the markets from crashing and these same investors from being wiped out.

From a ‘fundamental’ point of view, this is a serious problem. The stock market is so loaded with ‘imaginary’ wealth that it is diluting real wealth at a rate that will cause the real economy to ‘seize up’.

Taxpayers are being bled to keep the ‘fantasy’ wealthy alive. This has sparked a renewed debate on the subject of hyper-inflation.

Bizarrely, unlike Zimbabwe, the ‘average citizen’ will NOT be provided with wheelbarrows full of cash to chase basic necessities. Prices will rise and if you can’t afford it, ‘tough.’

Our trillion dollar bills are already sitting in someone’s investment account. There aren’t any to pass around.

Investors will continue to ‘play games’ with the economic numbers (using taxpayer money) while the real economy crashes and burns.

How diabolical is it when those who make decisions in our name don’t live like we live nor suffer as we suffer?

Not suffering now? It’s not over.

Thanks for letting me inside your head,


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