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There will be no sustained recovery until the banks are restrained, and the financial system is reformed.
VIX spiked and the traders are edgy, but there remains a widespread belief in a cynical resolution. I have a suspicion that the US is being brought to a crisis so that the bankers, through their political proxies in Washington, may make the people another offer which they cannot refuse.
In other words, there is 'a whiff of TARP in the air.'
I had to chuckle again a bit as the pampered princes and princesses on Bloomberg were puzzled by the weak GDP number this morning in the light of 22 percent rises in corporate profits.
If something looks too good to be true, guess what. But what else would one expect in a system of lax regulation, crony capitalism, massive corporate tax evasion, corrupt regulators and ratings agencies, and widespread accounting fraud?
"That brings us to the final outcome of this debacle. A radical campaign to reshape popular opinion recognized the seductive potential of the appealing phrase "free markets." Powerful business interests, largely captured regulators and officials, and a lapdog media took up this amorphous, malleable idea and made it a Trojan horse for a three-decade-long campaign to tear down the rules that constrained the finance sector. The result has been a massive transfer of wealth, with its centerpiece the greatest theft from the public purse in history.
This campaign has been far too consistent and calculated to brand it with the traditional label "spin". This manipulation of public perception can only be called propaganda. Only when we, the public, are able to call the underlying realities by their proper names—extortion, looting, capture, propaganda—can we begin to root them out."
Yves Smith, Econned
The early gains fall apart, as Wall Street grows increasingly 'nervy' over the House Republicans increasinly awkward looking actions on the debt ceiling. They are bending over backwards to impress a minority element in their Party.
No I am not talking about the Tea Party. I am talking about the big money corporatists, who write the politicians' pay checks. The Tea Party are hapless tools and cannon fodder for these folks, but they just don't realize it yet.
You cannot have a recovery until your reform the financial system. The white collar criminal class does not know how to say 'enough.' Their greed is obsessive - compulsive, not rational.
"State-sponsored [financial] terrorism is the systematic use of [economic] violence to create a general climate of fear in a population and thereby to bring about particular political objectives. It is employed by governments, or more often by extremist factions within governments, against that government’s citizens, against factions within the government, or against foreign governments or groups.”
Encyclopaedia Britannica
Wall Street was strapping on its dynamite duds today, preparating to bring a little more pressure to bear on the deficit reduction talks. Give us what we want or we will a) crash the economy b) move our jobs to the Cayman Islands c) stop contributing enormous sums to fund political campaigns d) all of the above.
And the major players are in intense meetings with the principals, from both the financial demimonde (ratings agencies) and the political swamps (congressman on payroll), getting briefed on what will actually happen so they can maximize their returns.
Just another day in the 'hood with the hoods.
What you see is not what you get.
I think the toughest trade might be to decide what to carry into the weekend.
I can't recall this amount of bare faced lying and misleadingly hysterical headlines in quite some time. Well, that's a currency and class war for you.
Great drama in Washington. Does anyone recall that there was a budget surplus in Washington not ten years ago? What transpired to change that is unfunded wars on two fronts, and tax cuts for the wealthy to promote growth in support of a trickle down economic theory that is a hoax. And of course the financial crisis from the banking bubble and the decline in employment and associated tax revenues.
The markets are signalling that they do not think the US will default. But as the week progresses, and if nothing changes, look for a possible flash crash to signal to Washington that their apparent nonchalance is misplaced.
They could accidentally stumble over the cliff, and there are some large financial firms and powerful people that would welcome this.
Speaking of tumbling over a cliff, Netflix is getting hammered after the bell on a brief glimpse of reality in their quarterly financial report. I spent years as a product manager, doing all the planning, operations and pricing. When I saw their new pricing proposal I assumed that they were planning on exiting the DVD business for some cost based strategic reason. If this is not the case, someone should lose their job.
If I were ever to give any advice to a leader in troubled times it is this:
"I am a firm believer in the people. If given the truth, they can be depended upon to meet any national crisis. The great point is to bring them the real facts."
Abraham Lincoln
For all his eloquence and presence, Obama is one of the more timid and abstract communicators I have seen. And this makes people suspicious of him. It makes it appear that he has something to hide. Does he even know how to use a visual aid like a chart? He needs to stop being overwhelmed by the spin in his message, and start using it to convey real information and thereby make his case. There are a few intelligent people out there, but he is losing them quickly.
Markets were shocked when CAT came in light on earnings this morning despite posting a healthy 37 percent increase in revenue. The profit shortfall was attributed to "inflation in raw materials and labor." Of course there was no inflation in that revenue right? I wonder if they are having trouble hedging their forex exposure again.
Markets are coiling for moves which may be large based on the resolution of the US budget impasse, one way or the other.
I think it is theater, but it is not impossible that the players might accidentally stumble over a cliff. More likely the can will be kicked down road-wise, and both sides will claim victory, although the Dems will eat crow served up by that rascally Uncle Obama. How come he never betrays the money men? Oh, dumb question, never mind.
However, out of all this, I think a credible challenge to Obama is shaping up for the elections next year, and not from the extruded corporate man, Mitt Romney, or the banjo-playing daisy mae's Palin and Bachmann.
The fat cats were begging Chris Christie to run, but he knows he is over his head as it is and the skeletons in his closet might not survive national exposure. There is Perry of course, but that strawman needs a brain like Karl Rove to pull it off.
The O-Man talks a great game, and he might pull it off again, but this time he is burdened with a track record that does not match his words.
No I think we will see a dark horse candidate, maybe a third party or even a Democrat primary challenge, take Obama on. And he has no one to blame but himself. He will most likely cry all the way to the bank, following young Timmy to Wall Street in some capacity. I think he has blown his chance to be the greeter at Wynn's Las Vegas.
Markets soared today as it was risk on, with hopes buoyed by the 'European Deal' and 'better than expected' results from Leading Indicators and the Philly Fed.
There was a rumour of a US budget deal that was released intraday, but it was quickly denied by the White House.
Forecast: cloudy with a chance of fraud, high heat, and isolated disasters.
Not a constructive day for the bulls. Let's see if they can gather themselves together tomorrow. If not, downside beckons.
The intramurals in Washington are shaking the confidence of the markets. The House Republicans are starting to resemble economic brownshirts, in the radical service of their masters, the monied interests.
"Government has coddled, accepted, and ignored white collar crime for too long. It is time the nation woke up and realized that it's not the armed robbers or drug dealers who cause the most economic harm, it's the white collar criminals living in the most expensive homes who have the most impressive resumes who harm us the most. They steal our pensions, bankrupt our companies, and destroy thousands of jobs, ruining countless lives."
Harry Markopolos, Madoff Investigation Congressional Testimony
It looked as though we might get some action in stocks today, and sure enough, on the 'better than expected' news from IBM the markets rallied hard, led largely by tech. Obama and the Congress threw the market a bone and hinted that there might be a resolution to the debt ceiling 'crisis.'
So far this is just a counter trend relief rally. It may have further to go, but a downdraft is just a news headline from Europe or Washington away, so be careful.
The SP held the important support at 1295, and actually closed at the psychological number of 1300.
The sovereign debt situation around the world is hanging on the market, as well as the deteriorating domestic GDP fundamentals.
We are now well into earnings season, and we should find the push and pull of the short term and the macro to provide interesting cross currents.
In other words, this is a traders' market.
"A clique of U.S. industrialists is hell-bent to bring a fascist state to supplant our democratic government and is working closely with the fascist regime in Germany and Italy. I have had plenty of opportunity in my post in Berlin to witness how close some of our American ruling families are to the Nazi regime. . . Certain American industrialists had a great deal to do with bringing fascist regimes into being in both Germany and Italy. They extended aid to help Fascism occupy the seat of power, and they are helping to keep it there."
William E. Dodd, U.S. Ambassador to Germany, 1937
The pivotal .50 retracement support at 1307 held again today on the close.
Tomorrow is options expiration.
Obama is calling for a meeting this weekend at Camp David to discuss the debt ceiling.
Watch it, this market may take off one way or the other over the next three weeks.
Support at 1307, the 50 fibonacci level, held again today. The 1295 level is the .618 as you may recall.
The market popped on Benny's reassurances that QE3 awaits the next stumble, but it did not stick, which is far from bullish action.
Friday is options expiration.
We are in earnings season, and the accounting and financing gimmicks may make them look rather rosy. But watch the guidance.
The US economy will absolutely not recover until the wager earners get back on their feet. This implies increased employment AND an increasing median wage. The headwinds against this are strong, and far from cyclical. The rentiers are sapping the life out of the working classes, and especially the middle class.
If this is just a correction it will not stick a close below 1295, which it touched briefly today, because that is the fibonacci retracement of .618. The futures closed at roughly the .50 at the end of trading. If it does break support then we would likely be looking to retest the old bottom from this rally.
As a reminder this is an early option expiration for stocks this week, it being the third Friday of the month. So shenanigans are de rigeur.
Be very careful. This market is a flat foot floogie with a floy, floy.
The equity markets pulled back sharply today, down to our support levels, as they had a bit more difficulty ignoring the debt situations in Europe and the US.
The key pivot level on the SP Futures is from 1305 to 1307.50.
Let's see if this support level will hold. Alcoa reported a revenue beat and an earnings miss after the bell. Earnings news from individual companies will present a set of cross currents to the macro developments.
So we might have a stock picker's market with the important caveat to watch the overall global situation and be prepared to react to it.
I am fairly confident that Obama and Boehner have already reached a deal of sorts, with some details still to be provided closing some tax loopholes and allowing tax cuts to expire in a couple of years, with overall budget cuts around 2.5 trillion or so. It remains to be sold to the House, and the Senate will approve.
Both sides will claim victory.
No real problems will be solved.
The actual resolution will come as a response to the next financial crisis. It will probably be messy, and sub-optimal, but seemingly the only choice left on the table.
Until then they will continue to serve up politically based and increasingly bizarre concoctions for Benny and the real economy to watch, increasingly in despair of something worthwhile and substantial.
Watching these jokers at work is emotionally draining, like prune juice for the soul.
Fairly disappointing Jobs Report, but Wall Street has its eye on earnings season and the puffed up corporate numbers that will start rolling out next week.
Watch out for the short term noise, and keep your attention focused on guidance, rather than current numbers which are two parts accounting fluff and three parts Fed subsidies.
If the consumer is not healthy, American business will not be healthy. The effects may just show up with a lag.
Additionally, I have included the daily cash charts of the SP 500 and the NDX with some indicators that seem to suggest that the markets are overextended for the short term, and are ready for some consolidation and perhaps a pullback after this amazing run higher. It can of course become even more overbought in the short term.
Tomorrow is the Non-Farm Payrolls report for June.
This market rally is over-extended, but it could drift higher in the absence of news founded in economic reality.
There is optimism over the earnings season which starts shortly.
The boyz are quite anxious for mom and pop and a few of the institutions to put some cash in this market. You can't keep passing around a hot potato forever.
Market is ignoring bad news and is focused on the Non-Farm Payrolls Report on Friday, and the beginning of earnings season next week.
Stocks levitated on light volumes ahead of the ADP report on Thursday and the June jobs report on Friday.
Moody's downgraded Portugal's credit rating around 2 PM NY time, and this took some of the wind out of the market's sails. Nice of them to wait until after the European close to do so. The agencies remain the creatures of Wall Street, and possibly, of US government policy.
This rally is full of air. But try not to get in front of it.
Obama speaks this evening on the efforts of the US to reach a budget agreement that raises revenue in addition to cutting spending before the Treasury exhausts the ability to meet its obligations.
There are those who foolishly desire such a default, as yet another opportunity to loot the real wealth of the nation, and to foment unrest as an occasion to increase their power.
Such is the way to tyranny.
A coincidence of the Greek crisis and the end of QE2 had a lot of bears leaning into the short side of the market. When Greece was finessed for the short term, and the end of QE2 did not produce the forecast immolation, the short term trends turned sharply, and it was 'risk on' with the dollar and gold and bonds weakly falling and stocks soaring.
So what next? In the short term this equity move looks a bit overdone, but until volumes pick back up it may drift even higher unless something happens. I think it would be hard to be too cynical about this market and the US governance model in general. Lies, easy money, oath-breaking, and double dealing seem to be prevalent.
Zynga Files One Billion Dollar IPO
Late breaking Friday after the close news, the SEC is escalating their investigation of St. Joe's and names chairman Bruce Berkowitz.
Overall the problems in the economy and the financial system are not being dealt with effectively at the source, and the coverups continue. Any time a reform, or even an assertion of the law and justice, is undertaken, the financiers respond with threats of crashing the economy. This is due in large part to their faithful servants in the Republican and Democratic parties, and the weak-kneed American president.
Have a pleasant holiday weekend Americanos, and we'll see how Asia opens on Sunday evening your time.
