S&P 500 Futures Rally 70 Points, Then Fizzle and Go Red Again

That was some rally, no doubt taking out many shorts, but alas, the fundamental weakness in the world economy bears sway, and stocks are negative again. That was a powerful rally, suggesting that Wall Street perceives that the market is oversold, but the continuing weak data make it difficult to sustain any rally.

The Fed is likely to announce a new program of monetary inflation today or tomorrow. If they announce it today, it will be a sign of how urgently "Bubbles" Bernanke perceives the crisis to be. Even if they wait until tomorrow, it is still a sign of desperation.

Ultimately and eventually, they will collapse the entire financial system in their irresponsible hubris. Bernanke himself has stated that his policies are "unprecedented measures"; in other words, he hasn't the slightest idea what effect they will have in this complex and interconnected world. But like a foolishly arrogant teenager with a chemistry set, he won't stop until he blows up the neighborhood. That is his destiny!

Trouble this way comes! Big trouble!

Bizarre!

This is the most bizarre trading day I've seen in awhile. Crude oil is up $4 and still climbing. Gold is up $20 and still climbing. Grains are up. Stocks are down. Dollar is higher. Bizarre!

Turmoil in Broad Financial Markets

Good summary of the market turmoil today from Marketwatch:

The Dow Jones Industrial Average (DOW:DJIA)  fell 103 points, or 0.9%, to 11,178, its lowest level since Nov. 2, the day of the U.S. congressional midterm elections. The Dow had surged nearly 220 points the following day, when the Federal Reserve announced its $600 billion bond-buying program.
The Dow has fallen 2.5% this week on worries about the consequences of the Federal Reserve’s quantitative-easing program. Renewed concentration on Europe’s sovereign-debt issues added to fears over the global economy.
“We’ve digested the third-quarter earnings and now we see the macroeconomic concerns come back to the fore,” said Benny Lorenzo, chairman and chief executive of Kaufman Brothers. On Friday, stocks slid as concerns were reignited that China could be moving toward further tightening of its monetary policy.
The Nasdaq Composite Index (NASDAQ:COMP)  fell 1.5% to 2,518. The S&P 500 Index (MARKET:SPX)  shed 1.3% to 1,198.
Materials and energy stocks led the measure’s decline as investors worried demand could slide if China, a big user of natural resources, cools its economy. Fertilizer producer CF Industries (NYSE:CF)  slid 5%, while Freeport-McMoRan Copper & Gold (NYSE:FCX)  sank 4.5% and metal processor Allegheny Technologies lost 3.2%. Aluminum maker Alcoa (NYSE:AA)  dropped 2.5%.
Crude-oil prices slid more than 3%, and gold futures dropped nearly 3%.

Stocks plummet in China

Why stocks in Shanghai plummeted more than 5% on Friday.

Asian markets tumbled on Friday as concerns resurfaced that the Chinese government would further tighten monetary policy to counter inflation. The benchmark Shanghai Composite Index fell 5.2%, erasing nearly a quarter of a three-month market upswing in one day. It was the index’s biggest drop in 14 months.
Not all investors fretted over potential tightening in China.
“They’re taking prudent measures to keep their inflation in check,” said Brian Peardon, wealth adviser at Harrison Financial Group. “It’s not going to kill their growth, it’s just going to keep it in control.”
Boeing (NYSE:BA) was the Dow’s worst performer on Friday, shedding 3% after Bernstein Research cut its investment rating on the company to market perform from outperform, citing “greater margin risk” on the 787 aircraft.
Walt Disney (NYSE:DIS)  was one bright spot for the Dow, surging 5.2% after its quarterly profit declined 6.7%, though some of the weakness was due to one-time events and its quarterly period included one less week than the same period in 2009. Disney’s movie studio swung to an operating income of $104 million, helped by “Toy Story 3.”
“The fundamentals are pretty strong when you take out the one-time items,” Lorenzo said.
Intel (NASDAQ:INTC)  rose 1.5% after its board approved a 15% dividend increase starting with the first quarter as the semiconductor maker said it continues to generate strong cash flows.
The U.S. dollar weakened against the euro, which was trading (REUTERS:USDEUR)  recently at $1.3679, up from $1.3659 late Thursday in New York.
Demand for Treasurys declined, sending the 10-year note’s yield (U.S.:UST10Y)  up to 2.73%.

S&P Downgrades Debt Ratings on Largest Financial Institutions

Standard and Poors has now dowgraded the debt on 11 major financial instutitions, including Bank of America, Deutsche Bank, JP Morgan, Morgan Stanley, Wells Fargo, and Goldman Sachs. And to think that JP Morgan, Bank of America, and Wells Fargo were touted as the strong ones that could rescue some of the others! Ouch!

Even more bad (debt) news. Jumbo prime loan instruments are also now being downgraded too as default rates are rising rapidly. This is ominously frightening in that it portends the likelihood of a flood of new mortgage defaults and foreclosures on the homes of America's wealthy borrowers.

Click here for the full story from Reuters.

CFTC Monitoring Markets

And now, the CFTC is monitoring the financial markets also, for the possibility of an intervention into the markets.

I have liquidated all futures. This is just too scary to remain in the markets for the time being. I'm sitting tight until a clearer picture develops!

Terrible Turmoil!

The Dow is now down by more than 300 points tonight, including loss of fair market value. We can not estimate the impact tomorrow of the weekend events in the financial markets.

Lehman Bros is filing bankruptcy tomorrow. This is a sad end to a company that has been in existence since the Civil War, survived two World Wars and the Great Depression.

The Federal Reserve has forced Merrill Lynch, the largest brokerage, to sell itself to Bank of America, one of the world's largest bank. WAMU and AIG are still in very troubled waters and may also face imminent collapse.

An emergency fund has been created by the Feds to finance losses due to the Lehman Bros. losses. The 10 largest banks in the United States has set up this new emergency fund to try to shore up the banking system, but no one understands right now what this is for. It simply creates a spirit of panic!

Things in the financial markets just went from very bad... to much, much worse! What a weekend!

I was chatting with a friend over the weekend, and we were both expressing considerable concern for the state of the U.S. economy. I asked him his thoughts, somewhat tongue-in-cheek, if we might be facing a national bankruptcy. He said something that I thought was insightful. He said that nations don't declare bankruptcy. Instead, they hyperinflate! I had never thought about this before, but I thought it was an interesting perspective on the state of affairs.

I think I just became a gold bug! Grains iare flat tonight. Crude oil is down. The Dollar is crumbling. But gold is substantially stronger.

Today -- Tumult and Turmoil!

With the amount of worry and turmoil in the market today, I expect that we will soon see another rescue or bail-out very soon. Here is a quick summary:

Dollar is Down, and if it remains this low, it will be in bear market again at day's end

Gold is Up $50/oz. in a few days

Oil is Up partly due to geopolitical supply fears, partly due to Dollar weakness

Treasuries are Down due to fear that the Feds will have to bail out Fannie, Freddie

Commodities Up almost across the board due to Dollar weakness

Stock Stampede! Great Legs!

The latest Fed rally today has legs! The Dow closed today higher by more than 400 points, and continues even higher in after-hours futures trading! This one may be just the ticket to put in a firm bottom on the stock market and provide the boost necessary to ensure that the United States economy is able to begin a well-anchored recovery. I am being told by some of my insider friends that by allowing investment bankers to borrow against some of their questionable derivatives and exchanging them for U.S. Treasuries at 28-day intervals, this latest Fed move may be able to provide liquidity to the financial markets without igniting more inflation. This action would provide short-term relief to Wall Street without huge new injections of additional money (emphasis on the word additional). If this move forestalls deeper Fed rate cuts next week, it might work. We shall see!

I'm not that easily convinced. But the rally today in stocks suggests that the financial markets are seeing optimism and a possible end to the quagmire! The charts seem to reflect the stock market optimism today. The only thing that worries me is the possibility that while this action might not increase the money supply, much of that additional liquidity will end up in the commodities markets, kindling still higher prices in energy, metals, and agricultural products and igniting yet higher inflation. Fed Chairmen have admitted that while they can pour money into the markets in an attempt to grease the economic engine, they can't control where that money will go. Again, we shall see!

One thing is for sure:

This was an undeniable stock stampede today!

Commodity Super Cycle reignited by Fed

I have placed a link below in this post to a fantastic article written by Gary Dorsch, a brilliant analyst and writer in the financial markets. The chart at right is one of several in his article that powerfully communicates the compelling and robust inverse relationship between the US Dollar weakness and global commodities prices. He writes the Global Money Trends newsletter, and authored this lengthy but cogent article on Seeking Alpha. The main thrust of his article is also underscored by this very powerful chart (above right) that I copied from his article. This is one of the finest articles I've read for some time. It is a must read article to be found here:

Commodity Super Cycle: Ready to Rumble in 2008

Enjoy all, and make sure you let Gary know how much you appreciate the effort to write such a superb article with so many charts, facts, figures, etc. Excellent stuff!