Monday was Memorial Day—a tribute to those brave soldiers who have fallen in battle fighting for our freedom. We salute them and honor their sacrifice. It was also a time to consider what motivates us to continue this never-ending bloodbath. Ron Paul put it best:
We cannot talk about the budget deficit and spiraling domestic spending without looking at the costs of maintaining an American empire of more than 700 military bases in more than 120 foreign countries. We cannot pat ourselves on the back for cutting a few thousand dollars from a nature preserve or an inner-city swimming pool at home while turning a blind eye to a Pentagon budget that nearly equals those of the rest of the world combined.
Tuesday, Asian markets rose about 1% on rumors that China will add more stimulus to try to avert a decline in its economy. European and U.S. stocks followed suit in spite of the escalating banking crisis in Europe. Consumer confidence showed a big slide falling from 69.2 to 64.9. The home price decline continued to bring that number to the lowest level since the housing bubble burst.
We’re living the multi-tiered housing market that that presents great difficulty finding anything desirable available to us—even as cash buyers—in anything but the top tier. Take a look at the chart at the bottom of this article from Zero Hedge to get a great picture of this, another phony, manipulated market. Also, because banks can lie about the value of these (REO) assets on their balance sheets, they’re not in any particular hurry to move foreclosures and register the loss.
Perhaps people bought stocks Tuesday under the assumption that bad is good—raising the hope that the Federal Reserve will announce some more monetary easing. Whatever the reason, it was a “Katie bar the door,” “risk-off” stampede that whisked the VXO fear gage below 20 and U.S. stocks up 1%. Despite of all that misplaced enthusiasm, Facebook, did not fare well, down another 10%. It’s still priced about $20 higher than it ought to be, as far as I can tell. With China denying the stimulus rumor, will this first day of the week mirror last Monday’s one day wonder? It should be interesting.
In Asia Wednesday, stocks closed down around 1%. Europe followed suit down 2% as markets reverted to “risk-on” and fear of bank failures heightened. Three Federal Reserve presidents spoke, adding to the confusion. Greek 10 year bond rates moved back above 30% while Italian bonds flirted with 6%. Meanwhile, the U.S. Treasury bond rate plummeted to close at a record low of 1.625%, oil futures dropped below $88/barrel, and the U.S. dollar index soared above 83 while stocks closed down about 1.5% on moderate volume.
With the return of some limited fear, the VXO jumped back over 20 to 22.40. Facebook continued its inevitable decline but strangely lost only about 2%. S&P upgraded IBM’s bond rating a notch citing a good balance sheet and bright business prospects, but they failed to mention a bloated stock price. That didn’t seem to help much though as the stock deflated another 2%. Bucking the across-the-board losing trend, gold, after dipping 1%, then (for no particular reason) rose to end up for the day about 0.5%.
Thursday, the slide continued with Aisan stocks dropping 0.5%. Europe took a break from the carnage there to close flat and U.S. stocks did the same on strong volume. The U.S. Treasury bond interest rate plunged below 1.54% before recovering to 1.58% to end the day. While there remains less than one month remaining for the program, you still have to wonder why the Federal Reserve doesn’t pull the plug now on “Operation Twist” in light of this huge distortion. For the month of May, stocks lost about 6%. It looks like investors followed the adage to “sell in May.” The next question is, did they “go away”?
The carnage resumed Friday as dismal economic news dominated the airwaves. It started with low growth numbers from China, moved to Europe with disappointing news on the economy and employment, and was capped with a surprise to the downside with U.S employment data. Unemployment ticked up to 8.2%. Equities reacted in line with the news. Stocks in Asia gave up another 1%, Europe shed about 2%, and the U.S. tumbled 2.5%. Fear shot higher with the VXO back well above 25 to settle at 26.29 on continued moderate volume. AAII investor sentiment also registered more strongly bearish.
The 10-Year U.S. Treasury Bond rate descended further, dropping over 8%, to reach 1.45% before recovering a bit to close at 1.47%. Also caught in this downdraft, oil sunk over 4% to end at 83.90. Bucking the trend again, gold miners roared back up over 8% on their recent roller-coaster ride. From the over-hyped stock department, we have IBM closing at 189.08 and Facebook tumbling over 6% to close at 27.72. And finally, from the ominous technical indicator department, Friday each of the major indices broke below and closed below its 200 day moving average while the VXO broke above. Note too that this strong slide occurred on the first trading day of the month which normally shows a positive bias.