Monday, stocks fell slightly in Asia, dropped 0.7% in Europe, and tumbled 1% in the U.S. on low moderate volume. The VXO (fear gauge) shot up nearly 20% to close at 13.23 and oil slid over 4% to close at $63.09 per barrel. Gold rose over 1% to retake the $1200-per-ounce level. Here’s an article that shows the worst offenders in the game of companies eating their own tail. Of course, turkey-stock IBM is one of the top offenders.
Tuesday, stocks fell 0.7% in Asia. Part of the day’s negative movement in stocks was reportedly in reaction to tightening moves made by the central bank of China. A crash in the Greek stock market didn’t help matters either. Stocks in Europe plummeted 2.3%. In the U.S., stocks went south too for a while but at the close were down only slightly on low moderate volume. Precious metals and their miners shot up 4%. Wednesday, stocks fell another 0.7% in Asia and 0.4% in Europe. In the U.S. though, stocks plunged 1.7% on low moderate volume and on the heels of crashing oil, down nearly 4%, as the VXO skyrocketed over 30% to close at 17.69.
Thursday, stocks fell again in Asia — this time 0.8%. They traded unchanged in Europe, and rose 0.3% in the U.S. on low moderate volume. Oil slid almost 3% to close below $60 per barrel. Despite rising stocks, the VXO gained another 3% to close at 18.28. The gain in stocks of over 1% during most of the day fizzled out near the end of the day. One wild card was that the expected passage of a budget bill that had to be passed by midnight to avoid a “shutdown” started meeting some headwinds.
Late that night we witnessed that central banks not only hold the normal forces of the economy hostage, but with the passage of the Omnibus tax bill in the House of Representatives their owners also gained the privilege to be bailed out by the U.S. taxpayer when their derivatives blow sky high. Surprisingly, stocks were down Friday despite this gift to the big banks. It’s not a done deal until it makes it through the Senate though. Perhaps that was the problem. In Asia, stocks fell slightly, but they tumbled in Europe 2% and in the U.S. 1.8% on moderate volume as the price of crude oil dropped another 3% and closed at 58.21 while the VXO shot up another 14% to close at 20.89. For the week, stocks fell 3.5%, oil fell over 11%, precious metals gained about 4%, and the VXO fear gauge skyrocketed 45% and closed over that pivotal 20 level.
This is just speculation on my part, but it’s interesting to watch turkey-stock IBM which this week broke below $160 per share and fell 3.5% Friday. (It still has a long way to go to reach fair value in my opinion.) The company looks like little more than a tool for the company executives to manipulate numbers in their favor for fat bonuses. My guess is that in any given year when executives realize they will not make their bonuses, they become motivated to manipulate things the other direction to lower the bar for the next year.
That way, while they lose in the present year, they can at least hope to achieve a fat bonus the next. This ploy can happen with other companies as well — especially those large enough to borrow money for nearly nothing and buy enough stock to create market-moving volume for shares of their stock. It looks like built-in motivation for company executives to make negative moves in stocks fast and furious while making gains steady and prolonged. That’s my two cents. Perhaps there’s a more noble explanation, but I wouldn’t count on it.