The Dow and U.S. dollar both plummet

[Thunder Dan]

Dow is down 2.64% today, over 5% in the last month and the US dollar is slowly becoming more and more worthless. People are in debt out of their eyeballs. Can't pay for their homes or anything else... :bang wtf the future looks bleek

[Wild Cobra]

Yes, and the markets will continue to have ups and downs like always.

[Yonivore]

There's going to be a lot of money to be made here pretty quick.

[Wild Cobra]

There's going to be a lot of money to be made here pretty quick.
No kidding. If I had the resources, I would jump head first into the markets. I would buy low sell high. We have a more dynamic market than past years for a long time. As investors take large programmed selling out of the markets, we get these large drops (buy) which then come back to reasonable levels (sell). I would also invest in foreign markets as the dollar will likely still fall for a while. Then sell when I think the dollar has stabilized.

[ChumpDumper]

The market hasn't bottomed out yet, but the dollar drop today was due to idiots.

[Nbadan]

Dow 13,300.02 360.92 (2.64%)
Nasdaq 2,748.76 76.42 (2.70%)
S&P 500 1,475.62 44.65 (2.94%)
10-Yr Bond 4.334% 0.023

NYSE Volume 4,301,126,000
Nasdaq Volume 2,561,721,000


4:25 pm : It was one of those nerve-wracking days on Wall Street where just about everything got hit - and hit hard. The biggest blow was suffered by the financial sector, which plummeted 5.1% amid a batch of headlines that stoked concerns about the fallout from the housing market's severe downturn.

Washington Mutual (WM 20.04, -4.19) was at the epicenter of the concerns after being accused by the New York Attorney General of pressuring real estate appraisers to inflate the value of their appraisals. Both Fannie Mae (FNM 49.79, -5.60) and Freddie Mac (FRE 45.13, -4.26) were subpoenaed in this matter as the Attorney General is seeking information on the mortgages they bought from Washington Mutual and other banks.

The word "collusion" was used by the New York Attorney General, which rattled investors who didn't like the implication of widespread fraud.

In light of this development, and a Royal Bank of Scotland report suggesting losses related to the credit crisis could ultimately top $250 billion, financial stocks were dumped en masse.

The financial sector fallout wasn't event the half of it, so to speak, on Wednesday.

Stock holders were also rattled by General Motors (GM 33.95, -2.21) reporting a third quarter loss of $39 billion after writing down the value of future tax benefits. Excluding the accounting adjustment, GM lost $2.80 per share in the period as mortgage-related losses at GMAC, in which it holds a 49% stake, more than offset the small profit from its automotive operations. Analysts had been expecting a loss of $0.36.

The weakneing dollar also occupied the market's attention all day, as it got knocked back on a report that China might pursue a plan to adjust its dollar holdings in favor of stronger currencies. The dollar index hit its lowest level since inception at 75.077 before rebounding a bit to finish the day down 0.8% at 75.412.

The dollar weakness was again seen as a buying catalyst for commodity traders who bid oil and gold futures as high as $98.62 and $855.00 at one point.

Oil prices eventually sold off and finished the day down 0.3% at $96.37. The reversal was attributed to profit-taking as the contract neared $100 and to a weekly inventory report that showed a lower than expected drawdown in stockpiles.

A report that third quarter productivity rose 4.9%, while unit labor costs declined 0.2%, was completely overlooked by the market despite being good news from an inflation standpoint.

The Treasury market took some notice, but it was driven primarily by a flight-to-quality trade that coincided with the stock market sell-off.

The 10-year note gained 12 ticks, bringing its yield down to 4.33%. The strongest buying action, though, was at the front of the Treasury curve as the yield on the 3-month Treasury bill dropped 30 basis points to 3.43% with traders registering concerns about the credit market mess and frontrunning the possibility of another Fed rate cut.

The market will get some important insight Thursday on Fed policy when Fed Chairman Bernanke testifies before the Joint Economic Committee on the economic outlook.DJ30 -360.92 DJTA -3.2% DJUA -2.4% NASDAQ -76.42 NQ100 -2.5% R2K -3.2% SOX -2.5% SP400 -2.3% SP500 -44.65 NASDAQ Dec/Adv/Vol 2444/587/2.53 bln NYSE Dec/Adv/Vol 2995/301/1.66 bln

3:30 pm : Heading into the final half-hour of trading, the major indices are holding near the bottom of their intraday ranges. All ten economic sectors spent the entirety of the session in negative territory.

Released at 15:00 ET, consumer credit for September came in at $3.7 billion versus a consensus estimate that called for a reading of $9.0 billion. This monthly measure of consumer debt is volatile and subject to massive revisions. It is also released well after every other consumer spending indicator, including weekly chain store sales, auto sales, consumer confidence, retail sales, and personal consumption. For these reasons, the market almost never reacts to the consumer credit report.

After the close, 59 companies are confirmed to report, including AIG (AIG 58.18, -3.87) and Cisco (CSCO 33.20, -0.88). Regarding AIG, the stock is down due to concerns the company might announce a write-down due to mortgage exposure.DJ30 -270.77 NASDAQ -66.15 SP500 -33.42 NASDAQ Dec/Adv/Vol 2360/654/1.96 bln NYSE Dec/Adv/Vol 2874/387/1.19 bln

3:00 pm : After slowly drifting upward for the past hour, the indices are back on the retreat. The small-cap Russell 2000 Index is again underperforming the broader market. At current levels, the index is showing a loss year-to-date.

Declines are broad-based this session, as indicated by the low 0.16 advancer to decliner ratio at the NYSE.

The DXY Index, which compares the dollar against major currencies, is off its lows, but still trading with a considerable 0.8% loss.DJ30 -253.62 NASDAQ -51.67 R2K -2.5% SP500 -31.00 NASDAQ Dec/Adv/Vol 2324/665/1.76 bln NYSE Dec/Adv/Vol 2814/440/1.11 bln

[clambake]

wow! buy low and sell high.

why didn't i think of that?

[Nbadan]

http://www.caglecartoons.com/images/preview/%7B3cc1c981-0c0d-4017-8450-2b2b12885a67%7D.gif

[BradLohaus]

The recent concern over the dollar and the stock market got me to thinking about the real returns of the Dow over the last few years. So I decided to crunch some numbers. I looked at the returns of the Dow Jones Industrial Average, the S&P 500, the Euro, and gold over the last 5, 3, and 1 years. In fact, for the 5 year mark, I went back to the lowest points of the DJIA and the S&P 500 in the last decade: 10/09/02 for the DJIA and 10/10/02 for the S&P 500. I did this to try to give those 2 figures the best returns possible. On some of the numbers I was looking at graphs, and just to be safe, I always assigned numbers that were on the liberal side for the DJIA and S&P 500, and on the conservative side for the Euro and gold. So if there are any errors in the numbers, they are definitely on the side of the Dow's returns, not the Euro's or gold's. I used yesterday's numbers for today. The Euro number is dollars per Euro. Gold is in dollars per ounce.

5 year returns:
DJIA: 7,286 >> 13,300 = 83%
S&P 500: 768 >> 1475 = 92%
Euro: 0.83 >>>>>1.46 = 76%
gold: 325>>>>>>>833 = 156%

Returns to gold are twice the returns to the DJIA for the last 5 years, Euro appreciation itself wasn't far behind the Dow.

3 year returns:
DJIA: 10,000>>13,300 = 33%
S&P 500: 1000>>1475 = 48%
Euro: 1.12>>>>>>1.46= 30%
gold: 425>>>>>>>833 = 96%

For the last 3 years, returns to gold are three times the returns to the DJIA, and twice the returns to the S&P 500. Euro appreciation is just shy of the DJIA's returns.

1 year returns:
DJIA: 12,190>>13,300 = 9%
S&P 500: 1364>>1475 = 8%
Euro: 1.12>>>>>1.46 = 30%
gold: 640>>>>>>833 = 30%

Over the last year, Euro appreciation and returns to gold are more than 3 times the returns to the DJIA and S&P 500. Much of this was in the past couple of months, with the Fed slashing rates and injecting money just to tread water.


All this tells us is what we should already know: We are in a credit bubble - a big, obvious, classic credit bubble. The Fed's actions over the last 5 years (and especially recently) confirm this. They have created more and cheaper credit, and gotten the country deeper in debt, to finance spending to keep the economy growing. These aren't real long term gains for 2 reasons: #1 they came largely because of artificially cheap credit, the cost of which must eventually be repaid, and #2 they came on the back of a greatly devalued dollar.

To add a little perspective, during the roaring 90s, the DJIA almost quadrupled, going from less than 3,000 to over 11,000. During the same decade, gold dropped from $400 an ounce to less than $300 an ounce.

The Fed has not allowed the 90s boom to make a sustained correction. Instead they created a credit bubble, and they won't let it deflate; they just keep inflating. That's why gold has shot up. The Fed gave itself the role of "lender of last resort" after the Great Depression. It appears that they have assigned themselves the role of "reccession preventer of first and last resort" 5 or so years ago. This spells disaster for the dollar in the long run. There could be short term (and short lived) dollar recoveries for years, but unless the Fed's policy is turned around at some point, dollar holders are in bad shape at the end of all of this, whenever that turns out to be.

[Nbadan]

Nice analysis Brad...Bill Bonner agress with you...keep your eyes and money on the price of gold......

Ben Bernanke Prepares Money Helicopter as Credit Contraction Begins
Posted by Bill Bonner on Nov 7th, 2007


“New car sales fall as buyers shun debt,” says a Wall Street Journal headline.

Just what we expected…but so long coming we had begun to wonder.

Americans represent nearly 20% of the world’s consumption. And the US economy, too, is more dependent on consumption spending than any economy ever has been. If American consumers don’t spend more, the whole shebang falls apart.

We are witness to something that doesn’t happen very often - like the eruption of a volcano…or the collapse of a bridge - the first stage of a credit contraction. So far, the effects have made the headlines, but it has not yet affected most people. So far…only at the top and the bottom of the credit structure are people getting pinched, squeezed and punished.

At the bottom, of course, are the ordinary homeowners.

“I’ve got a tiny little house on the edge of London,” explained a colleague yesterday. “I’ve got to sell it, because I put a contract in on another place. But it’s been on the market for three months now, and only four people have even looked at it. I’m getting very nervous…

“The problem is that it is a starter home. And the banks don’t want to lend to people who are buying starting homes. They’re the worst credit risks, because they don’t earn much money and don’t have much in assets. Naturally; they’re just starting out. But this is completely different from a couple of years ago, when the banks would lend to anyone…”

The people at the bottom are beginning to feel anxious. Many have never, ever seen a time when house prices were not rising and mortgage credit was not readily available. Many loaded up with debt when the going was good. Now that the going ain’t so good, they regret it.

Yesterday, we looked at the bull market in gold. We wondered how and why it might come to an end. If the credit contraction were to worsen, we concluded, the price of gold - in dollars - might go down.

When credit expands, more money enters the system…and prices rise. But then, there comes a time when the debts must be paid. Then, people have to take money out of the system; they have to cut back on their expenses in order to put aside the money to pay back the loans. The credit contraction phase is typically a phase of falling prices; as more and more currency is withdrawn in order to pay debts (and, incidentally, build up savings), less and less currency is available to buy things.

But wouldn’t the financial authorities simply emit more paper money?

Ah, yes, they would try. But that is what we learned from Japan. Once a credit contraction begins, it is very difficult to reverse. The Japanese tried monetary policy - with a central bank lending rate of “effectively zero”. And they tried fiscal policy - with the largest government deficits in the developed world. Still, prices fell.

Ben Bernanke has spent years studying the Japanese example. If we ever got in that sort of jamb, he says, he’d drop money from helicopters in order to break the contraction cycle.

We’re a long way from there. So far, we seem to be only at the beginning of a credit contraction. The average person doesn’t even feel it. When the squeeze begins, only the outer edges feel it first - the top and bottom of the credit structure.

But will it eventually involve everyone…and will the Bernanke Fed need to drop money from helicopters in order to get the economy moving again? Maybe… but then we’d really see the price of gold soar!

Bill Bonner
The Daily Reckoning Australia (http://www.dailyreckoning.com.au/bernanke-prepares-helicopter/2007/11/07/)

[Nbadan]

http://www.jsmineset.com/cwsimages/inventory/55802_CaptCrunch.jpg

[PixelPusher]

http://www.jsmineset.com/cwsimages/inventory/55802_CaptCrunch.jpg
China gives us lead flavored toys, we give them empty calorie securities. How's that for a trade balance?

[Wild Cobra]

Well, I'm far from an expert when it comes to investing, but I think gold is over valued right now from the scare. I would say hold however not buy. I would buy other commodity related metals that have not risen so high. I haven't looked it up yet, but metals like copper, titanium, nickel, etc. I believe the USA only has one nickel mine. It gets imported. As the dollar drops more, nickel becomes more valuable. It probably isn't over valued like god is right now. I'll bet gold will burst like the housing market has, but slowly climb in the future again. Question is, when will it burst?

P.S. I haven't looked this up, but I'll bet it's true.

[Walter Craparita]

There's going to be a lot of money to be made here pretty quick.

If only I were already 10 or so years out of college :( :hungry: :greedy

[xrayzebra]

Well, I'm far from an expert when it comes to investing, but I think gold is over valued right now from the scare. I would say hold however not buy. I would buy other commodity related metals that have not risen so high. I haven't looked it up yet, but metals like copper, titanium, nickel, etc. I believe the USA only has one nickel mine. It gets imported. As the dollar drops more, nickel becomes more valuable. It probably isn't over valued like god is right now. I'll bet gold will burst like the housing market has, but slowly climb in the future again. Question is, when will it burst?

P.S. I haven't looked this up, but I'll bet it's true.

Most commodities are over valued. Between the
speculators in the futures market and our most wonderful
MSM hyping everything as a crisis it keeps the pot
stirred. People will soon really tire of it and you will
see more normal prices return, IMO. There are going
to be some speculators really burned in oil and gold I
am thinking.

You know the MSM has cost the consumers more than
any segment of the community by putting out their
crisis stories. And they are all like "follow the leader".
One puts out a story that catches the eye and here
they all come with their stories. They can talk up the
price of an item in a matter of days. Sheeeesh.