A sense of panic gripped Wall Street Thursday as "perceptions" were trampled by reality. The fog of deception following the Fed lead bailout of Bear Stearns has lifted, and it's not a pretty picture.
Gasp! That man behind the curtain has no clothes!
Wave of bad news sends Dow down nearly 360
NEW YORK (AP) -- A barrage of bad news including yet another record high for oil drove stocks sharply lower Thursday, hurtling the Dow Jones industrials down nearly 360 points to their lowest level in almost two years.
The market also worried about fresh signs of trouble in the financial, high-tech and automotive industries. Negative analyst comments sent shares of General Motors Corp. stock to their lowest point in more than three decades.
Oil futures shot past $140 after the head of OPEC predicted the price of a barrel of crude could rise well over $150 this year and Libya said it may cut oil production.
Citigroup Inc. stock fell sharply after an analyst give it a "sell" rating and warned investors to expect less from the brokerage sector in an uneasy economy.
Disappointing forecasts from technology bellwethers Oracle Corp. and BlackBerry maker Research In Motion Ltd. further soured investors' moods and made the tech sector one of the steepest decliners.
The great fear on Wall Street has been that rising prices and worries about their finances will force Americans to curb spending and reinforce the economic decline.
Downside risks to growth have diminished? Ben! Snap out of it! Quit trying to light that roach, don't you know that's for recreational use only? Never smoke that stuff when you're on the job, man. It will make you look like a fool. And while we're on the subject, do something about that nose of yours, you look like Pinocchio. Ben, people still have not forgotten you told them a year ago that the "sub-prime crisis" was contained and would not spread to the general economy. You've hardly become a beacon of hope, Ben. More like a Lightning Rod Of Lies. You've convinced everybody your serious about no more interest rate cuts, maybe now would be a good time to just SHUT UP! Dude, get yourself some help...
Lost in the tsunami of bad news was a rather useless headline about 1st Quarter GDP. GDP numbers never fail to be held up as "proof that the economy is growing". But in reality these numbers are backward looking as they pertain to "water that is now passed under the bridge". GDP numbers tell us more about the recent past than about today, or tomorrow. For nearly three months now we have been "lead to believe" that the US is NOT in a recession because GDP remains positive. Has it?
GDP revised upward to 1.0% in first quarter
WASHINGTON (MarketWatch) -- The U.S. economy grew at a slightly faster pace in the first quarter than originally reported, while inflation also was stronger than estimated, the Commerce Department said Thursday in its final revision to gross domestic product estimates.
The mildly stronger-than-expected report is not expected to have much impact on financial markets.
"The first half will be more difficult than the second half," Commerce Secretary Carlos Gutierrez told The Associated Press. Although "the predictions were so dire," the first quarter's performance shows "how resilient our economy is by being able to show growth in the face of challenges."
The Fed hopes its powerful series of rate reductions and the government's stimulus will lift the country out of the doldrums over time.
"...a 1% gain... Think about that for a minute, folks... With inflation over 4%, even using the current methodology, that's real growth of more than negative -3%!"
- Chuck Butler, The Daily Phennig
Chuck nails it. The US is in a recession, and likely has been since late 2007. But the "perception" portrayed by the media, government statisticians, and Wall Street has FINALLY been slayed by a very strong dose of reality. You want to talk about bubbles bursting? The biggest bubble on Wall Street the past three months has been the "Things Are Better Than They Appear Bubble". TRUTH is making a comeback.
The Precious Metals took Ben's "fears of inflation" nod yesterday and ran with it Thursday. Gold said, "Enough of this nonsense, I'm outta here," and took off. Silver dutifully followed, though perhaps slowed somewhat by it's July contract rollover.
Gold vaulted $30, and continued it's rise overnight in Asia and into this mornings opening in London. Gold has now pierced intermediate resistance at 917, and should have a solid floor at 910 as it prepares to leave the Moons orbit and head for "infinity and beyond".
Silver rose steadily Thursday thru 17, and after rising further over night in Asia, finds itself this morning morning face to face with intermediate resistance at 17.45. Clearing this resistance should set Silver up for a quick move to 18.
Both Gold and Silver have taken the gloves off, and are now prepared to fight for the Truth. A Truth few want to hear, let alone accept: The US Dollar is on life support, it's strength sapped. There is no "strong Dollar policy".
By: Bill Bonner & The Daily Reckoning Crew
The most boneheaded miscalculation of all time…
"Terrorism will be reduced…weapons of mass murder will be limited, people will be safer around the world, human rights and democracy will be unleashed in the Middle East, and the fragile outlook for world prosperity will be improved… The uncertainty tax on world growth will be lowered too, as will the energy tax from temporarily spiking oil prices."
This was Larry Kudlow writing in March, 2003.
The spike in oil prices he described took place on March 12th, 2003, pushing the price of a barrel of crude all the way up to $37.83 and the price of a gallon of gasoline to $1.72. Yesterday, oil closed at $137 and gas sells for $4.06.
But Kudlow was hardly alone in his hallucinations. Laurence Lindsey, then George Bush's senior economic advisor, looked into his own crystal ball and saw nothing he didn't like.
"Under every plausible scenario, the negative effect will be quite small relative to the economic benefits… The key issue is oil, and a regime change in Iraq would facilitate an increase in world oil," thereby driving down oil prices.
Paul Wolfowitz, then Deputy Secretary of Defense, went on to reassure the nation that Iraqi oil revenues would pay all the costs of reconstructing the country.
Today, we are talking about one of the most boneheaded miscalculations of all time. Almost with a single maladroit stroke, a relatively small group of world-improvers undermined the progress of 9 generations. Five years later, Americans are on the losing end of the "biggest transfer of wealth in history," as T. Boone Pickens described the oil market of 2008. George W. Bush has the highest disapproval ratings of any U.S. president in history. America's most profitable industry - finance - has collapsed…its currency has lost a third of its value…and European, Chinese and Indian economists are wagging their fingers saying, "I told you so."
Bob Chapman, The International Forecaster
The Conference Board's consumer confidence index for June came in at an abysmal 50.4. This reading is down 13.25% from May's 58.1, is less than half of last June's 103.9 and is the lowest reading in 16 years. The "experts" were expecting 56.5. And then there is the index of consumers' expectations for the future, which hit an all-time low, declining 13.31% to 41.0 in June from 47.3 in May. Seventy percent of our economy is driven by consumer spending. This simple set of facts tells the whole story. It is a certifiable disaster in the making. Next, let's not forget the hundreds of billions in yearly home equity extractions that have all but completely dried up. Add in the next bubble to break, consumer credit, where people with no savings have lived paycheck to stagnant paycheck amid 12.625% inflation, thereby forcing them to exhaust available lines of credit just to keep from going under, and you move beyond disaster into a nightmarish, catastrophic, systemic breakdown of epic proportions worldwide.
The US supertanker economy has been afloat on a maelstrom of money and credit that has carried it into the rocks of hyper-stagflation, dollar destruction and fiscal profligacy as its occupants listened to the siren song of globalization, free trade, off-shoring, outsourcing and both legal and illegal immigration. The gaping holes in the hull cannot be patched. The supertanker is taking on water faster than Ben the Buck-Buster Bernanke can bail it out with his 1930's retro bailouts of banks and non-banks alike. The Fed and Congress have created a financial monster that threatens to blow oil prices into the ozone, the economy down into the earth's core and a mountain of derivatives, now closing in on a notional value of a quadrillion dollars, into an inter-dimensional wormhole where no one is quite sure what will happen, but whatever it is will have negative cosmic implications for markets around the globe.