This is a real tough day that would unnerved the most steadfast of traders.  A series of sure bad news and not so bad news.

The day start with the Factories Order index which grew 0.6% in May 08 which was slow but still not that bad leading to a small rise in Dow Jones which fluctuates a lot between positive and negative terrority.   Some excitement over potential Yahoo and Microsoft deal did help the Nasdaq a bit.

However the excitement was short lived as we had bad news one after another

• GM, the grand dame of car manufacturing fell to the lowest in 54 years having single digit prices no thanks to rumors on its liquidity crunch
• Oil breaking yet another record at $144, this adds on to the tiny growth of the factories orders and more or less erase all gains.

Share prices held for a while before plunging at 166.75 it was sure a blood bath considering that Dow Jones can break 11 000 with another one or two bad hair days.   Considering 4 Jul is Independence Day I would doubt investors would be keen to take positions on Thu.  I guess the 11 000 may be broken even on Thu if such sentiments persisted especially if crude oil remains at such or higher levels.

Firstly crude oil made an unprecedent jump to near $140, this was never seen before, the record breaking price as well as the magnitude of a single day rise $11 dollars in a single day.   Unemployment was down 5 months in a row, this two factors really hit the stock market hard.

Bernanke, in remarks delivered via satellite to an international monetary conference in Spain, said that the Fed’s powerful doses of rate reductions that started last September along with the government’s $168 billion stimulus package, including rebates for people and tax breaks for businesses, should bring about “somewhat better economic conditions” in the second half of this year.

To help brace the economy, the Fed last month dropped its key rate to 2 percent, a nearly four-year low, but hinted that could be the last reduction for a while. Bernanke drove that point home again on Tuesday.

“For now policy seems well positioned to promote moderate growth and price stability over time,” he said.

Oil prices steadied at about $127, $8 dollars below its record.  The pundits are predicting $150 and some even $200 per barrel by Year End.   As usual I never believed in those predictions.   I based my own predictions based on experiences.    I would feel that with the gradual weakening of the US economy, it will weaken the rest of the economy.   Also the high oil prices calls for industries to be much more fuel efficient.   I would say that a drop is imminent  A big drop in the oil prices is expected very soon.

Weird combinations which I can’t find head or tail, the overall consensus was that the durable goods data aren’t as bad as expected but frankly speaking it really inside very good, a cold comfort especially with the Crude Oil above $130, these are issues which should make the Dow go Down, instead investors are comforting themselves that the durable goods data aren’t as bad and take the opportunity to drive up the indexes.   Frankly it is a very very volatile market, a pin drop will cause a change.

Well it seemed you can never predict the stock market, as usual crude oil volatility is to be blamed as it crawled back to $130, bad news is overall, orders for durable goods dipped by 0.5 percent in April, reflecting steep declines in commercial aircraft and autos, the Commerce Department reported Wednesday.   There are strengths in some pockets but all these aren’t enough to offset the negative sentiments in Wall Street, we see a very minor movement heading South.

Oil prices continued their downward trend, this should be a good day for the Dow to be up but you will never know.  I think today main focus would be on the durable goods data which will show if factories are expanding their manufacturing capabilities or are shrinking.   This in turn would give a rough gauges to the contraction or expansion of the economy.  This is a leading indicator which would help fathom the depth of USA economical growth or subtraction.

This is real bad,  consumer spendings account for 2/3 of the GDP.  A fall in confidence does not augurs well for the economy.  Tightening of the wallet/purse can sometimes self lead to a recession.   When consumers stop spending, though your economy is in fact in a good shape it would be a self fulfilled prophecy.  But in this case , I won’t say that it is self fulfilled, USA is indeed in a recession.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aGLba6r_uowk&refer=home

May 27 (Bloomberg) — Confidence among American consumers fell in May to the lowest level since 1992 as the two-year housing slump showed no sign of bottoming.

The Conference Board’s confidence index declined more than forecast to 57.2, the New York-based research group said today. The S&P/Case-Shiller home-price index dropped 14.4 percent in March from a year earlier, the most since the figures were first published in 2001. Separate figures from the Commerce Department showed sales of new homes were the second-lowest since 1991 in April.

I feel somehow that the worse is yet to unravel, this is really only the beginning of a recession which is unlike previous recession it is as the Oracle of Omaha said long and deep recession.

I would say today is a surprising finish with the gloomy predictions of the last two days.  Home sales managed a flash in a pan while crude oil prices drop below $129.  I am quite amazed as the crude oil price is fairly inelastic but then there are signs that the good times for the OPEC nations had caused others to cut back on usage, hence the drop.   If the major economies like USA enter into a recession, this would adversely affect the prices of crude oil.   For every period, we have sooth sayers.  They once predict the Dow will go to 20 000, they predict oil to go to $200.  Once their predictions are wrong they went back to hide until the next round of predictions and offer their guess work again.  Economics especially shares are extremely hard to predict/guess.

I think this article is quite self explanatory

Source : http://biz.yahoo.com/ap/080527/home_prices.html

Widely watched housing index says home prices fell at steepest rate in 20 years in 1st quarter

NEW YORK (AP) — U.S. home prices dropped at the sharpest rate in two decades during the first quarter, a closely watched index showed Tuesday, a somber indication that the housing slump continues to deepen.

There is really no end in sight despite claims from the officials that the housing crisis has bottom up.  I would think that they are just talking up the market and buying time till the Presidential elections.   As I have repeatedly emphasized, a $1 trillion loss cant be absorbed over such a short period, this will be expected to last for years, no joke on that. There is no quick fix, no pain solution for this.

Standard & Poor’s/Case-Shiller said its national home price index fell 14.1 percent in the first quarter compared with a year earlier, the lowest since its inception in 1988. The quarterly index covers all nine U.S. Census divisions.

The narrower indices also set record declines. The 20-city index tumbled 14.4 percent during the quarter, the lowest since that index was started in 2001. The 10-city index plunged 15.3 percent, a record in its 20-year history.

I won’t expect the stock indexes to take the cue from this and head South.   Drastic measures that needs to be taken at once include no subsidizing any more of such bad loans, please let the invisible hand take over.