Bulls Become Burger as Sentiment Slips South

Monday was a brutal day on Wall Street as stocks went down across the boards in active trading that saw the NASDAQ finally go below the 2000-point neckline before recovering to finish the day off a fraction.

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In the jargon of investors, a "neckline" is a value boundary for a stock or an index. Crossing this boundary—sometimes called "breaking the neckline"—to the upside or the downside is considered by some an important indicator.

  The index of 30 industrial blue chips began the day heading into the toilet, with a later-day counterpush stopped the spiral; but it wasn't enough to bring the stocks back up appreciably, so the index floated for the rest of the session, ending off three-fifths of a percent in value from where it had begun in the morning. The broader index of large-cap company stocks was down a half-a-percent by the end of trading.

The blues on the Street were largely blamed on worries about oil prices, which are in record territory, and about what the Federal Reserve is going to do to interest rates at its upcoming meeting. The sentiment is that the Fed, despite many previous assurances that it was going to continue to push short-term interest rates up, but in a "measured" fashion, is about to take the gloves off in its fight against building inflation pressures that Fed Chairman Alan Greenspan keeps insisting are "under control."

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If the Fed were to raise the federal funds rate by a quarter of a percentage point, it would be considered a "measured" (that is, mild and normal) response at this time; but if it raises the rate more than that, the action would be considered aggressive.

  Some economists might liken Greenspan's claim to a surgeon grabbing CPR paddles while claiming his patient is doing well. The feeling among big investors is that the recent run-up in oil prices is symptomatic of a far deeper problem that has been building throughout the Bush Administration as the Federal Reserve pursued loose monetary policy to accommodate bad fiscal policies of tax cuts and war. With the money supply growing faster than the real rate of growth of the economy throughout this period, sooner or later those mountains of greenbacks in oversupply have to cause a general upward rise in domestic prices to compensate for the lessening value of each greenback in circulation.

Why it took so long for this money printing orgy to hit home as inflation had to do with the raging federal budget deficits created by the Republicans, who have for more than four years controlled both Houses of Congress and the Presidency. Because the government had to borrow hundreds of billions of dollars, it needed a willing and constant lender. Since domestic savings rates are too low to feed such a money vacuum cleaner, the rest of the world gathered up U.S. money through cheap imports. With all of these greenbacks in hand, countries like China, Japan, Europe, and Arab states had plenty of American greenbacks to lend to the U.S. Now that the dollar has become a Third World currency, though, all of those greenbacks are starting to wash across the world as fire-sale trinkets, meaning the junk is coming back home to roost, finally causing the fires of domestic inflation that the Fed Chairman says just aren't there as he brings out the heavy-duty water hoses.

Wall Street's Monday reaction was just the latest in what has become, particularly over the past several weeks, a downward-trending stock market that might finally and quite painfully for investors pluck the Republican neo-conservative radicals' bluebird of happiness like a chicken on its way to the recessionary frying pan.