Stocks Fall Back, Consumer Confidence Gets Smack, Greenback Takes Whack

After last week's rally that saw stock indices recover some of the losses suffered in the previous week's broad down market, the equities markets on Tuesday resumed what is becoming their worst slide in two years. From the opening bell, it was clear that the bears were out to make the bulls into sandwich meat in a hurricane of bad news about consumer confidence, oil prices, and corporate profits. The beating was broad based, with every major market index dropping hard in morning trading. By later in the morning, the first wave of the decline had passed and there were signs of a possible rally; but by early afternoon, any hope of a recovery vanished as the bears got their second wind and started hammering away once again on further bad news and a growing sense that the downturn is more than just a passing, temporary correction.

The Dow Jones Industrial Average lost 184.18 points, or 1.63 percent; the Standard & Poor's 500 suffered a 20.32 point drop, or 1.59 percent; the New York Stock Exchange, which took heavy losses two weeks ago before its partial recovery last week, fell 130.16 points, or 1.58 percent; and the NASDAQ composite index collapsed 45.63 points, or 2.06 percent. Although the punishment was generally indiscriminate, financial news services claimed that a weak sales report by Walmart fueled overall market pessimism, already pushed to the edge of downright melancholy by rising oil prices and the biggest one-day drop in six months of the dollar against a composite of other major currencies. The greenback's whipping came on news of the nomination of a new U.S. Treasury Secretary and on the May report of a sharp decline in consumer confidence.

Tuesday morning, the Conference Board, which has in recent months been reporting relatively strong consumer confidence despite rising fuel prices and higher costs of borrowing, released its index of consumer confidence for May showing that it had fallen from a four-year peak at 109.8 in April to 103.2, its lowest level in three months. The steep drop in consumer confidence, coupled with rising oil prices and weaker-than-expected corporate earnings reports by companies like Walmart and Apple, Inc., opened new veins of concern among market analysts that recessionary pressures are building in the economy at a time when the Federal Reserve Board has no room to back off its almost two-year battle against inflation.

On the currency front, after only a short time assessing the nominee for Secretary of the U.S. Treasury, traders sent the dollar into a hard fall against a number of foreign currencies. The final judgment seems to be that the new chief will continue to allow the dollar to slide in order to correct what U.S. officials call "global imbalances," a euphemism for the persistent, massive trade deficits the nation has been running. By declining to defend the dollar, the U.S. hopes to cause foreign imports to the U.S. to rise in price at the same time American exports abroad become cheaper. The desired result of this controversial game plan would be a narrowing of the U.S. trade deficit and a boost in domestic output through the increased economic activity in domestic export industries.

Confirming a report here at The Dark Wraith Forums and elsewhere that Treasury Secretary John Snow planned to resign as soon as a replacement could be found, the White House today nominated Goldman Sachs Chairman Henry M. Paulson, Jr. to take the reins at the embattled agency, which has had the duty of defending the Bush Administration's string of record and near-record deficits while at the same time both marshalling continued foreign lending for those deficits and taking the brunt of criticism for orchestrating or at least tacitly allowing the dollar to drop into troubling territory as a standard of valuation in international commodities contracts. Although Mr. Paulson heralds from the same firm as Clinton Administration Treasury Secretary Robert Rubin, the deep respect earned by Mr. Rubin on Wall Street appears to have earned Mr. Paulson no honeymoon with traders and analysts: the dollar's plunge slowed considerably in the minutes after the announcement of Paulson's nomination, but then it resumed in all its unstoppable certainty in a rapid vote of no confidence on the Administration's latest attempt to offer insubstantial change in its policies that have taken the dollar to almost unheard-of depths.

The blame for the woes of the dollar go far beyond the choice of nominee to head Treasury, of course. The cumulative effects of five-and-a-half years of uncontrolled deficit spending caused by ill-advised tax cuts and even more ill-advised war against a country that posed no clear and present danger to U.S. interests have left America's stature in the world community tarnished to the point where its currency, which dominated the global financial stage for more than half a century, now serves only as a means by which a Republican Administration can attempt, most likely without success, to repair a small but important seam of the nation's tattered financial fabric.


The Dark Wraith Forums will chronicle the progressive unraveling as events unfold.