You know we’re in a market of continuing adjustment when a typical business day includes Hearings before Congressional Committees, Government testimony and daily announcements from either the Fed Chairman or the US Treasury Secretary.

The Markets

The performance of the US stock markets last week reflected the current perception of quality - the Dow Jones Industrial Average (the bluest of blue chip-safe stocks) fell 5.0% last week. The broader-based S&P 500 fell 6.2% and the tech-laden NASDAQ was off 7.9% (see table below).

European and Asian stock markets did not perform any better. China’s stock market was the exception, advancing 13.6% for the week. China announced $586 billion in economic stimuli so far this year, a bailout amount second only to the USA's. By way of comparison, China’s stock market is off 62% since the start of the year versus the S&P 500, which is off 41% for the same period.  

The US stock markets were all off about 4% last week while gold and silver advanced almost 1%. Asian markets showed resilience, first stabilizing then advancing during the week. 

For the week end November 7th, gold opened the week at $728 an ounce and traded as high as $764 on Tuesday. In the aftermath of the Election, the gold market drifted lower, closing Friday at $734, up $6, or about 1% for the week. On the upside, expect resistance at $750 and again at $770. If gold trades past $770 this week, the next resistance point is $835. 

Political Economy dominated the financial markets last week. The failed first attempt for Congress to pass the Financial Bailout package on Monday sent the Dow Jones Average down 778 points, a loss of 7%. The S&P 500 and tech-dominated NASDAQ fared even worse, each dropping 9% on Monday. Gold shot up from a $739 low to a $932 peak.

Stocks recovered a bit on Tuesday, and precious metals experienced profit taking (a trading opportunity many precious metals investors had been waiting for). By Friday, both the Senate and the House of Representatives enacted legislation that was renamed a more politically correct Financial Rescue package, nevertheless, the Dow remained down 7% for the week (closing at 10326), the S&P 500 was off 9%, and NASDAQ was down 11%. Spot Gold Bullion fell 6% for the week, closing at $831.

The $700 billion bailout proposed by the Bush Administration took center stage last week…though a definitive agreement on the shape of that bailout proved elusive by week’s end. On the plus-side, as the days wore on, what initially appeared as an urgently needed mega-amount gradually morphed into an issue requiring closer scrutiny. On the minus-side, it has brought into sharp national focus how fiscally reckless the USA government has been in managing the national economy.

Before recapping last week’s numbers, which incidentally were positive for precious metals, let’s put that “$700 billion in Bailout Money” into better perspective for non-economists. You will then see why the political outcome (or even the lack of an outcome) will influence all markets in the weeks and months ahead.

By virtually any measure, last week was extraordinary. Here’s a day-by-day calendar of the week to document what may well prove to be the most dramatic, and financially significant week of the 21 century, a week that “privatized financial profits and socialized financial losses” (Paul Krugman, NY Times columnist).

The week began with Lehman Brothers (LEH) filing for bankruptcy in Federal Bankruptcy Court at 1:45 am on Monday.

Oil pricing and precious metals continued to exhibit “joined at the hip” trading patterns last week. Crude oil slid in price by 4.8% for the week closing at $101.18 a barrel. At the same time, bullion spot gold fell 4.7% to close at $767.50 an ounce. Silver moved in tandem, dropping more than 12% for the week to close at $10.80 an ounce. In addition, NYNEX announced it will start trading energy products 8 hours earlier on Sundays, at 10am versus 6 pm.

While the Dow Jones Average advanced almost 2% last week, the broader market, as measured by the S&P 500 index, gained less than 1%. The tech-laden NASDAQ was essentially flat, advancing 5 points, or 0.2%. Overseas, stocks were pretty solid in the Eurozone…gaining 2% - 3% for the week, while in Asia, more losses, with China’s stocks dropping ANOTHER 5% for the week. With China closing at 2080, it is falling below levels last seen in 2006.

Oil and precious metals continued their lock-step minuet, possibly a new trading quirk until bolder commitments are made. Summarily, gold closed at $802.80 an ounce last week, down $32.40, or 4%, for the week. Look for resistance at $809 and support at $794. Silver closed at $12.33, down $1.38, or a whopping 10% for the week. Expect resistance at $12.48 and support at $12.09. Platinum closed at $1,367.80, down $122, or 8% for the week. Upside resistance is at $1,385 and support at $1,365.     

Stock markets were hammered, worldwide. More on this later, but first, here are two timely quotes, the first about silver, the second about investment strategies. From David Morgan, editor of The Morgan Report, September issue

One of the more enlightening facts we share with you this week stems from our recognition that the stock markets last week continued to pummel investors with “death by 1,000 cuts’…slow torture. In fact, upon closer analysis, it has been this way most of the year.

Fact: of this year’s 284 point decline in the tech-laden NASDAQ Stock Market, to 2368 from 2652, 92% of that decline took place in the month of January alone. You could have dropped your cable subscription to CNBC or Bloomberg in January, and still be up-to-date.

Stocks turned in a repeat, ho-hum performance last week; the Dow, up two days to gain 310 points and down three days to give all but 30 points back, closed at 11628. The S&P 500 wasn’t much different, nor the NASDAQ Composite. In fact, the stock market’s gain or loss is in almost a perfect inverse relationship with the price of oil.

Here are the worldwide stock market stats, and with the exception of London, which advanced about 1% last week, all worldwide stock markets were down.

Last week’s performance in all stock markets was a bit of a let-down, following the week earlier advances – which proved fleeting. Commodity markets, meanwhile, continued to exhibit declining price trends…except that corn and soybeans bucked the downward weekly trend. This could augur well for other commodity prices next week.

Uncertainty about the economy dominated market events last week with inflation coming in at 5.6% for July. This is the highest rate of inflation since January 1991. It seems odd that this only seemed to benefit the corn and soybean sector in commodities. Most likely, precious metals continue to suffer from the seasonal depression in prices during the summer months.

Stock markets closed on a robust note last week, gaining between 3% (Dow Jones) and 5% (NASDAQ). However, the week's upbeat closing does not adequately convey the underlying volatility and turmoil. Most of the week's gains materialized on Tuesday and Friday.

The Dow, for example, advanced 675 points on three days and retreated 267 points on two other days to close the week up 408 points. The S&P500 --- 70 points up, 34 down, for a 36 point advance (3.6%). NASDAQ --- up 150 points, 47 points down, a net gain of 103. Changes of this magnitude were also seen the week before.

All three major stock markets were flat last week…the Dow Jones Average (DIA) was down 45 points (less than ½%), the S&P 500 (SPY) gained 2 points (1260 vs. 1258), and the NASDAQ (QQQQ) composite of more than 3000 stocks finished unchanged from the week before, at 2311.

Making these statistics all the more remarkable is that the Dow gained more than 400 points on Tuesday and Wednesday, but gave all of it back. Trends like this suggest an absence of investor commitment to stocks.