Bear Mountain Bull

From Bill King, via The Big Picture:

There is little if anything for governments and central banks to do at this point. So solons are trying to euchre the markets with verbal intervention.

Bailing out PIGS is not the major issue. If the EU does a bailout, it will only be a temporary aid because socialism is collapsing on a global basis due to the enormous, unserviceable debt.

Countries accustomed to the undeserved goodies that socialism promised but delivered on borrowed money do not have the political will to cut the unaffordable spending. So in the near future, the market will force the requisite changes.

At some point the borrowed money train will halt and the goodies will disappear, just like in the USSR.

—

Over the past year we have recounted numerous times that there has been no restructuring of the US economy or Europe for that matter. All that has been done is that sovereigns have absorbed trillions of dollars in private sector debt and crappy paper and issued trillions of dollars of debt to support more
stimuli and crappy paper absorption.

If we have entered a new crisis phase in which sovereign nations have to bailout out other sovereign by issuing more debt, the final crisis stage will occur when the market revolts against the debt of the nations that bailed out other sovereigns. This is checkmate.

Update:   More info from Peter Boockvar.

More signs from the credit markets, high-yield bonds to be specific, that the winds of change are swirling:

Charts courtesy of StockCharts.com

The bulls were hoping for a continuation of Friday’s afternoon run. They didn’t get it.

Internals were negative, but volume was on the light side. Advances/declines were 1 to 2 on both exchanges, with up/down volume 3 to 11 on the NYSE and 3 to 7 on the Nasdaq. New highs/lows were 30/13 on the NYSE and 27/28 on the Nasdaq.

Leaders — Homebuilders (+1.00%), Disk Drives (+0.25%), Airlines (-0.09%), Retailers (-0.15%), Telecoms (-0.21%), Drugs (-0.23%), Health Care Products (-0.31%), Semis (-0.36%)
Laggards — Gold/Silver (-3.18%), Metals (-2.54%), REITs (-2.47%), Steel (-1.91%), Banks (-1.47%), Insurance (-1.42%), Commodities (-1.23%), Utilities (-1.10%)

Treasury Yields — 6-Month: .16%,  2-Year: .76%,  5-Year: 2.24%,  10-Year: 3.57%,  30-Year: 4.50%

Energy Prices — Crude oil: $71.68/barrel,  Gasoline: $1.8903/gallon,  Natural Gas: $5.405/mmBTU

US Dollar Index — 80.386

Precious Metals — Gold: $1062.30/ounce,  Silver: $15.01/ounce,  Platinum: $1473.00/ounce

BMB Note:  
Minyanville’s Ron Coby isn’t very optimistic about the current situation (from Twitter):

World Markets are setting up for a global contagion crash. Black Crosses are developing in every single country ETF: Sell Rallies

He’s right, things are looking a bit on the ugly side. Obviously there’s no way to know just how bad things might get, or when, but we’d have to agree that the picture doesn’t appear all that rosy at this moment.

Stay on your toes.

From Todd Harrison:

To be sure, these aren’t easy times on Wall Street. With populous backlash at a fevered pitch and artificial influences at every turn, trading is a thankless, increasingly frustrating task these days. Toss in an unsure world from Eastern Europe to Asia and you’ve got a recipe for spicy cerebral jambalaya.

I’ll second that…

As if anyone expected them to be. After all, what can they do? Oh yeah, they can keep promising ’stimulus’, as if there was any doubt in that area — after all, that’s the only thing they know:

Not that anyone should have but if they did look to the G7 meeting for more clarity on the outlook for Greece and the possibility of a spread to other highly indebted countries and what the response would be, they didn’t get much. With respect to Greece, the French Finance Minister said “the European members of the G7 will make sure it is managed,” whatever that means. European debt and CDS in the PIIGS are wider and is weighing on their stock markets with Greece especially down 3+%. In terms of global stimulus and the exit, the Canadian Finance Minister summed up the goal but also the dilemma by saying “we need to continue to deliver the stimulus to which we are mutually committed and begin looking at exit strategies to move to a more sustainable fiscal track.” The WSJ reports Bernanke will lay out his strategy on exit. Unfortunately, the exit to their grand experiment has no precedent on such scale.

Meanwhile, the game of chicken goes on:

“Europe has become a huge game of chicken, whereby the Greeks are waiting for help from the outside and donors are waiting for Greece to take a step forward.”
Mohamed El-Erian, Pimco, Feb 8, 2010

…and shrinking the private sector is not the way to solid economic recovery:

A look at what has happened to the nation’s inflation-adjusted gross domestic product (GDP), the value of all goods and services produced in the economy, during the last six quarters is sadly instructive. Comparing the fourth quarter of 2009 with the second quarter of 2008, we see that:

• Even after six months of “recovery,” the economy as a whole has shrunk by almost 2%.
• Uncle Sam’s level of annualized consumption and “investment” has grown by 8.5%.
• Despite the incessant pleadings of poverty by most state and local governments, their consumption and “investment” have hardly changed.
• What remains, i.e., the private sector, is over 3% smaller.

The private-sector shrink is really about one percentage point higher than indicated, because the above data treats General Motors and Chrysler as if the government and a meddling Congress aren’t in control of them. This of course is nonsense.

Meanwhile, the past year and a half has been a great period to be a federal government employee. While the private sector has shed almost 6.4 million jobs on a seasonally adjusted basis during that time, federal non-postal employment has leaped by over 150,000, a stunning increase of over 7.5%. Two-thirds of the increase occurred during the first eleven full months of the Obama administration, even though the severity of the recession was drop-dead obvious well before he took office. Even higher federal employment is on the horizon.

Or, maybe along those same lines, “Is Greece Our Future?”

Links from Instapundit.

The Super Bowl edition of the ChartWatchers newsletter-turned-blog is available at StockCharts.com. Topics this time around include the materials and financials at the 200-day, a possible market inflection point, one expert’s switch to market ‘neutral’ posture, and the bears gaining control.

Have fun.

Another episode in a continuing series…

“7 U.S. States That Are Worse Off Than Greece, Portugal, Ireland, and Spain”

Notes on the latest moves in the industry groups:

• Among the 30-some group charts we look at every week, only one is still above its 50-day average, that being the biotech index.
• All of the others are in various states of decline — see for yourself here: set #1 — set #2 — set #3 — set #4.
• For a more detailed breakdown of group movement over various time periods, try Prophet.net’s Industry Rankings page., the Industry Group Tracker at WSJ Online, or the industry group tools at Finviz.com.

Fil Zucchi answers a question to follow up on his post from the other day, and discusses the Euro’s chances for survival (in response to Vernon’s question?):

There’s nothing wrong with the euro as a common currency, and its convenience and efficiency is undeniable. But there are countries in the EU that simply cannot survive in its current structure, and either the countries or the currency must go. Perhaps the next step will be a widening of the Maastricht bands to accommodate larger deficits. It will maintain EU/euro unity but it will open the door to inflation — something that ultimately won’t be accepted by Germany and France. To sum it up, the problem isn’t the euro; the problem is the abuse of the fiat currency system. The euro, the US credit crisis, etc. are just the symptoms of decades of such abuse. Keep in touch.

From John Mauldin, again discussing the book, This Time Is Different:

The book is a withering critique of the Efficient Market Hypothesis (EMH), among other economic theories. Smithers argues that because the tenets of EMH are so ingrained, Greenspan and Bernanke could not recognize the bubble, because they believed in the efficiency of markets. “Dismissing financial crisis on the grounds that bubbles and busts cannot take place because that would imply irrationality is to ignore a condition for the sake of theory.” Which they did.

As Grantham wrote in the foreword: “My own favorite illustration of their views was Bernanke’s comment in late 2006 at the height of a 3-sigma (100-year) event in a US housing market that had no prior housing bubbles: ‘The US housing market merely reflects a strong US economy.” He was surrounded by statisticians and yet could not see the data… His profound faith in market efficiency, and therefore a world where bubbles could not exist, made it impossible for him to see what was in front of his own eyes.”

Reinhart and Rogoff show time and time again that bubbles always end in tears. Markets and investors are in fact irrational. What kind of Fed governor would it have taken to suggest that housing was in a bubble and we were going to have to take steps to slow it down – raising rates, analyzing securitization and ratings? It would have taken one tough hombre. In fact, we had Greenspan, who encouraged the unchecked expansion of the securitized derivatives market. And a Congress that would not allow proper supervision of Fannie and Freddie (which is going to cost US taxpayers on the order of $400 billion). The list is long.

On the situation in Greece/Europe:

But in the meantime the Greek situation is adding volatility to risk markets of all types. I have written before of the connection between what is called the euro-yen cross and risk markets all over the world. Right now, you can borrow money very cheaply in dollars and yen (the so-called carry trade). When investors want to reduce risk, they pay back those loans, which has the result of increasing the value of the dollar and the yen.

That is what is happening with the euro-yen cross as of this morning. It is in the process of falling out of bed. And so are risk markets. Markets do not like uncertainty. And Greece and Portugal and Spain are uncertainty in spades. If Greece defaults, who owns the debt? Which banks? My bank? Will they call my loan? This happened in 2008 a lot! Can it happen again? We still have banks all over the world that are too big too fail. Credit default swaps are not on an exchange (because to do that would make them less profitable for the investment banks that sell them, and thus the lobbyists have convinced Congress to ignore them).

Are we at the place where we can think the unthinkable? That sovereign nations can in fact default? I think we see a de facto default by Japan this decade.

Do not assume that we have weathered the storm. We may just be getting ready for the next one.

The late short-covering rally on Friday ’saved’ what was turning out to be a rather ugly week for the Sector SPDRs. Even so, all of the ETFs have now dipped below their 50-day moving averages (red line):

The numbers as the correction continues:

Charts courtesy of StockCharts.com

Gettin’ an early start:
1st American State Bank of Minnesota, Hancock, MN

That crazy week almost looks tame on the weekly chart, doesn’t it?

Chart courtesy of StockCharts.com

Internals were mixed, with volume a bit heavier than yesterday. Advances/declines were 3 to 4 on the NYSE but 10 to 9 on the Nasdaq, with up/down volume 5 to 4 on the NYSE and 7 to 3 on the Nasdaq. New highs/lows were 26/25 on the NYSE and 16/49 on the Nasdaq.

Leaders — Gold/Silver (+5.35%), Metals (+3.12%), Steel (+2.64%), Semis (+2.39%), Airlines (+2.05%), Paper (+2.05%), REITs (+1.95%), Commodities (+1.76%)
Laggards — Homebuilders (-0.92%), Drugs (-0.85%), Oil Services (-0.72%), Biotechs (-0.66%), Defense (-0.52%), HMOs (-0.50%), Utilities (-0.33%), Oil (-0.32%)

Treasury Yields — 6-Month: .15%,  2-Year: .76%,  5-Year: 2.23%,  10-Year: 3.56%,  30-Year: 4.51%

Energy Prices — Crude oil: $71.79/barrel,  Gasoline: $1.9036/gallon,  Natural Gas: $5.541/mmBTU

US Dollar Index — 80.380

Precious Metals — Gold: $1063.90/ounce,  Silver: $15.09/ounce,  Platinum: $1479.00/ounce

BMB Note:  
Well, that was interesting one. The market was stinkin’ it up again today, with the Dow hitting a low of 9835 in the early afternoon. But traders decided they weren’t going to hold shorts over the weekend, not taking chances of yet another Monday jam job higher — which we could very well see after this afternoon reversal.

That may change the picture for a short time, but the bigger picture still isn’t real pretty. ‘Sell the rally’ should still remain the name of the game for a while.

The economy supposedly lost 20,000 jobs in January, but the unemployment rate supposedly fell to 9.7%. Revisions downward for Dec., upward for Nov., and the annual ‘benchmark’ revision showed additional downward revisions for all other months of ‘09 (see table A) — that’s a total of 617,000 more jobs (more than 50,000 per month) supposedly lost over the last year than was previously reported. But we’ll continue to pay attention to every month’s headline number, as though it’s accurate. Yeesh.

Here’s an interesting chart from Calculated Risk, showing the percentage employment drop in post-WWII recessions — this one sticks out as being far worse than any of the previous ones (click chart to be teleported to the CR story):

The major indices have now spent the most time below the 50-day since the March lows. The S&P crashed through last week’s lows, and the moving averages have crossed over to the dark side. The Dow is approaching 10,000 again. From above — again. Get your hats here.

The dollar is rallying, and commodities, along with commodity stocks, are tumbling.

But it’s not like those are the only areas being hit:

Charts courtesy of StockCharts.com

That was ugly.

Internals were very negative, and volume was the heaviest of the week thus far. Advances/declines were 1 to 9 on the NYSE and 1 to 7 on the Nasdaq, with up/down volume 3 to 97 (??) on the NYSE and 1 to 9 on the Nasdaq. New highs/lows were 47/13 on the NYSE and 15/46 on the Nasdaq.

Leaders — Insurance (-1.70%), Drugs (-2.10%), Retailers (-2.28%), Hospitals (-2.32%), Transport (-2.44%), Biotechs (-2.50%), Utilities (-2.52%)
Laggards — Steel (-6.98%), Metals (-6.94%), Airlines (-5.58%), Gold/Silver (-5.39%), Semis (-4.64%), Oil Services (-4.61%), Commodities (-4.56%), Natural Gas (-4.50%)

Treasury Yields — 6-Month: .15%,  2-Year: .80%,  5-Year: 2.29%,  10-Year: 3.60%,  30-Year: 4.54%

Energy Prices — Crude oil: $73.09/barrel,  Gasoline: $1.944/gallon,  Natural Gas: $5.432/mmBTU

US Dollar Index — 79.914

Precious Metals — Gold: $1062.90/ounce,  Silver: $15.23/ounce,  Platinum: $1505.00/ounce

BMB Note:  
Since the recent bounce started, we’d been looking for entry points on the short side. We got a few yesterday, and today’s dive brought a bunch of “triggers”, so we added more positions. So far so good.

Jobs number out tomorrow. With the market feeling as heavy as it is here, I’m not sure that a ‘good’ number would provide a lot of lift — but a ‘bad’ number could be devastating. Just my gut feel.

For the longs, this is no longer a market to be toyed with. Honor your stops.

From the free sample of Jeff Cooper’s column this morning:

“You can avoid reality, but you cannot avoid the consequences of avoiding reality.”
– Ayn Rand

—

The market is approaching a point of recognition. Psychologically, it’s not reacting to the “better news” broadcast from the administration and it selling off on “better earnings.”

—

…if the markets rollover after a hope-filled rally from March where the policy makers “did whatever it took,” what will it take to stem the tide if it turns the other way? And, where does more “whatever it takes” come from? Will they lower rates into negative territory and pay us to borrow money?

Can the aftermath of the deluge be reconciled without another crisis? A point of recognition is approaching.

“There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner, as the result of a voluntary abandonment of further credit expansion, or later, as a final and total catastrophe of the currency system.”
–Ludwig Von Mises (originator of the Austrian school of economics).

“It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world.”
–Thomas Jefferson

But then bankers wouldn’t prosper from financing wars, would they?

No one knows exactly what’s in Pandora’s Box of Debt. No one knows for sure whether the worst is over and we’ll muddle through or whether we’re just in the eye of the hurricane and heading into something that few in their wildest dreams are thinking about. But, a point of recognition is approaching. And, I believe that point on the horizon will arrive in 2010.

The point of recognition that the trifecta of more spending, more taxes, and more debt won’t lead to prosperity is approaching. Is it possible that the point behind the horizon where stimulus fails to get a rise is fast approaching, and that the market in its intuitive intelligence knows it?

And lots of them.

James Chanos on China (via Zero Hedge — follow the link to check out the video clip):

The fun fact I’ll give you is there is almost 70 billion sq. feet under construction right now in high rises, commercial, residential and light manufacturing. We estimate about 30 billion sq. feet is commercial, what we would consider is office space… That’s a 5×5 cubicle for every man woman and child in China… They are building high rises in cities with already 15-20% vacancy rates, and those are the government’s numbers. The real vacancy rates are higher… The Chinese banking system is the problem, it is loaded with bad debt…Our geostrategic position is a lot better than China. Keep in mind China imports almost all its essential materials… They send us stuff, we send them pieces of paper, who would you rather be?

Something to watch, as FXP jumps off the lows…

Greece, Portugal, Spain… the clouds just won’t blow away.

At Calculated Risk: “More European Sovereign Debt Woes”

More from Fil Zucchi at Minyanville:

The participation of the PIIGS (Portugal, Italy, Ireland, Greece, and Spain) in the EU structure is suffering a 9.0 earthquake — these countries are now three to five times above the Maastricht deficit levels and over the last 65 years their populations haven’t accepted belt tightening without socio-political unrest. So their choice is either to thumb their nose to the EU and the very essence on which the euro is based or suffer crippling popular strife.

—

We may be getting rather close to a “Lehman/Merrill/AIG kind of September weekend” only this time there’s no Paulson, Geithner, Bank of America (BAC), Goldman Sachs (GS), Mitsubishi UFJ, or any other buyer of last resort. Only the sovereign printing presses and the consequent comeuppance of economies invented to please the Brussel’s polit-bureaucrats delusions of controlling a continent through an invented euro currency.

Add Nevada to the list of states that are broke.

Things have taken another tumble at the open today, with stocks lower, commodities lower and the dollar higher. We’ve been busy watching the action and maybe grabbing a trade here and there…

Peter Boockvar takes a look at the weekly jobless claims out this morning:

Initial Jobless Claims totaled 480k, 25k above expectations and up from 472k last week. It is now the 3rd week in a row above 470k and somewhat reverses the positive trend seen in the prior 4 weeks where all were below 455k. The 4 week average is now at 469k up from 457k last week and is at an 8 week high. Also, Continuing Claims rose by 2k and Extended Claims, past the initial 26 weeks, rose by a net 242k. Thus, ahead of tomorrow’s Payroll figure, the claims data has lost a bit of its recent momentum and reflects a private sector that still remains very reluctant to add workers.

Power Line:

The Heritage Foundation annually ranks the world’s economies in order of freedom. This year, the United States fell to number eight, now classified as “mostly free” rather than “free.” Canada’s economy is now rated as freer than ours.

Internals were negative, with volume still on the lighter side. Advances/declines were 2 to 3 on both exchanges, with up/down volume 1 to 3 on the NYSE and just below flat on the Nasdaq. New highs/lows were 100/3 on the NYSE and 43/21 on the Nasdaq.

Leaders — Comp. Hardware (+1.05%), Internet (+0.63%), Comp. Tech (+0.43%), Software (+0.22%), Defense (-0.15%), Chemicals (-0.23%), Telecoms (-0.24%), Semis (-0.29%)
Laggards — Paper (-4.85%), Airlines (-2.59%), Banks (-2.35%), Steel (-2.24%), Transport (-1.93%), REITs (-1.75%), HMOs (-1.56%), Metals (-1.25%)

Treasury Yields — 6-Month: .16%,  2-Year: .87%,  5-Year: 2.40%,  10-Year: 3.70%,  30-Year: 4.63%

Energy Prices — Crude oil: $76.87/barrel,  Gasoline: $2.033/gallon,  Natural Gas: $5.415/mmBTU

US Dollar Index — 79.369

Precious Metals — Gold: $1108.00/ounce,  Silver: $16.33/ounce,  Platinum: $1573.00/ounce

BMB Note:  
The bounce stalled out for today, and what we were left with was a bunch of chopping around — and looking at the group numbers, it was mainly below the flat line.

We took a couple of stabs at the short side, and we’ll see where things go from here, but this market still looks like it’s on wobbly legs.