Bear Mountain Bull

It’s time again for a little BMB R&R, especially with the market behaving as bizarrely as it’s been. Maybe if we stop watching it start to behave a little better…

Posting will be very light and variable over the course of this week, but we’ll put up an open thread each market day for our readers to comment on the day’s market activity or to post any interesting links they might run across.

Check the space below for whatever the latest might be during this ‘off’ time, and please visit the various sites in the ‘Links’ and ‘Regular Stops’ for up-to-date market news and analysis.

BMB will be back in full swing by next weekend.

The stock market is being shackled by the recent action in the bond market, which has sent prices lower, and yields to their highest levels in nearly two years. As you can tell by the way that stocks have reacted, higher interest rates and stocks don’t always get along.

Chart courtesy of StockCharts.com

Geez. That wasn’t much fun. After a weak open, the market just kept getting weaker, as bond prices also got weaker and sent yields higher. That left the Dow Industrials with a loss of 63 points (-0.6%) to 10959, the S&P 500 falling 9 points (-0.7%) to 1278 and the Nasdaq dropping 17 points (-0.7%) to 2286. The Russell 2000 shaved off 7 points (-1.0%) to 731. The Dow Transports dropped 0.9%, while the Utilities got slammed for 2.7%. The bond market tumbled again. That action is flattening the yield curve back up, but it’s sending rates higher across the curve: 6-month: 4.75%, 2-year: 4.75%, 5-year: 4.75%, 10-year: 4.74% and 30-year: 4.73%.

Market internals were quite negative, and volume ticked up on the NYSE but I believe was a little lower on the Nasdaq. Advances/declines were 5 to 11 on the NYSE and 7 to 12 on the Nasdaq, with up/down volume 2 to 5 on the NYSE and 2 to 3 on the Nasdaq. New highs pulled in quite a bit, with highs/lows at 68/20 on the NYSE and 120/41 on the Nasdaq.

Only two groups were able to post significant gains today, those being the REITS (+1.8%) and telecoms (+1.3%). Why the REITs were up, I’m not sure at all. It doesn’t make a lot of sense, but there may have been an acquisition of a REIT that may have helped things. We know the T/BLS deal was helping the telecoms. On the losing side, the groups went far and wide: oil services (-4.0%), gold & silver (-3.3%), natural gas (-3.3%), natural resources (-2.9%), oil stocks (-2.7%), commodities (-2.5%), utilities (-2.4%), HMOs (-1.8%), semiconductors (-1.7%), disk drives (-1.6%), networkers (-1.5%), brokers (-1.2%), airlines (-1.2%) and biotechs (-1.1%).

Energy prices tried to help things by moving lower, but it didn’t matter. Crude oil fell to $62.41/barrel, gasoline to $1.65/gallon and nat.gas to $6.55/mmBTU. The dollar regained some strength and moved the dollar index up to 89.90, and the prices of gold fell back to $555/ounce.

BMB Note: Well, just when you thought it was safe to dip back into the energies and commodities - or anything else - along comes a day like today. The bond market has stocks pretty spooked, and I don’t know how this will all play out. I would think that bonds are getting a little oversold here, but you never know how far these things will go. Not that the market was exactly moving real strongly anyway. The slightly-up, mostly-sideways action hasn’t been too enticing, so I will remain pretty neutral until things break one way or the other. Keep on your toes.

The Bank of Japan is considering backing off on its “quantitative easing” policy, and may even suspend its Zero Interest Rate Policy at some point. The European Central Bank has raised rates and sounds hawkish. The US Federal Reserve is continuing to raise rates. It appears as though the current condition of a global economy awash in liquidity may be about to change.

Stephen Roach at Morgan Stanley considers the ramifications of the New Game:

All this takes us to the burning question of the hour: What happens to the world economy if the bond market conundrum is suddenly resolved and real long-term interest rates revert toward historical norms? My guess is that this is not good news for what has been a liquidity-driven, increasingly asset-dependent global economy.

Certainly, the US bond market has been affected recently by the new global developments, and the higher interest rates that have resulted haven’t been kind to the stock market.

Not a tremendous amount of action thus far this morning. The major indices are all near the unchanged level, market breadth is slightly negative. Leading the groups are the telecoms (helped by the AT&T/BellSouth merger news), REITs, internets and steel stocks. On the down side are energies and utilities.

The big news continues to come out of the bond market, with Treasuries still under pressure, pushing the 10-year yield to its highest levels since June of ‘04. Energy prices are slightly lower. The dollar is holding its ground, and gold is unchanged.

January factory orders fell 4.5%, but that’s not a huge surprise following the durable goods numbers out last week. And of course, we have to remember:

The Commerce Department’s figures are seasonally adjusted but are not adjusted for price changes.

So, we really have no idea as to whether the numbers fell or not…

When Amer Habda went to Saudi Arabia to complete his pilgrimage, he had many a new experiences and…a few new definitions:

After taking the chartered Saudi Airline flight to Madina, we arrived at our hotel, The New Ansar Palace. We quickly realized that a 5 star classification in Saudi Arabia is different from a five star in the U.S. It is hard to believe that anyone would categorize a room with 3 twin beds squeezed into a space the size of a large walk-in closet, as 5 stars. Worse, the bathrooms were filthy. No clean towels or clean sheets were provided. Traveler, beware.

Luckily the city itself was thriving. I was quite taken by the sight of the grand mosque, Masjid Alnabawi. The last of the prophets (Mohamad PBUH) was buried there. The masjid structure is indescribable. The marble courtyard and the Islamic architecture add to the grandeur of the place.

Shopping in Madina was easy and the merchants were friendly. I was lucky enough to be able to tour many other nice places in Madina, because I had a relative who was familiar with the city.

On the not-so nice side, the outlaying areas of the city were rundown apartment buildings, which housed the thousands of foreign workers there to maintain the city. This area was just one taste of a country with a confusing array of wealth and beauty on the one-hand and poverty and lack of amenities on the other.

My expectation was that Saudi Arabia, a country very rich in oil, would compete with most European countries in amenities and infrastructure, because they have money to spend on improvements. But despite the millions that visit Saudi Arabia each year for pilgrimage, despite the millions that live and work there, Saudi Arabia has few public amenities in most places I traveled. The infrastructure and organization was quite lacking. This fact was amply demonstrated by the fact that on one occasion, the buses we had chartered were already full and not only did we end up walking a great distance, we also had to camp overnight on the side of an extremely busy road, much like homeless wanderers.

I won’t go into great detail on the various religious stops of the pilgrimage, but rather focus on just a few economic notes. Here are some interesting factoids that I learned from my visit:

• The police that are hired for the event are all from other cities in Saudi Arabia. They cannot provide directions because they don’t know where anything is located. They cannot read the maps and in fact, may never have seen the maps you are trying to use.
• The bus drivers hired for the event are all from outside Saudi Arabia. They have never driven the routes, thus we were often lost and left walking to our destination on more than one occasion. Keep in mind also that it is extremely difficult to find transportation in and out of certain places especially around prayer times when the streets are closed. Speaking Arabic doesn’t help if no one is driving. Luckily when taxis were available, because I spoke Arabic, I could bargain with the taxi drivers.
• In Mena there was a large amount of people who could not afford housing or camps. They simply erected tents near the entrance and exit to Jamarat (Devil stone). This practice is allowed—and it proved fatal on the 3rd day when crowds stampeded.
• Despite the huge crowds, little is done to control the trash, human waste, or provide control over vendors. Finding food and/or water after being dropped off a lost bus was rarely convenient or easy.
• Even though the pilgrimage is a holy event, don’t think that stopped cell phone users. I was amazed by the sheer number of cell phones used by the squatters. Walking at night, you hear nothing but cell phones ringing and people speaking loudly on cell phones in various languages.

I rarely saw or spoke to any Saudi people. It seems that almost all labor is hired from the outside and not just during the time of pilgrimage. Saudi Arabia could quite easily attract tourists at other times of the year—if they wanted to and if they spent time and money on hotels and infrastructure. As it is, the country has a captive audience because even without the amenities, I would go back for spiritual reasons.

The country left an impression of not moving forward, of not taking advantage of the wealth it has to offer—not necessarily in the form of money or oil, but in the shape of who they are as a people, of what they stand for and what they could create through research and innovation. I kept looking for a country that had an interest towards shaping its people’s future. Alas, on this trip, I did not find it.

Contributed by Amer Habda

The summary of the weekly look at technicals and sentiment from Schaeffer’s says this:

Wrapping it up, the market continues to have some upside potential given the state of its technical and sentiment indicators. While the short-term path of least resistance appears to be to the upside, there are some downside concerns. A continuation of the upside move in the CBOE equity put/call ratio and the volatility indices may break the already tender back of the current market top. A breakdown would likely leave the current 50-day moving averages of the major indices as the next levels of potential support.

But if you read the report, you’ll find that the picture really isn’t very clear as to where this market is headed. At all.