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.

	Metals were the story of the day today. Many of the gold and silver stocks made nice moves, and stocks like FCX popped out of their recent trading ranges. Here are the charts of a number of other interesting looking stocks in the group, including the Market Vectors Gold Miners ETF (GDX), if you don’t care to pick and choose individual stocks.
	Gold and silver stocks aren’t the only beneficiaries. Metals stocks of all kinds are starting to see some strength, including palladium.

Charts courtesy of StockCharts.com

A drop in rates this week, as the 3-month T-bill went at an investment yield of 4.984%, vs. 5.093% last week, and the 6-month brought 5.116% vs. last week’s 5.169%.

The market-that-is-never-going-down-again put in another positive day. Not wildly positive, but positive nonetheless. Of the three major indices, the Nasdaq led the way again, registering its 13th day of gains in the last 16 sessions:

Today’s entry in “Believe it or not”: bond prices were lower. Yes, you read that right. Prices lower, yields up:
6-month: 5.10%   2-yr: 4.80%   5-yr: 4.73%    10-yr: 4.78%    30-yr: 4.93%.

Market internals were, of course, positive. Volume was not impressive, but ticked up above Friday’s pathetic levels, and pretty much matched the best levels of last week. Advances/declines were 11 to 8 on the NYSE and 3 to 2 on the Nasdaq, with up/down volume about 5 to 3 on both exchanges. New highs/lows were 177/17 on the NYSE and 108/34 on the Nasdaq.

The biggest gains came from the metals groups: steel stocks up 3.8%, followed by gold and silver stocks (+2.9%), oil services (+2.3%), commodity stocks (+1.9%), semiconductors (+1.7%), natural gas stocks (+1.5%), airlines (+1.1%) and natural resources (+1.1%). Losers were led by the HMOs (-1.3%) and disk drives (-1.2%).

Energy prices were mixed: crude dropped to $68.60/barrel and gasoline to $1.65/gallon, but natural gas bumped up to $6.04/mmBTU. The dollar index is hanging in there at 85.01. Gold had a strong showing, gaining to $638/ounce while silver gave back early gains to finish at $12.92/ounce.

BMB Note: Ok, go ahead. Buy anything you want, and as much of it as you want. The stock market is going to go up, every day, forever.

Oh sure, things are overbought and the VIX has been buried again for the past 3 weeks, but it doesn’t matter. We’ll just keep getting more overbought, and the VIX will no longer be calculated because it will be irrelevant. The market will go up, every day, forever.

Pay no attention to the weakness in the housing market. Please just ignore it and keep moving. It clearly doesn’t matter. Sure, there are a lot of homes for sale, but prices haven’t really dropped yet. So I must assume that they never will. After a short time when they don’t go up quite as fast as they have been, housing prices too will go up again - forever.

Obviously there was some sort of huge mistake in the bond pits today, because bond prices went down. I thought the rules had been made quite clear over the past few weeks that bond prices were to go up every day, forever. I’m not sure what went wrong there, but I am quite certain that the situation will corrected by tomorrow morning. After all, interest rates are meant to go down, forever. Lower rates should be welcomed by you, since you were placed here to borrow and spend. You have no need to save. Please do not try.

And if all of these things are true, then you can rest assured that the prices you pay for everything - food, fuel, energy, clothing, entertainment, shelter, transportation, services, home supplies, appliances, electronics - will also go up forever. As for your wages, well, you might have to ask about a raise now and then. But if your boss says no, well, just go to the bank and take out another home equity line of credit. After all, don’t forget, the value of your home will be going up - forever.

Have a nice asset inflation.

Update: We’re sorry if today’s market wrap is a little bit out of the ordinary, but BMB sometimes goes a little crazy when he hears about the Fed juicing the money supply again and again. We’ll make sure he gets his medication later. That usually helps calm things down relatively quickly, and he should be back on more ‘level’ ground by morning. Just don’t bring up their doing away with the M3 calculation…that could send him off the deep end. And we need him here - it’s his turn to bring coffee.- The Staff

Jeffrey Saut suspects that the Fed is a tad bit concerned about the weakness in the real estate market, and in true Fed fashion, is responding the same way it responds to every problem - by throwing money at it:

The “new queen” may be “money” as the Federal Reserve added $36 billion to the nation’s money supply (M2) last week. This is not an unimportant point, for under the guise of “tight money,” fostered by higher interest rates, the Fed has recently been increasing the money supply. Unfortunately, Greenspan & Co. did away with the broader-based M3 money supply figures, so it is difficult to calculate the leverage the Fed is introducing into the economic system. Suffice it to say, if M2 increased by $36 billion M3 should have increased by a greater amount. Whether this liquidity injection is in response to the worrisome real estate environment is unknowable, but our real estate research team is clearly worried, as suggested in their recent note. To wit:

“We continue to be troubled by the weakness in the housing sector and the risk it represents for the economy and the equity markets. The housing data continues to get worse, with inventory levels increasing again, for the most recently available data which was July. We expect more of the same for August as the data rolls out over the next two weeks. We aren’t ignoring the fact that economic growth continues to be relatively sound, or the likelihood that the Fed is near the end of the tightening cycle, which lends some support for the equities market. But investors should be aware that historically housing cycles have been predictive of general economic health and currently the housing cycle is decelerating at a much greater rate than we anticipated. Inventories of homes for sale in numerous markets around the U.S. are soaring as new and existing home sales continue to slip. On this backdrop we are recommending a more defensive investment posture and recommending a decrease in the allocation to equities.”

Same old Fed. Tell everyone you’re concerned about inflation on one hand, then push money into the system to keep inflation - and the stock markets - going with the other. These people apparently have no conscience. I swear that the world’s central banks would be more than willing to just hand every man, woman and child an envelope with $10 million in Monopoly money if they thought it would keep the game going for another few years.

Just go ahead, Ben, we’ve all been waiting: rev up the printing presses and get the helicopters in the air.

Hat tip to At These Levels.

Chris Johnson says the contrarian view of recent pessimism and seasonal weakness could mean the market moves higher - but then again, maybe not:

In other words, this seasonality pattern is one that investors should definitely heed. Of course, the evils of September have been well covered in all areas of the media over the past week. This can only add to the mood of returning investors who expect the next month to drag prices lower. But there may be a flip side. Our approach to trading the market recognizes that there are situation in which well-publicized pessimism or optimism is often incorrect. And given the strong pessimism we’re seeing, especially on the heels of last week’s strength, you can’t create a better contrarian setup leading to this September providing record returns. Expectations are low, investors are returning to the market, and the major indices are showing signs of breaking above their trading ranges. If September starts out on a roll (and last week was a good start), this pervasive pessimism could quickly unwind into buying. However, we must be mindful that the “group think” of the Street can always turn the tables on the contrarian, such that this pessimism feeds on itself. In that case, the market could fulfill the September prophecy. The key is how well the market does this week. If the strength continues, look for the pessimism and fear to melt away into a strong month. If the market weakens, then look for pessimism to take hold, allowing the “here comes another lousy September” mentality to manifest itself.

Hmm. I don’t think that’s much help here, is it?

It’s been a struggle between the bulls and the bears since the opening bell, with no clear indication where the advantage lies. Major indices are now showing slight losses, but A/D lines remain in slightly positive territory, but the group action leaning toward the red side. Disk drives (aka, SNDK) lead the losers thus far, with gold stocks, airlines, metals, steel and commodity stocks leading to the up side.

Bond prices are lower (can’t be!), and yields are up a little.

Energy prices are mixed - crude and gasoline lower but natgas up. The dollar, gold and silver are all higher.

Home prices in the second quarter rose at a 4.7% annual rate, and 10.6% year-over-year, according to the Office of Federal Housing Enterprise Oversight. However:

Prices of U.S. homes grew at their slowest pace in six and a half years during the second quarter…

“These data are a strong indication that the housing market is cooling in a very significant way,” said James Lockhart, OFHEO director. “Indeed, the deceleration appears in almost every region of the country.”

It’s the fastest deceleration in the index in its three-decade history, OFHEO said.

Stay tuned. I’m sure there will be more to come in the ’soft landing’ vs. ‘crash’ debate.

According to Peter Navarro, trying to figure out what the market is going to do from here is a crap shoot. Ok, maybe a coin flip:

Anybody who claims right now to know what the market’s likely direction will be necessarily must be lying through their teeth — or deluding themselves. Right now, a bull run to the end of the year is a toss of the coin, with the odds 50-50. That’s because for every bullish sign, there’s a bearish one.

Bullish: All three major indices turned bullish in August, and each of their ETFs is a technician’s buy. Bearish: They all did it on relatively low volume, and September is typically the stock market’s cruelest month.

Bullish: Oil and gas prices are moderating. Bearish: The housing market continues to deteriorate at an increasing rate, and the auto sector is sliding into the tank.

Bullish: Long term interest rates and mortgage rates are falling as the Fed stops raising interest rates. Bearish: The yield curve remains flat to inverted which is typically a sign of a coming recession.

I love this kind of situation from an analytical perspective because it poses the most difficult of forecasting challenges. On the other hand, I hate this kind of situation from an investing perspective because laying down your money is much more like gambling on a coin toss than speculating carefully in a poker game.

Now here’s a guy I can identify with. Ok, I’m not 100 years old - yet - and I don’t necessarily agree with his views of retirement. But you gotta love some things about him:

“I have never in my life owned a phone — they are a bloody nuisance,” he said. “You can be sitting peacefully indoors and they start ringing. I hate them.”

Or in the words of Sheryl Crow: “If you’d like to reach me, leave me alone…”

Chevron, along with partners Statoil and Devon Energy announced a potential new oil find in the Gulf of Mexico:

Chevron (CVX) said Tuesday that it successfully drilled at the Jack #2 well at Walker Ridge Block 758 to a total depth of 28,175 feet, with more than 20,000 feet of that below the sea floor.

Geez. 28,000 feet. More than 5.3 miles down. Not exactly right at the tips of your fingers, is it? And I wouldn’t expect this oil to being flowing anytime real soon:

Chevron and its co-owners plan to drill an additional appraisal well in 2007.

Estimates are that they could contain anywhere from 3 billion to 15 billion barrels of oil and gas reserves - a pretty wide range.