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.

Peter Schiff weighs in on Tuesday’s election results, pointing out that most are expecting there to be gridlock between the Democrats in Congress and the Repulican White House. In his mind, that’s the best we can hope for, but:

…my fear is that we actually get something far worse: bi-partisan cooperation. The most likely result of both parties “working together” is Democratic support of Republican pork, in exchange for Republican support of Democratic pork, which will wreak further havoc on the country’s already dismal balance sheet. In addition, grandiose and ill conceived pet programs on both sides have much better chances of actually being passed. The last thing we need is Democrats and Republicans actually working together.

I hadn’t thought of it that way, but you know, he could be right. That would be scary.

It’s been known for a long time that the dollar will be in trouble (as if it isn’t already) when foreign countries start to dump the huge numbers of dollars they’re holding in reserve. It appears that the Chinese are making public statements about doing just that, and that was one of the big reasons for the move down in the dollar and up in gold today:

Zhou Xiaochuan, governor of the People’s Bank of China, said at a conference in Frankfurt that China has very clear plans to diversify its reserves, which now stand at more than $1 trillion. A wide range of instruments are under consideration, Zhou added…

“The remarks are especially crucial a few days after reports showed China’s currency reserves have attained the $1 trillion mark, making such diversification plans inevitable,” said Ashraf Laidi, chief foreign-exchange analyst at CMC Markets in New York.

“We have long warned against the diversification wave by global central banks in light of the peak in U.S. interest rates and the need to diversify into other currencies and commodities that are boosted by steadying commodity prices,” he said.

	While the Dow and Nasdaq touched new relative highs (but pulled back today), the S&P 500 hasn’t been able to match them. The $SPX has tried five times to break through the 1390 mark and has failed. But important support is still way down around 1360.
	Some things the Fed definitely does NOT want to see happening: a resurgence in gold…
	…and silver prices…
	…and oil prices starting to turn back up…
	…all in combination with a weaker dollar. And as long as the dollar remains weak, those commodity prices are unlikely to come down.

Charts courtesy of StockCharts.com

Not a great day for stocks in general, as the tape remained split throughout the day, commodity prices rose, and more and more groups leaned toward the red side. Aside from the Utilities, the major indices all suffered losses:

Bonds barely budged all day, so yields stayed put:
6-month: 5.15%   2-yr: 4.74%   5-yr: 4.60%    10-yr: 4.63%    30-yr: 4.73%.

With the indices lower and volume higher, the markets registered a ‘distribution’ day. Market internals were negative: advance/declines were 8 to 11 on the NYSE and 1 to 2 on the Nasdaq, with up/down volume 7 to 12 on the NYSE and 4 to 5 on the Nasdaq. New highs/lows were 214/23 on the NYSE and 140/54 on the Nasdaq.

The groups were split, but with more big losers than winners. Gold and silver stocks (+4.2%) rode a big jump in the price of the precious metals, followed by steel stocks (+1.8%), commodity stocks (+1.3%), natural gas stocks (+1.3%) and networking stocks (+1.0%). Health care led the losers’ list again today: drug stocks (-2.6%), HMOs (-2.6%), health care products (-2.4%), biotechs (-2.3%), brokers (-2.3%), semiconductors (-1.9%), homebuilders (-1.7%), airlines (-1.5%), telecoms (-1.3%).

Energy prices moved higher again: crude oil up more than a dollar to $61.16/barrel, gasoline up four cents to $1.60/gallon, and natural gas moved above 8 bucks before pulling back to $7.96/mmBTU. The dollar index fell to 85.18, while gold and silver soared to $633/ounce and $13.00/ounce.

BMB Note: Certainly not a great day for stocks. Cisco couldn’t prop up the entire market. No support levels on the major indices are in danger yet, but the Dow and Nasdaq have given back the little moves that pushed them to new highs.

In the groups, the precious metals were very strong, and oil was up big again. That leaves the energy and commodity stocks still in very good shape. In tech, the networkers and internets are still holding up - biotech gave some up today, and telecom has failed to put in new highs. On the down side, health care has gotten slammed in the two days since the election - if you’re holding health care (drugs, HMOs, health care products, and today biotechs got caught up in it as well), you’d best keep an eye on things there. This is likely a short-term event, but who knows? Other areas to avoid are the homebuilders, and some of the retailers are starting to get pretty toppy as well. Watch your step.

Oil prices are really starting to look like they’ve turned the corner, and might be trying to catch back up to the move in energy stocks that has already taken place. That’s good news if you’re getting in the energy game, but probably not real good news for consumers, and not necessarily good for the market as a whole.

At The Big Picture today, Barry points to an article by John Crudele in the NY Post that says that the US Treasury has been carrying some of the Fed’s water — helping inject money into the banking system by playing a ‘repo’ game of their own. That activity, to this point, seems to have been going on pretty much underneath the radar:

What does this mean? Well, instead of the (theoretically) independent Federal Reserve controlling Money Supply, we see the Treasury department has had an “unseen” hand. MZM, M2 and credit growth has been soaring. This has the effect of providing the fuel for increasing the leverage and risk in the system.

Is this like the repo operation at the Fed? “Kinda’,” says a spokeswoman for Treasury. “But not really.” She said the TIO program only replaced the old way of putting government cash in banks without making the banks place bids, which gets the government a better deal.

This repo action is not reported by the Treasury Department, and Crudele that “financial institutions have been using it for three years to increase their liquidity.” Surprisingly, it is not well known by the investment community.

What’s the problem with this? Crudele notes: “Experts worry whenever there is too much money - liquidity - in the financial system because it can lead to things like price spirals in the housing market and bubbles in stocks. But even more worrisome for the financial markets than too much liquidity would be an inability to track the amount of money being pumped into the financial system. Unless I find out differently, it looks as if the Treasury has created a way to duplicate the Fed’s power. And that is a disturbing possibility unless it is somehow monitored.”

Very split action today, with metals stocks, energy stocks, and tech stocks performing well, but health care and airlines doing poorly, leaving the major indices straddling the flat line. Advance/declines are just above the zero line on the NYSE, but even with the Nasdaq composite in the green, the Nasdaq advance-minus-decline percentage stands at -12.

The dollar has made a sharp move lower, and that has contributed to big moves back up in gold and silver, and energy prices are higher as well. The dollar index has made its way down to 85.10. If the dollar doesn’t shape up soon, you’re going to see higher commodity prices, and likely some trouble in stocks.

A bit of a split tape in the early going, with the Dow and S&P just below the flat line, but the Nasdaq holding on positive ground with help from CSCO’s earnings last night. A/D lines are also just in the red. Bonds are flat.

The groups are split pretty much down the middle, with the networkers, steel stocks, gold stocks, computer tech and hardware stocks leading the way up, and the airlines and drug stocks holding things back.

Energy prices are higher, with crude oil spiking again to the tune of more than dollar, now above $61/barrel, and natural gas above $8.00/mmBTU on a drawdown in inventories.. Gold and silver are trying to regain all of yesterday’s losses, and the dollar is fairly flat.