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.

Forex-Markets.com has a nice little Java applet page with real-time currency quotes, just in case you’re interested.

From Conor Sen, via his Dad’s blog:

One of my favorite measures of tying commodity inflation to monetary inflation and the absurdity of government policy is the melt value of a nickel. Last April it was 5.0 cents (ie, after factoring in the cost of stamping and distributing nickels the government was losing money producing them). Today it is 9.2 cents, meaning it probably costs the government 10 cents to produce a 5 cent coin. Interestingly, the melt value of a nickel is greater than the melt value of any of the modern “silver” dollars (Susan B. Anthony, Sacajawea, or presidential), which are 6-9 cents a piece.

On markets, interest rates, the Yen and the dollar:

Well, where are we? We did get a selloff on the day Fed Minutes were released, only to rally Thursday and Friday to take us back above the close of February 26th (the day before our nasty selloff). We’re now less than 1% from fresh multi-year highs. Impressive? Well — yes and no. Germany, France, and the UK are already at new highs. So are Mexico and Brazil. China, the country that started the whole mess with its 9% drop? It’s now a whopping 19% above its February 26th level and 31% above its February 27th level. That’s a heck of a year, let alone 6 weeks.

Of course, the equity markets aren’t the only part of the story. As I’ve been saying, interest rates have been creeping up since the Fed removed the inflation bias from their policy statement on March 21st. This week jobless claims were higher than expected, core PPI (whatever that is) was flat, and UMich consumer confidence was lower than expected, yet 10-year interest rates still managed to rise 0.01%. Two-year rates rose a bit more, 0.025%. Despite the continued creep up in interest rates, the dollar continues to sink. As I write this, the dollar index is at 82.06, perilously close to cracking the 82 level for the first time since March, 2005. Friday we were in a similar situation, when out of nowhere the yen fell a full point in a couple of hours.

Despite Ben Bernanke saying the yen is a market-determined currency, the BOJ is a known currency-manipulator, and I can’t help but wonder if that move was orchestrated to support the dollar. Even with the possible help of the BOJ, the dollar keeps dropping against other major currencies. The euro is now essentially at an all-time high of $1.355. The British pound is at $1.99, poised to crack the $2 level for the first time since 1992. The Australian dollar is at $0.83, up from $0.77 several weeks ago, and at a 17-year high. The New Zealand dollar is a similar story.

Commodities are no different. Gold is back at $687, its February high and looks poised to make an assault on its May high of $730. An index of industrial metals (steel, copper, aluminum, zinc, lead, tin, and nickel) is up 11% on the year.

Markets the world over celebrated the ‘all clear’ on the Yen carry trade from the G7 this weekend, as global indices moved higher pretty much in tandem last night and today. US indices approached their February highs, with the S&P 500 working its way above that level:

Bonds rallied as well, and tamped yields back down a bit:
6-month: 5.07%    2-yr: 4.74%    5-yr: 4.66%    10-yr: 4.73%   30-yr: 4.89%.

Internals were positive, but volume continues to sag a bit. Today’s volume ticked up on the NYSE, but was a little lower on the Nasdaq, and in general, volume on this big run has remained below average levels. Advances/declines were 7 to 3 on both exchanges, with up/down volume near 4 to 1 on the NYSE and near 3 to 1 on the Nasdaq. New highs/lows were 398/15 on the NYSE and 251/29 on the Nasdaq.

Most groups were higher, and some of the financials (e.g., the brokers, banks) made their way out of the dust heap to post solid gains today: brokers (+3.3%), metals and mining (+2.3%), steel stocks (+2.0%), banks (+1.9%), transportation (+1.5%), homebuilders (+1.5%), HMOs (+1.3%), insurance (+1.3%) and retailers (+1.3%).

Energy prices were mixed. Crude oil was higher, up to $63.61/barrel, but gasoline slipped to $2.12/gallon and natural gas dropped back to $7.53/mmBTU. The dollar index dropped just slightly to 82.09. Precious metals continue to rise right along with stocks: gold hit $690/ounce, and silver moved up to $14.07/ounce.

BMB Note: Make it 11 out of 12 for the Dow. Up days have become pretty commonplace of late - bad news is pretty much ignored, and on any good news, markets around the world are partying like its 1999. And just six weeks ago, investors couldn’t sell stocks fast enough.

So here we are, right back at the Feb. highs, only taking a month to get here. That was a pretty steep ramp up, and the majority of the move has taken place on lighter-than-average volume. So can it hold? Do we just keep going up forever?

The brokers kicked back in nicely today, and the banks got a badly needed boost from Citigroup, so that could be good news for the market. But the real estate stocks continue to drag - homebuilders are getting a very slight bounce, but the REITs are still stuck in sideways. If things keep going the way they have been, you would think that eventually the real estate stocks would get bought up too, simply because there was nothing left to buy!

We heard going into April that it was typically a good month for the market, and that has certainly proven to be true this time around. Also, we’ve got options expiration this week, and tons of earnings reports out. The CPI report tomorrow morning will be key - if that report comes in too hot, some of today’s gains could be in jeopardy.

Everybody’s happy, and nearly all the arrows are pointing up. But there’s another market adage sticking in the back of my mind, one that often rings true: “Sell in May and go away”.

BMB will be a little late getting things rolling in this new trading week, as I have some errands to run this morning. I’ll be back when I get back…