Bear Mountain Bull

From Technically Speaking:

Bernanke says we won’t have stagflation. Well, growth approaching zero and rampant inflation add up to Benflatus. A one pound box of cereal costs four dollars. A gallon of gas is rapidly approaching four dollars. A bottle of water at Fenway Park costs more than four dollars.

When I was in the Navy, we have a visiting professor from LA who was an expert on certain types of kidney disease. We presented a patient who had a syndrome coupled with kidney disease. He looked at the biopsy and said, “the patient has lupus.” We replied that she didn’t come close to meeting the ARA Criteria. He simply replied, “I’m the expert and she has lupus.”

That’s kind of how Bernanke works. He speaks and it is so. We used to have a simpler definition for an expert…anybody giving a lecture more than fifty miles from home with a carousel of slides.

	Hmm. Almost looks like deja vu all over again, doesn’t it?
	The Nasdaq closed today at its lowest level since the fall of 2006.

This should have the bulls quite concerned — the number of groups that have already broken near-term support levels, or are just teetering on the edge of doing so:

Charts courtesy of StockCharts.com

So much for that. After the big CNBC/Ambac save of last Friday afternoon and three subsequent days of run-up earlier this week, the market coughed up all of those gains in just two days’ time, and sent the month of February back into the red.

This is not a bullish development.

Here are the numbers, for those rubberneckers that would like to slow down and try to see the carnage:

As stocks crumbled, the scared money went running for the hills. That would mean into Treasuries, and yields took a dive:
6-month: 1.81%    2-yr: 1.64%    5-yr: 2.50%    10-yr: 3.53%   30-yr: 4.43%.

Internals were a nightmare, and volume jumped higher - especially in the last hour - and that’s not a good sign. Advances/declines were 1 to 7 on the NYSE and 2 to 7 on the Nasdaq, with up/down volume 1 to 19 on the NYSE and 1 to 8 on the Nasdaq. New highs took a dive, and new lows picked up, with new highs/lows 19/170 on the NYSE and 7/166 on the Nasdaq.

The group scene was just plain ugly. Leading the way down (and I mean waaaay down) were the brokers (-5.4%), steel stocks (-5.4%), homebuilders (-5.3%), metals and mining (-4.2%), banks (-4.2%), telecom (-4.2%), paper (-4.1%), oil services (-4.0%), HMOs (-3.8%), networkers (-3.7%), airlines (-3.7%) and computer hardware (-3.5%). And there was plenty more red out there.

About the only ‘good’ news came from the fact that commodities didn’t take off further, but they didn’t exactly take a dive either. Energy prices were mixed, with crude oil ‘down’ to $101.84/barrel. Gasoline was up a couple of cents to $2.51/gallon, but natural gas slipped just a bit to $9.37/mmBTU. The dollar slide took a day off, but we didn’t see any dollar ’strength’ return, leaving the dollar index at 73.70. I thought we might see some pullback in the precious metals, but they dipped early and then came back. Gold was up a few bucks to $973/ounce, and spot silver was up a penny to $19.80/ounce.

BMB Note:   Easy come, easy go. You really gotta be careful out there. Those bear market rallies can kill you.

This week’s action is a good example of why it doesn’t pay to get too excited about a couple of good market days - especially in a bear market environment - and even now, it probably doesn’t pay to get too overly anxious on the short side either. Even though the major indices gave back all of the week’s gains, the Dow and S&P remain near the middle of their recent ranges, though the Nasdaq indices are edging back down toward the bottom of theirs - and the Nasdaq put in its lowest close since October of ‘06.

A bigger reason for concern is that we’re starting to see some groups break down, and others getting close to the edge, and we’ll look at some of those areas in the chart section later. If the groups really do start to fall apart again, there’s no doubt that the indices will eventually follow suit.

Continue to protect your capital.

CNBC shows up with a half-hour to go, with “Breaking News” that Bill Gross is placing bids for some muni bonds. They’re trying it again.

Hey, why not? It worked damned well last week.

From the market, from Ben, from the media, from the politicians…

Here’s Gary Kaltbaum today:

Well, caught just a little flak from readers on my last report… but most emails completely agreed with me.

BOTTOM LINE: So what happened to the deal that Ambac Financial (ABK) and the crooks… I mean banks… were supposed to consummate Monday or Tuesday of this week?

I AM BESIDE MYSELF. For the past two years, I have been posing the question in these reports, on tv and on my radio show…what happens when the market figures out the fed not only does not know what they are doing….but that the fed had no control of the situation? Many feverishly disagreed. All evidence coming in continues to support my view…unfortunately. But what I saw this week should send shivers down the spine of anyone who is bullish on the markets…and it is all encapsulated in one statement that Uncle Ben said in his testimony this week. He simply stated : “Markets are saying inflation remains anchored!” Huh…what…huh…. This one statement drops Uncle Ben into the category of imbecile, numbskull, blind, head in the sand, McMurphy, Pinocchio, “I did not have sexual relations with that woman, Miss Lewinsky,” “I am not a crook!.” I can go on and on. I now believe Bernanke is now on the edge of completely losing the markets. He lost the housing market after saying for 2 years that it was stabilizing and bottoming. He lost the lending market as he said for 2 years that subprime was not a problem. He lost the stock market as he kept saying the economy was fine and to this day, tries to tell us we will not go into recession. He has lost the dollar and lost the commodities market as I told you in past months that he dropped all pretense that he cared about inflation. And while I remember things, one more thing. Uncle Ben also said that a slower economy will bring down inflation. This is just another falsehood that flies in the face of economics 101. This dude is over his head…and waaaaaaaay waaaaaaay behind the curve.

So… what have we received for our money?

We have banks, the creator of the problem… trying to save another problem buy recapitalizing monoline insurance companies. How is it that the crooks saving themselves in the near term… is a good thing?

Not just rising commodities but soaring commodities… just laughing in the face at Uncle Ben.

A dollar that is sinking like Jessica Simpson’s movie career. Did you hear what Bush said? Get this. He said, “We believe in a strong dollar policy!” I thought he was going to break out in laughter after saying it.

Though the fed lowered fed funds from 5.25% to 3%, mortgage rates have inched up as the fed has no control.

A stimulus package from the government that will do nothing for no one.

Socialist proposals from Paulson that no one paid attention to. A whopping 10,000 people have worked out their loans a wee bit better… yippee! And what happened to the super SIV?

I can go on and on about this nonsense…but you have been hearing about this enough from me over the past couple of years. We are now in a situation where certain presidential candidates are blaming this situation on the tax cuts of a few years ago…and somehow will get the public believing that lie. I am very worried…very very worried that the people in power could not run a lemonade stand at this point in time. You had the lenders who committed the crimes part of the process in deciding how to fix things…you have the banks who needed to be recapitalizing now trying to recapitalize with their recapitalizations of the monolines. It is one big giant cesspool and I am worried.

Major averages stalled in a logical spot during a bear market… right at the declining moving averages. This is classic and something I speak about often. The only game in town in the past couple of weeks was the frenzied buying into the commodities which smacked of panicky buying…while the rest of the market lay in the weeds. This ain’t no hill for a climber. Take your time… protect your capital. This is going to remain a rough tough proposition… on all fronts!

I saw this paper mentioned on CNBC this morning, and Barry has termed it “YOUR MUST READ HOMEWORK ASSIGNMENT FOR THE WEEKEND!”, saying:

The abstract and graphs below are quite compelling:

“This report discusses the implications of the recent financial market turmoil for central banks. We start by characterizing the disruptions in the financial markets and compare these dislocations to previous periods of financial stress. We confirm the conventional view that the current problems in financial markets are concentrated in institutions that have exposure to mortgage securities. We use several methods to estimate the ultimate losses on these securities. Our best (very uncertain) guess is that the losses will total about $400 billion, with about half being borne by leveraged U.S. financial institutions. We then highlight the role of leverage and mark-to-market accounting in propagating this shock. This perspective implies an estimate of the eventual contraction in balance sheets of these institutions, which will include a substantial reduction in credit to businesses and households. We close by exploring the feedback from credit availability to the broader economy and provide new evidence that contractions in financial institutions balance sheets’ cause a reduction in real GDP growth.”

I’ll let you decide if it’s ‘must’ reading:

Leveraged Losses: Lessons from the Mortgage Market Meltdown

Another rough morning for stocks. The indices are pushing down nearly two percent, with the A/D lines buried in the red and all of the groups in negative territory.

As stocks sell off, bonds are rallying hard and sending yields lower. Energy prices are pulling back slightly, as are the precious metals - we knew that the commodities had to take a rest sooner or later. The poor dollar is bouncing only slightly after getting hammered the past few days.

The Asian markets struggled, and European indices aren’t doing much better this morning. US index futures are pointing to another lower open here.

More ‘rogue’ traders - this time in wheat futures.

… and Big Ben is at the controls, with his engineer’s hat on.

From Economist’s View (thanks to Calculated Risk):

This Train Doesn’t Stop, by Tim Duy:   Dual mandate, but one policy tool. A choice has to be made in the short run. Focus on inflation, and hold policy relatively tight? Or focus on growth, hoping that soft economic growth will tame inflationary pressures? The Fed continues to choose the latter path. In truth, at this point they have no other choice. It was unlikely that the Fed could bring a halt to this easing cycle as long as economic data point at recessionary conditions; this was always the danger of moving so quickly early in the cycle. And it became unthinkable to back away from the current set of policies after Congress followed up on Fed Chairman Ben Bernanke’s push for fiscal stimulus. The die is cast. Look for another 50bp in March and then two more 25bp cuts at subsequent meetings to bring the Fed Funds rate to 2%.

—

Not surprisingly, Bernanke’s inclination to continue pushing rates lower is resonating throughout financial markets. Inflationary pressures are building globally (note that China is completing the chain that leads to an inflationary spiral, setting the expectation that high inflation will be matched by higher wages), reflected in surging commodity prices and the freefall of the dollar. The former is weighing heavily on US consumers. Indeed, I am amazed that this story is only starting to capture the attention of the press. So much attention is placed on the housing market as the source of declining consumer confidence, but over the last three months, headline CPI has surged 6.8% annualized. Sure doesn’t look like nominal wages gains are keeping up. No wonder confidence is collapsing.

And I sense it’s going to get worse – the Fed’s policy stance is giving additional impetus to commodity prices as investors pile into the asset class as an inflation hedge and a response to the weaker dollar. Moreover, low US risk free returns (a measly 2% on a 2 year Treasury) are forcing market participants to search out higher returns, and commodity prices look like a safe bet for the time being. The new asset bubble? Perhaps – but this one will have a primarily inflationary impact on the US economy. Moreover, it will weigh against the deflationary impact of the housing/credit market turmoil. Swamping it if the policy response is to continue propping up an unsustainable level of domestic demand. (I wonder when someone in Congress is going to realize that higher inflation is rapidly chipping away at the recent minimum wage hike?)

Hard to believe that a few billion is going to save Ambac when guys like AIG are taking $11 billion hits on their default swaps.

Jim Jubak at MSN:

What’s the scariest investing story of 2008 so far?

It’s not news that the median price of a new house is down 17% from its 2007 high — and still falling.

Or that Miami has a 37-month supply of unsold condos, with 19,000 more new units set to hit the market this year.

Or even that losses at banks and investment banks in the debt-market meltdown could hit $400 billion.

Here’s my nominee:

The Pension Benefit Guaranty Corp., the government agency that protects the pensions of 44 million workers in case their employers can’t (or won’t) pay promised benefits, has announced that to avoid going bust it will double the percentage of its portfolio — to 45% — that it puts into stocks. An additional 10% will go into alternative investments, including hedge funds.

In other words, facing a $14 billion deficit and even larger projected shortfalls, the Pension Benefit Guaranty Corp., or PBGC, decided not to save (by raising premiums) or to live within its means (by cutting benefits) but to gamble in the financial markets by taking on more risk. The PBGC was so proud of its new strategy that it announced it on Presidents Day, when the U.S. financial markets were closed and almost no one was paying attention.

So why is this so scary?

Because as a result of 10 years of booms and busts — the Asian currency crisis, the Long Term Capital Management hedge fund disaster, the tech stock bear market of 2000-02, the housing smash-up, the debt market debacle — I’ve increasingly come to believe that those of us who play by the rules (work hard, live within our paychecks, save) are chumps. The way to get ahead is to gamble big and then, if you lose, find someone to cover your losses.

The dollar did not have a good day yesterday (or today either, for that matter).

Here’s Everbank’s Chuck Butler from this morning’s Daily Pfennig:

So… Here’s the scene yesterday… The euro, when I left you, was 1.5045… And then more sour data hit… Durable Goods Orders fell 5.3% in January! Yes… January Durable Goods Orders came in weaker-than-expected falling 5.3% compared to expectations of a 4.0% decline. This report fanned the flames of recession…

Then New Home Sales in January printed a larger-than-expected 2.8% drop! Even falling prices aren’t helping now… And the inventories of unsold homes continue to trend sharply higher… This report fanned the flames of what I’ve said for two months now, that the Fed would cut 50 BPS at their March meeting.

Then came Big Ben… This guy actually had the cajones to say that the “Fed would continue to cut rates in the face of rising inflation” GET OUT OF HERE! He really didn’t say that, did he? OH YES HE DID! That’s our Central Bank leader folks… Leading us down the road of destruction caused by soaring inflation! He went on to deliver Congress an economic forecast fraught with risk…

And finally, overnight on Tuesday came word that Big Al Greenspan had told the Gulf State Nations that they should abandon their dollar peg… Talk about a shot across the dollar’s bow… A slap in the face! All those types of things rolled together… The former Fed Chairman who had his hands deep into this mess that started all this, is telling people to abandon the dollar!

Talk about things mounting up on the dollar! I actually felt sorry for it one point yesterday the selling was so strong, and by noon yesterday the euro was trading 1.5140! And all the currencies joined in… In the old days of football (when I played) this was called “piling on”…

Can the strong commodity areas carry the major indices by themselves?

At this point, it doesn’t appear that they can:

And another question:   If “the bottom is in”, and “the worst is behind us”, does it make sense that the brokers are still looking so sickly? I didn’t think so either.

Charts courtesy of StockCharts.com

I think most stocks got up on the wrong side of the bed today. It appears that the commodity side of the bed was the right one.

Not a good day for the most part, as the indices gave back some of the week’s gains, and most groups ended up pretty solidly in the red. The Russell and the Transports took it the worst:

Scared money started running back into Treasuries, and that sent yields lower:
6-month: 1.93%    2-yr: 1.85%    5-yr: 2.69%    10-yr: 3.68%   30-yr: 4.53%.

Internals slipped hard back to the negative, but volume lightened up a bit - about the only positive sign to be taken from today. Advances/declines were 3 to 7 on both exchanges, with up/down volume around 1 to 3 on each. New highs/lows were 55/69 on the NYSE and 29/89 on the Nasdaq.

The group scene was rather ugly, with some of the numbers getting big and bad: airlines (-4.3%) got socked again, along with disk drives (-4.1%), homebuilders (-4.1%), banks (-3.5%), retail (-3.2%), brokers (-3.2%), semiconductors (-2.6%), transportation (-2.4%), networking (-2.2%), paper (-2.2%), insurance (-1.9%), HMOs (-1.8%), REITs (-1.8%) and internets (-1.8%). The only winners came from the commodity side of the table: natural gas stocks (+3.1%), gold and silver stocks (+2.5%), metals and mining (+1.9%), oil services (+1.9%), commodities (+1.7%) and steel (+1.1%).

It looks like the ‘break’ in energy prices only lasted one day. Crude oil ran right back up to new highs today, closing at $102.59/barrel. Gasoline was flat at $2.49/gallon, but natural gas jumped up to $9.44/mmBTU. The dollar slide continues, with the dollar index hitting new lows again today, ending around 73.72. And the run in the precious metals remained in full swing. Gold hit new records again, with the spot price now at $970/ounce, and spot silver jumped again, to $19.79/ounce.

BMB Note:   I’m still wondering why on earth Ben Bernanke took that job.

Stocks are still facing an awful lot of headwinds, both fundamentally and technically. The major indices ran up into resistance again, and so far, have failed to show any ability to move through it. Commodities continue to carry the day - and I don’t think that a bull market can survive for long on energy and metals stocks. And this most recent breakdown in the dollar certainly isn’t going to help hold commodity prices down. Longer term, those higher prices are bad news for the economy. As if this economy needs any more bad news.

The financials are still struggling to get anything going. The transports are showing signs of fatigue - and the airlines are falling from the sky. And the groups that keep catching a bit, like the semiconductors and retail, can’t seem to get it going for more than a day or two - both of them were smacked down hard again today.

So there just isn’t a lot of good to report on the stock side of things, at least in my opinion. If you’re playing the commodities and/or other currencies, good for you - you’re doing just fine. Right now, that looks like the only game in town.

They just keep rollin’:

Although not quite as early as usual…

Things started off a little weak this morning, and have worsened in the past hour or so. The indices are now down about one percent, with most groups - outside of a few commodity areas - in the red. A/D lines are pretty deep in the red as well.

Leading the groups down are the banks and brokers, airlines, disk drives, housing stocks, retail, semiconductors and transportation. Still gaining ground on the day are the natural gas stocks, gold and silver stocks and oil services.

Treasuries have moved higher, sending yields lower. Energy prices are higher again, with crude back above $101. The dollar index has fallen below 74, and gold and silver continue higher.

Over at The Big Picture this morning, Barry explains why Fed chairmen don’t exactly ‘tell it like it is’ in public:

If the Fed were to come clean about the present circumstances, it would cause a market panic. That’s why we get this very gradual shift in assessments, all designed to be somewhat reassuring as it slowly feeds measured dollops of reality into the marketplace.

—

Imagine if the Fed Chair told the unvarnished truth: The Dow would see a 1,000 point intra-day drop, and that won’t help the Fed steer the ship.

Imagine if the Fed fessed up to what we know to be true, and what we suspect the future might bring:

Opening statement of the FOMC Chair, Senate Testimony
February 27, 2008:

Senators, we find ourselves in a very challenging situation.

Following the dot com implosion, my predecessor at the Fed slashed rates to a generational low of 1%; the FOMC then kept rates at 1% for over a year.

While that re-inflated the economy, it also set off a shock wave of inflation unseen since the 1970s. Houses doubled in price, Oil is up 5 fold, food stuffs have tripled, and the dollar has collapsed. Gold is at multi-decade highs.

As always happens, these price increases in hard asset attracted speculators, and that made the situation — especially in housing — much more complex. Even worse, the housing speculation contributed to a debacle, while these other assets are actually accelerating in price.

Further, as was the political fashion, deregulation and a lack of interest in the oversight role of the banking system allowed an unprecedented expansion of credit, including to the least credit worthy consumers. Additionally, derivative selling — at its heart, an unregulated form of insurance — expanded from a few billion dollars to $46 trillion dollars.

The credit crunch is unprecedented, far worse than the S&L collapse and Long Term Capital Management — combined.

All of these factors have combined to create our present situation. Inflation remains very elevated and worse, quite sticky. Growth continues to slide towards zero — and possibly beyond.

Like many others, our forecasts in these areas have been wrong. We expected the slowing economy to moderate inflation, and so far, that has not happened. Demand for commodities from China and India is keeping prices elevated. The weakening dollar — now at levels last seen in the 1960s — is forcing all dollar denominated commodities higher. I don’t necessarily believe in “Peak Oil,” but the fact that the Saudis are one of the world’s biggest investors in alternate energy research might tell you something.

The last time a slowing economy failed to moderate prices was the 1970s. Even as the economy slid into recession, we had major spikes in energy, food, clothing.

What is particularly worrisome to me is that as we have slashed interest rates 225 basis points, consumer loans — mortgages and revolving credit — have actually moved higher.

Gentleman, this is a major problem. And our internal, non-public projections forecast it is only going to get worse for the next 4 quarters . . .

Now you understand why the Fed fibs. If they told the full and unvarnished truth, it would be beyond fugly.

Sounds like Deron Wagner has a ‘wait and see’ posture toward the overall market in the near-term:

As for the domestic stock markets, all eyes are on whether or not the S&P and Dow will overcome resistance of their pivotal 50-day moving averages. So far, the initial test of resistance has been pretty lame, but it doesn’t mean we won’t at least see a “stop hunt” with a rush of momentum above the 50-day MAs. Conversely, the recent rally off the lows has made the risk/reward of new short entries more attractive. We’ll consider selling short a broad-based ETF or two if the major indices begin breaking below yesterday’s lows. Until then, we remain neutral on the short-term direction of the broad market. Regardless of short-term strength along the way, don’t forget we’re still in a confirmed bear market. Stay on guard to prevent potentially getting led like a lamb to the slaughter.

Not a lot of movement in Asia overnight, but we’re seeing declines of more than one percent in the European indices.

The ‘big’ number out this morning is the second go-round at Q4 GDP, which was unchanged at +0.6%. But the inflation numbers that come with that report remain on the warm side: “Consumer inflation was revised higher to a 4.1% annualized pace in the quarter from 3.9%, but core inflation - which excludes food and energy costs - was unrevised at 2.7%.”

US index futures are indicating another lower open.

Axel Merk talks about the bailout plan that’s in the works for the bond insurers, and tells us that it’s not nearly as great of an idea as is being portrayed:

A consortium of banks is considering injecting $3 billion dollars into Ambac, the mono-line insurer that relies on its AAA rating to insure, amongst others, municipal bonds and CDOs (collateralized debt obligations). What appears as a rescue plan and may appease the markets short-term, may plant the seeds for disaster.

—

…many have been praising the proposed “bailout”, a capital injection of $3 billion by a consortium of banks. The complexity of the issues at hand is blinding banks, regulators and rating agencies alike. An investment of banks into the insurers concentrates risk further, rather than spreading it. Banks are closer to being their own counterparty to their credit default swaps. Banks may technically be able to provide the appearance of independence by keeping their stake below certain thresholds. But given that the entire industry has very similar issues, this is a rather weak smokescreen. Indeed, we consider it a pathetic waste of bank shareholders’ money. Banks may buy some time if they can convince the rating agencies to go along, but all involved better pray that the housing market and the economy do not deteriorate further, as otherwise, another wave of securities may fail and yet another “bailout” may be required. We used to criticize Japanese shareholder crossholdings, building a house of cards that eventually had to collapse. U.S. financial institutions are laying the foundation for the same mistakes.

Lotsa news and noise surrounding the housing and mortgage biz the last few days. Barry’s got it all at The Big Picture.

	The Dow has made a little run into the end of February, back up to the falling 50-day average and back up to the point where the last run-up stalled - which just so happened to be at the end of January.
	The Nasdaq (and Nasdaq-100 along with it), however, has been a bit of a laggard.
	The Transports pulled back today, but in general, have been holding up…
	…but it looks like the Trannies may have lost the support of the airlines.
	We mentioned yesterday that the dollar looked to be in a bit of trouble. There you have it — the dollar index sinks to new all-time lows…
	…as the Euro busts out to new highs, out of a 3-month range.

Charts courtesy of StockCharts.com

A pretty wishy-washy day, as stocks fought off an early decline, but couldn’t hang onto morning gains either, and the indices finished mixed back near the flat line.

The Nasdaq/Naz 100 outpaced the other indices for a change, but the Transports and Utilities got knocked around a bit:

Treasuries were pretty quiet, and rates didn’t make much of a move:
6-month: 2.01%    2-yr: 1.98%    5-yr: 2.87%    10-yr: 3.84%   30-yr: 4.63%.

Internals were all over the place today, first down big, then up a healthy amount, then down again, and A/D lines finally finished just below flat, with volume backing off a bit from yesterday’s levels. Advances/declines were 4 to 5 on the NYSE and 9 to 10 on the Nasdaq, but up/down volume finished just above flat on the NYSE and a positive 3 to 2 on the Nasdaq. New highs/lows were split again, at 52/28 on the NYSE but 30/54 on the Nasdaq.

The group picture had a little more red in it today. There were still a few winners, like the gold and silver stocks (+2.4%), networkers (+1.4%), semiconductors (+1.2%), internets (+1.1%), housing (+1.1%) and computer hardware (1.0%). But we had a few more losers than we’d seen the past couple of days, led by the airlines (-3.5%), natural gas stocks (-1.8%), utilities (-1.8%), oil services (-1.6%), health care products (-1.2%), telecom (-1.1%), hospitals (-1.0%) and biotech (-1.0%).

Energy prices finally backed off for a day. After moving above 102 overnight, crude oil slipped back below 100 to finish at $99.64/barrel. Gasoline also fell six cents, to $2.49/gallon and natural gas dropped back to $8.99/mmBTU. The dollar dive that began yesterday continued today, dragging the dollar index down to new all-time lows, ending the day at 74.22. Gold and silver got off to strong starts, sold off hard early, but recovered nearly all of those gains during the course of the day. Spot gold now stands at $960/ounce, and silver soared to $19.26/ounce (has anyone seen the Hunt brothers?).

BMB Note:   Stocks have had a little run back up over the past few days, but it doesn’t surprise us to see them struggle a bit now that they’ve run up into resistance, and the big boys - the Dow and S&P - have come back into contact with their declining 50-day moving averages. This also just so happens to be right around the spot where the initial run-up off the lows stalled at the end of January.

The Nasdaq did a little better than the big boys today, but we’re still seeing more new lows than new highs on a daily basis on that index, which isn’t a real encouraging sign.

Oil prices pulled back some today, and put a damper on the energy stocks, which had been helping to pull things higher. There was quite a bit of thrashing around in the commodities, with the precious metals gapping up, selling off, then running back up. And looking at the chart of the DBA ETF, there must also have been some pretty wild action in the ags today as well.

We mentioned the dollar in the chart section yesterday, and the dollar followed through to the downside today. Bernanke said in his testimony that the Fed was watching the dollar closely - you bet they are. They’re counting on it falling further, and doing everything in their power to inflate the money supply and push it down, and helping to prop up US exports in the process (see ‘thing’ number one today).

So we’ll continue to take things a day at a time. If the major indices can gather themselves here and bust higher, there might be some trading opportunities on the long side. But even if that occurs, those would be TRADES, in my opinion, and nothing else. Longer term, I still believe this market is headed lower.

Risk is ‘getting higher’, that is.

Mr. Practical today:

Yesterday Sam Zell pronounced that the U.S. is not in a recession, that it won’t go into recession, and that housing has bottomed.

Today I am suggesting that the U.S. is in recession, that the recession will get deeper, and that housing has not bottomed.

There, that was easy.

There are two differences between the above statements (besides, of course, being opposite conclusions). The first is that Sam has provided not one shred of evidence backing his words. We, of course, have spent many hours discussing and analyzing the current conditions. The second is that we don’t pronounce, we suggest. We understand that conditions exist and there are different ways those conditions can manifest into the future. You have to think in probabilities and we certainly allow for the fact that Sam’s view may be right; we just don’t put a high probability on it, especially given how the current conditions are developing.

Pronouncements are certitudes and they most often serve a political end; I suspect that Sam has his own agenda. Sam is a smart guy, no doubt. But Sam has made his money as an inflation animal: he has ridden the great wave of dollar devaluation and asset inflation like few others. Regardless of whether or not he put himself there because he recognized central bank policy long ago and was prescient or if he just got lucky (there will always be a Sam Zell who happens to be in the right place at the right time), he knows how his bread is buttered. If he gets caught in a wave of deflation he could lose everything. Again, Sam is smart so he has already sold chunks of risky assets (commercial real estate) and converted them into less risky assets (cheap newspaper/media assets), but he still has lots to lose.

Yes, we are seeing extremely strange things. The latest is we are all supposed to believe the rating agencies when they say that MBIA (MBI) is AAA. MBI cost of funds is 14%. Does that sound like a AAA company to you? If it is that means the risk free rate is 13.5%. The only way anyone can believe MBI is AAA is if either you have a gun to your head or there aren’t any marbles left.

Notice the yen is getting stronger versus the dollar. The PPI was horribly scary yesterday but stocks didn’t care. It is clear the Benny Gold is leaning toward hyper-inflation. But hyper-inflation if it happens (unless it already happened) almost always ends in deflation as well.

The conditions are worsening and there is little logic given the Fed’s nature that it will miraculously turn around: the problem is too much debt, so creating more debt as a solution at this stage makes little sense.

Risk is getting higher.

As always, Calculated Risk has the new charts.

Here are CR’s comments:

The 482,000 units of inventory is slightly below the levels of the last year.

Inventory numbers from the Census Bureau do not include cancellations - and cancellations are once again at record levels. Actual New Home inventories are probably much higher than reported - my estimate is about 100K higher.

This is another VERY weak report for New Home sales. More later today on New Home Sales.

So WHY are the homebuilding stocks rallying? Ya got me.

Check back here later - BMB will update this post with a link to CR’s additional info on the new home sales data…

Update: Here’s more from CR: “Cliff diving!”