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.

Gary Kaltbaum this afternoon - obviously he heard the B.S. CEO (fitting, isn’t it) blaming his company’s demise not on a lack of capital or liquidity, but on a lack of ‘confidence’:

This is just my opinion… so don’t be mad at me.

Alan Schwartz is full of it. There is no way, shape or form Bear Stearns can and would go out of business just because of rumors. Give me a break. You cannot go out of business unless you put yourself in the position to go out of business. Bear Stearns made HUGE BAD BETS. Case closed!

The latest pin cushions are the short sellers. Lehman is full of it. Cramer is full of it. One is just making an excuse. The other is just making an excuse for horrible stock picking and horrible market timing. Bottom line…SHORT SELLERS are a small lot. SHORT SELLERS do not cause stocks to go down. In fact, it is the opposite. If a stock wants to go up it goes up in spite of the shorts and squeezes the short sellers. If I owned a public company and I knew things were going well, I would welcome all the shorts. They cannot drive prices down like these people say. So blame the short sellers for your stock price. Don’t blame:

Funds leveraging up - some over 30-1.

Lenders actually enabling these funds by giving them the money to leverage.

Lenders giving money to people who couldn’t make the first payment.

Borrowers who took the money even though they knew they could not make the first payment.

Rating’s agencies that said everything was AAA…and only in the past couple of months changing their tune.

Analysts putting their heads in the sand (what else is new?)

Marking prices at THEIR OWN prices and TAKING fees for those fantasy prices.

Using off-balance sheet entities to hide the losses.

Underwriting billions of private equity buyouts at the top of a cycle.

Securitizing everything but the house toilet paper at any price and at any size.

Announcing billions in losses and saying there will be no more, and then months later, billions more amazingly show up.

Yes - it is all the short seller’s fault that your stocks have gone down. You had nothing to do with it. You are blameless. You are cleansed of any wrongdoing. Keep up the great work!

I am incensed that the questions on Thursday were not tougher and to the point. Roger Clemens received tougher questions on whether he stuck a needle in his rear.

The market continues to hold the lows, and is slowly building off those lows in spite of more bad economic news. This is actually a good thing. I’m just taking things one day at a time… not trying to get too far ahead in my thoughts. This has been a brutally tough market and I think it remains a tough proposition even if we head higher. Based on the follow-through day on Tuesday, I have been investing quite a bit.

I continue to like the action in the HOUSING stocks. Yeah, I just said that.

I like the action in the RAILS and TRUCKERS, and while the COMMODITIES have teetered near term, I believe they remain in an overall bull market.

The bigger jobs report comes out tomorrow. For me, it will not be the news, it will be the reaction. I won’t get in front of it, I will react to it.

That’s plural. As in more than one.

From Gary Dorsch:

…the badly battered US financial sector soared 15% on “April Fools” day, after British PM Gordon Brown called on the Group of Seven central bankers, to stop worrying about “moral hazard” and start backing a joint plan to recapitalize global banks and buy-out the toxic sub-prime mortgages, to rescue the banking system. Of course, such a bailout initiative would be funded with taxpayer’s money, with a small price of tougher regulation of the industry. “We have got to make these changes immediately,” Brown said on April 1st.

British PM Brown discussed his solutions for the global banking crisis with US President Bush at a NATO summit on April 3rd. “We were talking about major issues that we can collectively do about the world economy,” he told reporters. Brown is also talking with the leaders of Germany, France, “about how we can make changes that we need in the world economy, as quickly as possible.”

Goldman Sachs figures losses from toxic sub-prime mortgage debt at US banks could reach $460 billion, and only $120 billion have been recognized so far. Losses worldwide could hit $1.2 trillion. Such a meltdown could topple a few banks along the way, and unleash even more turmoil in global stock markets. So many traders are now betting that the G-7 central bankers and finance ministers will endorse a tax payer funded bailout for the banks, at their upcoming April 11th meeting.

The earliest hint of a G-7 bailout plan was first proposed by Japan’s financial services minister Yoshimi Watanabe on March 24th. “It is essential for the US to understand that given Japan’s lesson, public fund injection into the financial sector is unavoidable. We could convey this lesson at the G-7 central bank meeting, and we are prepared to take coordinated action, to help resolve the issue,” Watanabe said.

Is speculation of a US government led bailout to rescue the banking industry a realistic proposition, or just a nasty “April Fools” joke?

Washington might be left little choice but to lead a taxpayer bailout for banks choking on toxic sub-prime mortgages, because a rising tide of home foreclosures could crush the US economy without such a plan.

There are hundreds of billions of dollars worth of home mortgages in arrears, in foreclosure or that homeowners have walked away from. US Treasury Secretary Henry Paulson now says he’s flexible to new ideas of intervention.

Free market capitalism is out of favor in Washington, and in its place, government intervention is the norm of the day. Voters are demanding immediate help, especially after the Fed-engineered bailout of Bear Stearns and its massive financial assistance to other Wall Street dealers. The Bear Stearns bailout has opened the doors for US politicians facing re-election to call for bailouts of distressed homeowners.

There is a long history of US government bailouts. In the late 1980’s and early 1990’s, more than 1,000 savings and loan institutions failed, leading to a federal bailout totaling roughly $125 billion. In 1975, President Ford provided a struggling New York City with a $7 billion loan package. President Clinton came to Mexico’s aid in 1995 after a sharp devaluation of the peso, with $50 billion of loans.

Congress bailed out Lockheed Aircraft in 1971 and Chrysler in 1979 with loan guarantees. In 1984, Continental Illinois was effectively taken over by the federal government. After the Sept 11th terror attacks, Congress authorized $5 billion in cash to help shore up the airline industry and $10 billion in loan guarantees. Most recently, the Bernanke Fed guaranteed $30 billion of toxic sub prime mortgage debt sitting in Bear Stearns, with taxpayer money.

Emphasis added - BMB.

Doing a booming business.

Low rates!!

The Fed lent out $25 billion for 28 days in its second Term Securities Lending Facility auction. The auctions were implemented to increase liquidity by lending financial firms highly liquid Treasury securities for less liquid assets as collateral. The auction had a bid-to-cover ratio 1.88, as $46.9 billion in bids were submitted. The stop out rate–which is the minimum rate the Fed accepted–was 0.16%. At least week’s auction, the stop out rate was 0.33%. The low stop out rate demonstrates the Fed is aggressively attempting to increase liquidity.

In addition, the banner on CNBC said that the investment banks were borrowing an average of $32 billion a day at the Fed’s discount window. And they want us to believe that they really don’t need the money.

Then again, maybe they don’t need the money. But they could then use it to buy other things, couldn’t they?

Like stocks, perhaps? “Pump ‘em to dump ‘em”?

Update:  Oops, my mistake, make that $38.1 billion!

The steel stocks were moving out to new highs this morning until things calmed back down, and the semiconductors have made a nice three-day move up out of their recent doldrums:

Housing and real estate stocks are trying to persuade investors that the bottom is in. Are you convinced yet?

Charts courtesy of StockCharts.com

We said yesterday that the big days have typically been followed by mediocre or weak days.

Today was most certainly of the ‘mediocre’ variety. Stocks struggled out of the gate, then found some footing into the lunch time, but then gave all of that momentum up by the end of the day, with the indices dipping back into the red before a little move up in the last few minutes. And volume slacked off again, as there just isn’t much enthusiasm surrounding stocks at the moment.

All of the indices managed to finish in the green, but barely:

The action in Treasuries was fairly quiet, and yields barely budged:
6-month: 1.54%    2-yr: 1.88%    5-yr: 2.73%    10-yr: 3.58%    30-yr: 4.38%.

Internals were mixed, and volume backed off again. Advances/declines were 8 to 7 on the NYSE but 9 to 10 on the Nasdaq, while up/down volume was positive on both exchanges at 5 to 4 on the NYSE and 3 to 2 on the Nasdaq. New highs/lows were flipped, at 45/9 on the NYSE but 17/55 on the Nasdaq.

The groups showed more green than red, with a strange mix at the top: semiconductors (+2.6%), metals and mining (+2.0%), REITs (+2.0%), computer hardware (+1.9%), chemicals (+1.8%), homebuilders (+1.7%), disk drives (+1.6%), telecom (+1.3%) and commodities (+1.1%). The losers weren’t hurt that badly, with retailers (-0.9%) topping that list.

Energy prices backed off slightly. Crude oil lost a buck to $103.83/barrel, gasoline gave back 4 cents to $2.73/gallon, and natural gas slipped to $9.40/mmBTU. The dollar was rallying into the morning, but turned right back around and headed lower, with the dollar index ending down slightly lower at 72.21. Gold and silver bounced around but finished flat, with gold still at $904/ounce and silver up a few cents to $17.35/ounce.

BMB Note:   The bulls had their chance again.

I thought at one point, late in the morning, that the market might actually make a run for it and get out of this range. Things had recovered from early lows, and a few stocks were moving up and hitting new highs. But the momentum only lasted so long, and then not only did things not move higher from there, they completely fizzled into the close. Not a great sign.

So not a lot has changed. I’m willing to give this market a chance to make a move, if it would just go ahead and do it. I’d like to see the major indices break out of the tops of their ranges for once - then maybe we might get something tradeable to the upside. I still think that would be little more of a contra-trend rally, but it would be better than the chop we’ve been getting.

If that happens, great. The market still doesn’t look like it wants to go lower very badly either, so I’ll continue to wait for some confirmation to the upside and keep my eyes open for a trade or two to take in that direction, but I haven’t seen much yet.

Take your time. If this is indeed the beginning of the ‘next big bull’ - which I find unlikely, but you never know - there should be plenty of time to get on board. And one would hope that it would become quite a bit more obvious, wouldn’t you?

Tomorrow morning brings the ‘big’ jobs report, doesn’t it? Maybe that’s what everyone is waiting for…

Todd Harrison today:

While being interviewed for Yahoo! Finance this morning, I offered that traditional trading approaches (fundamental, structural, psychological and technical metrics) have been replaced by one giant game of chicken. We’ve got structural imbalances on one side and socialization on the other. Nobody is bigger than the market but the timing of that blink remains tough to game.

Mr. Practical today, on government intervention in markets:

Every time people ask “What’s the government going to do about this?” I’m sure Thomas Jefferson rolls over in his grave.

We can see many ways in which the government is taking control of markets. People seem relieved in the short run, but in the long run consistent intervention is very damaging to free markets. We’ve seen socialism at work in other countries and the result is consistently mis-allocation of capital and low productivity. It also provides no protection from corruption.

But there may also be ways they’re intervening in markets that we don’t see. My trader friend John watches the “tape” very closely and tells me the phenomenon of well-bid index futures and heavy stocks continues. We know Middle Eastern investors are recycling oil dollars back into U.S. assets - at least for now. They may be simply buying futures for asset allocation, but John tells me its much more than that.

For example, Tuesday morning in Europe when UBS (UBS) announced it would write down $19 billion and Deutsche Bank (DB) made similar pronouncements, both stocks were down big and the market was indicated much lower. That was the same day Lehman Brothers (LEH) was supposed to sell $3 billion in preferred stock to raise much needed capital. Imagine Lehman trying to get that deal done in such a messy tape.

Then all of a sudden those stocks began to turn. Along with the market, they closed higher on the day. Futures steadily rose all morning and methodically ended at the highs of the day. U.S. stocks saw one of the biggest rallies of the year. LEH not only got its deal done, but the stock rose so much the firm decided to grant another $1 billion in stock to its most loyal and secret investors.

It’s all highly convenient things turned out this way. The markets went from potential disaster based on fundamentals to a rip-roaring rally just when the government and banks needed it. It’s also highly suspicious.

Wall-Streeters and the media have called those who claim the government intervenes in the stock market ridiculous. They’d better. If it were ever found out that Washington does intervene in the market, all remaining confidence in the integrity of markets would be lost.

But the pundits don’t do a very good job of debunking all the ancillary evidence of such intervention. Their main argument is that there’s no way to hide stock market buying by the government. That argument is very flimsy; there are many ways to hide it.

How about all these “loans” the Federal Reserve is making to dealers. There could easily be an arrangement that looks like a simple loan but in fact indemnifies the dealer from losses on any assets purchased with the proceeds of the loan. Just look at the deal the Fed made with JPMorgan (JPM) in buying Bear Stearns (BSC).

The Fed said it was taking control of $30 billion of a BSC portfolio, but not buying those assets, as currently the 1913 Federal Reserve act doesn’t permit such an action. However, the Fed is the the residual claimant, so it’s apparent it effectively has equity even if it won’t admit it. Overall, the Fed appears to be using any legal or structural manifestations necessary to accomplish what it wants to do despite what the Federal Reserve Act actually permits it to do.

These are strange times indeed. Ron Paul did a good job of explaining it all in yesterday’s hearing. I just wish Mr. Paul would ask a few direct questions of Mr. Bernanke like “does any aspect of the Federal government intervene directly or indirectly in the stock market,” to get him on the record.

If the stock market doesn’t act quite naturally to you, there may be good reason for it. But the important point is that free markets are going away, bit by bit. Be prepared for a much different world if that continues. And don’t think your vote is going to protect it because people who are in debt with no where to turn aren’t going to vote with you.

Emphasis added - BMB.

A weaker day, thus far, than we saw yesterday. Though the indices are still now down significant amounts, the A/D lines are lower than they were at any point during yesterday’s trading.

Groups are split, with metals, commodities and chemicals leading the green team, while homebuilders, retail, brokers and banks lead the losers.

Treasuries are higher, yields lower. Energy prices are mixed. The dollar index is coming down after a morning spike up, gold and silver are slightly lower.

Futures have dipped - CNBC is blaming the poor weekly jobless claims number.

And maybe they’re right. MarketWatch has these headlines flying by in its ‘latest news”: “Dell says company ‘will go past’ target of 8,800 layoffs’”, and “Michael Dell says more layoffs coming in first quarter.”

The market is still reasonably pleased with RIMM’s earnings, but they don’t seem to be happy at all with GRMN’s forecast.