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.

They haven’t even sent the checks out on the first package yet, and they’re already working on the second:

Congressional Democratic leaders say they will push President George W. Bush for a second package of legislation to stimulate the slowing economy.

House Majority Leader Steny Hoyer today said, “growing evidence of a weakening of the economy” makes more stimulus legislation necessary. Two months ago, Bush signed into law a $168 billion stimulus measure that centered on tax rebates to spur more spending.

Senate Majority Leader Harry Reid yesterday said he favors adding extra spending for summer jobs programs, unemployment benefits and infrastructure spending to a war-spending bill that will begin to move through Congress later this month.

“I think all of us are on the same page,” Hoyer said today of the Democrats’ approach.

Their push puts them at odds with the White House. Bush this week said he wants to examine the effects of the first stimulus measure before considering a second.

What was that I said about the gov’t earlier? There ya go.

Update: This from Calculated Risk:

The Treasury Department says the federal deficit through the first half of this budget year is at an all-time high, underscoring the pressure the budget is coming under as the economy slumps.

And they want to spend more…

With futures prices at all-time highs, you knew it would happen eventually:

The average price of regular gasoline on Maui island has reached a record $4 a gallon.

Wailuku is the first area in the nation tracked by AAA’s Daily Fuel Gauge Report to hit the $4 mark. In the remote coastal town of Hana, the price is around $4.55 a gallon.

BMB has spent some time in the past talking about “Reminiscences of a Stock Operator”, a classic book based on the trading ideas of Jesse Livermore. That book is in the public domain, and is available for free download in PDF format.

Today Finance Trends Matter discusses another work, this one authored by Livermore in 1939-40. It’s titled “How to Trade In Stocks”, and David’s got a link to the PDF of that one for you too.

Go check it out.

From Gary Dorsch:

…the Bank of England and the Federal Reserve are pursuing similar policies, devaluing their currencies to boost exports and multinational income in order to offset the deleterious impact on consumer spending at home from sliding home prices.

But rarely can countries devalue their way to prosperity. Most likely, the BoE’s and Fed’s currency devaluation schemes will end-up in the “Stagflation” trap, or stagnant economies gripped by escalating consumer and producer prices. The BoE has been inflating its M4 money supply at double-digit rates for the past three years, doubling the price of gold against the British ounce in the process.

The Fed’s strategy of jigging up the stock market with massive injections of liquidity is also back-firing, because of crude oil’s new found role as an inflation hedge against a weak US$ and the money supply created by the Fed. If Mr. Bernanke tries to inflate the US money supply growth rate from 17% today to as high as 20% this summer while the BoE expands the UK money supply, crude oil could climb towards $125/barrel and sink the global economy deeper into recession.

At your local Fed:

Now things are getting even crazier at the Fed’s Swap-O-Rama as Buyout CLOs Are Being Used for Fed Loans.

Wall Street firms may be bundling high-yield, high-risk corporate loans into securities to use as collateral to borrow from the U.S. government, according to a report by Morgan Stanley analysts. Securities firms can borrow against collateralized loan obligations at the Federal Reserve’s Primary Dealer Credit Facility, the analysts said. The Fed set up the facility last month, its first extension of credit to non-banks since the Great Depression.

They’re also “an easy way for banks to reduce balance sheet risk, which indirectly helps reduce capital requirements, by funding the AAA through the Fed and selling the equity, which provides high yield to investors,” said Peter Plaut, an analyst at hedge fund Sanno Point Capital Management in New York.

What passes as “analysis” these days is rather shocking. We just went through a period of bundling lousy mortgage loans into pools and on the theory that few would fail, and labeled the package AAA. That experiment didn’t go so well.

—

Now we see CLOs being created for the express purpose of swapping to the Fed. The reason the CLOs are being created is there is no market for the underlying securities. Yet supposedly Moody’s (MCO), Fitch, and the Standard and Poors are supposed to rate this garbage AAA so that it can be swapped with the Fed. Amazing.

This idea is endorsed by Plaut who writes: It’s “an easy way for banks to reduce balance sheet risk, which indirectly helps reduce capital requirements, by funding the AAA through the Fed and selling the equity, which provides high yield to investors.”

Sadly, this is just the beginning of crazy ideas. I guarantee it. More are coming, and they will all gather proponents. Yet every one of them will further undermine trust. I guarantee that too.

Are you surprised? You shouldn’t be.

The Bloomberg article also says “Andrew Williams, a Fed spokesman, declined to comment.”. I wonder why.

	The S&P has been stuck going sideways since the big move up last week.
	I guess that’s kind of fitting. After all, the S&P has been stuck going sideways for almost four months since the drop off the top.
	Steel stocks still look good….
	…and the semis are trying to crawl out of the dungeon. Note that the 200-day moving average isn’t even in view on some of these charts.
	Retail stocks bounced back from yesterday’s selling, but there’s still some work to do there…
	…and the poor performance of the financials is still a cause for concern.

Charts courtesy of StockCharts.com

So, just to confuse matters completely, the market follows up yesterday’s ‘distribution day’ with what looks like the opposite, an ‘accumulation day’. Go figure.

The market started off sluggishly, but caught a breeze in the first hour and ran up into mid-morning, where it pretty much stalled. Things bounced up and down for the rest of the day, but slid back down in the last hour. The Dow, which had been up 122 in the morning, fell down to about +30 before finishing up 54.

Tech stocks got a bump, helping to put the Nasdaq-100 at the top of the heap of the indices today:

Treasuries were mixed, with yields dipping slightly on the short end, but moving a bit higher on the long end:
6-month: 1.46%    2-yr: 1.82%    5-yr: 2.66%    10-yr: 3.53%    30-yr: 4.34%.

Internals turned back around, and volume increased on both exchanges. Advances/declines were about 3 to 2 on both exchanges, with up/down volume 3 to 2 on the NYSE and 3 to 1 on the Nasdaq. Still more new lows than new highs, though: highs/lows were 31/37 on the NYSE and 11/86 on the Nasdaq.

The groups were mostly green, with the biotechs (+4.8%) leading the way on takeover news, followed by airlines (+2.8%), computer hardware (+2.5%), steel stocks (+2.3%), semiconductors (+1.8%), retail (+1.8%), homebuilders (+1.6%), disk drives (+1.6%), computer tech (+1.5%), drugs (+1.2%) and internets (+1.2%). The brokers (-1.8%) and paper stocks (-1.5%) led the losers.

Energy prices were fairly flat after yesterday’s record setting performance. Crude slipped a bit to $110.11/barrel, gasoline was up a penny to $2.78/gallon, and natural gas added four cents to $10.10/mmBTU. The dollar index rallied all the way back up to 72.12 after a morning dip to 71.41. Gold gave up a few bucks to $928/ounce and silver dropped back to $17.96/ounce.

BMB Note:   After yesterday’s distribution day it looked like the market could possibly run into a bit of trouble here, but it tried pretty hard today to dispel that notion - although it would have been more convincing if the Dow hadn’t given back half its gains for the day by the closing bell.

The semiconductors made another nice move up today as they try to improve after dragging along the bottom for quite a while. The retailers put in a pretty decent day, recovering nicely from yesterday’s selloff despite some very mediocre same-store-sales numbers out this morning.

So the major indices still sit in their little ‘flag’ formation, hanging out seven days of nothing after last Tuesday’s big runup. The market has tried to make moves higher, but has been turned back time and time again - though a few groups, like the steels, are still hovering up near their recent new highs. So there are pockets of ’strength’, but the market still has quite a few ugly spots. Though the Nasdaq-100 was able to put up new multi-month highs the other day, the broader Nasdaq market still isn’t that impressive, as we continue to see more new lows than new highs on that exchange every day. I’ll be more convinced that the market was going to make a run and hold it if we saw those numbers finally turn around, and if the major indices could finally break out of this trading range to the upside.

That said, I have to agree with BMB reader Momo Fader who mentioned in the comments today that the financials are still struggling. The brokers were dragging well behind the rest of the market again today (the banks aren’t doing much better), and I just don’t see a market rally having any real staying power if the financials aren’t able to get off the ground and play along. Definitely something to keep a close eye on.

Next week, we’ll start getting into the teeth of earnings, which will run for 2-3 weeks. If nothing else, that should keep things bouncing around.

From Jeff Macke, of course:

…the vast majority of the results are abysmal. Most same-store-sales Thursdays I’d be more than happy to muck through the misery and note that the vast majority of the chains managed to trip over a bar that wasn’t only set low, it was laid on the floor. The Gap (GPS) comping down 18%? Horrendous. Simply horrible and under normal circumstances I’d be happy to rant on about just how awful it really is.

But not today. Today I’m going to note that Wal-Mart (WMT) is up pre-market after raising guidance. I’m going to focus on Costco (COST), putting up more solid results with and without rising gas prices. I’m going to tell you I still like Home Depot (HD), where it looks like a bottom is being made well ahead of the housing market.

Having thus focused on the good as I see it in today’s results, and having shared the only three names in retail I could actually picture myself owning in this environment, I’m going to get myself geared up for my 23rd consecutive Masters. Those so inclined can sort through the scores posted by the entire field this morning. I’ll be focusing on the leaders; Tiger, Wal-Mart and CostCo and teaching my kid how to hold a golf club.

Hmm. When I got up from my desk about 40 minutes ago, the market was wandering around flat, now I come back and we’ve seen a big spike up. Welcome to the week before options expiration.

Indices are sporting gains, led by the Nasdaq. A/D lines are green, along with most of the groups, which are being led by the biotechs (on the Millenium deal), homebuilders, airlines, computer hardware, retail and disk drives. Giving up ground are the paper stocks, gold and silver and oil stocks.

Treasuries are mixed, with yields down on the short end but higher on the long end. The dollar index has bounced back after a big dip overnight. Gold and silver are slightly lower.

• Bank of England cuts rates, the ECB does not.
• This whole Yahoo-Microsoft-AOL-Google thing is getting a little nutso. My question is, does anyone really care besides those involved?
• It’s ‘retail report’ Thursday. More on that later in the day.
• Japan’s Takeda buys Millennium Pharmaceuticals.
• Asian indices were mixed, European indices are lower.