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.

From Bloomberg:

Platinum climbed to the highest in almost five weeks and gold rose in London on speculation power shortages in South Africa will curb growth in supply as demand for the precious metals increases.

The nation may suffer a deficit of electricity for seven years, state-owned utility Eskom Holdings Ltd. said yesterday. South Africa supplies 78 percent of the world’s platinum, and is also the second-biggest producer of gold.

“It’s becoming more and more difficult to get gold and platinum out of the ground fast enough” to meet demand, said Walter de Wet, head of commodities research at Standard Bank Group Ltd. in Johannesburg. “It’s getting more expensive to generate electricity. There is a capacity shortage.”

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Platinum has rallied 35 percent this year, the most of any precious metal, and gold is up 13 percent.

Emphasis added - BMB.

The ‘magic’ of Greenspan and Bernanke is gone, says Germany’s Spiegel:

We can’t blame wild cats or financial markets for being ruthless. It’s in their nature to be brutal. Their unmistakeable message is: you can take things this far and no further.

In the case of the real estate crisis which reached the banks and is now unsettling the stock markets, the markets are now showing what G7 finance ministers and central bank governors meeting last weekend in Washington for their annual spring get-together declined yet again to admit publicly: Americans must change their lives — or it will be changed for them by force.

The credit-financed consumer boom of recent years is coming to a painful end. Today’s American Way of Life has no chance of surviving the coming years undamaged. The virus will continue to ravage its way through the financial system.

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The credit-financed way of life is typical of the US these days. Many people resort to credit to plug the gap between the lifestyle they have become accustomed to and their declining wages.

The borrowed cash is like an anaesthetic against the painful impact of globalisation. Private household debt has been growing by $4 billion each business day for years.

All this wouldn’t be so bad if the US economy were at least doing well in foreign markets. But it isn’t, and hasn’t been for a long time. Despite the depreciation of the dollar, which makes imports into the US far more expensive while making US exports cheaper in foreign markets, US manufacturers are finding it hard to sell their products.

Contrary to forecasts by both the Federal Reserve and the Treasury, the trade deficit has continued to grow, by 6 percent in February alone. America imported $62 billion worth of goods more than they exported in February, including a disturbingly large number of cars, computers and pharmaceutical products. Try as they might, most private households in America can’t keep up this consumer miracle. The savings behavior of many Americans means that many of them now live from hand to mouth.

But Bernanke is doing nothing to dampen this hunger for credit. The former advisor to President George W. Bush is even trying to whip up credit-financed consumption by lowering interest rates. This is helping to fuel inflation because the monetary growth isn’t being matched by growth in real economic output. Inflation in the US currently stands at 4 percent.

It’s a paradox. The private commercial banks which have just had to make billions of dollars in write downs have become more cautious. They’re scared of further risks. The management resignations at Citigroup and Bear Stearns have had a sobering impact.

Meanwhile the Federal Reserve is urging the banks to go on taking risks. It has been injecting cash into the banking system for the past half-year while urging bank CEOs in confidential chats to offer more credit. The aim is to keep on financing consumer spending and even to stimulate it further — for reasons of patriotism.

There’s a word for this policy — madness.

Pointer from The Mess That Greenspan Made. As Tim says:

…the Germans have an understandably different view of how central banks should be run given their experience of some 80 years ago during the Weimar Republic.

Lance Lewis today:

The herd in the U.S. (as well as the Federal Reserve) continue to live in denial. That’s a recipe for much higher inflation and much higher gold prices going forward. The defiance has become so extreme people are now even trying to claim the Fed could be “tough” on inflation by either talking more about it or “only” easing 25 basis points at its next meeting April 30th. These claims echo of similar sentiments that last month’s “mere” easing of a whopping 75 basis instead of 100 basis points was somehow being “tough” on inflation.

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The fiat dollar-based monetary system is breaking down right before our eyes after years of abuse from Alan Greenspan’s Fed. The confidence Paul Volcker inspired in the dollar with sky high interest rates has been slowly eroded after years of easy money from Sir Printsalot. That confidence is now all but gone, and it’s not something that can easily be reacquired.

The Fed has been easing while commodity inflation has been roaring. The fragility of the financial system and the asset inflation-dependent U.S. economy will prevent it from raising rates for a long, long time. Real interest rates are negative, and they’ll stay that way for awhile. We saw the same movie to a lesser extent in the 1970s, and the remake is going to be even worse.

Oil goes into everything. Higher energy prices eventually feed through into finished goods. We’re already seeing this in food prices, which are spiking and triggering food riots all over the planet.

The financial system is broken, yet credit growth continues to explode as the Fed provides a “put” to the entire financial system to try and keep it functioning. M3 growth continues to accelerate and is now running at close to 20%, according to John Williams. That’s unheard of.

The Fed has made it quite clear it will print money, bend laws, and “do whatever it takes” to keep the system functioning. And there’s only one way for the financial system to survive given the enormous amount of debt overhanging the system: A dramatic increase in inflation. It’s already happening right before everyone’s closed eyes. Even yesterday’s Beige Book had “stagflation” written all over it. I recommend reading the report in case you missed it.

The market seems to get it. Note the equity groups that continue to outperform the rest of the market in this stagflationary soup we’re in: oils (XLE and OIH), materials (XLB), and the gold miners (GDX).

What do all these groups have in common? They all benefit from more inflation! Even a caveman can see it.

Why am I not enamored with stocks at the moment? Maybe this has something to do with it:

Another snoozer of a day - another snoozer after a big up day.

The indices sunk a little out of the gate, but soon caught themselves and wandered around most of the day. Internals made their way back to flat on the NYSE, but the Nasdaq continues to look weaker from that standpoint.

The indices finished mixed, and the Transports gave back some of yesterday’s gains as the truckers (and maybe $115 oil) pulled them down:

Treasuries were lower again, and yields continued their recent move up:
6-month: 1.58%    2-yr: 2.10%    5-yr: 2.89%    10-yr: 3.73%    30-yr: 4.51%.

Internals were mixed, much poorer on the Nasdaq than on the NYSE, and volume pulled back from yesterday’s levels. Advances/declines were about 8 to 7 on the NYSE but 2 to 3 on the Nasdaq, with up/down volume 5 to 4 on the NYSE but 2 to 3 on the Nasdaq. New highs/lows continue to be divergent on the two exchanges, at 104/26 on the NYSE but 28/81 on the Nasdaq.

The groups were split, with a few more losers than winners. Leading the green team were the financials: brokers (+2.4) and banks (+1.7%). Some of yesterday’s big winners topped the losers list: transports (-2.4%), metals (-1.8%), paper (-1.6%), airlines (-1.6%), gold and silver (-1.5%), drugs (-1.3%), natural gas stocks (-1.3%) and biotechs (-1.2%).

Energy prices took a a day off from their big moves, and finished mixed. Crude oil came back down from above $115 to finish flat at $114.86/barrel. Gasoline added another couple of cents to $2.95/gallon, but natural gas dropped a few cents to $10.35/mmBTU. The dollar index worked its way back up to 71.70. Gold slipped a few bucks to $938/ounce and silver dropped to $18.15/ounce.

BMB Note:   Look, I’ll be honest. I am fast losing interest in the stock market.

Stocks are just plain not very interesting to me at this point, no matter how well the market is ‘holding up’ in spite of the poor economic conditions. I don’t trust stocks - or the companies, or the Fed, or our government, for that matter - very much, and I have been fairly successful at sidestepping a lot of the ‘ick’ in stocks by investing in other areas, like commodities and foreign currencies. I just don’t feel the need to jump in and try and trade stocks aggressively at the moment. Granted, the other areas are ones that I invest in with a more ‘macro’ view of things, and I don’t actively ‘trade’ them - but they have helped keep my portfolio afloat, and I just don’t see much of a reason to change a game plan that’s working, and working fairly well in a very difficult environment. Maybe I’ll eventually become one of those people I’ve talked about that could become so disenchanted and disillusioned with the stock market that they just abandon it altogether.

Looking at stocks though, I still believe we’re only seeing a rally in a longer-term bear market , and there are still only a few groups that are showing any real signs of strength. A few of those groups, the transports (esp. truckers), solars, and fertilizers stumbled a bit today - and as I said yesterday, some of those areas have gotten a little ahead of themselves, and are probably ripe for some corrective action. After all, they’ve been the only things working, so where do you think all of the money has been flowing to? A lot like we were seeing in the precious metals in the first three months of this year, and Nasdaq-100 stocks last fall.

The Nasdaq still seems to be acting worse than the NYSE internally, and new highs have yet to catch up with new lows there, even though the Composite index is still tracking sideways.

Today we saw little in the way of follow-through on yesterday’s big move, but volume pulled back again, so maybe there’s still some upside left, or at least continued ‘levitation’ - the major indices still haven’t moved out of their ranges for months. We’ll get options expiration out of the way tomorrow, but there will be plenty of earnings yet to come, and another Fed rate cut (you can count on it) coming in less than two weeks. So whether or not we see higher prices is anybody’s guess, but my gut feel is that we won’t be headed a lot lower real soon. But someday…things could be different, so try not to get too comfortable.

Complacency is a dangerous thing for an investor.

PS: Hope you weren’t short GOOG. It’s up 50 bucks in AH.

From The Mogambo Guru, who’s had a rough week:

Yes, it is true that The Mogambo had another heart attack (the third) and is now the proud owner of 5 cardiac stents. What caused this? The health care system did this to me, as I cannot find a physician who has an actual, real license to practice medicine who will prescribe a regimen of smoking cigarettes, drinking too much coffee, eating yummy foods laden with fat and/or sugar, and saving my strength by getting no exercise except for pounding out voluminous, rabid hate mail to the Congress, the Supreme Court, the United Nations and various others, all of whom I absolutely despise for one reason or another.

So, abandoned and cast adrift by an uncaring health care system, I was thus forced to carry on, tragically and heroically, alone. So I intend to sue the medical cartel for malign neglect and make a bundle in some undisclosed settlement.

Anyway that was my original plan, but now I can’t seem to find a lawyer who has an actual, real license to practice law who will even discuss the merits of my case, and usually they laugh in my face and call me bad names whether they have a license or not. No wonder people hate lawyers!

We mentioned last night that the poor earnings from CNW might have a negative effect on the Transports today, and we’re seeing that, especially in the truckers. Names like CNW, ODFL, LSTR, ABFS, JBHT and R are all down sizeable amounts so far this morning, and the Dow Transportation index has given back 128 of yesterday’s 190 point gain.

More on the reality of inflation from The Big Picture this morning:

I have been trying to wrap my head around how the US is enjoying such modest inflation,while Eurozone and Asia are both stricken with much more robust price rises.

As I was mulling this over, Martin Hutchinson reminded us that BLS changed its methodology this year for seasonal adjustments. Hmmm, I wonder if that had any impact?

“Before the adjustment for typical seasonal price fluctuations, the CPI increase was 0.9%. The Bureau of Labor Statistics, which compiles the index, has generally adjusted March numbers downward. In the decade 1998-2007, the average drop was 0.2 percentage points, and the maximum was 0.3. But this year it was 0.6 percentage points. The BLS changed its adjustment methodology in January 2008, but the process appears to have gone wrong.

If this year had followed the 10-year average, the monthly inflation would have been 0.7%, which annualises to an annual rate just below 9%.

That is remarkably close to the inflation rate in China, where the central bank is busy raising rates and squeezing financial institutions. It’s well above the rate in the eurozone, where the European Central Bank has held rates constant, without letting troubled banks run out of money. But the Fed has been cutting while prices rise.”

That’s a little closer to reality than the reported nonsense we got yesterday.

Unless of course you believe that food prices in the US have only risen 4.5% over the past 12 months. Other countries with much stronger currencies are suffering from global food inflation in the double digits — but we of the free-falling American Peso have inflation under control. Does that smell kosher to you?

And Energy prices up 17% year over year?

Bill King reminds us we know one thing for sure: The lower the CPI is, the more we measure inflation as growth, all the better to generate a higher-than-warranted GDP, and obfuscate the deteriorating economic and financial condition.

If this were the office, people would be murmuring “boy, the s*** sure is getting deep around here”.

This market is still giving the appearance of one that just doesn’t want to go lower, although today the A/D lines are telling a slightly different story than the indices are, at least for now. The indices have worked their way back up after an early dip, and are now mixed around the flat line, but A/D lines are still sitting in the red, as are a majority of the groups. On the winning side are those steel stocks, but airlines, paper, gold and silver, semiconductors and transports are losing ground.

Treasuries are a little lower, yields slightly higher again. Energy prices are flat, the dollar index is a bit higher, gold and silver just slightly lower.

This statement from former Treasury Secretary O’Neill should come as no surprise to BMB readers:

“When I was Secretary of the Treasury I was not supposed to say anything but ’strong dollar, strong dollar,”’ O’Neill said today. “I argued then and would argue now that the idea of a strong dollar policy is a vacuous notion.”

Not a lot. Asian markets did reasonably well to follow up the US move - except for Shanghai which can’t get moving for anything anymore.

Lots of earnings floating around in the air, with Merrill’s loss grabbing much of the attention.

Weekly jobless claims ticked higher, US index futures are slightly lower.

Crude hit $115.52 overnight.