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.

Mish has a question for you:

Paulson says Credit-Market Crisis Closer to an End.

Treasury Secretary Henry Paulson said the credit crisis probably is more than half over and retained his forecast for the U.S. economy to keep growing.

“We are closer to the end of this problem than we are to the beginning,” Paulson said in a Bloomberg Television interview today in Washington. Even with “headwinds and despite some of the things that we’re going through, this economy is still growing, albeit modestly,” he said.

Federal Deposit Insurance Committee Chairman Sheila Bair today said Congress should authorize the Treasury to make home loans to help pay down as much as 20 percent of the principal on mortgages.

Paulson said he will “look carefully” at the FDIC plan, while emphasizing his confidence in the Hope Now Alliance of lenders spearheading a private effort to modify home loans.

If we are closer to the end of this credit mess then why bother taking a close look at the ridiculous taxpayer sponsored bailout Sheila Bair is proposing?

Good question.

Fear has been forgotten as the VIX droops to levels last seen around Christmas, right before the market took its big January cliff dive.

Chart courtesy of StockCharts.com

Nothing like a reversal of the reversal to keep you guessing.

Commodities took a dive and and the rest of the stock market cheered. The Transports and the Nasdaq-100 led the way:

Treasuries moved just a bit lower, yields edging up slightly:
6-month: 1.61%    2-yr: 2.36%    5-yr: 3.07%    10-yr: 3.76%    30-yr: 4.49%.

Internals were very positive, but volume was unable to move above yesterday’s levels. Advances/declines were 7 to 3 on the NYSE and 13 to 6 on the Nasdaq, with up/down volume 3 to 1 on the NYSE and 4 to 1 on the Nasdaq. Interesting though, that we’re still unable to produce more new highs in the Nasdaq: highs/lows were 49/21 on the NYSE but 49/58 on the Nasdaq.

Lots of winners today in the groups - pretty much everything but the commodity stocks. Leading the surge to the upside were the airlines (+5.6%), brokers (+4.6%), banks (+4.4%), homebuilders (+4.0%), semiconductors (+3.9%), transportation (+3.6%), software (+3.5%), computer tech (+3.4%), computer hardware (+3.4%) and retail (+3.0%). On the flip side were the gold and silver stocks (-2.9%), oil services (-2.8%), commodities (-1.7%), metals (-1.7%), steel (-1.2%) and oil stocks (-1.0%).

Commodity prices dove again. Crude oil fell to $112.42/barrel, gasoline to $2.87/gallon, and natural gas to $10.56/mmBTU. The dollar index got a boost overnight and added some during the day, moving up to 73.27. The precious metals got slammed again, shoving gold down to $851/ounce and silver to $16.14/ounce.

BMB Note:   Yesterday afternoon, nobody wanted to hold the stocks they had bought just that morning - today they couldn’t get enough.

Is this the ‘breakout’ move that the market finally needed to get started on another leg up? Certainly the dive in the commodities was looked upon favorably. But the commodity stocks were the recent market ‘leaders’, and right now it’s a bit uncertain just what’s going to fill that role. With oil prices falling, the airlines have bounced back up off their lows and have helped push the transportation indexes higher, and retail stocks are responding well. Also, we’re seeing a push back into financials and the big-cap techs, as is evidenced by the outperformance of the Naz-100.

We’ll see how long, and how far, it goes. Tomorrow is the big monthly non-farm payroll number. That could help, or hurt, the cause.

The market is trying to paint a brighter picture than it did yesterday afternoon, as the Nasdaq moves back up near yesterday’s highs but the other indices aren’t doing quite as well as that. Leading the pack are the airlines, brokers, retail, semiconductors, homebuilders, software and banks, while commodity stocks get trounced again, like the oil services, gold and silver, metals, oils, natural gas, steel and chemicals.

Treasuries/yields are flat. Energy prices, along with other commodities, are lower. The dollar got another push higher overnight, and that has helped to push the precious metals down to new lows.

State and local pension funds keep walking further out on the plank to try to meet their obligations:

Pension bonds are making a comeback, as states and cities from Alaska to Philadelphia bet they can use the proceeds to help fill deficits in their retirement funds and still generate a higher return than what they pay in interest.

Officials may sell a record $35 billion of the securities this year after offerings declined since 2003, according to data compiled by Bloomberg. Connecticut issued $2.2 billion of pension debt last month, paying an average rate of 5.88 percent on money state officials project will earn 8.5 percent when invested.

With the economy slowing and states facing budget deficits that Standard & Poor’s says will top $30 billion next year, officials are turning to the quick fix of borrowing even though the $50 billion of pension bonds sold produced mixed results for taxpayers. New Jersey sold $2.8 billion of the debt in 1997 and its pension gap has since ballooned to 10 times that amount.

“It’s the dumbest idea I ever heard,” said New Jersey Governor Jon Corzine, the Democrat and former chairman of investment bank Goldman, Sachs & Co. “It’s speculating the way I would have speculated in my bond position at Goldman Sachs.”

They’re betting they can make enough money to keep paying the interest on the bonds. And what if they can’t? I guess we can just add them to the long list of default risks. Are they backed by Ambac too?

Deron Wagner wonders if this counter-trend rally up off the lows might be coming to a close:

Throughout April, we were focused on the long side of the market, taking advantage of the intermediate-term countertrend bounce off the March lows. However, we now feel your best overall odds of profitability once again favor the short side of the market. Even before yesterday’s inverted hammers, we started to test the short side of the market due to overhead resistance of the long-term downtrend lines that have been in place for the past seven months, as well as the 200-day moving averages of the major indices. The inverted hammer patterns, along with newfound weakness in leading stocks, simply helped confirm what we had already begun thinking — the countertrend bounce within the primary bear market may be nearing an end.

In the April 2 issue of The Wagner Daily, we said, “[. . .] we expect continued strength for at least the next three to six weeks, [but] don’t forget we’re still in a primary bear market.” Four weeks have passed since those comments were made, and the market showed the strength we expected during that time, but all bets are now off for buying ETFs that are directly correlated to the direction of the U.S. stock market. Only a sudden, unexpected rally to close above yesterday’s highs would cause us to change our minds, which we have no problem doing if the market proves us wrong.

The Big Picture on the presidential candidates and gasoline taxes:

The latest bit of idiocy from two of the three candidates for the highest office in the land was a suggestion that federal gasoline taxes — 18.4 cents a gallon — be suspended from Memorial Day to Labor Day. To his credit, Barack Obama dismissed this as counter-productive gimmick.  I don’t have a horse in this race, but I am heartened to see at least one candidate is not clueless. (Note: Please don’t email me saying why I should support this idiot over that one; I am not rooting for any of them — although if this keeps up, I may shift from the neutral column).

A quick lesson in Supply & Demand 101 for the Maverick McSame and Yoko: Strong demand and limited supply of a product lead to price increases. If you artificially lower the price of something — i.e., waive taxes for a period of time — all you will have accomplished was stimulating more demand. The higher demand and increased consumption eventually lead to even higher prices.

Hence, the expression the cure for high prices is high prices.

Put this plan into effect and long before summer’s end, gasoline prices would have risen to the pre-tax holiday levels. Then, we slap that tax back on, and the electorate is pissed at you. Then, neither of you gets elected. Not only bad economics, but bad politics.

We have no energy policy, and none on the horizon. Candidates serious about the issue of high energy prices should be discussing increased CAFE standards, capital gains tax waivers for alternative energy investments, greater offshore drilling, Pigou taxes, rapid nuclear plant approvals, a huge increase in the basic R&D the government does on energy — a Manhattan project for energy and transportation science.

Instead, we hear proposals about waiving an 18 cent tax.