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.

This bit from TheDOCument fits in nicely with the our post on ‘faith’ and the dollar from earlier today:

The following paragraph is extracted verbatim from the rules of the board game Monopoly. I kid you not:

“The Bank never goes broke. If the bank runs out of money it may issue as much more as may be needed by merely writing on any ordinary paper.”

It seems Greenspan and Bernanke studied at the Parker Brother School of Economics.

From WSJ Online:

Real-time stock prices for stocks listed on the Nasdaq Stock Market, New York Stock Exchange and American Stock Exchange are now available on WSJ.com.

The real-time data are available during market hours as well as during the early-hours and after-hours periods — the latter two giving readers a look at how stocks react to news released early in the morning or after the close.

These real-time prices are presented along with the standard, comprehensive 15-minute delayed prices from the major U.S. markets. Comprehensive quotes reflect the “composite” quote for an issue. When no real-time trade is available from Nasdaq, readers will find composite quotes only.

Although the prices are reported from Nasdaq, real-time data will be available for many issues that trade on NYSE and Amex. This feature is available to all WSJ.com users — subscribers and nonsubscribers. Markets Data Center at WSJMarkets.com, is a free service.

Barry mentioned that Barron’s was rolling out free real-time quotes as well, but wasn’t certain whether it was to subscribers only or not.

Kevin Depew’s column today was titled “Five Things You Need to Know About the U.S. Dollar”. As an investor - and a consumer, and a voter - you really should know all of these things, and give them some serious thought as you watch the goings-on in the financial world.

Here’s a starter:

The greenback just can’t catch a break.

Despite recent positive comments (or, at least, less negative comments) from George Soros and a reasonable rebound off the March lows, the dollar is still doomed, according to conventional wisdom.

So what’s really going on with the dollar? And why do we care whether it goes up or down in value? Isn’t the dollar I’m holding today the same as it was yesterday? Why can’t the Fed just print more of them? Let’s take these questions one by one and see if we can reach an investment thesis that runs contrary to conventional wisdom.

1. Q: What is a dollar anyway? What does it mean?

A: The dollar is simply a banknote issued by the U.S. government that is mandated by law to be used as legal tender for all transactions. Although the dollar was once backed by gold, today it is backed simply by the government’s promise that it will be convertible in an exchange. Got faith? Good, you’ll need it, because faith is the only thing that separates a blank sheet of paper from a dollar bill that is exchangeable for, say, a banana.

Read on. And then it’s up to you to decide if the dollar is going to get stronger or weaker from here.

	As CNBC talks about a ’summer rally’, perhaps they should consider that we haven’t had the ’spring’ rally yet. The Dow is where it was almost five months ago.
	The banking index hits new closing low levels…

But the coal stocks are never going down again:

Charts courtesy of StockCharts.com

Most of today’s action took place in a total of about 90 minutes worth of time. There was a big dive at the open, and then things flattened out for quite a while until another, smaller dive that took place about midday, driving the Dow down 200+ points. The Dow hung around down 180 or so much of the afternoon after that, until the late day ‘jam job’ started with about 30 minutes left and they pushed things back up into the close.

Treasuries were higher, and yields moved lower for a second day:
6-month: 1.93%    2-yr: 2.52%    5-yr: 3.29%    10-yr: 3.97%    30-yr: 4.68.

Internals were negative, with volume down slightly from the end of last week. Advances/declines were 5 to 11 on both exchanges, with up/down volume about 1 to 3 on each. New highs/lows were negative on both sides of the fence today, at 42/46 on the NYSE but 52/100 on the Nasdaq.

The groups were pretty red, but up off their worst levels of the day. Leading the downturn were the networkers (-3.9%), airlines (-3.1%), HMOs (-3.1%), brokers (-2.6%), paper (-1.5%), transportation (-1.8%), banks (-1.8%) and REITs (-1.8%). Metals and mining stocks (+2.0%) were the clear winners on a short green list, helped out by what’s looking like a melt-up in the coal stocks.

Energy prices were flat to higher. Crude was up slightly to $127.76/barrel, gasoline flat at $3.39/gallon, and natural gas higher to $11.97/mmBTU. The dollar index edged up to 72.94. Gold gained a few bucks to $892/ounce while silver slipped a nickel to $16.80/ounce.

BMB Note:   I told you the Dow looked like a short to me. Too bad I didn’t buy DXD at the close on Friday, like I was considering doing. And then the Dow tanked so hard, so fast this morning there was never a chance to get in.

Oh well. I did add another small short to test the waters again today, this time in the restaurant area. Today’s action was interesting in as far as the price action was concerned, but the selling was light and quick, with volume coming in lighter than Friday. There just isn’t a huge panic to sell this market off. Yet. I think we’ll get there eventually, as it’s starting to feel like we’re marching slowly toward that cliff.

We’ll see. Maybe I’m wrong. But I’m not looking to plow a lot of money in on the long side here. The energies are starting to stall, and the coals look like they’re in blow-off mode. If the market starts to lose the energies and metals, I think that’s when the trouble will start. The banking index put in a new closing low today. The big move down in the networking index was a mini-breakdown, and areas like the builders, retail, REITs, etc. all look like they could go at any time. And I think ‘any time’ will eventually get here.

Bennett Sedacca believes the credit ‘hurricane’ is far from over:

[it] seems to be the majority view on Wall Street these days, that the worst is behind us. To be frank, I could not disagree more vehemently. I believe that the credit crisis is about to rear its ugly head again, potentially unannounced. It is possible that the storm will miss us and that the worst is behind us and if so, the worst thing that will happen is that we will make less money than the next guy, which is OK by me. I believe the next part of the crisis will be more widespread and have a larger impact on the real economy than many believe. Delinquency rates in everything from credit cards, home equity loans, auto loans, utility bills and telephone bills are increasing. The one-two punch of dramatically higher oil and gasoline prices and a slowing economy, along with the high levels of indebtedness are taking its toll. Now back to the hurricane analogy.

If I’m correct, the next stage of the credit crisis, which I firmly believe is at our front door, could make the first stage feel like a walk in the park. This is when the hurricane makes landfall, and many that didn’t evacuate as they were instructed to (those taking credit risk at present no matter how disturbing the economic data has become) will wish they had. Let’s say the storm comes and lasts six to nine months, and the newly elected president will likely blame past administrations and possibly wish they had never run for office, likely having a term of “one and done.”

If you’re lucky enough to make it past the front part of the hurricane, a seemingly calm period takes place (the eye) and once again, people feel relieved, see the sun and hope that the back end of the storm will break up as it hits shore. This could happen in 2009 at which point Stage 3 shows up, and the back end of a hurricane can be the most damaging and is the knockout punch.

I think this could be a late 2010 event, which could be followed by a huge rally in markets worldwide in both credit and equities. It’s possible that this would be a cyclical move within the confines of the secular bear market that began in 2000, but one that we would love to be positioned for. The investor that recognizes the issues we face and is prudently positioned (sometimes with positions to the downside using defined risk via puts) will likely be able to weather the storm, while those that hope it is over will wish they had paid more attention to the news flow. Virtually every data point that I am seeing these days gets worse by the day, yet the data is being greeted with complacency. Since the Fed has played the ultimate ‘Moral Hazard Card’ (Moral Hazard article) by back-stopping banks and brokers with their repo lines and term facilities, I suppose many feel that the Fed will be there to bail them out.
I think they are sadly mistaken and that the Bear Stearns will be nothing close to an isolated instance.

Mr. Sedacca also agrees with something that BMB has been saying for some time now - you can’t know how (and when) it ends, if it’s never happened before:

…much of the expansion and bubble creation were stoked by credit and derivative creation. Since the creation was unprecedented, we can only conclude that the unwind will be like something we have never seen before.

There’s plenty more if you’re interested.

A couple of recommendations from Bill Cara this morning:

Finally today, I’m wondering how many of you check the pre-open trading site at NASDAQ when doing your set-ups.

Another free service is the World Exchanges tab at ADVFN.com. Before making decisions each morning, I frequently check individual stock prices and charts in the various Asia-Pacific and European markets.

It pays to be vigilant.

Check ‘em out to see if they might be of use to you.

A fairly rough start to the week for stocks, as the indices pull back and most groups head lower. A/D lines are well in the red at the moment. The networkers, airlines, homebuilders, brokers and banks lead the decline, while only some of the commodity areas, like metals and mining, are able to stay in the green.

Treasuries are higher, yields a bit lower. Energy prices are mixed - crude and gasoline flat, but natgas back above 12 bucks. The dollar index is fairly flat. Gold and silver are a bit higher.

From “short-the-lot” in the comments on this article at Marketwatch about a warning from a UK lender.

Don’t these statements sound familiar??

I am British and was lucky enough not to have been on the housing “ladder” when the last downturn happened - although most of my friends sat on negative equity for years.

This time it is FAR worse with prices, in real terms, much much higher.

The homeowner may not have extracted the same amount of equity as the US in direct mortgage lending but instead have justified mind boggling borrowing on unsecured credit like credit cards.

The entire UK economy is built on a pack of cards constructed by our current unelected joke of a prime minister.

What exactly does the UK economy do in your opinion? It doesn’t make anything and has relied entirely on consumer spending and the financial sector for the past decade. Both these drivers are drying up and not before time either - they were both repugnant in their emphasis on greed at the expense of the economic foundations.

Your statement that the “UK homeowner has not extracted the same amount of equity as in the US” completely ignores the fact that equity is related to the achievable value of that asset. Seeing as the housing market has seized up you can’t tell what the achievable value of your home is anymore.

People aren’t being forced to sell yet because it was only October 2007 when the peak came. When the lag in the economy hits we’ll see what equity the UK homeowner has really extracted.

In the last ten years the average salary has moved very little. Meanwhile house prices have gone through the roof. The fuel has been ENTIRELY due to easy borrowing and ABSOLUTELY NOTHING ELSE!!!