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.

When the going gets tough, the tough get going   the wimps beg for government help.

From today’s Five Things:

1. Bob Toll: Good Time Businessman; Hard Time Socialist

No real surprise here. Toll Brothers (TOL) reported its third consecutive quarterly loss this morning. The stock is up a bit after the company said its backlog at the end of the second quarter fell 50% from a year earlier to $2.08 billion even as net contracts signed during the quarter, after cancellations, declined 44%.

But here’s something that IS interesting. TOL CEO Bob Toll, a homebuilding “businessman” during the good times, is apparently a little bit more of a socialist during the bad times. According to Bloomberg, Toll today said Congress should “jump start demand for new homes with an initiative that will bring buyers off the sidelines and into the market, and thereby stop the downward spiral of home prices.”

If only we could have Congress do the same thing for other businesses facing weak demand and oversupply, we could “stop the downward spiral” of prices and… oh yeah, CAPITALISM.

Technically Speaking says to Ben Bernanke, “We Can Handle the Truth”:

Seriously, I realize that Professor Bernanke knows far more than I can even dream about concerning the economy. All I want is the opportunity to trade a ‘free market’ without interventionism with rate cuts before options expiration, the 3:00 A.M. Fed trade from mystery hedge funds, and with economic data reflecting economic reality.

The concept or misconception that we live in a country with 2 percent inflation isn’t baffling or misleading; it is a bald-faced lie and an insult to those of us who pay to run a business, educate our children, and buy food, healthcare, and energy.

The reason we must be misled is for the ‘benefit’ of Wall Street, so they can create models for valuations that don’t represent reality. It’s about allowing Wall Street to win the loser’s game. Bill Gross referred to it yesterday (in the video referenced on my site) that valuations of bonds and equities would be considerably lower were inflation data congruous with inflation reality.

So, I’m asking you Professor Bernanke, when you look in the mirror, do you see a balding middle-aged man spinning economic fantasies to the American people who pay your salary, or do you see the economist version of Brad Pitt? If you see Brad Pitt, then we are very afraid. And yes, I graduated from Harvard, too, so I know the world of boundless ego and narcissism just as well as you. We can handle the truth, not ‘truthiness’.

Pretty much a roller coaster ride today. Things started out mildly positive, but that pulled back quickly. A midday selloff sent the Dow down to its worst level of about minus-160 or so, but that didn’t last real long either. The rebound ‘jam-job’ got started a little earlier than normal, and pushed the Dow back up to minus-50 before the sellers came back in the last 15 minutes.

All of the majors finished in the red:

Treasuries were higher for a third day, pulling yields back further:
6-month: 1.94%    2-yr: 2.42%    5-yr: 3.20%    10-yr: 3.91%    30-yr: 4.63.

Internals were negative once again, with volume the highest we’ve seen in quite a few days. Advances/declines were 2 to 3 on the NYSE and 8 to 11 on the Nasdaq, while up/down volume was 2 to 3 on the NYSE and 7 to 13 on the Naz. New highs/lows were flipped again, at 61/44 on the NYSE but 53/91 on the Nasdaq.

The groups were split, with more big movers in the red column. Leading the winners were the airlines (+2.9%), homebuilders (+2.4%) and disk drives (+1.5%), while oil services (-1.9%), gold and silver stocks (-1.9%), defense (-1.5%), commodities (-1.4%), oil stocks (-1.3%) and banks (-1.3%) led the losers.

Energy prices were mixed. Crude fell to $124.31/barrel, and gasoline dipped to $3.35/gallon, but natural gas was higher again, to $12.22/mmBTU. The dollar index got a boost from Big Ben’s morning jawboning, up to 73.29. But the precious metals held up fairly well in the face of the rising dollar - gold slid a bit to $880/ounce but silver dropped only a nickel to $16.75/ounce.

BMB Note:   Not sure what to make of today’s action. I’m still not certain what the cause of the midday dive was, I can only guess. But ‘they’ managed to prop things up into the close, so there wasn’t a tremendous amount of damage done.

That said, things are leaking lower. Volume picked up today - maybe that’s a hint. While the VIX has stopped falling, it hasn’t taken off higher yet - but put-call ratios look like they may have started to turn upward, and that would be a bearish sign.

The Dow continues to be the weakest of the indices, and I did manage to grab a small position in DXD on the early morning ramp in the Dow, which looked like a brilliant move in the early afternoon. But we know how fast things can change. The S&P sits right around the 50-day again, so that will be worth keeping an eye on.

In the groups, not a lot of change. The banks still look terrible, and it’s hard to get too excited when the airlines and homebuilders were the stars of the day. I will continue to stay away from the long side, and look to test short positions if I see opportunities.

Remember how we said yesterday that we can’t know how all of this will turn out, since nothing of this magnitude has ever happened before?

Well, in case there’s any doubt in your mind as to whether we’ve already “been there, done that”, take a look at this chart (produced by the Fed itself) of “Total Borrowings of Depository Institutions”, back to the early 1900s, that Barry pointed out at TBP (click on image to view full size):

Or maybe, what’s down?

The market has been in a mini-meltdown for the past half-hour or so, and not even CNBC has a clear idea as to what triggered the selloff. But I have a feeling that the very poor auto sales numbers that have been released in the past few minutes might have something to do with it.

I’ll put up a link to that info when I find some.

Here’s a short blurb at MW on GM’s lousy numbers. The banner on CNBC implied that even Toyota’s numbers weren’t anything to write home about.

Here’s a better wrap from the CNBC site.

Gary Kaltbaum on the financials and the latest market gyrations:

For the past 15 months, I have been telling anyone who would listen that the FINANCIALS were in a world of trouble. I have been telling everyone that these companies lied… these companies cheated… these companies hid losses… these companies used fantasy prices… these companies were paying the ratings services that rated their fantasy products. In other words, name the violation… and they committed it. Name the conflict of interest… and they were involved. After tens of billions of losses, one would think these people would learn from their mistakes. Then again, maybe they just don’t care as the violations they committed were the exact crimes Enron committed. Recently, we have read about Lehman recent suspect earnings… a glance at Lehman’s chart is indicative of something amiss. Now we have the following article.

Let me be clear about my opinion. These companies that are living by their own set of rules should clear out every person involved with this nonsense and start over. Imagine booking revenue gains as your business continues to head south based on more opaque accounting crapola that you yourself lobbied for. I do not understand why anyone would commit a dime of their money to these companies that in my opinion should not be running a lemonade stand… well maybe a lemonade stand in the nearest federal pen.

So…what has changed in the market? Not much. STEEL, COAL, OILS, FERTILIZERS, MINING, RAILS and a slew of large cap NASDAQ-types continue to lead. The NASDAQ a/d line continues to sit at all-time lows… signifying how narrow the move is. This is the same thing that happened last year. On the other end of the spectrum, the BANKING index is now into new low ground… in spite of all the calls to buy. On top of that, AIRLINES, AIR FREIGHT, AUTOS, BROKERS, GAMING, HOTELS, LENDERS, MORTGAGES, most RETAIL, RESTAURANTS, S&Ls and basically anything CONSUMER remain in bear markets… so we are seeing the same thing repeated over and over again.

As far as the major indices, I make note that the DOW and S&P are now lagging badly… especially the DOW which is tracing out an inverted cup and handle pattern. The good side of this is that small caps are now sitting with the relative bid for the first time in months. I am not sure if this is bad news or good news. The bottom line is that this is going to remain a tough proposition in my humblest of opinions. There are many calling for destruction here and many calling for a better second half. For me, it is more important to pay attention to sectors now… and leave the major indices to do their thing.

There are just bull and bear markets playing out side by side.

Things have bounced around a bit this morning, mostly above the flat line up to this point. A/D lines are slightly in the green, and most groups are green as well, led by steel, airlines, chemicals, transportation and computer hardware. Those nagging banks are still back at the end of the train though…

Treasuries are lower, yields up a bit. Energy prices are mixed - crude lower, but natgas higher. The dollar index took a jump when Big Ben opened his yapper this morning, but gold and silver are just slightly lower.

Ben was babbling again this morning:

Breaking a long-standing tradition of relative silence on the dollar, Federal Reserve Board Chairman Ben Bernanke signaled discomfort Tuesday with the weak dollar’s ramifications for the domestic U.S. economy.

If you’re uncomfortable with it Ben, I suggest you stop doing everything in your power to trash it.

Between this and Hank’s incessant ’strong dollar policy’, it sure is an awful lot of hot air without any action to back it up. Just another attempt to push down oil and gold prices, most likely.