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.

Unless things change in a big way: despite today’s big rally, the put-call ratio moving averages (peaks at market bottoms, troughs at market tops) still imply that if a ‘top’ isn’t already in, it’s likely not too far away.

Chart courtesy of StockCharts.com

Jim Rogers on the financials, airlines, oil and commodities (of course) (video on Bloomberg):

“If oil goes to $300, they’ll be drilling for oil on the White House lawn.”

From Housing Wire, via Calculated Risk:

While foreclosure activity hit an all-time record in the first quarter, according to statistics released Thursday morning by the Mortgage Bankers Association, an alarming shift of the mortgage mess towards prime borrowers appears to be taking place as well — signaling that the credit crunch that began among those with less-than-perfect credit is now marching onward towards borrowers usually deemed better credit risks.

—

…while the overall numbers for the first quarter show that the majority of troubled borrowers are in the subprime credit category, the pace at which prime borrowers are running into a wall now strongly outstrips anything being seen in the subprime arena.

Among subprime borrowers, severe delinquencies — a measure that includes 90+ day delinquencies and foreclosures — increased from 14.44 percent of loans in the fourth quarter to 16.42 percent in Q1. In contrast, just 1.99 percent of all prime borrowers were severely delinquent at the end of Q1, compared to 1.67 percent at the end of last year, numbers that illustrate the relatively greater distress felt by subprime borrowers.

But it’s the velocity of these changes that’s most worth noting from an investor’s perspective — the Q4 to Q1 change in severe delinquencies strongly favors prime borrowers, for example, with severe DQs increasing by 19.2 percent for prime and 13.7 percent for subprime borrowers.

For whatever reason, Minyanville no longer puts out the “Buzz Bits”, which was just an end-of-day sampler of two or three interesting snippets from their pay-to-see “Buzz & Banter” service. The ‘bits’ disappeared a month or so ago, and haven’t returned.

I guess they wanted to cut back on the number of low-life, non-paying customers that go to visit their site. Or they axed the person who did the compilation.

Hey Toddo - bring back the ‘bits’!

From Mish’s site:

Open dissent at the Fed continues. I first talked about this a week ago in Infighting At The Fed. Today Lacker Says Fed Loans to Wall Street Risk More Crises.

Richmond Federal Reserve Bank President Jeffrey Lacker said the lending to securities firms that the central bank introduced in March may lay the seeds of further financial crises.

“The danger is that the effect of the recent credit extension on the incentives of financial-market participants might induce greater risk taking,” Lacker said in a speech to the European Economics and Financial Centre in London. That “in turn could give rise to more frequent crises,” he said.

Lacker urged that the central bank now “clearly” set boundaries for its help to financial markets. In an interview yesterday on the themes of his speech, Lacker said even those new boundaries may not be believed by investors unless a financial firm fails “in a costly way.”

The remarks are the strongest warning by an official about the consequences of the Fed’s aid to securities dealers, the first lending to nonbanks since the Great Depression. While other regulators have focused on tightening investment-bank oversight in exchange for the lending, Lacker said there’s a case for “scaling back” the new programs.

Philadelphia Fed President Charles Plosser urged in a separate speech today that officials specify the conditions “under which the central bank will lend” to firms. He told reporters in New York afterwards that “we run the risk of sowing the seeds of the next crisis.”

Thomas Hoenig of Kansas City said last month the Fed’s actions were “likely to weaken market discipline,” while Minneapolis’s Gary Stern in April worried about “adequate incentives to contain” an expansion in the Fed’s safety net.

The central bank has introduced three programs since December to help counter the credit crisis. Along with the Primary Dealer Credit Facility, the Fed lends Treasuries to dealers in exchange for mortgage and asset-backed debt through the Term Securities Lending Facility. The Term Auction Facility offers cash loans to banks.

Lacker indicated skepticism about the value of the programs.
“It isn’t clear what kind of market failure is being addressed” with the TAF, he said. Central bankers should be wary “that they can substitute their own judgment about the fundamental value of financial instruments,” he said.

Bernanke Loses Support

The seeds of this crisis were sewn by the loosey goosey policies of Greenspan for which there was never a dissent from Bernanke, or that matter anyone else (at least in public). And what started as a minor revolt has now turned into a major question of confidence regarding the anything goes policies of Bernanke. That Congress is holding up votes on Fed nominees is also not helping Bernanke any.

If various Fed governors continue openly questioning Bernanke’s decisions, he is not going to last long as Fed chairman.

That wouldn’t break my heart. I thought he was a poor choice right from the start.

Update:   More on Lacker’s comments in the first of today’s Five Things.

	The Russell and Naz-100 stretch out to new relative highs.
	The S&P still looks like that 1390-ish area is sort of the “50-yard line” - above it is good, below it, not so good, especially with that 50-day moving average sitting right there too.
	The Dow has spent nearly every day this year in the range from 12K to 13K.

Amidst all of the market noise today, only a few groups saw new relative high levels:

Charts courtesy of StockCharts.com

Looks like the ‘jobs day’ pop came a day early. The bulls got everything they wanted, running the Dow up 200 points and painting everything green - but they couldn’t even register it as an ‘accumulation day’, as volume came up shy of both Tuesday’s and Wednesday’s levels.

So just how much money did the PPT have to ‘put to work’ this afternoon after this news on Ambac and MBIA came out, and the Dow was in free fall, reaching down to +100 from its morning +180 high?

The Russell and Nasdaq(s) nudged out to new relative highs:

Treasuries were lower, yields a bit higher again:
6-month: 1.94%    2-yr: 2.50%    5-yr: 3.32%    10-yr: 4.04%    30-yr: 4.74%.

Internals were positive, with volume a shade under the past couple of days. Advances/declines were 3 to 1 on the NYSE and 7 to 3 on the Nasdaq, with up/down volume better than 4 to 1 on both exchanges. New highs/lows straightened up, at 95/31 on the NYSE and 73/57 on the Nasdaq (Dow up 200+ points, Naz up almost 2 percent, and only 168 new highs?).

The groups were big and green. The commodity areas came roaring back to life, but those rock solid airlines (+6.3%) led the way, followed by steels (+5.4%), oil services (+4.8%), metals and mining (+4.8%), brokers (+4.3%), oil stocks (+3.9%), natural gas stocks (+3.8%), commodities (+3.3%), chemicals (+3.2%), gold and silver stocks (+3.2%), disk drives (+2.8%), biotechs (+2.4%) and REITs (+2.4%).

So much for that pullback in energy prices. Crude oil bounced right back, gaining more than five bucks to $127.79/barrel, and gasoline ran back up 14 cents to $3.33/gallon. Natural gas was higher as well, up to $12.49/mmBTU. Ben and Hank’s ’strong dollar’ fell back to 73.05. The PMs were mixed. Gold is still struggling, giving up a few bucks to $876/ounce, but silver had a good day, moving back up to $17.15/ounce.

BMB Note:   So, I wanna know - do you guys read these daily wraps? Quite frankly, it’s a bit of a pain in the butt to do them every day, and if no one reads them or gets anything out of them, I’ll stop doing them, or at the very least, I’ll back off the amount of info I put in them.

The same question applies to this BMB Note section. Most of the regular readers know pretty much where I stand, and since I’m not a day-trader, that stance simply doesn’t change very often. And I really don’t like trying to guess where I think the market is going tomorrow or the next day - since it’s such a spastic beast, especially these days - so I’m not sure a daily note on the market is all that necessary, either. Sometimes it makes no sense for me to put out my ‘opinion’ on things when I simply don’t have one. Maybe I could just put notes out on an occasional basis, when I think something important is happening, etc. Or I could just keep my observations and opinions entirely to myself - I’ll trade my way, and you can trade whatever your way is.

Lemme know what you think - what you like and what you don’t like and/or need. If you want me to keep things as they are because you get something out of it, that’s great. I just want to know that it’s worth my time to do this stuff every day. And if you don’t comment, I’ll have to assume that you don’t read ANY of it, and then I can just quit spilling pixels all over the place!

I’ve been doing BMB for more than three-and-a-half years now, and I’m trying to keep it to a point where I’m willing to continue, since I don’t do it for my health, and I certainly don’t do it for the money. Not to mention that sometimes I get so disenchanted with the markets, the manipulation, our Fed, Wall Street, our financial system and our government that I’m tempted to just chuck it all, pull up stakes, take my money and go move somewhere else - like maybe the Moon, where I don’t have to hear about any of it anymore.

Any thoughts?

Judging from the morning’s action, this market certainly doesn’t want to give up yet, as the energies and steels are joining forces with the tech stocks to help push things higher.

Interesting, though - up to this point, despite the strong price action, volume is lighter than yesterday…

It’s that day again. You know, that first Thursday of the month when CNBC is spewing retail numbers all over the screen, and everyone is getting excited and depressed all at the same time - and I really couldn’t care less.

Luckily for you - for those of you that might care - Jeff Macke pays more attention to those numbers than I ever will:

You can trade the retailers any way you want, as long as you have an exit plan. From a trading perspective, the long side seems to be netting out okay, if you’re able to spread your risk out such that you get two winners (say, Children’s Places (PLCE) and Guess? (GES)) to offset your inevitable JCrews (JCG).

You can get long Jos. A Banks (JOSB) on the idea that the company simply has no idea what its results are going to be from month to month. Thus, by some variant of chaos theory you threw together on your PC, you might have been able to predict that JOSB would release earnings yesterday afternoon instead of this morning, as expected.

If you pulled off that JOSB “the company beats and announces it 20 hours early” trade, I’ve got nothing but monster respect for you. I also suggest you quit while you’re ahead.

After some hesitation, stocks have gotten another pop higher, but this market has had a great deal of trouble hanging on to moves in either direction lately. Indices are green and A/D lines positive, for now. Leading the groups up are the airlines, brokers, steels, disk drives, biotechs, retail, HMOs, networkers and oil services.

Treasuries are lower, yields higher. Energy prices are just slightly higher. The dollar index is lower. Gold is lower, silver higher.

Standard operating procedure on Wall Street these days. And no better way to dispense information - true or untrue - than to get it into the hands of Mr. ‘Gossip’-arino, over at CNBC.

Here’s Barry this morning:

Today’s must read commentary: naked capitalism calls shenanigans on Lehman Brothers illegal leak of an insider memo to CNBC’s Charlie Gasparino:

“On the issue of Lehman supposedly deleveraging (particularly to such a dramatic degree), The New York Times reported that Lehman had reduced its leverage from 31.7x to 25X via a $100 billion asset sale. Note even that claim demands more explanation. How was so much unloaded? What losses were taken? And (most probable) was this done the way recent disposals of leveraged loans have been accomplished, via part of the proceeds being financed? If so, the “sale” is far less meaningful than a true sale and involves the risk that the supposed buyer might try to put the asset back in the future (in this environment of high financial stress, do not underestimate the odds of extreme measures).

And of course, it’s also intriguing (to put it way too politely) that the leak to the Times is considerably at odds with the “internal memo” that got into Gasparino’s hands. 25x and 12x leverage are hugely different numbers.

Now to the tactics, which stink to high heaven. Why, pray tell, is Lehman resorting to leaks and whispers rather than the proper procedure of public disclosure via a press release?”

I usually love Charlie Gasparino’s work, but at this point he has been fed more disinformation than the Pentagon got from CurveBall prior to the Iraq War.

Regardless, leaking an internal memo with non-public, material financial information to CNBC is an SEC violation. Of course, the toothless tiger in charge of regulatory enforcement is too busy chasing down who spread what rumors about Bear Stearns (that turned out to be true) to be bothered with such obvious and blatant illegality.

More naked capitalism:

Don’t tell me this may have been an unauthorized employee leak; if this memo was circulated broadly to employees, it was done with the full intent that word would get outside the firm. That happens predictably with mass employee communications. And if it was limited distribution, the recipients, as anyone who has passed a Series 7 exam ought to know, selective disclosure of material information is a big no no under SEC Rule FD.

Would someone please tell me how this could be leaked to a major news organization without an immediate SEC investigation being opened? Or is Cox & Co. to busy investigating David Einhorn to look into his?

Color me disgusted . . .

Just more sleaze and slime to push things around and hold things up, without the real truth and anybody coming clean. And of course, for a ’scoop’, CNBC is always a willing - if not unknowing - accomplice.

The whole post at naked capitalism is worth a read as well, with some discussion of where a ’savior’ might be found if LEH were to go down, a la Bear Stearns.