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.

Kevin Depew bumped into Ben Bernanke in a rather unusual spot yesterday - but hey, at least he was working.

From today’s Five Things:

1. Bernanke Says There’s Never Been a Better Time to Sell Your Gold Jewelry for Cash

Good news: Federal Reserve Chairman Ben Bernanke yesterday said the risk of the economy slipping into a “substantial downturn” has decreased in the past month. Of course, Bernanke made the comments in New York while standing on 44th and Lexington Ave. working “to pick up a little extra dough” by handing out fliers urging passersby to raise cash by selling their unwanted gold and silver jewelry to a pawnbroker, but that doesn’t mean the Fed isn’t serious about fighting inflation.

Bernanke said the Federal Reserve will “strongly resist” any surge in inflation expectations. Then he shoved a flier into my hands which read, “With gold prices near an all-time high, there has never been a better time to get rid of unwanted or broken gold jewelry.”

This created a “conundrum” for me. I didn’t really want the flier, but I also didn’t want to appear rude and throw it away right in front of the guy. He is, after all, the Chairman of the Federal Reserve. Clearly, he must feel it is very important that I sell my gold and silver jewelry for extra cash. I mean, Ben Bernanke wouldn’t be standing out here in a dark suit in this heat wearing a “Sell Your Gold Jewelry for Cash Now” sandwich board and pushing fliers for something he didn’t really believe in.

I looked at the flier again. “I would have never imagined that a handful of mismatched earrings could amount to over $30.00, but it did!,” read a testimonial by “Marci.”

I had to admit, perhaps Bernanke and “Marci” had a point. Milk’s nearly $8 a gallon, good luck finding a decent ear of corn for less than 75 cents, and did I really still need that thick, gold rope chain with the Kool Moe Dee medallion I bought back in 1987? I suppose I could use the extra cash.  ”I’ll check this out when I get home,” I lied as I folded the flier up and slipped it into my back pocket.

Bernanke continued to pass out the sell your gold jewelry fliers while noting that the pass-through of high raw materials costs “has been limited,” in part because of softening domestic demand. Also, he added, did you know it takes 2.4 ounces of 10K gold and 1.714 ounces of 14K gold to equal one ounce of pure gold? I had to admit, I did not.

But what I really wanted to know was if it bothered him when people, instead of accepting the fliers, let them fall to the ground as trash the way so many seemed to be doing? He launched into an answer that I at first thought must be a parable of sorts, but which disappointingly turned out to be part of something he had apparently memorized about how the “unanchoring” of inflation expectations “would be destabilizing for growth as well as for inflation.”

Man, I thought,  It’s tough to move this guy off message. But, in fairness, he was working.

Sorry Ben, but I don’t have much gold jewelry laying around anymore. I already sold the old gold ring I found at the bottom of my drawer - actually, I traded it for some nice, shiny silver coins. Those are better than that paper stuff…

From commenter “Vermont Trader” at The Big Picture on “Ben and Hank’s Strong Dollar Show”:

I find all of this talk of intervention amusing.

The US doesn’t have any foreign currency reserves to intervene with. You can’t buy dollars when you don’t have anything to sell.

The only way we can support the buck is by asking other countries (ie China) to do it for us and they are already propping up the dollar.

So it’s just talk.

Bond prices have been heading south since March:

…and that means that regardless of what the Fed does or wants, interest rates have been headed higher - a considerable headwind for an already struggling economy:

Charts courtesy of StockCharts.com

Financials and housing got a bounce, which helped to hold the indices up, but that’s about it for stocks today.

The indices finished mixed, but internals were poorer than the final scores would indicate:

Treasuries were weak again, and yields resumed their recent climb higher:
6-month: 2.19%    2-yr: 2.91%    5-yr: 3.55%    10-yr: 4.10%    30-yr: 4.69%.

Internals were negative again, and though volume seemed quiet, it finished right up there with the levels of the last 3 or 4 days. Advances/declines were 1 to 2 on the NYSE and 8 to 11 on the Nasdaq, with up/down volume 2 to 3 on the NYSE and 3 to 7 on the Nasdaq. New lows topped 300 - new highs/lows were 30/140 on the NYSE and 17/167 on the Nasdaq.

The groups were turned upside down, with the weakest groups being the only ones to post solid gains: homebuilders (+1.5%) and banks (+1.4%). The longer losers’ list was led by the commodity areas: gold and silver stocks (-4.5%), steel (-3.6%), metals and mining (-3.4%), oil stocks (-2.6%), oil services (-2.6%), airlines (-2.2%), natural gas stocks (-1.8%), semiconductors (-1.7%) and paper stocks (-1.4%).

Energy prices continued their ‘timeout’. Crude oil dropped again, to $131.31/barrel, gasoline fell another 7 cents to $3.33/gallon, and natural gas slipped to $12.45/mmBTU. The dollar index continues to bounce, back up to 73.67. Precious metal bashing was back in vogue, driving the PMs back down toward the bottom of their recent ranges: gold to $866/ounce and silver to $16.57/ounce.

BMB Note:   Not much to talk about today. The rather benign movement in the indices masked continued weakness under the surface, which was borne out in the internals, with A/D lines dragging in the red all day, and most groups finishing in the red. Only 17 new highs on the Nasdaq…

The financials and housing were due for a bounce, and that started today, and the stronger groups (energy, commodities) pulled back. That’s about it. Still not anything to get excited about.

No reason to back off the defensive posture. And who knows? Maybe a little bounce here will provide some better short setups than I saw last night, when the pickins were pretty slim.

While they’ve been able to push the indices into the green now and then over the course of the morning, it hasn’t been too impressive, as they haven’t been able to move the A/D lines back into positive territory. And the ‘winners’ on the day are the recent big losers, as the homebuilders and financials get a bounce.

Hard to be too impressed. Gold and silver are getting smashed back down after bumping up last week. So it goes - up, down, up, down…

After a rough open, the market has settled down a bit, but is by no means in great shape. The indices remain mixed, and A/D lines remain fairly deep in the red. Most groups are in the red as well, though the beaten-up banks are getting a bit of a bounce. The airlines, paper, semiconductors, steels, chemicals, computer hardware and oil services lead the losers’ list at the moment.

Treasuries are lower, yields back up. Energy prices are higher. The dollar index is slightly higher, gold and silver are lower for another day.

Bernanke tells us once again that slower growth should keep inflation in check.

This is a consistent theme from the Fed - and it has been a consistently incorrect assumption (more like hope) on their part.

With a little help from The Mess That Greenspan Made, let’s review. As Tim at TMTGM comments, “There appears to be no theoretical limit on how long you can continue to expect something to happen, however, practically speaking, at some point in time, people stop believing what you say.”

March 28, 2006
… inflation expectations remain contained.

May 10, 2006
… inflation expectations remain contained.

June 29, 2006
… inflation expectations remain contained.

August 8, 2006
… inflation pressures seem likely to moderate over time, reflecting contained inflation expectations…

Sep 20, 2006
… inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations…

Oct 25, 2006
… inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations…

Dec 12, 2006
… inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations…

Jan 31, 2007
… inflation pressures seem likely to moderate over time.

Mar 21, 2007
Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures.

May 9, 2007
Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures.

Jun 28, 2007
… a sustained moderation in inflation pressures has yet to be convincingly demonstrated.

Aug 7, 2007
… a sustained moderation in inflation pressures has yet to be convincingly demonstrated.

Sep 18, 2007
Readings on core inflation have improved modestly this year … some inflation risks remain…

Oct 31, 2007
Readings on core inflation have improved modestly this year … some inflation risks remain…

Dec 11, 2007
Readings on core inflation have improved modestly this year … some inflation risks remain…

Jan 22, 2008
The Committee expects inflation to moderate in coming quarters…

Jan 30, 2008
The Committee expects inflation to moderate in coming quarters…

Mar 18, 2008
… some indicators of inflation expectations have risen. The Committee expects inflation to moderate in coming quarters…

Apr 30, 2008
… some indicators of inflation expectations have risen in recent months. The Committee expects inflation to moderate in coming quarters…

Some of the Asian markets were closed on Monday, but they made up for lost time on their Tuesday - the Shanghai Composite fell 7.7% and the Hang Seng dropped more than 4%. Ouch.