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.

A couple of months ago, this news would have been certain disaster (from Calculated Risk):

Headlines and short story only now from MarketWatch:

Moody’s downgrades MBIA to ‘A2′ from ‘Aaa’
Moody’s downgrades Ambac to ‘Aa3′ from ‘Aaa’

Here come some more write downs for the banks associated with counterparties being downgraded.

Commenter JDB at CR nails it:

Finally, proof our system really works.

We’ll downgrade you after 107 warnings, countless meetings w/ the Fed & other regulators, and we’ve made sure that downgrades don’t “hurt” anyone unexpectedly.

Another victory for modern finance. Why manage risk properly, when we can just move the goalposts to suit our clever bankers. Wonderful.

I don’t think Lance Lewis thinks that those Joe Lieberman ideas we mentioned this morning are necessarily good ideas. But, he says it wouldn’t be all bad - it would be good for gold.

Since the pension funds and others would be forced out of the futures markets…

The effect would then be that U.S. investors that fall into these penalized categories are effectively forced to buy traditional physical inflation hedges, like physical gold and silver (not gold and silver futures) if they want to hedge against inflation. Even the GLD and SLV ETFs would not be affected by these bills because these ETFs hold physical silver and gold.

Obviously, more money seeking an inflation hedge would also be forced into precious metal shares and other commodity producing shares as well, which could push up valuations across the gold, oil, and commodity sectors.

The irony is that the passing of these bills might just be the best thing that ever happened to gold and the gold shares. As a gold bull, I’m rooting for Lieberman to get this nonsense passed.

The Transports got a reprieve for now, after spending a week below the 50-day (red line), but the HMOs got taken to the woodshed:

I still find it somewhat amazing that even though the Dow and S&P have been sliding fairly consistently for a month now, and while the S&P has so far held support in the 1325-1330 area, the Dow is staring right at those Jan/March lows…

…there seems to be very little in the way of concern. The VIX hasn’t even popped above last week’s highs, let alone approached the spikes of January and March. That tells me that investors are still quite complacent, and that this new leg down probably has further to go.

Charts courtesy of StockCharts.com

Combine oversold conditions, a defense of Dow 12K, a drop in oil and gasoline prices and options expiration and you’ve got a good recipe for a little market bounce - today being a case in point. The Nasdaq outperformed the big boys all day, and the Dow got pushed up to +85 early in the final hour, but some of that ‘excitement’ faded by closing time.

The Transports got a pop from the energy price drop, and the techs helped hold the Nasdaq above the 50-day for a while longer - but the NYSE Composite was ‘unmoved’ by the situation:

After a few days of rebound, Treasuries fell, and yields moved up:
6-month: 2.22%    2-yr: 2.96%    5-yr: 3.66%    10-yr: 4.22%    30-yr: 4.76%.

Internals were mixed with a positive tilt, and volume was about flat on the NYSE but picked up on the Nasdaq. Advances/declines were just below flat on the NYSE but 5 to 4 on the Nasdaq, with up/down volume 5 to 4 on the NYSE and 7 to 3 on the Nasdaq. New highs/lows were only slightly improved, at 81/192 on the NYSE and 41/215 on the Nasdaq.

Most groups finished green, with the airlines (+10.3%) bouncing the highest, followed by transportation (+4.2%), homebuilders (+3.1%), semiconductors (+2.6%), REITs (+2.5%), hospitals (+2.2%), retail (+2.1%), steel stocks (+1.9%), internets (+1.8%) software (+1.8%) and defense (+1.6%). The HMOs (-8.2%) were trampled to lead the losers, followed down by natural gas stocks (-2.2%), oil stocks (-2.2%) and oil services (-1.5%).

Energy prices took a fall, helped by the news that China was raising its internal retail prices - those countries that subsidize fuel costs are finding that idea doesn’t work so well as prices go higher. Crude fell almost five bucks to $131.93/barrel, gasoline dropped more than a dime to $3.35/gallon, and natural gas slipped back to $12.85/mmBTU. The dollar index gave up a morning bump to slip back to 73.41. Gold and silver slipped from early highs but still registered gains on the day - spot gold stands at $894/ounce and spot silver at $17.33/ounce.

BMB Note:   The coals finally took a rest, but the steels/metals had a good day, the Trannies got some help from a drop in oil/gas prices, and misc. big-cap tech continues to hold the Nasdaq up. That’s about it - the major themes haven’t changed much as we head into tomorrow’s expiration, and next week, which holds an almost certain do-nothing Fed meeting and will mark the end-of-month/quarter/first half of the year.

Maybe we get a little more bouncing off of the little turnaround today, but the song remains the same: this market is still very divergent, and if you’re going to play, you’d better be stock/sector specific. Many areas, including the big-cap indices, are in downturns, while the Nasdaq and Russell are holding up better, and a few bullish areas - concentrated in the commodities - remain.

Hammerin’ Hank does Tim Allen - “We need more power!”

Here’s Mike Shedlock:

Mercury news is reporting Administration calls for giving Fed more powers.

Treasury Secretary Henry Paulson says the government must move quickly to give the Federal Reserve more powers to regulate the financial system. Paulson said today that the central bank’s powers should be expanded in the wake of the near collapse earlier this year of Bear Stearns, the giant Wall Street investment firm.

He said there was a need to consider quickly how to give the Fed the power it needs to obtain information from investment banks and the responsibility to intervene to protect the overall financial system. His comments were provided by the Treasury Department as excerpts from a speech he was to give later in the day.

Fed At Fault

This is of course as disgusting as it was predictable. It is all in accordance with the Fed Uncertainty Principle.

Uncertainty Principle Corollary Number Two: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.

Notice the need to move “quickly”. The reason to move quickly in this case is that Bush’s days are numbered. Our next president, Obama, may very well have different ideas about what role the Fed should play. My position is clear: Want To Fix The Fed? Get Rid Of It.

Go read the rest of Mish’s post to find out how the Fed enjoys special accounting privileges.

A lotta dancin’ around again today. Transports getting a boost back up, RIMM and QCOM helping hold up the Naz-100 (did you know that AAPL, MSFT, QCOM, GOOG and RIMM - 5 stocks - make up nearly one-third of that index?? That’s why we can see that index, along with the Nasdaq Comp - continue to hold up while the Nasdaq A/D line sinks to all-time lows…). Financials still dragging, with the coals getting a little taste of that ‘corrective action’ we talked about yesterday.

The majors have worked their way up to a very light shade of green, but the NYSE Comp is still red and A/D lines are hanging around flat. An entire afternoon to go, leading into expiration tomorrow. Fun fun.

A weak start for stocks, unable to find much of a bounce after a couple days of selling. A weak Philly Fed report didn’t help matters any. The indices are now approaching the flat line from below, but A/D lines remain in the red. The groups are split, with airlines, gold and silver stocks, homebuilders, transportation, hospitals, steel and REITs leading the winners. On the downside, HMOs are getting hammered after a warning from CVH. They’re followed lower by the banks and computer hardware.

Treasuries are slightly lower, holding yields up. Energy prices are lower. The dollar index is back to flat after an overnight dip. Gold and silver are higher.

…have been fired in the government’s war on the commodities markets.

The head of the Senate’s government affairs committee Wednesday unveiled a series of restrictive proposals aimed at financial speculators in commodities, including one that would place an outright ban on big pension funds buying agricultural and energy futures.

The three legislative ideas from Connecticut’s Joe Lieberman, which the independent senator plans to discuss at a hearing June 24, count as the most drastic efforts yet from lawmakers targeting potential culprits behind high oil and grain prices.

The most severe would prohibit private and public pension funds with more than $500 million in assets from investing in agricultural and energy commodities traded on a U.S. futures exchange, foreign exchange or over the counter, according to materials provided by Lieberman’s office.

A second plan would direct the Commodities Futures Trading Commission to establish total limits on the share of the commodity market held by financial investors.

A third proposal would direct the futures regulator to impose speculative-position limits on any stakes not related to real hedging activities, an action that could limit the commodities-swaps activities of big investment banks such as Goldman Sachs Group (GS) and Morgan Stanley (MS).

Whatever happened to Kudlow’s “free market capitalism”?