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 two-part piece from Bennet Sedacca on preserving your capital for better market times - that, believe it or not, will arrive someday.

Here’s the beginning and the end - and the links to the rest of part 1 and part 2:

Let me be blunt: The world is mired in a secular bear market in stocks.

1. The credit crisis we’ve been expecting is here.
2. Inflation on the things we need is on the rise.
3. Unemployment is increasing.
4. We’re at war on many fronts.
5. Social acrimony is beginning to build.
6. Federal authorities – from the Treasury to the Federal Reserve to the European Central Bank to the Securities and Exchange Commission – intervene in our markets daily, making our lives as professional money managers more difficult than they should be in a truly “free” market.
7. Real estate prices are plummeting.
8. Credit is available for only a few very healthy companies - and for those that the Fed feels are important enough to bail out. The rest of us have to pay for our mistakes.

So, are you ready to walk off the nearest ledge yet?

The economy and the credit/equity markets are anything but a walk in the park these days. But hey, this isn’t a game for amateurs, and this cycle will most certainly show us who a) understands the big picture, b) knows how to measure risk and c) knows how to preserve capital. Why? Because the sun will come out tomorrow.

Tomorrow may be a bit far off, but it’s out there. The goal now is to make it there with your capital intact, and even with some gains along the way.

—

Summary: How to Be Positioned for Tomorrow

I believe the correct posture is one of caution, not to be confused with being bearish. I believe that every bet one makes must be measured and have considerable thought behind it. It’s truly okay to miss opportunities but the big cyclical moves, even within secular bear markets, must be had. The same is true for cyclical bear moves within secular bull markets, which I believe could be a result of a combination of both time and price. Time could take us to 2014-2018, and price could take us back to the 1500-1600 area in the S&P 500 over the next decade or so with lots of opportunity in between.

One thing I feel true is that long only investing and blindly trusting the authorities, governing bodies and even many financial advisors that don’t understand and can’t articulate the “Big Picture” could be a problem. I say all of this with respect to others in our profession, but this is not a market for newbies. In a nutshell, there is no substitute for experience and gray hair.

I do believe one thing for sure. The sun will definitely come out tomorrow. I just have to be around with my capital and my investor’s capital to take advantage of the sunshine.

I guess we should all be hoping that “major issues” isn’t a gross understatement:

North America is the midst of a “systemic financial meltdown,” Eric Sprott warned yesterday as his company turned a quarterly profit of more than $11-million.

“I’m not trying to be shocking to anyone, but let’s face it,” said Mr. Sprott, chief executive officer of Sprott Inc. “When Bear Stearns goes down, Freddie and Fannie go down, and IndyMac goes broke, we have major issues out there.”

Pointer from Jim Sinclair’s MineSet.

	The Mexicans apparently didn’t get the memo on that whole ’strong dollar’ thing.
	Oil prices are down ~20% from the highs and the airlines have gotten huge bounces off their lows, but the Dow Transportation index is still languishing below the 50-day. That’s probably not good.

Commodity stocks of all shapes and sizes are getting smashed:

Opposite directions - a ‘consumer staple’ play getting help from lower grain prices, and an energy play getting hurt by lower oil prices:

Charts courtesy of StockCharts.com

What looked to be a fairly weak market this morning was handed an absolute gift in the form of a big drop in oil prices - and failed to take advantage of it.

Oh sure, the Dow worked its way back into the green, and was even up 50+ points with about 90 minutes to go. But the indices turned back around gave back most of their recovery - and the advance/decline lines never came close to moving into the plus column all day.

Not a very impressive performance by the bulls. Of course, it’s hard to keep ‘the market’ going when large groups, like the commodity stocks, are getting crushed left and right:

Action in Treasuries was quiet again, and yields barely budged:
6-month: 1.90%    2-yr: 2.51%    5-yr: 3.23%    10-yr: 3.95%    30-yr: 4.58%.

Internals were decidedly negative, with volume just shy of Friday’s levels. Advances/declines were 1 to 2 on both exchanges, with up/down volume 1 to 2 on the NYSE and 3 to 7 on the Nasdaq. You can pretty much guess what the high/low storyline was: highs/lows were 22/92 on the NYSE and 29/106 on the Nasdaq.

The groups were split, but again with more losers than winners. Airlines (+4.7%), HMOs (+2.2%), hospitals (+1.7%), drug stocks (+1.6%), computer hardware (+1.1%) and health care products (+1.0%) led the winners. Commodity areas got smashed again, leading the losers list: metals and mining (-7.3%), steel stocks (-6.3%), oil services (-5.7%), natural gas stocks (-5.1%), gold and silver stocks (-4.7%), chemicals (-4.2%), oil stocks (-3.9%), brokers (-1.9%), networkers (-1.6%) and REITs (-1.5%).

Energy prices took that morning dive and never really bounced back. Crude fell almost 4 bucks to $121.41/barrel, gasoline lost 8 cents to $3.00/gallon, and natural gas got hammered, dropping to $8.67/mmBTU. The dollar index was up just marginally, to 73.45, but gold and silver got smacked along with all the rest of the commodities, with spot gold falling to $894/ounce and silver to $16.92/ounce.

BMB Note:   Strange days we’ve got here.

Commodities of all persuasions continue to get hammered. They tried to tell us that the big spike down in oil this morning was due to the storm, Iran, Obama, and a bunch of other factors - but that’s a bunch of B.S. Those news events don’t work to produce a 4-5 dollar move in a matter of a minute or two. Somebody is either deliberately stomping on the market, or there are funds stuck in commodities that are having to bail hard and fast. And sooner or later, they’ll get washed out and the decline will end. That’s the way markets work.

The media gasped in horror when we touched $120 oil on the way up, now they’re cheering wildly as we touch it on the pullback. The silliness of it all never ceases to amaze me.

Certainly not much to get excited about in stocks. This market is starting to look and act pretty frail again. The bulls can’t be too fired up about today’s action - with that big drop in oil, all it did was smash the commodity stocks, but didn’t provide much help for anything else. But tomorrow is ‘turnaround Tuesday’, and on top of that, it’s Fed day. Keep in mind that things tend to be a little crazy on those days, so take whatever moves come along with a grain full shaker of salt.

Somebody had to dump a lot of oil - or chose to. About 15-20 mins. ago, oil took a big spike down, about 3-4 bucks in a minute or two, taking gold down with it, and sending the Dow right back up to the flat line.

Of course, there’s no news, no known reasons for any of these moves lately…

Fairly light volume action with a negative bias this morning, with the indices just now working their way down to new lows of the day. A/D lines remain fairly deep in the red. Leading the way down are the banks, steels, metals. brokers and homebuilders, while HMOs and drug stocks are holding in the green.

Treasuries are fairly flat. Crude oil and gasoline are flat, with natural gas lower. The dollar index is flat, with gold and silver just slightly lower.

A NY Times article discussing the next wave of mortgage defaults - in Alt-A and prime mortgages - gets a mention at both The Big Picture and Calculated Risk:

Defaults are likely to accelerate because many homeowners’ monthly payments are rising rapidly. The higher bills come as home prices continue to decline and banks tighten their lending standards, making it harder for people to refinance loans or sell their homes. Of particular concern are “alt-A” loans, many of which were made to people with good credit scores without proof of their income or assets.

“Subprime was the tip of the iceberg,” said Thomas H. Atteberry, president of First Pacific Advisors, a investment firm in Los Angeles that trades mortgage securities. “Prime will be far bigger in its impact.”

In a conference call with analysts last month, James Dimon, the chairman and chief executive of JPMorgan Chase, said he expected losses on prime loans at his bank to triple in the coming months and described the outlook for them as “terrible.”