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.

Gold and silver prices have been getting trashed, and most pundits are piling on and declaring the end of the commodities boom.

But the bullion market is painting a slightly different picture right now, one of supply shortages.

This from Kitco’s front page:

IMPORTANT NEW NOTICE: Due to market volatility and higher demand in the entire industry, we are anticipating delays in supply of all bullion products. Please note that you can continue to place orders and prices will be guaranteed; however, cancellation fees will still be applicable regardless of the length of the delay.

And this from the Northwest Territorial mint:

Dear Investor,

The US Mint has again announced production delays and rationing for silver American Eagles. We will continue to ship silver Eagles from our stock when they arrive from the US Mint, but in order to expedite delivery will need to ship dates of our choice (unless 2008 coins were specifically requested). In some cases, orders placed after August 1 may experience significant delays, but you can be confident that all trades locked in will be shipped expeditiously as we receive supply of product from the US Mint.

Apparently, investment demand is still alive and well. At this point, I’m not sure what we can believe when it comes to the future for gold and silver.

One other thing: Dave Morgan said this weekend on the Financial Sense Newshour that he wouldn’t be surprised if the US mint discontinued its production of silver Eagles either this year or next.

The latest edition of the ChartWatchers newsletter from StockCharts.com is available for your weekend chart-browsing enjoyment. Topics this week include leadership in the Staples and Health Care sectors, the current pullback in gold, Carl Swenlin’s comments on the wedge in the S&P chart, the dollar and ‘max pain’.

I don’t think this is quite what Pres. Bush had in mind, but…

It won’t be long now before you, as a US taxpayer, will own a piece of Fannie and Freddie - whether you like it or not.

As The Big Picture relates, Barron’s says each company may be as much as $50 billion in the red:

Heaven knows, the two government-sponsored enterprises, or GSEs, both need resuscitation. Soaring mortgage delinquencies and foreclosures have led the companies to gush red ink for the past four quarters, and their managements concede the outlook is even grimmer well into next year. Shares of Fannie Mae (ticker: FNM) and Freddie Mac (FRE) have lost around 90% of their value in the past year, with Fannie now trading at $7.91, and Freddie at $5.88.

Similarly, the balance sheets of both companies have been destroyed. On a fair-value basis, in which the value of assets and liabilities is marked to immediate-liquidation value, Freddie would have had a negative net worth of $5.6 billion as of June 30, while Fannie’s equity eroded to $12.5 billion from a fair value of $36 billion at the end of last year. That $12.5 billion isn’t much of a cushion for a $2.8 trillion book of owned or guaranteed mortgage assets.

What’s more, the fair-value figures reported by the companies may overstate the value of their assets significantly. By some calculations each company is around $50 billion in the hole. But more on that later…”

More comments on the recent action in the dollar and commodities.

Mish calls it “The Great Unwind”. Of course, there probably won’t be just one great unwind until many of these funds get crushed, since they’ll find some other trade to flock to, and they’ll all eventually get flushed out of that one too, and the next one, etc.

But I thought Karl over at The Market Ticker was particularly descriptive:

See, there are what - 8,000 hedge funds?  Well, for 7,999 of them (up until the last few days anyway) they have all been in one trade, more or less - short dollar, long energy, short financials.

Nice, if and when it works.

But now that trade has been unraveling at a frightening rate.  As the dollar has gotten stronger it has squeezed people.  Hard.  See, these guys are not just investing the money they get from rich folks all over the world - they are taking that money and borrowing, then investing that.

So when these bets go bad - oil falls, the dollar goes higher, or any of the “parameters” they’ve been working get the rug pulled out from under them, they have a huge problem, all at once, and they have a very bad hair day.

That’s happening.  In spades.

This is where the “recovery” has come from in the stock market the last month or so - you kick the shorts in the nuts and they cover, then the lemmings rushing in, once again listening to the idiotic calls of “the bottom is in” from media outlets like CNBC that will shove a microphone under the snout of anyone who toes that line.

This trade started unwinding slowly, but in the last week or two it has gotten very disorderly and so have the markets. 

As credit has continued to deteriorate the weaker hands get flushed and forced out.  This causes them to have to buy back their short dollar trade, which spikes the DX.  THAT in turn spooks someone else, who then covers a big futures short, which in turn freaks out someone in the gold market, and they dump a big long.

Rinse, repeat, and continue until the dead bodies are all piled on the floor and only the cockroaches are left scurrying around.

Notes on the latest moves in the industry groups:

• Health care groups are maintaining their strength…
• …while anything related to energies and metals (with utilities thrown in) are maintaining their weakness
• A few of the tech groups are edging up toward their June highs.
• Retail and airlines are getting the biggest kick from the lower energy prices.
• For a more detailed breakdown of group movement over various time periods, try Prophet.net’s Industry Rankings page., or the Industry Group Tracker at WSJ Online.