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.

This chart of the moving averages of the equity-only put/call ratio has been inverted (the call/put ratio?) to make its relationship to the direction of stocks more intuitive - up is good for stocks, down is bad. After peaking in May and then plunging into the July lows, both the 10 and 20-day moving averages look like they’re thinking of rolling back over here, which would not be good news for the bulls.

Chart courtesy of StockCharts.com

In his wrap at Financial Sense today, Chris Puplava quotes Jens O. Parrson from “Dying of Money: Lessons of the Great German and American Inflations”:

Everyone loves an early inflation. The effects at the beginning of inflation are all good. There is steepened money expansion, rising government spending, increased government budget deficits, booming stock markets, and spectacular general prosperity, all in the midst of temporarily stable prices. Everyone benefits, and no one pays. That is the early part of the cycle. In the later inflation, on the other hand, the effects are all bad. The government may steadily increase the money inflation in order to stave off the latter effects, but the latter effects patiently wait. In the terminal inflation, there is faltering prosperity, tightness of money, falling stock markets, rising taxes, still larger government deficits, and still roaring money expansion, now accompanied by soaring prices and ineffectiveness of all traditional remedies. Everyone pays and no one benefits. That is the full cycle of every inflation.

After looking through today’s charts, a few things caught my eye in the natural resources and oil areas. Not that these things are turning the corner just yet, but they might be worth watching to see what happens from here: GEX, IEO, IGE, IMO, JRCC, KOL, MEE, NBR, OII, PXD, UNT, WLL, WMB, XLE, XME.

Fannie and Freddie continue to be the ’story stocks’. With both companies now trading in the low single digits - and likely headed for zero - it’s interesting to look back and see where they’ve come from:

Speaking of possible/probable zeroes, have you checked Circuit City lately?

Since mid-July, bond prices have been working their way higher, and yields have now fallen back to their July lows. Is the bond market trying to tell us anything by this action?

Charts courtesy of StockCharts.com

A pretty quiet day for stocks, getting a small pop in the morning on an oil dip, but giving that up and dawdling most of the day until getting another run-up in the final 15 minutes.

All of the indices, except the Transports, were able to post meager gains:

Treasuries were slightly higher, nudging yields lower:
6-month: 1.85%    2-yr: 2.24%    5-yr: 3.00%    10-yr: 3.79%    30-yr: 4.44%.

Internals were mixed, with volume right around yesterday’s levels. Advances/declines were flat on the NYSE and 9 to 10 on the Nasdaq, with up/down volume 5 to 4 on the NYSE and 10 to 9 on the Nasdaq. New highs remain very underwhelming, with highs/lows at 8/79 on the NYSE and 7/68 on the Nasdaq.

Groups were mixed, with more winners than losers. The commodity areas once again led the winning team: steel stocks (+3.7%), natural gas stocks (+3.4%), oil services (+3.3%), metals and mining (+3.1%), oil stocks (+2.5%), banks (+2.3%) and gold and silver stocks (+1.9%). Airlines (-3.4%), transportation (-1.5%), HMOs (-1.3%) and disk drives (-1.1%) led the losers.

Energy prices were up and down - and back up. Crude started higher, then pulled back after the inventory report, but recovered much of that move with a late run, finishing 45 cents higher at $114.98/barrel. But gasoline was able to add a nickel to $2.91/gallon, and natural gas tacked on another dime to $8.08/mmBTU. The dollar index bounced around like everything else, finishing with a slight gain at 76.95. Gold and silver worked back from a morning dip, with spot gold losing only three bucks to $812/ounce and silver lost a penny to $13.21/ounce.

BMB Note:   Not much to talk about today. Stocks still look like they might be gearing up for a move lower, giving up a morning bounce on the early oil pullback - A/D lines finished flat despite the last-minute ‘heroics’ in the indices. On the flip side, commodities look like they might be gearing up for a move higher - but neither commodities nor stocks are overly committed in those directions yet.

Since I’m not one to try and snipe day trades, I’m still waiting for some of those ‘fat pitches’ to show up. Still seeing lots of junk. I haven’t even been very tempted to take a swat at one just to foul it off - and my legs are getting tired from standing at the plate so long. Somebody get me a chair. And a lighter bat.

Another one of those.

Must be the summer weather or something.

A wishy-washy open for stocks, as the indices hang around the flat line and the A/D lines are split. The groups are split as well, with the commodity groups - metals, gold and silver stocks, natural gas, steel, oil services and oil stocks leading the green team, and airlines and transportation leading the losers.

Treasuries are higher, yields lower. Energy prices are slightly higher, but have backed down from their highest levels since the release of the weekly inventory report, which showed a large build in crude inventories but a significant draw in gasoline. The dollar index is slipping back after a morning bounce, gold and silver are flat to slightly lower.

Those poor souls at Fannie Mae, they were just listening to what everybody else was saying. How were they to know?

The Big Picture discusses an article in the Washington Post:

“In 2006 and early 2007, the industry, many analysts and market observers were generally not predicting a downturn in the housing and credit markets to the magnitude of what has since emerged, and outlooks for particular market segments at that time varied significantly.”

-Fannie Mae chief Daniel H. Mudd

>

That is the excuse given by Fannie Mae CEO Daniel Mudd as to why the GSE bought into so much ruinous paper (and at the peak of the market to boot).

One would imagine that the people running the biggest purchaser of mortgages in the world would have their own independent expert view, would understand housing, and might be familiar with the real estate cycles in the United States.   

One would be wrong.

And, as long as we’re on the topic this morning, TBP has more on the Fannie and Freddie bailout.

Fannie and Freddie need to be able to roll over their debt if they’re going to stay afloat. But that’s starting to look like it might be a tall order, as it’s getting more and more expensive for them to borrow:

Jeffrey Lacker became the first Federal Reserve official to clash publicly with the Bush administration’s strategy of trying to shore up support for Fannie Mae and Freddie Mac as federally backed private firms.

The comments by the Richmond Fed bank president yesterday followed new evidence that Treasury Secretary Henry Paulson’s approach is finding little support from investors. Fannie Mae fell to its lowest level since 1989, while Freddie Mac paid the highest premium in at least a decade at a note sale that saw falling demand from Asian investors and central banks.

We’re told that the central bankers will be able to ‘fix’ things, since they’ve got all the right answers - just ask them.

Well, apparently not even the ‘expert’ central bankers can agree on what to do:

Bank of England policy makers split three ways in August, with one arguing for higher rates to tame inflation and another voting for a cut to stave off a recession.

Governor Mervyn King and the six other members of the Monetary Policy Committee held sway in the decision to keep the benchmark rate at 5 percent, minutes of the Aug. 7 decision showed today. Timothy Besley voted for a rate increase, saying a “pre-emptive” move would help anchor inflation expectations. David Blanchflower called for a cut after the bank cut growth forecasts. It was the second such split in as many months.