Bear Mountain Bull

From The Mess That Greenspan Made:

There’s a special 14-page report in today’s Wall Street Journal presenting the findings of last week’s Future of Finance Initiative, a gathering of 100 of the “brightest minds in finance” tasked with the job of charting a path forward from our precarious current position.

No, former Fed chief Alan Greenspan was not included.

Astonishingly, not once, not twice, but at least three times, the fixing of one of the most fundamental errors of the last six or seven years is prominently featured in the many recommendation sections, what would have undoubtedly stopped the global credit bubble in its tracks years ago if someone other than “crazy housing bubble bloggers” and a few rogue economists would have brought attention to it and been able to do something about it.

This recommendation appears in Principles for Change, an interview with Peter Fisher of BlackRock Inc., it is a key element of Princeton Economic Professor Alan S. Blinder’s recommendations enumerated in The Future of Banking, and it is featured as number one in a list of of almost two dozen “principles for rebuilding the financial system” in a summary section (no link found).

It’s pretty simple – borrowers must be able to repay loans from income.

Whatever would we do without these brilliant minds to lead us?

The weekly chart of the S&P. As Dave Landry said in his MIM this morning, “If you can call a bottom off of that chart, you’re a lot better than I am. But hey, you know how these guys play the game — they predict early and often, and sooner or later, they will get it right.”

Chart courtesy of StockCharts.com

Isn’t it strange how they’ll sell, sell, sell all day one day, and then buy, buy, buy all day the next? When nothing has changed?

I’ll never understand that, as long as I live.

The bulls did their best to grab back as much of the past couple of days’ losses as they could, starting slow and then putting together another all-day ramp job which peaked just before the final hour began. But watch out — that last step hour can be a doozy. By the time the closing bell finally rang, more than half of the day’s gains had disappeared.

Though stocks moved higher, so did Treasuries, and yields were mostly lower:
6-month: 0.42%    2-yr: 0.80%    5-yr: 1.67%    10-yr: 2.69%    30-yr: 3.56%.

Internals finished positive, and volume looks like it was mixed — lower on the NYSE but higher on the Nasdaq. Advances/declines were 3 to 1 on the NYSE and 13 to 6 on the Nasdaq, with up/down volume near 3 to 1 on both exchanges. New highs/lows were 3/7 on the NYSE and 11/13 on the Nasdaq.

Most of the groups were higher, but it was those financials that led upward again. The very volatile (of late) REITs (+8.0%) led the way, followed by the banks (+7.6%), brokers (+5.7%), HMOs (+2.7%), insurance (+2.7%), software (+2.3%), computer tech (+2.2%) and transportation (+2.2%). Paper stocks (-3.3%), homebuilders (-1.9%) and oil services (-1.8%) led a short list of losers.

Energy prices were slightly higher. Crude oil moved up more than a buck to $49.66/barrel, gasoline got back a couple of cents to $1.40/gallon, and natural gas gained three few cents to $3.77/mmBTU. The dollar index came back down to 85.47. Precious metals were lower, with gold dribbling down to $918/ounce and silver falling to $12.93/ounce.

BMB Note:   Have you ever noticed how often the market will reach its high or low for the day in the 15-20 minutes before the last hour of trading begins? Just an observation.

The bulls made a push into the end of the month with their run today, but ran out of gas at the finish line. That last hour selloff wasn’t too impressive. There are sellers lurking out there…

So we close out March (and the first quarter) with the first ‘up’ month in three on the S&P, and only the second in the last ten. But even with the big rally up off the lows, the bulls were unable to turn the monthly ’swing’ chart back up, as the Feb. highs were not taken out. Maybe April will change that, and maybe not. But first, they’ll have to set their sights on yesterday’s highs, and then last week’s highs…

In the near-to-intermediate term, I remain pretty neutral on stocks. If this pullback/consolidation holds and we see a little more strength pushing things above last week’s highs, I could be persuaded to look at trading the long side. Longer-term, the big blue arrow off the ‘07 highs is still clearly pointed downward, and any move up at this point has to be viewed as just piece of the larger bear market picture.

…and what I don’t like — from Gary Kaltbaum:

I have been gathering my thoughts about the latest government takeovers and will gladly send you my latest rant over the coming weekend…but markets are more important right now.

The March 12th follow through day remains in force thus markets remain in a confirmed rally. Yes, there are warts but they are to be expected as the market was destroyed. It simply takes time to repair the damage so it is normal for the markets to stall at logical resistance and moving averages. For me, the past two days were nothing more than a normal pullback after a not so normal V-SHAPED move off the lows. I will know a lot more in coming days as markets will either give up at resistance or try to fight through the resistance. I try to not have a bias and just let the market do its bidding…but I think there is a chance that eventually, markets will move through this resistance eventually for another leg up. After that…not a clue.

Here is what I like:

NEW LOWS contracted in a big way on the last time down…indicating fewer stocks were participating on the downside. Many times this is an early warning sign that the market is trying to get healthy.

Leadership, while still sparse, has picked up. In fact, many leading names did not budge in the past two days.

More and more names are now starting to come up the right side of bases. This always happens in a market trying to turn.

A few more groups are now coming up. In my past 2 TV appearances, I mentioned Panera and Darden in the RESTAURANT group. Both have soared as the RESTAURANT group comes to life. Don’t ask me how, as it seems business is light every time I go out. I am also seeing better action in misc. RETAIL…especially the DISCOUNTERS.

Here is what I don’t like:

I believe any rally will need the COMMODITIES and so far they have lagged badly on this move up. They will have to participate. The good news here is that many names and many areas are in 6 month bases off the bottom. All these areas would need to see is a few days of serious accumulation to take them out of these bases…so this is a must watch.

Too many bottom callers…still. Maybe we should just resign ourselves to the fact that these bottom callers, who have been calling bottoms since 13,900 DOW will just never stop no matter where the DOW went. I am almost thinking they would be calling bottoms even if the DOW went to 2,000. I would have thought 55% would have got rid of them. Nothing doing. I would just rather see markets going up with a lot of doubt.

It seems to me FINANCIALS only go up when the government is pulling another save. The latest is the Enroning of toxic assets from their balance sheets and the easing of accounting rules. Ain’t this great! Companies that did bad get rewarded by pulling their dung off their balance sheets and then they get to play more games with their numbers even though these are the reasons for the problems in the first place. I would love to see FINANCIALS go up with no news from the government wheel-o-rama.

I suspect earnings season will tell a huge tale. Remember, it will not be the news. It will be how the markets, sectors and stocks react to the news. Should be more thrills a minute action.

You can’t just ‘declare’ confidence. Case in point: GM announces their “Total Confidence” program. Since when can you just ‘announce’ your way to total confidence?

And they’re going to cover car payments for up to 24 months for customers in ‘difficulty”. With what? With government money?? They don’t have any money of their own, they’re BANKRUPT!!! So now the taxpayers will be making peoples’ car payments in addition to their mortgage payments??

Where’s that duct tape…

Update: This article says they’ll make up to 9 payments in the first 24 months…

Now GM is in the ‘income protection’ business:

“Unlike other programs out there, ‘GM Total Confidence’ provides comprehensive coverage for new vehicle owners – from protecting their new vehicle investment to protecting their family’s income,” GM said.

Maybe today.

If not today, someday soon, I would imagine.

From Ron Sen yesterday:

I’ve blasted Ben Bernanke for his opacity, arrogance, and permanence in Mediocristan, failing to understand the magnitude of the ‘contained crisis.’ But the real Macchiavelli serving us now is Tim Geithner.

Geithner uses every tool at his disposal, particularly his close relationship with Wall Street to aim the debt dagger directly at the heart of the populous. Getting the financial’s stock price up is key. Why? It’s called giving them cover, political or other, to do secondary offerings (capital structure) because they can’t handle business as usual with the financing of long-term debt with short-term debt.

There is no DIY (do-it-yourself) fix it here. The Geithner Gang simply rounds up the taxpayers, takes our money, and hands it over to his banker and broker buddies. The partial nationalization piece never got a hearing because that takes money away from the CIC (chumps in charge).

We need a special prosecutor to investigate Henry Paulson and the AIG (Always interests of Goldman), the major banks, and an audit of the Federal Reserve. The Bill of Rights has simply been coopted by a Bill of Goods.

Remember all those ‘well-timed’ announcements from the banks (C, BAC, et al), on how profitable they were going to be in the first quarter?

They forgot to say ‘thank you’. To you, the taxpayer, for your contributions. Via AIG.

At least according to Zero Hedge (via Finance Trends Matter):

For those to whom this is merely a lot of mumbo-jumbo, let me explain in layman’s terms:
AIG, knowing it would need to ask for much more capital from the Treasury imminently, decided to throw in the towel, and gifted major bank counter-parties with trades which were egregiously profitable to the banks, and even more egregiously money losing to the U.S. taxpayers, who had to dump more and more cash into AIG, without having the U.S. Treasury Secretary Tim Geithner disclose the real extent of this, for lack of a better word, fraudulent scam.

—

What this all means is that the statements by major banks, i.e. JPM, Citi, and BofA, regarding abnormal profitability in January and February were true, however these profits were a) one-time in nature due to wholesale unwinds of AIG portfolios, b) entirely at the expense of AIG, and thus taxpayers, c) executed with Tim Geithner’s (and thus the administration’s) full knowledge and intent, d) were basically a transfer of money from taxpayers to banks (in yet another form) using AIG as an intermediary.

Hmm. Reason to be even more skeptical of the recent rally?

	The “stars” of the recent rally, the banks, are right back where they were almost two weeks ago, though still hanging around the 50-day for now.
	The major oils have already suffered a major setback in their rally attempt.

We’d been pointing out the relative weakness in the REITs and the airlines — both groups are on the brink of breaking near-term support:

Charts courtesy of StockCharts.com

The pullback continues, and this time around, it had a few more teeth than it did on Friday.

The indices gapped down at the open and never got anything going, hitting their lows going into the final hour (the Dow hit a low of -339), where they got their ‘customary’ bounce up, then waffled their way up into the close.

The Transports and the NYSE Comp. led the indices down:

Treasuries were higher, yields lower:
6-month: 0.37%    2-yr: 0.84%    5-yr: 1.72%    10-yr: 2.70%    30-yr: 3.59%.

Internals were pretty negative, and volume was slightly heavier than Friday’s. Advances/declines were 1 to 8 on the NYSE and 1 to 3 on the Nasdaq, with up/down volume 1 to 19 on the NYSE and 1 to 6 on the Nasdaq. New highs/lows were 3/20 on the NYSE and 5/29 on the Nasdaq.

All of the groups were lower. Unlike Friday, the banks (-10.3%) did lead the way down today, followed by steel stocks (-8.0%), metals and mining (-7.8%), brokers (-7.6%), paper (-7.6%), REITs (-6.2%), airlines (-6.2%), housing (-6.0%) and commodities (-5.7%).

Energy prices were mixed. Crude oil dropped to $48.41/barrel, gasoline slid more than a dime to $1.38/gallon, but natural gas gained a few cents to $3.74/mmBTU. The dollar index zoomed up to 85.94. Precious metals were a little lower again: gold was down a few bucks to $919/ounce and silver slipped to $13.06/ounce.

BMB Note:   The pullback we’ve been waiting for is clearly in progress. Now it’s just a matter of whether the market pulls back, holds, and moves back up again, or just folds up and croaks. Clearly momentum to the downside has been thwarted by the big rally up off the lows — but did that rally exhaust itself by going too far, too fast?

That’s the big question, and one we won’t know the answer to for a while yet, but we do have to keep in mind the fact that we’re still in a bear market. Though the short-term trend has been up for three weeks, the intermediate-term trend is still neutral to down, and the longer-term trend is still clearly down.

From Calculated Risk:

Update: The government is also backing warranties for GM and Chrysler. That is a key step towards bankruptcy. US backs warranties for GM, Chrysler (ht Stephen)

The US government Monday said it is guaranteeing the warranties of new vehicles bought from General Motors and Chrysler in a bid to boost consumer confidence and auto sales.

The Treasury Department said it had taken the temporary step to allay consumer worries about buying new cars from the two nearly bankrupt manufacturers that are on government life support. The new plan addresses fears that the new car warranties would be worthless if the companies collapse.

Is there anything left in the financial world that the gov’t is NOT supposedly “backing”?

As we figured long ago, mark-to-market accounting rules are about to go by the wayside. We will be able to trust the numbers reported by financial companies even less than we have up to this point:

Four days after U.S. lawmakers berated Financial Accounting Standards Board Chairman Robert Herz and threatened to take rulemaking out of his hands, FASB proposed an overhaul of fair-value accounting that may improve profits at banks such as Citigroup Inc. by more than 20 percent.

Ahem. A change in rule will not “improve profits at banks”. It will simply allow them to claim profits that are nowhere near reality.

The changes proposed on March 16 to fair-value, also known as mark-to-market accounting, would allow companies to use “significant judgment” in valuing assets and reduce the amount of writedowns they must take on so-called impaired investments, including mortgage-backed securities. A final vote on the resolutions, which would apply to first-quarter financial statements, is scheduled for April 2.

We’ve already seen the companies use ’significant judgment’ with their mark-to-model numbers — and if these companies actually had GOOD judgment and could be trusted, they wouldn’t be in this mess at all.

Officials at Norwalk, Connecticut-based FASB were under “tremendous pressure” and “more or less eviscerated mark-to- market accounting,” said Robert Willens, a former managing director at Lehman Brothers Holdings Inc. who runs his own tax and accounting advisory firm in New York. “I’d say there was a pretty close cause and effect.”

Willens, investor-advocate groups including the CFA Institute in Charlottesville, Virginia, and former U.S. Securities and Exchange Commission Chairman Arthur Levitt oppose changes that would enable banks to put off reporting losses.

“What disturbs me most about the FASB action is they appear to be bowing to outrageous threats from members of Congress who are beholden to corporate supporters,” said Levitt, now a senior adviser at buyout firm Carlyle Group and a board member at Bloomberg LP, the parent of Bloomberg News.

Bingo. This is nothing more than a smokescreen to allow these financials companies to obscure their losses even deeper and longer, supported by a government who is desperate to find a way — any way — out of this mess, whether that way out is real or imagined.

I will continue to avoid investing in these companies, if nothing else, just on principle alone. They lie, cheat and steal.

It isn’t just ‘fundamental analysis’ that becomes difficult in these days of constant government intervention — the politicians aren’t helping out the technicians any either.

From Peter Boockvar at The Big Picture:

In the economic and investing environment that we are in where the gov’t is so involved with every aspect, particularly in our banking and auto industries, unforeseen event risk hovers everyday over typical fundamental analysis and makes predicting the market week to week very difficult.

Asian stocks ex China got hammered and Europe is lower too after Geithner yesterday said “some banks are going to need some large amounts of assistance.”

Also some are citing the GM, Chrysler news as a reason but a bankruptcy restructuring of both is needed not only to improve their cost structure but to purge them of debt which this whole country desperately needs. If prepack bankruptcy is their ultimate destination, the private sector would have handled that 6 months ago and all the gov’t has done is push forward the inevitable, aka Japan’s lost decade.

Don’t expect any substance out of the G20 this week. Payrolls on Friday will highlight the week.

Hang Seng and Nikkei down 4-plus percent last night, European indices are struggling, and US index futures are pointing lower.

MarketWatch is blaming the auto news. Never mind that we might have gotten just a ‘little’ overbought, having had one of the biggest three-week rallies in 70-some years.

Wagoner steps down from GM at the request of the White House.

But Barry wonders, why him, why now?

Really? Heads will roll before writing big checks?

Funny, I kinda remember a trillion dispensed without so much as — You. Out!.

I am no fan of Wagoners, but I have to ask the geniuses behind the bank bailouts:  When are you going to ask the TARP and bailout recipients to step down?  Ken Lewis being asked to step aside after many years of running BofA ?  How about Blankfein? Pandit?  And the rest of the TARP recipients?

This inconsistency from the new administration is very disappointing.

Hopes (from some) that the upcoming G20 would be a ’stimulating’ affair are already fading:

GORDON BROWN’S carefully laid plans for a G20 deal on worldwide tax cuts have been scuppered by an eve-of-summit ambush by European leaders.

Angela Merkel, the German chancellor, last night led the assault on the prime minister’s “global new deal” for a $2 trillion-plus fiscal stimulus to end the recession.

“I will not let anyone tell me that we must spend more money,” she said.

The Spanish finance minister, Pedro Solbes, also dismissed new cash being pledged at Thursday’s London summit.

“In these conditions I and the rest of my colleagues from the eurozone believe there is no room for new fiscal stimulus plans,” he said.

Nicolas Sarkozy, the French president, has insisted that “radical reform” of capitalism is more important than tax cutting.

The attacks on Brown’s ambitions for the G20 to inject more money into the world economy come at the end of a week where the prime minister has travelled to three continents to build support for his proposals.

The likely deadlock at this week’s meeting will kill any remaining hope that Alistair Darling’s April 22 budget will offer significant tax cuts.

The assault by European Union leaders also represents a defeat for President Barack Obama, who is desperate for other big economies to copy his $800 billion stimulus plan.

“There will be a very long communiqué, but there won’t be much in it,” said a Washington economist.

Since we already know how it ends, we could just skip the big, fancy meeting, rather than being bombarded with ‘news’ from it all week. But it’s a good excuse for all the politicians to get ample camera time.

Notes on the latest moves in the industry groups:

• We’re near the end of the first quarter, so let’s toss the YTD numbers into the table.
• After the big rally up off the lows of the past few weeks, a few groups are starting to look a little healthier, namely, some of the techs and the gold and silver stocks.
• Coming up behind those, looking to possibly move out, is a mix of more tech, commodities and others..
• The rest have bounced up off the lows, but need more work. If you’d like to browse the charts, here they are: set #1 — set #2 — set #3 — set #4.
• 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.

Bill Fleckenstein on the UK bond auction failure (mentioned here at BMB the other day):

…I believe that as bad as the financial problem is, the economic problem is worse. I don’t see how the Treasury’s program and other facilities would alleviate the economic problem.

None of these maneuvers to plug the holes in the dike of the United States’ and the world’s financial systems will necessarily do all that much for the overall economy. Thus, as the pure financial crisis recedes from center stage, the economic crisis lies front and center.

As for the looming funding crisis, the third part of the three-baseball-game analogy I first explained in my Nov. 3 column, “Economy sinks as we save bankers.”

In a potential harbinger of the timing, a United Kingdom bond auction last Wednesday — worth a modest $2.5 billion in bonds — failed to find enough buyers. That, even as the Bank of England has embarked on quantitative easing, the polite name for debt monetization, or the conversion of government debt into money.

Perhaps it’s just noise, but perhaps it’s the canary in the coal mine. Sooner than predicted, we could see the funding crisis I expect governments to face as they try to finance debt.

Maybe this is why so many Georgia banks have failed:

Inside a cavernous factory, massive machines that churn out carpeting for Home Depot and Lowe’s were idled on a recent Friday as workers took a forced day off without pay.

Across Dalton, the self-proclaimed “Carpet Capital of the World,” storefronts stood vacant, once bustling restaurants were virtually empty and police battled a rising methamphetamine problem.

This city in the foothills of the Appalachians, which makes nearly 75 percent of the country’s floor coverings, has felt a mountain of economic troubles since the country’s real estate boom went bust.

Plummeting demand for flooring has led to a near doubling of Dalton’s unemployment rate. Foreclosures are on the rise. And there are signs that the population may be shrinking.

The recent rally up off the lows has nudged a number of the sector SPDRs back above their declining 50-day moving averages. But looking at the numbers, only two — materials and tech — now show gains year-to-date. Three are still down double digits.

Here are the numbers as the market tries to make everyone forget just how far it has fallen:

Charts courtesy of StockCharts.com

First one — CNBC reported this before the market closed this afternoon:

Omni National Bank, Atlanta, GA

Well, we’ve been looking for a little pullback in the market, and we got a bit of that today. But only a very little bit — not even enough to show up on the charts yet.

The market opened lower and never really caught much of a bid. The indices hit lows in the mid-afternoon, bounced back up, and then dribbled back down to those lows again just before the closing bell.

Treasuries were mixed, so too were yields:
6-month: 0.38%    2-yr: 0.91%    5-yr: 1.80%    10-yr: 2.76%    30-yr: 3.62%.

Internals turned down, but volume looks like it was a bit lighter than yesterday. Advances/declines were about 1 to 3 on both exchanges, with up/down volume 1 to 7 on the NYSE and 1 to 4 on the Nasdaq. New highs/lows were 5/6 on the NYSE and 13/10 on the Nasdaq.

All of the groups were red, led down by the REITs (-5.4%), hospitals (-4.3%), oil services (-4.0%), paper (-3.9%), brokers (-3.9%), natgas stocks (-3.9%), transportation (-3.5%), airlines (-3.4%), disk drives (-3.3%) and banks (-3.3%).

Energy prices were lower. Crude oil fell a couple of bucks to $52.38/barrel, gasoline dropped a few cents to $1.49/gallon, and natural gas continues to stumble after a big drop yesterday, down to $3.63/mmBTU. The dollar index was higher, up to 85.12. Precious metals were a little lower: gold fell to $923/ounce and silver to $13.32/ounce.

BMB Note:   I guess stocks can actually go down, but today didn’t do much to really pull back the market to interesting buying points. It looked more like just a rest than anything else. As a matter of fact, the indices barely made it to yesterday’s lows. When we’re talking about a pullback, we’re looking for something a little more substantial.

Let’s see what next week brings, as we get the end-of-month/quarter out of the way, and see how the market begins to digest the biggest rally in 70+ years.

From Dave Landry’s free newsletter this morning:

I’m amazed that the overbought Ps became even more overbought on Thursday. As mention recently, on a percentage over time basis, this is the biggest rally since the 30s.

As I said in the MIM, it’s fascinating that the biggest rallies occur during bear markets. Therefore, let’s not start kissing each other just yet.

Again, the S&P has lot of overhead resistance to overcome.

There are a lot of bulls calling (another) bottom. They might be right—call enough bottoms and you’ll eventually get it right. Thank goodness we have serious networks such as Comedy Central pointing these things out.

Me? I dunno. He who ignores history is damned to repeat it–look at the charts for the last 100 years before getting too excited. One day at a time though. So far, I’m impressed. Follow through will be key!

For those unfamiliar with Dave’s lingo, the “Ps” are the S&P 500.