Bear Mountain Bull

Is a national sales tax around the corner?

So, let’s see. They want to stimulate consumer spending to revive the economy. How do we get people to part with their money instead of socking it away in the bank? I know: let’s tax consumption. Brilliant.

They may as well just walk into our houses, take all of our money at gunpoint, and just start giving us a weekly allowance to live on. That’s where we’re headed anyway.

	Looks like that 1040 area might be taking on some near-term significance for the S&P.
	Crude oil, in terms of USO, has broken down oops, change in plans for now.
	VIX still trying to carve out a bottom, but it’s going to take a move above the high 20’s to be convincing. And if it gets there, that won’t be good news for stocks.

Charts courtesy of StockCharts.com

Now that was a weird one. What a way to end the month/quarter. We saw the Dow down 130, up 35, down 80, then finishing down 29. All this while commodities — especially oil — were jumping.

Internals were all over the place, and volume finally picked up after two lethargic days. Advances/declines were 8 to 11 on the NYSE and 7 to 12 on the Nasdaq, with up/down volume 2 to 3 on the NYSE but 5 to 4 on the Nasdaq. New highs/lows were 206/1 on the NYSE and 86/15 on the Nasdaq.

Leaders — Gold/Silver (+1.32%), Semis (+0.85%), Telecoms (+0.53%), Network (+0.52%), Comp. Hardware (+0.44%), Transport (+0.34%), Internet (+0.29%), Broker Dealers (+0.27%)
Laggards — Paper (-2.52%), Homebuilders (-2.02%), HMOs (-1.81%), Steel (-1.51%), Insurance (-1.08%), Airlines (-0.90%), Utilities (-0.86%), REITs (-0.80%)

Treasury Yields — 6-Month: .17%,  2-Year: .95%,  5-Year: 2.31%,  10-Year: 3.30%,  30-Year: 4.04%

Energy Prices — Crude oil: $70.61/barrel,  Gasoline: $1.7259/gallon,  Natural Gas: $4.841/mmBTU

US Dollar Index — 76.725

Precious Metals — Gold: $1006.80/ounce,  Silver: $16.63/ounce,  Platinum: $1295.00/ounce

BMB Note:  
They blamed the early dip on the Chicago PMI number, but had no explanation for the rebound — I figure ‘end-of-year-bonus’ calculations — nor do we know why the market slumped again in the afternoon. Oil had a big day – up 5% or so – and has negated its breakdown for now, but the oil stocks did not respond accordingly. Nothing like keeping you guessing.

Working toward the jobs number on Friday morning…

…was “weaker than expected”, and is getting the blame for triggering the morning selloff. As for an explanation for the rebound off those lows, well…

For the PMI news roundup, see here, here, here and here.

Geez. I walk away from the market for a few hours and look what happens — it goes whacko.

Dow was down 134, now up 13. Ya got me. Oil prices strong this morning, presumably on bullish inventory numbers and a little help from a weaker dollar.

BMB has some business to attend to and errands to run this morning. Be back later.

Looks like it’s coming for CIT bank.

If not enough bondholders agreed to the plan, the company could seek to execute the restructuring in bankruptcy court, the person said. The result could potentially be one of the largest Chapter 11 bankruptcy-court filings in U.S. history.

Not much more than some jockeying-for-position today — and on volume that was barely above yesterday’s low levels:

Internals were mixed, with volume light again, as we mentioned. Advances/declines were 9 to 10 on the NYSE and 8 to 11 on the Nasdaq, with up/down volume just better than flat on the NYSE but 2 to 3 on the Nasdaq. New highs/lows were 206/3 on the NYSE and 103/7 on the Nasdaq.

Leaders — Paper (+2.68%), Gold/Silver (+2.60%), Homebuilders (+1.59%), Defense (+0.66%), Oil Services (+0.59%), Telecoms (+0.48%), Natural Gas (+0.34%), Metals (+0.28%)
Laggards — Biotechs (-1.92%), REITs (-1.78%), Semis (-1.43%), HMOs (-1.21%), Disk Drives (-1.15%), Oil (-0.91%), Network (-0.84%), Steel (-0.79%)

Treasury Yields — 6-Month: .18%,  2-Year: .99%,  5-Year: 2.34%,  10-Year: 3.29%,  30-Year: 4.03%

Energy Prices — Crude oil: $66.71/barrel,  Gasoline: $1.6281/gallon,  Natural Gas: $4.875/mmBTU

US Dollar Index — 77.118

Precious Metals — Gold: $992.10/ounce,  Silver: $16.12/ounce,  Platinum: $1269.00/ounce

BMB Note:  
Not a lot of shakin’ goin’ on today. The indices have made both a move up and a move down, but haven’t really gone anywhere in about two weeks now.

As Calculated Risk puts it: “Here is a hockey stick graph…”

That would be the Fannie Mae Serious Delinquency Rate. Not much ’second derivative’ joy to be found there yet…

More nuggets from Todd Harrison this morning:

I’ve traded almost 20 years through my fair share of hope and despair. The Orange County derivative scare, an Asian contagion, the rise and fall of Long Term Capital Management, Y2K, dot.com implosions, housing manias, China syndromes, commodity oddities, private equity euphoria, debt debacles and cumulative comeuppances were some of the passing paradigms, to name a few.

Every dynamic was front-page news and each one of them passed, paving the way to the next best rage. The takeaway, I suppose, was the constant continuum of denial, migration and panic as it migrated through the mainstream mindset and human nature weighed the collective perception while markets discounted a future reality.

I offer this stroll down memory lane as 2009 encapsulates that pendulum of fear and greed. Never before have I witnessed such a rapid shift in a short span as risk management morphed to reward chasing and prudence got punked in favor of blind ambition. I’m not passing judgment; I’ll leave that to the ultimate arbiters of our financial fate, time and price.

—

What I will share as perhaps my most lucid thought—right up there with “buy energy and metals, short tech and financials and go to a beach in Costa Rica for five years” that we offered in 2003—is that we’re witnessing a cyclical bull nestled within a secular bear, and one that promises to be the grizzliest stretch in many generations. The financial crisis, much like the Great Depression, will be an era rather than an event.

You can run from reality through massive government intervention but you can’t hide from the fact that nobody is bigger than the market, at least for a sustainable period of time. As traders, the destination we arrive at pales in comparison to the path we take to get there and we’ll continue to offer our eyes in that regard. I’ll simply urge Minyans to see all sides, allow for an ample margin of error and save some pay for a rainy day.

If our greatest cost is that of opportunity—at least on a chunk of our change—we will look back at this stretch with a knowing sense of familiarity and a competitive advantage with which to operate. Proper preparedness, in terms of expectations and execution, will serve us in extremely good stead.

This won’t come as a surprise to those that have been paying attention: “FDIC Discloses Deposit Insurance Fund Is Now Negative”

Minyan Peter has a few comments on the FDIC:

The media are reporting this morning that the FDIC will propose that banks advance three years of annual insurance premiums — up to $54 billion — to rebuild the dwindling insurance fund.

I’ll allow others to weigh in on the circular nature of the proposed transaction (and you thought credit derivatives were too interconnected to fail!), our continued mortgaging of the future, and our recurring ability to mistake liquidity for capital.

Instead, let me ask a basic question: What is the difference between a cash-flow and profit-and-loss perspective when asking banks to prepay $54 billion in annual insurance premiums and asking banks to make $54 billion in bad loans? Fundamentally nothing.

In both cases, cash goes out the door immediately and an asset is put on the books (in the case of the former, a prepaid expense and in the case of the latter, a loan). But ultimately both are written off with the associated expense flowing through the profit and loss. (And yes, I can already hear banks telling the analysts that the insurance charges in 2010,2011, and 2012 are “non-cash”).

But to me it’s very telling that Washington is opting for a solution that at its core screams “We currently have a financial system which is awash in liquidity, but short of capital.”

I don’t know about you, but it feels like the summer of 2007 all over again.

From The Big Picture:

“On a lark, I punched in my street address — 535 5th — and BOOM! We have a new winner — there are 215 Starbucks within 5 Miles of my office.”

And people wonder why our economy is struggling to grow — could it be that we’re simply maxed out?

BMB is off to a late start today, and doesn’t see too much in the way of earth-shattering news out there at the moment. Here’s an open thread to get Tuesday started, just in case anyone has come across something more interesting that we have.

The home price index is out, and Bloomberg put it considerably differently — “Home Prices in 20 U.S. Cities Fell 13.3% in July, Case-Shiller Index Shows” — than the spinners on CNBC did.

…and mo’ money, and mo’ money… it just never stops.

The Obama administration is close to committing as much as $35 billion to help beleaguered state and local housing agencies continue to provide mortgages to low- and moderate-income families, according to administration officials.

The move would further cement the government’s role in propping up the housing market even as some lawmakers push to curb spending at a time of rising debt.

—

The Treasury Department, along with government-controlled mortgage giants Fannie Mae and Freddie Mac, is expected to buy as much as $20 billion of new housing bonds issued by the state agencies. It will also provide $15 billion in additional funding, as needed, to help the agencies continue to use a type of cheap, short-term financing.

If the housing agencies default on their debt obligations, taxpayers could lose out. The Treasury plans to charge fees to agencies that want to sell new long-term bonds to the government based on their individual risk factors, to help reduce the risk of default and protect taxpayers.

Of course the taxpayers could lose out. It’s the same story as with every other stinkin’ program out there — the gov’t just continues to do whatever it wants, whenever it wants. And the taxpayers could, and WILL, lose out — and there isn’t a damned thing the taxpayer can do about it.

As stocks bounce back from the selling of last week, we’re still seeing bonds rally. TLT breaks out of a three-month range, and 30-year yields sink to 4-month lows. Interesting.

Charts courtesy of StockCharts.com

We told you they weren’t going to let things fall very far going into the end of this month — not with those juicy, taxpayer-financed bonuses on the line. And they had a nice, light volume playground to push things around in today:

Internals were positive, but on light volume. Advances/declines were 7 to 2 on both exchanges, with up/down volume 7 to 1 on the NYSE and 3 to 1 on the Nasdaq. New highs/lows were 216/5 on the NYSE and 99/7 on the Nasdaq.

Leaders — REITs (+4.21%), Hospitals (+3.90%), Broker Dealers (+3.33%), Disk Drives (+2.95%), Insurance (+2.88%), Banks (+2.84%), Network (+2.68%), Chemicals (+2.60%)
Laggards — Airlines (-0.34%), Gold/Silver (+0.39%), Steel (+0.52%), Transport (+0.68%), Utilities (+0.79%), Homebuilders (+1.14%), Drugs (+1.26%), Natural Gas (+1.44%)

Treasury Yields — 6-Month: .17%,  2-Year: .97%,  5-Year: 2.33%,  10-Year: 3.28%,  30-Year: 4.03%

Energy Prices — Crude oil: $66.84/barrel,  Gasoline: $1.6380/gallon,  Natural Gas: $3.730/mmBTU

US Dollar Index — 76.998

Precious Metals — Gold: $989.50/ounce,  Silver: $16.16/ounce,  Platinum: $1281.00/ounce

BMB Note:  
The ‘dip-buyers’ were waiting at the door this morning, but the crowd wasn’t very large — pretty pathetic volume for a decent move back up. We’ll see if there are more out there or not.

The ever-growing bond market divergence — bonds rallying even as stocks hold up, pushing yields down — could be a canary of change. Or else it’s a massive effort by ‘the powers’ to push yields down and keep their own interest costs down as they continue to paper the globe with our gov’t debt. Take your pick.

We’ve said it before here at BMB, a number of times. Many investors are more than willing to choose how and when to buy stocks — but very few are good at, or even capable, of selling them.

If you don’t know how to sell (and that includes accepting losses, if necessary), it’s time you learn:

Buy Low. Sell High.

Sounds pretty easy, but as the man says, “not so much.” In the past few months many, if not all, of you have bought low. Not so hard to do after a monumental crash. Now comes the tougher part of the equation: selling high.

As a licensed securities broker for the past 26 years, there’s one thing I’ve come to know as a certainty, and that is this: Very few clients know when or how to sell a security. In working as a branch manager and securities company owner for 17 of those years, I can also say with confidence that very few brokers are any better at it. There are many reasons you might want to buy a stock: personal research, a nice article in Minyanville, a hot tip from your barber, and so forth. And it’s so easy, so exciting to buy. Each new idea is a “can’t miss” investment. But why do we sell a stock? And more importantly, when should we sell it? Let’s talk about that a bit.

Click here to read more…

We’ve learned nothing since then, so says Andy Xie:

The Lehman collapse strategy backfired. Governments were forced to make implicit guarantees explicit. Ever since, no one has dared argue about letting a major financial institution go bankrupt. The debt market is supporting financial institutions again only because they are confident in government guarantees. The government lost in the Lehman saga, and Wall Street won.

So Lehman died in vain. Today, governments and central banks are celebrating their victorious stabilizing of the global financial system. To achieve the same, they could have saved Lehman with US$ 50 billion. Instead, they have spent trillions of dollars — probably more than US$ 10 trillion when we get the final tally — to reach the same objective. Meanwhile, a broader goal to reform the financial system has seen absolutely no progress.

—

Trading gains are a form of income redistribution. In the best scenario, smart traders buy assets ahead of others because they see a stronger economy ahead. Such redistribution comes from giving a bigger share of the future growth to those who are willing to take risk ahead of others. Past experience, however, demonstrates that most trading profits involve redistributions from many to a few in zero-sum bubbles. The trick is to get the credulous masses to join the bubble game at high prices. When the bubble bursts, even though asset prices may be the same as they were at the beginning, most people lose money to the few. What’s occurring now is another bubble that is again redistributing income from the masses to the few.

—

What can we speak for after spending trillions of dollars? Not much. Few major players went to jail. The U.S. government sent many more to prison in the 1980s after the junk bond bubble burst. This bubble is 10 times bigger. Yet, apart from the most obvious criminals such as Bernie Madoff and Allen Stanford, who ran multibillion-dollar Ponzi schemes, none of the big shots have landed behind bars. Indeed, a lot of the big shots who brought down the world are still out there running things. The lesson from the Lehman collapse seems to be, “Take whatever you can and, when it crashes, you get to keep it.” How governments and central banks have dealt with this bubble will encourage more people to join bubble making in the future.

Since governments have failed to take advantage of the crisis and build a better financial system, it will become very difficult to push it forward now. The sense of urgency is gone. One may argue that, since markets are stable now, there is no need for radical reforms. This is exactly the wrong conclusion. Trillions of dollars have been spent to buy today’s stability. If the money isn’t spent in vain, serious reforms should take place to decrease the possibility of a catastrophe like this in the future.

—

Financial markets are still maximum bearish on the dollar. Liquidity is being channeled out of dollar into all other assets. This is why there is such a high correlation between the dollar and other assets. I think this is the most crowded trade in the world. When the dollar reverses, the short squeeze could cause a global crisis.

Because no meaningful financial reforms have occurred, bubble-making rapidly came back in fashion. The drivers are faith in an ever-depreciating dollar and, later, inflation. Stocks, commodities, and even property values in some cities have skyrocketed this year. It is happening amid a synchronous global recession.

Of course, bulls would argue the market recovery is forecasting a strong global economy ahead. I seriously doubt it. With savings and unemployment rising, the OECD bloc is unlikely to stage a strong recovery from the recession. This view is not the market’s consensus, which assumes all stimuli will lead to a strong and sustained recovery. As I have argued before, supply and demand become misaligned during a big bubble. When it bursts, the economy must restructure supply and demand before the economy can be fully employed. Government stimulus can’t solve the problem. Realignment will take time.

Because policymakers mistakenly think stimulus spending can bring back growth, they are pushing too hard. The eventual consequences are inflation and bubbles along the way. These bubbles will be short-lived. The current boom market is a good example. At the beginning of the year, I predicted such a bubble from March to September. I still hold to this belief. China’s stock market peaked in August and the U.S. market is peaking in September. The reason for the shortness of the bubble is its limited impact on real demand.

Hat tip to Zero Hedge.

From the testimony of Thomas Woods before the House Financial Services Committee on Friday (courtesy of Mish):

There is no good reason for Americans not to know the recipients of the Fed’s emergency lending facilities. There is no good reason for them to be kept in the dark about the Fed’s arrangements with foreign central banks. These things affect the quality of the money that our system obliges the American public to accept.

Perhaps the most frequent of the claims is that a genuine audit would jeopardize the alleged independence of the Fed. Congress could come to influence or even dictate monetary policy.

This is a red herring. The bill is not designed to empower politicians to increase the money supply, choose interest-rate targets, or adopt any of the rest of the Fed’s central planning apparatus, all of which is better left to the free market than to the Fed or Congress. It seeks nothing more than to open the Fed’s books to public scrutiny. Congress has a moral and legal obligation to oversee institutions it brings into existence. The convoluted scenarios by which merely opening the books will lead to an inflationary catastrophe at the hands of Congress are difficult to take seriously.

Moreover, try to imagine a Fed chairman doggedly seeking to maintain the value of the dollar even if it meant refusing to monetize a massive deficit to fight a war or “stimulate” a depressed economy. It is not possible.

If there is any truth to the idea of Fed independence, it lay in precisely this: the Fed may reward favored friends and constituencies with trillions of dollars in various kinds of assistance, while keeping the public completely in the dark. If that is the independence we’re talking about, no self-respecting American would hesitate for a moment to challenge it.

—

The Fed enjoys a government-granted monopoly on the creation of legal-tender money. It is not an unreasonable imposition for Americans to demand to know about the activities of such an institution. It is common sense.

From now-Senate-candidate Peter Schiff:

As another G20 meeting rolls around, this time on home soil, the time comes once again for the economically curious but politically unconnected to wonder what is really happening behind closed doors. But while admiring the pageantry, chuckling at the awkward group photos, and parsing the joint communiqués like newly found Dead Sea scrolls, the overwhelming majority of observers will miss the meeting’s dominant theme: hypocrisy.

Everyone agrees that the principal agenda item in Pittsburgh will be the need to rein in the ‘global imbalances’ that created the late economic crisis. Everyone also agrees that these imbalances involve too much spending and borrowing by Americans and too little of both by the Chinese and other developing nations. In his remarks this week at the United Nations, President Obama used his peerless rhetorical skill to frame the issues clearly and plainly. Noting that a return to pre-crisis economics is impossible, the president assured the world that his administration will pursue policies to increase savings and decrease spending at home and challenged his Chinese counterparts to enact measures with the opposite effect in their own country.

While this is roughly what needs to happen, President Obama is actually doing everything in his power to prevent it. In point of fact, every policy move undertaken by his administration has exacerbated the very imbalances he supposedly wants to curtail. To so seamlessly profess one goal while simultaneously undermining it is an impressive piece of political theater. Unfortunately, this particular drama is likely to have an unhappy ending – and the ticket price will be staggering.

Notes on the latest moves in the industry groups:

• Not much change again in the groups. Much like the sector charts yesterday, for now, the uptrends remain intact. Housing/homebuilders have been the weakest recently, but haven’t really broken yet.
• You can browse through the charts here: 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., the Industry Group Tracker at WSJ Online, or the industry group tools at Finviz.com.

…buy health insurance, or you will go to jail.

Can you freakin’ believe this stuff??

Sen. John Ensign (R-Nev.) received a handwritten note Thursday from Joint Committee on Taxation Chief of Staff Tom Barthold confirming the penalty for failing to pay the up to $1,900 fee for not buying health insurance.

Violators could be charged with a misdemeanor and could face up to a year in jail or a $25,000 penalty, Barthold wrote on JCT letterhead. He signed it “Sincerely, Thomas A. Barthold.”

This week’s action put a few of the Sector SPDRs into pullback mode, but the uptrends have not yet been broken:

The numbers as we look to close the books on September, and the third quarter:

Charts courtesy of StockCharts.com

Gettin’ an early start. Oh, Georgia — what a surprise:

Georgian Bank, Atlanta, GA

And here’s an update on the unofficial ‘problem bank list’ from Calculated Risk.

A bit more pullback:

Internals were negative again, with volume slacking off. Advances/declines were 4 to 5 on the NYSE and 8 to 11 on the Nasdaq, with up/down volume 1 to 2 on the NYSE and 7 to 12 on the Nasdaq. New highs/lows were 185/6 on the NYSE and 32/10 on the Nasdaq.

Leaders — Airlines (+2.35%), Paper (+1.59%), Oil (+0.29%), REITs (+0.21%), Drugs (+0.14%), Health Care Products (+0.04%), Networking (-0.03%), Oil Services (-0.04%)
Laggards — Homebuilders (-2.30%), Metals (-2.10%), Steel (-1.76%), HMOs (-1.53%), Retailers (-1.45%), Gold/Silver (-1.45%), Chemicals (-1.36%), Broker Dealers (-1.07%)

Treasury Yields — 6-Month: .19%,  2-Year: .98%,  5-Year: 2.36%,  10-Year: 3.32%,  30-Year: 4.10%

Energy Prices — Crude oil: $66.02/barrel,  Gasoline: $1.6205/gallon,  Natural Gas: $3.985/mmBTU

US Dollar Index — 76.751

Precious Metals — Gold: $989.40/ounce,  Silver: $16.01/ounce,  Platinum: $1272.00/ounce

BMB Note:  
Not much change to things today.