Bear Mountain Bull

Health insurance, under the proposed House bill, would no longer be ‘insurance’ at all, according to Power Line’s analysis:

Under the House bill, it is scarcely an exaggeration to say that health insurance companies are no longer in the insurance business. They can’t rate and underwrite risks, which is the essence of insurance. That’s illegal. They can’t decide to whom they will issue policies; that’s illegal, too. They can’t offer novel or innovative coverages; their coverages are dictated by law. To a limited extent they can make decisions on paying claims, but under the watchful eye of government regulators. Meaningful competition among insurance companies will be, in effect, illegal. (In that context, it is a sick joke that the Pelosi bill also subjects health insurance companies to the antitrust laws, from which they had been exempted in consideration of their regulation by state, not federal, authorities.)

In the world that the House bill would create, the money we will pay to insurance companies won’t really be insurance premiums. Insurance premiums are contractual payments which the parties voluntarily agree upon and which are based on a mutual assessment of risk. Rather, the checks we write to insurance companies will be taxes–legally compelled, at rates set by the federal government that are designed to punish some and subsidize others.

Isn’t this socialized medicine in all but name? The only difference, perhaps, is that when things start to go badly, as they inevitably will–spiraling costs, long waits for treatment–Nancy Pelosi and her colleagues will have someone to blame: the insurance companies. Maybe old-fashioned socialized medicine would be better. Then, at least, the government would have to take responsibility for its folly.

A rather rough week for stocks, causing a bit of a disruption in the charts of the Sector SPDRs. At present, only the Techs, Staples and Energies are still holding above their 50-day moving averages (red line):

The numbers as we close out October:

Charts courtesy of StockCharts.com

None? What’s up with that? Did somebody give the FDIC the week off or somethin’?

Well, even if some don’t show up tonight, it looks like we may have a few to look forward to.

Oh-oh, it’s a tsunami:
North Houston Bank, Houston, TX
Madisonville State Bank, Madisonville, TX
Citizens National Bank, Teague, TX
Park National Bank, Chicago, IL
Pacific National Bank, San Francisco, CA
California National Bank, Los Angeles, CA
San Diego National Bank, San Diego, CA
Community Bank of Lemont, Lemont, IL
Bank USA, National Association, Phoenix, AZ

	The Dow has just pulled back to the 50-day…
	…but the Russell looks much weaker. Note the imminent crossover of shorter-term moving averages.
	Fear is returning — the multi-month downtrend in the VIX may have been broken with the big spike up over the past week.

Charts courtesy of StockCharts.com

Well, so much for that bounce — it turned out to be a one-day wonder as the indices gave it all back today:

Internals were negative, with volume mixed — maybe a bit lighter on the NYSE, but heaviest of the week on the Nasdaq. Advances/declines were 1 to 7 on the NYSE and 1 to 4 on the Nasdaq, with up/down volume 1 to 19 on the NYSE and 1 to 10 on the Nasdaq. New highs/lows were 25/16 on the NYSE and 24/29 on the Nasdaq.

All green in the groups yesterday, all red today:
Leaders — Health Care Products (-1.33%), Drugs (-1.45%), Health Care (-1.49%), Defense (-1.61%), Utilities (-1.81%), REITs (-1.93%), Biotechs (-2.11%), Insurance (-2.12%)
Laggards — Hospitals (-5.86%), Banks (-4.95%), Metals (-4.43%), Natural Gas (-4.41%), Oil Services (-4.37%), Disk Drives (-4.29%), Network (-4.03%), Comp. Hardware (-3.92%)

Treasury Yields — 6-Month: .16%,  2-Year: .90%,  5-Year: 2.32%,  10-Year: 3.39%,  30-Year: 4.23%

Energy Prices — Crude oil: $77.00/barrel,  Gasoline: $1.9432/gallon,  Natural Gas: $5.045/mmBTU

US Dollar Index — 76.342

Precious Metals — Gold: $1044.70/ounce,  Silver: $16.35/ounce,  Platinum: $1322.00/ounce

BMB Note:  
We’ve been talking for a few weeks now about the ‘canaries’ starting to show up, now it’s starting to look like we’re seeing some of those effects. Whether or not this turns out to be just a correction or something more major remains to be seen.

At the very least, it’s time to be paying attention to stop levels and putting a good defense on the field. For now, it looks sentiment could be shifting from ‘buy the dips’ to ’sell the rallies’.

More appointments to keep. Back after lunch.

It’s Friday morning — time for Larry McMillan’s weekly look at the market (click here to view column with charts):

A correction of some ferocity has finally arisen, and it brought out the typical torrents of selling as stock owners all tried to get out the exit door at once. The most damage was done on Wednesday, but the market bounced back today, after positive economic news.

The $SPX chart is still bullish (Figure 1). The October lows at 1020 are a vital support area; a close below there would change the $SPX chart from bullish to neutral, at best. Note that a decline to 1020 would be a serious penetration of the March-July trend line, but that would actually be okay — it would just reset the trendline at a slightly lesser slope. On the upside, there is heavy resistance near 1100, the level which could not be penetrated despite several attempts in mid- October.

Market breadth became extremely oversold this week. While that is a precursor to a buy signal, it behooves a trader to remember that the market can continue to decline during oversold conditions.

The equity-only put-call ratios continue to be distorted by heavy hedging activity.

The volatility indices spiked higher this week, but then moved sharply lower with Thursday’s rally. Only a series of higher highs and higher lows on the $VIX chart would turn the $VIX chart negative.

In summary, the correction that began about a week ago might theoretically continue for a while longer. A breakout above 1100 by $SPX would be extremely positive. On the other hand, a close below 1020 would be negative and should be treated as a serious breakdown.

We had a short post on the idea that there is more to life than the stock market a couple of weeks ago. Consider this a sequel.

Though we should strive hard to keep from making serious financial mistakes and putting ourselves — and our families — in tough positions, it still is important to keep LIFE in perspective.

Tim reposts some thoughts from Leisa, reflecting on the loss of her brother:

I have little to offer people who stop by to read this modest blog. But I assure you that today’s message is the most powerful and incisive that I could ever offer–one that you will NOT get from any paid subscription. Sure, investing is a provocative subject: it’s sexy, it’s intellectual and it’s instant, provocative conversation. But in the end, it is your financial health. But I want to tell you, bluntly, that if you fuck up, it is not your life. It is never your life. You start over. You dial back to being in your 20’s again–poor but idealistic. However, never, ever is it your life. (Of course the underlying message is NOT to screw up (no more than 2 f-words in a post!).

I don’t know what 2007 will bring. I don’t know a damn thing but this: You are not your bank account. You are not your annual return. You are not your annual salary. You are a spouse, a mother, a father, a friend, a son or a daughter, but you are never a dollar.

So whatever decisions that you choose to make about your life–whether it’s a stock purchase, business venture, financial investment, love interest or employment decision–you do so with conviction that should it blow up in your face, you can face the next day with the stain of embarrassment on your cheeks or a “how could I be so stupid” slap to the forehead, but you continue to be a part of the lives of the people who know and love you. And all of these things I feel well qualified to tell you.

Emphasis added.

Important stuff. Don’t forget it.

You can find Leisa’s blog here.

Yesterday we said we’d probably see a bounce “sooner or later” — it looks like it came ’sooner’. Not coincidentally, it came along with a pullback in the dollar.

Some of the indices were able to grab back a couple of days worth of losses, but the lagging Russell didn’t even challenge yesterday’s high, nor did the Transports:

Internals were positive, but on lighter volume. Advances/declines were 4 to 1 on the NYSE and 7 to 3 on the Nasdaq, with up/down volume 9 to 1 on the NYSE and 7 to 1 on the Nasdaq. New highs/lows were 30/10 on the NYSE and 20/30 on the Nasdaq.

No red in the groups today — everything bounced, led by the recently beaten-down areas:
Leaders — Paper (+6.77%), Metals (+5.01%), Hospitals (+4.74%), Gold/Silver (+4.60%), REITs (+4.58%), Commodities (+4.46%), HMOs (+4.29%), Banks (+4.10%)
Laggards — Utilities (+0.77%), Drugs (+0.79%), Health Care (+0.97%), Health Care Products (+1.02%), Insurance (+1.25%), Biotechs (+1.38%), Defense (+1.58%), Transport (+1.73%)

Treasury Yields — 6-Month: .16%,  2-Year: .98%,  5-Year: 2.43%,  10-Year: 3.49%,  30-Year: 4.33%

Energy Prices — Crude oil: $79.87/barrel,  Gasoline: $2.0190/gallon,  Natural Gas: $5.062/mmBTU

US Dollar Index — 75.987

Precious Metals — Gold: $1046.50/ounce,  Silver: $16.66/ounce,  Platinum: $1337.00/ounce

BMB Note:  
Four days up in the dollar, four days down in stocks. One day down in the dollar, one day up in stocks… The correlation continues. And I’m not surprised that we got a bounce-back into the end of the month, but today’s move wasn’t confirmed by volume.

We’ll see how this bounce plays out. We’ll still be looking for ‘first thrust’ shorting opportunities on this bounce, unless the market really changes its character — there’s been enough damage done under the surface that it’s unlikely all will be repaired in just a day or two. But we’ll be patient and wait for prudent entries, and not get overly aggressive until the market confirms a change in trend. And maybe it won’t.

It’s still all about the dollar — “the mother of all carry trades”. Remember what happened when the Yen ‘carry trade’ came apart? That was like, oh, a couple of years ago…

Bill King via The Big Picture:

The Washington Post: Over the past year, the U.S. government has thrown almost every tool at its disposal toward making the economy grow again. And it has worked, at least for now. The trillion-dollar question for the economy now is: What will happen when those government supports are gone? While the government has successfully jump-started the U.S. economy, there are emerging signs that its engine still isn’t running very well, and may even sputter out… The risk in the current crisis is that the structural changes occurring in the economy are so great that they will take far longer to play out than the government can maintain policies to support growth. Some remedies, such as the housing tax credit, may even serve to delay those structural adjustments.

We will say it again: There can be no meaningful recovery until the essential structural reforms are enacted. All that has been done to date is to delay the crucial restructuring while bailing out some elites.

…rather than giving them even more rope — which they can continue to use to hang the rest of us.

Update: I don’t think we’ve ever quoted the AFL-CIO before, and we may never again — but they’re right on this one:

Giving the Federal Reserve with its current governance control over which financial institutions are bailed out in a crisis is effectively giving the banks the ability to raid the Treasury for their own benefit.

…you can’t trust gov’t numbers. Who knew?

A Colorado company said it created 4,231 jobs with the help of President Barack Obama’s economic recovery plan. The real number: fewer than 1,000.

A child care center in Florida said it saved 129 jobs with the help of stimulus money. Instead, it gave pay raises to its existing employees.

Elsewhere in the U.S., some jobs credited to the stimulus program were counted two, three, four or even more times.

The government has overstated by thousands the number of jobs it has created or saved with federal contracts under the president’s $787 billion recovery program, according to an Associated Press review of data released in the program’s first progress report.

—

The White House seized on an initial report from a government oversight board weeks ago that claimed federal contracts awarded to businesses under the recovery plan already had helped pay for more than 30,000 jobs. The administration said the number was evidence that the stimulus program had exceeded early expectations toward reaching the president’s promise of creating or saving 3.5 million jobs by the end of next year.

But the 30,000 figure is overstated by thousands — at the very least by nearly 5,000, or one in six, based on AP’s limited review of some of the contracts — because some federal agencies and recipients of the money provided incorrect job counts. The review found some counts were more than 10 times as high as the actual number of jobs; some jobs were credited to stimulus spending when, in fact, none were produced.

Whether the 30,000 is right or not, it doesn’t really matter — that’s pretty small potatoes when you’re still losing more than a half-million each week.

From Jesse’s Café Américain:

It is important to bear this in mind, because it tends to knock down the assertion that the current financial crisis is somehow an act of God, something that just happened. There was an intent to subvert the regulatory process, to increase leverage beyond what has long been known to be prudent, and to engage in systemic fraud with a group of enables and agencies, such as the ratings firms, in order to reap fabulous personal profits for a small group at the expense of the many. There was planning, premeditation, malice aforethought. They may not have intended to harm; they just did not care. They really truly did not care, if they got theirs.

Until the banks are restrained, and the financial system reform, and balance restored to the economy, there will be no sustained recovery.

Peter Boockvar on housing tax credits and the clunkers:

As the debate intensifies on whether and what form to extend the home buying tax credit, one argument against it is why give a credit to someone who planned on buying a home anyway. With 85% of 1st time home buyers who were eligible to collect the tax credit planning to buy a home anyway, the Brookings institute estimates that the $8,000 credit equates to a cost to the taxpayer of $43,000 per home. This is based on the belief that 85% of the almost 2mm buyers are getting free money. Edmonds.com today is estimating that the Cash for Clunkers program cost taxpayers $24,000 per vehicle sold. They estimate that 82% of sales would have happened anyway and thus the handout of up to $4,500 really only enticed 18% of the buyers of 690k vehicles sold under the program.

What a bargain. How much longer can we survive the insanity?

The Russell is the first of the ‘well known’ indices to take out the early October lows. Next level of support is in that 550 range.

Risk aversion starting to show in high-yield bonds:

A number of groups already in ‘dive’ mode, or thinking about it:

Charts courtesy of StockCharts.com

For whatever reason — and a recent bounce in the dollar may have a lot to do with it — the ‘end-of-month’ stretch hasn’t been too kind to stocks this time around.

The indices continue to slide, with all except the Dow now testing or slipping below their 50-day moving averages:

Internals were ugly, with volume picking up on an obvious ‘distribution’ day. Advances/declines were 1 to 9 on the NYSE and 1 to 7 on the Nasdaq, with up/down volume worse than 1 to 10 on both exchanges. New lows exceeded new highs for the first time in a long, long time: highs/lows were 32/16 on the NYSE and 13/45 on the Nasdaq.

No green to be found:
Leaders — Telecoms (-0.15%), Drugs (-0.81%), Utilities (-0.96%), Health Care (-1.25%), Network (-1.25%), Insurance (-1.28%), Defense (-1.67%), Health Care Products (-1.80%)
Laggards — Hospitals (-6.32%), Metals (-5.58%), Gold/Silver (-5.09%), Homebuilders (-4.93%), Airlines (-4.81%), Steel (-4.38%), Oil Services (-4.28%), REITs (-4.22%)

Treasury Yields — 6-Month: .16%,  2-Year: .94%,  5-Year: 2.33%,  10-Year: 3.40%,  30-Year: 4.25%

Energy Prices — Crude oil: $77.46/barrel,  Gasoline: $1.9864/gallon,  Natural Gas: $4.289/mmBTU

US Dollar Index — 76.473

Precious Metals — Gold: $1027.30/ounce,  Silver: $16.13/ounce,  Platinum: $1303.00/ounce

BMB Note:  
The action of the past few days has been pretty ugly, with the breakdowns in individual stocks and groups too numerous to mention. And the nature of the breakdown has us believing that we’ve reached a turning point of some importance — how long it lasts and how far it goes is, of course, unknown.

Most of the indices have not only pulled back to their 50-day averages but undercut them today, with the Russell violating its early October lows. This isn’t particularly good news for the bulls. And this time around, with rather broad-based breakage, it doesn’t look like bouncing up off those 50-days will be as ‘easy’ as it was the last time around.

We should see some sort of bounce coming along sooner or later (we’re actually surprised things aren’t holding up better into the end of the month!), and we’ll be looking at that bounce pretty closely for short setups. The long side doesn’t look too appealing right now, as the pullbacks in the remaining strong areas, like the energies, are starting to look like more than just pullbacks.

Watch your step, and honor your stops.

Is there another mess coming in the muni market? Could be.

We pointed out the cracks in the Nuveen muni CEFs a couple of weeks ago.

Last night, Mish pointed out that the City of Houston is bankrupt (among others).

Today, we see a commentary hosted by Welling@Weeden subtitled “The Coming Collapse Of The Municipal Bond Market”

Just more things to keep our eyes on.

Nothing can be assumed these days. Another update on the housing tax credit from Calculated Risk:

CNBC’s Diana Olick provides the same details that I heard on the tax credit: A Compromise on Home Buyer Tax Credit? and adds:

[T]here may have been a bit of a revolt among Democrats who didn’t want the controversial measure attached to the Unemployment Insurance bill.

And from Andy Sullivan and Corbett Daly at Reuters:

Reid had wanted to attach a bill to extend the homebuyer credit as an amendment to a bill to lengthen insurance benefits for unemployed workers. The Senate voted 87-13 on Tuesday to take up the insurance benefit bill, but did not attach the homebuyer tax credit to the measure as Reid had wanted.

Despite that apparent roadblock, Senate Finance Committee Chairman Max Baucus, who has been involved in negotiations over the tax credit, told Reuters late on Tuesday that he expected the Senate would vote on the bill sometime this week.

As Ms. Olick concluded: “Stay tuned. It could all change dramatically.”

…and trending markets.

Some good stuff from Brett Steenbarger:

In this post, I’ll define what I call “idiot trades” and then I’ll define trending markets.

An idiot trade is one that occurs in a market that has already made a healthy directional move. As the market is further moving to new highs or lows, the idiot trade chases the movement with large size transacted at the market. Thus, it’s hitting bids into market weakness or lifting offers into strength. The trade is sized up, so that the trader is basically going “all in”.

The reason it’s an idiot trade is that, most often, it’s a capitulation. The trade is made either out of panic (can’t stand the heat and ignored earlier stop levels) or out of a fear of missing “the big one”. The key to an idiot trade is that it is made more for psychological than logical reasons.

Make sense? We’ve all placed idiot trades. They make us feel like idiots when the market, having made its healthy move, then makes a normal retracement, leaving us under water with good size on or just leaving us with the bitter feeling that we sold the low tick or bought the high one.

What makes it worse is that sometimes we *know* we’re making an idiot trade even as we’re executing it. My worst exits have been idiot trades, where I’m getting out simply because I’m afraid of giving back a profit or losing a larger amount of money. The idiot trade is made to seek relief, not necessarily to maximize reward relative to risk.

So what’s a trending market?

It’s one that ultimately does not punish idiot trades.

If you watch trades come into the market at key price levels (Market Delta is good for this), you can see the idiot trades and sometimes you can see herds of idiot traders acting in concert.

How the market ultimately treats those positions tells you quite a bit about whether we’re in trending or range bound conditions.

Starting to follow that seasonal trend lower… Calculated Risk has the updated charts:

Also note that, unlike the existing home sales, new home sales have yet to post a year-over-year gain on the non-seasonally adjusted chart.

Running really late this morning…

…just keep sucking up the government’s your money:

From the WSJ: GMAC Asks for Fresh Lifeline. The WSJ is reporting GMAC is in “advanced” talks with Treasury for another bailout: “The U.S. government is likely to inject $2.8 billion to $5.6 billion of capital into [GMAC], on top of the $12.5 billion that GMAC has received since December 2008 … “

It just never ends. It would be hilarious if it wasn’t so sickening.

Update: I see I’m not the only one with the ‘black hole’ image: “GMAC Joins the Black Hole Club”:

The numbers aren’t as impressive as AIG’s but the general premise is the same. The automaker’s financial service arm it asking for a third taxpayer-provided cash transfusion. Might help if someone stanched the bleeding first.

But no, bleeding is part of the game plan. The reason for more dough to GMAC is so GM and Chrysler can continue to finance auto purchases, not as a result of greater than expected losses on its existing portfolio. So this is cash for clunkers under another brand name.

Apparently, it isn’t dead yet. Update: more here.

Many believe that it’s a bad idea — but these days, that just makes it all the more likely our gov’t will do it.

From Calculated Risk:

This is obviously bad economics, but it must be good politics. The first-time home buyer impact will fade (and will probably cost over $100,000 per additional home sold). The move-up portion will probably be even less effective.

Apparently this tax credit will be combined with the extension of the unemployment benefits to avoid a veto (the real reason the extension was being held up).

Not only is the speculative fervor fading fast:

…but now the commodity areas are starting to wobble…

…along with some pretty well-known tech names (not to mention the RIMMs and BIDUs):

Charts courtesy of StockCharts.com