Bear Mountain Bull

The Consent of the Governed:

The Declaration of Independence states that governments derive “their just powers from the consent of the governed.” The American understanding of democracy does not envision voters as slaves who enjoy the privilege of voting for a new master every few years. When the Declaration speaks of the right – and, later the duty – of the people to abolish tyrannical governments, it renders the notion of “mandates” to impose radical change on unwilling citizens absurd.

The vital role of consent in the structure of a just government is one of the most powerful ideas ever advanced by the human race. On the other hand, the belief that consent can be manufactured by democratic majorities is one of the most cherished illusions of activist government. The dissent of a minority is not rendered irrelevant by victory in a popular vote… but the health-care debate in the Senate proceeds on the assumption that victory in a parliamentary struggle between a hundred elected officials will compel the consent of the millions of citizens – now a sizable majority of the population, based on the latest polls – who strenuously object to ObamaCare. If Senate Democrats win this debate, huge amounts of your liberty will be destroyed, and vast sums of money will be seized from taxpayers… and you will not be allowed to object. Any attempt to withhold your consent from this economy-shattering, life-changing radical legislation will end with you sitting in a prison cell.

The consent of the governed cannot be expressed solely through a semi-annual vote for elected representatives. It can only be respected by placing strict limits on what those representatives can vote for. Some would argue that requiring the consent of the entire population to authorize massive government programs would effectively render those programs impossible, because 100% agreement is virtually impossible to achieve. Exactly. The entire apparatus of socialist government is a Constitutional violation that would never receive the total support of those who are controlled by its regulations, or compelled to pay for its agenda. For this reason, its agenda should never even reach the serious discussion stage, never mind legislative implementation.

Americans concerned about the size of their government should not be forced into a permanent defensive posture against an endless series of aggressive initiatives. If the needs and desires of some can transcend the liberty of others, then liberty itself is a meaningless concept. Freedom is not what you have left after everyone else is finished making demands of you. The need for your consent is not respected when your only hope of withholding it lies in historic midterm electoral victories and the rapid construction of huge Congressional majorities. The patriots who declared their independence from England perceived an essential truth about the nature of just government, which we have become almost afraid to contemplate.

Been there, done that. Learned nothing.

British Leyland, Britain’s largest automaker, faced bankruptcy in 1975. Fearing that its collapse would leave a million workers unemployed, the Labour government nationalized it. The company remained a ward of the state for 13 years. During that time, the British taxpayers invested 11 billion pounds—the inflation-adjusted equivalent of $22 billion today—in a company whose only sign of life was a willingness to spend that money. Though the British economy recovered, British Leyland did not.

If this story sounds troublingly familiar to you, you appear to be nearly alone. Few of the policymakers currently nationalizing the American auto industry seem to remember the British experience, and fewer still seem to have learned anything from it.

Link from Instapundit.

Say it ain’t so…

Dubai World said it would try to restructure about $26 billion of debt, far less than the nearly $60 billion in total liabilities that the Dubai government’s investment arm had as of August.
…
“Creditors need to take part of the responsibility for their decision to lend to the companies,” said Abdulrahman al-Saleh, director general of Dubai’s Department of Finance.

They should just move the company to the US, where ‘responsibility’ is a dirty word. The creditors would be made whole, and the taxpayers would make up the difference.

Lotta floppin’ and choppin’ today, both above and below the flat line. Things looked a bit dicey this morning when the Russell was down more than a percent-and-a-half, but things worked their way back up into the green from there. Wouldn’t want a red day to close out the month, on the first day back from the holiday, would we?

Internals were up, then down, then up, with volume picking up from last week’s lazy levels. Advances/declines were 7 to 5 on the NYSE and just above flat on the Nasdaq, with up/down volume 7 to 5 on both exchanges. New highs/lows were 57/16 on the NYSE and 46/39 on the Nasdaq.

Leaders — REITs (+4.00%), Airlines (+3.44%), Banks (+3.35%), Paper (+2.94%), Broker Dealers (+2.38%), Insurance (+1.54%), Steel (+1.27%), Homebuilders (+0.95%)
Laggards — Hospitals (-1.88%), HMOs (-0.99%), Defense (-0.92%), Telecoms (-0.63%), Oil (-0.62%), Disk Drives (-0.62%), Retailers (-0.52%), Software (-0.41%)

Treasury Yields — 6-Month: .15%,  2-Year: .66%,  5-Year: 2.00%,  10-Year: 3.19%,  30-Year: 4.19%

Energy Prices — Crude oil: $77.28/barrel,  Gasoline: $2.0008/gallon,  Natural Gas: $4.842/mmBTU

US Dollar Index — 74.748

Precious Metals — Gold: $1177.40/ounce,  Silver: $18.42/ounce,  Platinum: $1453.00/ounce

BMB Note:  
Not much to discuss. Divergence between Dow and Russell still very obvious.

We’re still leaning just a wee bit to the short side, but the market lacks momentum in either direction at this point. As Dave Landry said in his free newsletter today: “Wait until the big blue arrow begins pointing in a direction other than sideways before making your next move.”

Gary Kaltbaum’s latest market commentary:

To put it bluntly, regardless of Dubai, regardless of the many negative divergences and regardless of the many non-confirmations in the market, I would not be ready to say this market’s move has breathed its last breath. But as I have been saying, I am seeing early warning signs… starting most importantly with the FINANCIALS.

Most FINANCIALS have broken support and/or moving averages. Why is this important? 2007! In 2007, FINANCIALS turned down first, months in advance of the major averages. So I would not shrug off their weakness that easily. On top of this, most often, FINANCIALS have been an important proxy for the whole market. I am not just talking banks but brokers, S&Ls and INSURANCE.

On top of this and to repeat, just take a gander at the chart of the RUSSELL 2000 versus the DOW. While the DOW moved to new highs this past week, the RUSSELL 2000 and other small-cap indices could not even get above the 50-day average… and every time they have approached the 50-day, they have sold off. So the template of BUY THE LARGE CAPS… underweight the smallcaps continues… and this is just another early warning sign.

Other divergences and non-confirmations include the fact that every other major average did NOT move into new high ground while the DOW did. Remember, in the late stages of a move, money flows into the megacaps as money looks for more liquid and defensive areas. Have you noticed the better action in FOOD, DRUGS, BEVERAGES and TOBACCO?

New highs have contracted markedly while the DOW went into new high ground indicating fewer and fewer names participating… another early warning sign.

On the sentiment front, more things to ponder.

#1… mutual fund cash is now very low nearing the 4% number indicating less ammo.

#2… still seeing many secondaries and a ton of insider selling indicating “the market” wants to raise money here.

#3… the percentage of bearish market advisors is down to 17%… indicating much too much optimism.

Soooo again… early warning signs. The market still has things going for it including:

Most major indices are above short and long term moving averages.

Except for Japan, world markets remain in shape… though most are correcting also.

The DOLLAR still looks fine… staying below the declining 50-day moving average. As you know, there has been a direct inverse relationship between a dropping dollar and a rallying market. If the link does not break, the day the 50-day is breached on the upside, look out.

December is typically a decent month.

Tops take time. Tops do not occur in a day. Tops follow a pattern where one by one, areas of the market roll over, leading to major averages following suit. So… pay attention. Early warning signs are there. I just don’t think the end is here yet… even with Dubai… which for me is no biggie. Just realize you will need to be more selective… just realize things will continue to be tougher to play. If other major averages start breaking, I will alert you.

From Richard Suttmeier, via Minyanville:

As I continue to dig deeper into the FDIC Quarterly Banking Profile, there are many ticking time bombs as many loan categories continue to deteriorate and no one knows the risks embedded in the $206.4 trillion in notional amount of derivative contracts. This is a new high for this category and is up 16.5% year over year. How many more $60 to $80 billion Dubai Bombs are there, and which US banks are exposed?

Canaries…

The UAE Central Bank may help prop up their banking system, but it sounds like Dubai World might be left on its own.

“Dubai: Government Will Not Stand Behind Dubai World Debt”

Also, “Will Dubai Matter?”

As we’ve said before, trouble tends to show up in the credit markets first…

John Stossel:

When you knowingly pay someone to lie to you, we call the deceiver an illusionist or a magician. When you unwittingly pay someone to do the same thing, I call him a politician.

President Obama insists that health care “reform” not “add a dime” to the budget deficit, which daily grows to ever more frightening levels. So the House-passed bill and the one the Senate now deliberates both claim to cost less than $900 billion. Somehow “$900 billion over 10 years” has been decreed to be a magical figure that will not increase the deficit.

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I happily suspend disbelief when a magician says he’ll saw a woman in half. That’s entertainment. But when Harry Reid says he’ll give 30 million additional people health coverage while cutting the deficit, improving health care and reducing its cost, it’s not entertaining. It’s incredible.

Link via Instapundit.

Notes on the latest moves in the industry groups:

• Just the numbers this week.
• Go ahead and browse through all of the group 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.

A holiday week combined with some Dubai leakage on Friday failed to produce much change in the Sector SPDRs. The Financials are looking the most vulnerable of the bunch at the moment:

The numbers as we close out November:

Charts courtesy of StockCharts.com

Well, we said we’d be taking time off unless something major happened, and this Dubai debt thing looks pretty ‘major’ in the eyes of world markets, at least for the time being.

Remember how we’ve said before that something, sometime, was going to spur a run back into the dollar as a ’safe haven’ currency (it IS still the world’s reserve currency, after all) and start unwinding some of the dollar ‘carry trade’? Maybe this is that catalyst — who knows?

For now, world markets are on edge. Asian markets sold off hard overnight, but European markets have steadied a bit. US markets are only open a half-day today.

Here’s Peter Boockvar at The Big Picture:

Well, there goes that quiet half day right after Thanksgiving. The Dubai request for a standstill agreement as a precursor for a hoped for debt restructuring is not a complete surprise considering the weekly newspaper articles on their $80b+ debt overhang. What is the surprise is the lack of any immediate support from Abu Dhabi (maybe not willing to support another bailout), the uncertainty of what exposure foreign banks have if any and where may other debt laden bodies lie, corporate and/or sovereign. The global central bank push to lower interest rates has spurred and encouraged a massive refinance wave to extend maturities. What we have not seen enough of is debt writedown, extinguishment and restructurings and the Dubai news may highlight that cheap money cannot cure all debt ills. Also of course the Dubai news comes in the context of a massive run in all markets (particularly in credit) where a shaking of the tree was likely overdue.

BMB wishes a happy Thanksgiving Day to all.

Normally, Thanksgiving is a fairly quiet time in the markets. Not so last night/this morning.

Sleepy time.

Internals were negative, with volume beginning its holiday fadeaway. Advances/declines were 9 to 10 on the NYSE and 2 to 3 on the Nasdaq, with up/down volume 4 to 5 on the NYSE and 2 to 3 on the Nasdaq. New highs/lows were 95/6 on the NYSE and 59/16 on the Nasdaq.

Leaders — Biotechs (+2.70%), HMOs (+1.42%), Health Care Products (+1.41%), Health Care (+0.79%), Steel (+0.77%), Oil Services (+0.43%), Natural Gas (+0.42%), Utilities (+0.34%)
Laggards — REITs (-1.49%), Comp. Hardware (-1.39%), Broker Dealers (-1.31%), Homebuilders (-1.29%), Transport (-0.90%), Commodities (-0.80%), Software (-0.69%), Banks (-0.65%)

Treasury Yields — 6-Month: .13%,  2-Year: .73%,  5-Year: 2.10%,  10-Year: 3.32%,  30-Year: 4.26%

Energy Prices — Crude oil: $76.14/barrel,  Gasoline: $1.9650/gallon,  Natural Gas: $4.51/mmBTU

US Dollar Index — 75.129

Precious Metals — Gold: $1168.90/ounce,  Silver: $18.54/ounce,  Platinum: $1449.00/ounce

BMB Note:  
The market is now slipping into its holiday slumber. So unless something major comes up, we here at BMB are going to take the next few days off to enjoy some nice weather, family, friends, food and football. We hope you are able to do the same.

See you on the weekend.

Surprise, surprise.

Update: And 552 ‘problem’ banks.

“Here’s a stat to wake you up this morning: 23% of all mortgage borrowers in the US are underwater.”

While so many are watching nothing but the Dow, the dollar and gold, Japan’s Nikkei has quietly started to roll over again.

Chart courtesy of StockCharts.com

… in so many ways.

“Senate health care bill: the five paragraphs you must read”

“There is no such thing as a little freedom,” said Walter Cronkite. “Either you are all free, or you are not free.”

Whether you’re for or against federal efforts to help people buy health insurance, you should know that the reform bill before the Senate would mandate a healthcare system that is definitely “not free.”

What most of us know about the Democratic bill is that it requires nearly all Americans to have health insurance. What most of us don’t know is that it requires us to buy a minimum level of insurance approved by the federal government, and forces health plans and providers to share our personal health information with the federal government and other entities.

BMB figures there are a lot more than five paragraphs that we need to read…

More from Calculated Risk on home sales — and the ever-widening gap between existing sales and new sales:

First, it is important to remember that existing home sales are largely irrelevant for the economy. What matters for the economy are new home sales, housing starts and residential investment. And there has been little improvement in these key indicators.

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The key to reducing the overall inventory is new household formation, and the key to new household formation is jobs. Encouraging renters to become owners accomplishes nothing in reducing the overall housing inventory, and leads some analysts to mistake activity for achievement.

More of the same. An overnight dollar bashing led to a morning gap up in stocks and commodities, then as the dollar got back on its feet as the day progressed, other assets pulled back. We’ve seen this cycle played over and over and over again in recent weeks. We get tired of talking about it, and you probably get tired of hearing about it. But that’s the story.

Oh, and volume was light. You’ve heard that before too. Not a huge surprise in a shortened week.

Internals were positive, with volume just above Friday’s levels. Advances/declines were 15 to 4 on the NYSE and 7 to 3 on the Nasdaq, with up/down volume 4 to 1 on the NYSE and 3 to 1 on the Nasdaq. New highs/lows were 188/3 on the NYSE and 136/14 on the Nasdaq.

Leaders — HMOs (+3.59%), Airlines (+2.15%), Banks (+2.11%), Comp. Hardware (+1.67%), Disk Drives (+1.63%), Comp. Tech (+1.62%), Internet (+1.62%), Oil Services (+1.55%)
Laggards — Broker Dealers (-0.48%), Biotechs (+0.12%), Metals (+0.18%), Network (+0.49%), Chemicals (+0.65%), Retailers (+0.90%), Transport (+0.91%), Commodities (+0.92%)

Treasury Yields — 6-Month: .13%,  2-Year: .73%,  5-Year: 2.18%,  10-Year: 3.36%,  30-Year: 4.29%

Energy Prices — Crude oil: $77.70/barrel,  Gasoline: $1.9825/gallon,  Natural Gas: $4.472/mmBTU

US Dollar Index — 75.122

Precious Metals — Gold: $1164.40/ounce,  Silver: $18.53/ounce,  Platinum: $1455.00/ounce

BMB Note:  
Nothing new here. At all. The dollar still holds the market on a string, and makes it dance all over the place.

The story is the same in the indices too — the Dow moved out to new highs this morning before sliding back down, but the Russell banged off the underside of the 50-day again, still nowhere near new highs. The gaping divergence remains.

And there’s no end in sight to this madness.

Calculated Risk has the story and all the updated charts:

The Big Picture follows up with some comments on seasonal adjustments and industry spin:

Mark Hanson notes the ongoing skew of Seasonal Adjustments, and the continuing spin of the NAR:

1) The month of October was thought to be the end of the stimulus, so it reflects a last minute dash to get in before the tax credit sunset

2) Rates fell sharply to below 5% in Sept/Oct 2009

3) Despite this, Oct YTD sales are DOWN a whopping 716k from 2007

4) NSA sales were up 31k sales MoM to 499k in Oct — the exact same as Aug

5) NSA sales were up 86k sales from Oct 2008 – but in Oct 2008 rates were high (pre Fed QE) and there was not stimuli of any kind

6) Median and Avg prices fell again – about 1.5% MoM and 6% YoY – price drop accelerated into shoulder season as price dumping and short sales picked up

7) Year to date Oct 2008 vs Oct 2009 – 2009 sales finally passed 2008 sales by only 61k houses.

So in a nutshell, prices keep falling month after month and 2009 has produced 61k more real sales over 2008.

For your iPhone.

Like we said earlier, they’re going to try to take over everything — or “crash and burn”:

Bailout Ben (aka Helicopter Benny), the intrepid pilot of Bail Force One, is on a mission to engineer the biggest bailout in the history of the universe!

Benny’s helicopter is flying lower and lower, and if he doesn’t bail out every single company he will crash & burn!

Link from Zero Hedge on Twitter.

While you’re at it, you might as well see why your dollar is worthless — because the Fed owns all the garbage paper. That’s exactly why many want to see a Fed audit. I don’t blame them. Those Fed fools are lunatics.

“Bash the dollar, ramp the futures” is getting to be a Monday morning routine, isn’t it?

Fed comments on the possibility of them continuing to prop up the housing market didn’t hurt the futures, or help the dollar, any either.

We may as well just give up. Between the Fed and the gov’t, they aren’t going to stop until they’ve taken control of — and destroyed — just about everything in this country.

…and bubble blowers.

From Doug Noland:

Here at home, there is the consensus view that the weak dollar, “hot money” flows, and the reemergence of Asian and global asset Bubbles are predominantly the problem of Asia and the rest of the non-U.S. world. From Bill Gross’s latest: “Raise interest rates with 15 million jobless and 25 million part-time working Americans? All because gold is above $1,100? You must be joking or smoking – something.”

With a clear head I can argue seriously that U.S. rates were cut much too low and that leaving them at near zero for a prolonged period is another major policy blunder. It is a case of the costs of such a policy greatly outweighing potential benefits.

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The inflationists argued passionately for extraordinary “Keynesian” stimulus after the bursting of the technology Bubble. The “market” demanded and the Fed delivered. Of course, the Fed collapsed rates after the 2000 tech wreck. Rates remained at 1.0% until June 2004 and didn’t make it above 3% until mid-2005. At the time, the inflationists argued that some real estate excesses were a small price to pay to protect the system from the scourge of deflation. Their analysis of risk was flawed.

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To be sure, the Fed has been accommodating Bubbles for many years now. And with each bursting Bubble came policy reflation and only larger Bubbles. The bursting of bigger Bubbles provoked only more aggressive reflations and Bubbles of historic dimensions. The inflationists fatefully disregarded Bubble dynamics earlier this decade when their aggressive post-tech Bubble policy course fomented a much more dangerous Wall Street/mortgage finance Bubble. They are content these days to make a similar mistake.

Importantly, the unfolding global government finance Bubble is the largest and most precarious Bubble yet. Such a statement may today seem ridiculous to U.S.-centric analysts – but its becoming less so to those following developments in and around China. The unfolding backdrop is particularly dangerous because the Fed is poised to aggressively accommodate global Bubble dynamics for an extended period. Ultra-aggressive U.S. policy stimulus ensures ongoing dollar debasement, which feeds already massive financial flows to “undollar” assets and markets. Only aggressive policy tightening would contain Bubble excesses in China, Asia and the emerging markets. There appears no stomach for such an approach anywhere – and this is no mini predicament.

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It is my thesis that there is no alternative than a major transformation of the underlying structure of the U.S. economy. In simplest terms, we must produce much more, consume much less and do it with a lot less Credit creation. The objective of current policymaking, however, is to quickly rejuvenate housing and asset prices with the intention of sustaining the legacy economic structure. Zero interest-rate policy is key to this strategy. The objective is to push savers out to the risk asset markets, as well as to transfer returns on savings from the savers to be used instead to recapitalize the banking/financial system. If this reflation is unsuccessful, the household sector will find itself with only greater exposure to risky assets.

Not only is the current course of policymaking unjust, I believe it is flawed. The nation’s housing markets will remain rather impervious to low rates, while the household sector is punished with near zero returns on its savings. At the same time, monetary policy will continue to play a major role in dollar devaluation and higher consumer prices for energy and imports. Financial sector profits have already bounced back strongly, but there is little market incentive to direct new finance in a manner that would fund any semblance of economic transformation. The focus remains on financing the old structure. Indeed, I would argue that the current course of policymaking and market interventions only work to delay the unavoidable economic adjustment process.

I believe the unfolding risks to the U.S. and global economy are enormous. Most seem rather oblivious to the risks, believing both that our asset markets are not overvalued and that economic recovery is only a matter of time. But we are taking an economy that had become dependent on massive mortgage Credit and housing inflation and making it equally addicted to zero interest rates, massive federal deficits, and tenuous global reflationary dynamics. Or let’s look at it from a different angle. From the perspective of stock market valuation – massive Credit growth, the resulting flow of finance, and the course of policymaking basically created no additional wealth over the past ten years. We now appear determined to repeat this dismal performance over the next decade. Repeating what I wrote above, I believe the costs associated with prolonged zero rates are much greater than the benefits.

The latest entries in the ChartWatchers newsletter/blog are available at StockCharts.com. The discussion includes a couple of posts on silver/gold, as well as a few looks at the current rally in terms of retracements and trend lines.

Have at it.

Notes on the latest moves in the industry groups:

• Not a lot of progress in either direction last week. That leaves nearly a third of the groups we track still hanging below their 50-day moving averages (red line) are nearly all still there (set 1 and set 2)
• There’s enough red to fill up the ‘worst’ section of the table — but no red sneaking into the ‘best’ section yet.
• You can scan through all of the group 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.