Bear Mountain Bull

Minyan Peter asks:

To date, in this crisis, as private sector guarantee providers have floundered, the public sector has largely stepped in to fill the void — either with outright explicit guarantees or implicit (bordering on explicit) support.

But I would note that we’ve moved from governments guaranteeing private sector liabilities to governments now guaranteeing other governments’ liabilities as well. England and The Netherlands stepped up over a year ago to cover Iceland’s deposit insurance obligation to the depositors of IceSave, the United States government is guaranteeing interest payments on Build America Bonds, and, as I noted above, Germany is rumored to be ready to “facilitate” the purchase of Greek bonds, using government sector guarantees.

To date, the marketplace has accepted these solutions. But much like the marketplace demanded that private sector banks “reveal” their off-balance sheet SIVs and other footnote “commitments,” I suspect that it won’t be long before the marketplace begins to undertake a full accounting of public sector guarantees and commitments, and all “off-budget” and off-balance sheet obligations are consolidated — at least in the market’s mind.

And at that point, I suspect that the market will clearly conclude that “Guarantees Encouraged Excessive Risk Taking.” And the question will be, “Was it worth it?”

To stocks, it doesn’t matter. Until it matters.

…and some good ones, from Todd Harrison:

• The Massachusetts Unemployment Insurance Fund went belly up?
• While Illinois is near the point of fiscal disintegration?
• If this is a “recovery,” what the heck will the next downdraft feel like?

…and one of the best ones…

• What’s the most “unintuitive” move now?

…prevents you from blowing out your account with just a few losing trades.

Deron Wagner goes over it in today’s free edition of The Wagner Daily:

…most professionals advise risking no more than 1 to 2% of account value for any given trade, depending on one’s personal risk tolerance. In the model portfolio of The Wagner Daily, we typically size each trade for a maximum loss of 1% (about $500 for the $50,000 model account). Furthermore, we always take overall market conditions into account, which sometimes causes us to reduce risk even further, such as by taking “half” positions in indecisive or choppy environments.

—

Excepting the occasional adjustment for unusual market conditions, we size all positions to take approximately the same risk of 1% per trade. We don’t play favorites and take greater risk on one trade than another just because we think “this is the play of the century.” Quite frequently, the trades we have the lowest expectations for at the time of entry go on to be the biggest winners. Conversely, trade setups that look “perfect” at the time of entry often become nothing more than duds. As such, we learned a long time ago that picking and choosing the amount of capital risk per trade is not a winning strategy for our methodology. Rather, we take the same risk for every trade, and just let the law of averages work in our favor year after year.

Risk management and capital preservation. Learn what they mean, and how to implement them. They’ll keep you in the game.

Or, maybe not so fabulous — at Finance Trends Matter:

Jakab goes on to discuss the problems of the likely losing positions on the US Treasury’s bailout portfolio, and the fear over what will happen when these artificial props to the economy are removed.

In a housing & lending market now dominated by Fannie Mae and Freddie Mac, what happens when you can no longer maintain that taxpayer-funded level of support?

Update: Speaking of Fannie and Freddie, CR has some info on the GSEs and REO Speedwagon inventory, including the “monthly Fannie Mae hockey stick graph”.

Internals were positive, but with volume pulling back. Advances/declines were 15 to 4 on the NYSE and 3 to 1 on the Nasdaq, with up/down volume 4 to 1 on the NYSE and 7 to 3 on the Nasdaq. New highs/lows were 328/4 on the NYSE and 194/18 on the Nasdaq.

Leaders — Biotechs (+5.70%), Disk Drives (+5.48%), Paper (+4.94%), Semis (+3.13%), Comp. Hardware (+2.87%), Steel (+2.78%), Airlines (+2.33%), Metals (+2.22%)
Laggards — Banks (-0.44%), Transport (+0.55%), Broker Dealers (+0.56%), Drugs (+0.56%), Telecoms (+0.76%), Insurance (+0.76%), REITs (+0.79%), Health Care (+0.95%)

Treasury Yields — 6-Month: .18%,  2-Year: .80%,  5-Year: 2.28%,  10-Year: 3.60%,  30-Year: 4.55%

Energy Prices — Crude oil: $78.739998/barrel,  Gasoline: $2.1595/gallon,  Natural Gas: $4.691/mmBTU

US Dollar Index — 80.736

Precious Metals — Gold: $1117.30/ounce,  Silver: $16.43/ounce,  Platinum: $1545.00/ounce

BMB Note:  
Another ‘up’ Monday — what a surprise. The ‘Monday’ thing has gotten to be self-fulfilling by now.

The market’s run up off the lows now spans 3 weeks and a day, and many of the indices moved out above last week’s retracement highs today, save the Dow, which is still doing battle with its 50-day. Now we’ll get to see if those indices can manage to take out the January highs. And as we’ve seen after 3 weeks straight down and now 3 weeks back up, just about anything is possible.

A healthy number of stocks are still moving to new highs, and more groups are as well. Pretty amazing stuff after what we saw in late January/early February. Maybe the day-traders have been enjoying the ups and downs, but it isn’t going to be much fun for the trend trader if, indeed, we are stuck on the “Slow Boat to Nowhere”. Time will tell.

Not according to Jeff Saut:

Clearly, we are currently “dancing,” thinking the “selling stampede” is over with the only question being: Do we extend the rally off of the February 4 and February 5 “hammer lows,” or do we base for awhile as in the aforementioned 1978/1979 examples?

Ron Coby doesn’t see it quite the same way:

Talking head after talking head appear on the TV daily telling everyone who will listen “the worst is behind” and excellent returns are still ahead for investors. These well-intentioned gurus and famous politicians are like shepherds leading a flock of gullible investors right to a financial slaughter house. From both a fundamental and technical perspective, it would appear that multiple market crashes are setting up all across the globe. I don’t hear anyone on TV mentioning that even as a remote possibility. Yet, an ominous chart pattern is now slowly developing in US equity markets similar to ones that preceded some of the most famous of market crashes. Let’s take a quick crash course on past market crashes so you can clearly see today’s market peak looks eerily similar to the ones in 1929, 1930, 1987, and 2007.

Someone’s going to be wrong. IMO, when it comes to the markets, nothing is ever ‘off the table’.

…instead of helping.

Richard Suttmeier via Minyanville:

Commodity Speculation Is Hurting the Homebuilders — Because Bernanke insists on keeping the federal funds rate at zero percent, speculation in copper and lumber futures is causing problems for homebuilders and hence the US economy. How can a builder compete with cheaper depressed short sales and foreclosures in existing homes with higher costs of building materials?

Since the end of 2008 to the high in January 2010 copper prices are up 182%. Since January 2009 and February 2010 lumber futures are up 112%.

Bernanke says there are no signs of inflation, so he continues to ignore reality, and that zero-rate policy could actually cause the double dip, or worse.

On Fannie:

Fannie Mae Takes a Hit — Fannie Mae (FNM) will get another $15.3 billion of taxpayer money bringing its total bailout to $75 billion. The total for Fannie and Freddie Mac (FRE) is now $126 billion, and the total line to the US Treasury is now up to $415.3 billion and counting through 2012.

Joe Saluzzi had this to say on Twitter about the Fannie mess: “Mission accomplished: Govt releases awful $FNM losses late Friday night and nobody is talking about it today”

For no real good reason…

One of the two SEC commissioners that voted against the recent rule change on short selling:

“When I voted to support the Commission’s proposing release last April, I noted that I was hopeful that the comments and empirical data and analysis we solicited would help answer the threshold question of whether there was any basis to support the view that the repeal of the uptick rule was somehow responsible or contributed to the turbulent and volatile market conditions we experienced most acutely in 2008.

Indeed, getting a firm answer to that question seemed essential, since it was the concern that repeal of the uptick rule had undermined investor confidence that was driving the Commission to revisit the issue.

The release before the Commission today answers this threshold question…in the negative. The release states clearly that there was no evidence that the repeal of the uptick rule contributed to the steep declines in stocks and increased market volatility.”

There’s more.

From Yves Smith at nakedcapitalism:

From the Independent:

Chief executives from the world’s banks discussed the plans at a secret dinner held at Claridge’s, the London hotel, last October, at which several leading British bankers are said to have suggested that the sector should take greater responsibility for its part in the crash, and do more to reduce the vast bonuses paid to staff.

But the recommendations were met by stiff opposition from the US banks JP Morgan, Morgan Stanley and Goldman Sachs, according to one source. “Some of the US bankers were furious about attempts to reduce pay throughout the industry, arguing that any such move smacked of socialism and would be fiercely resisted,” the source said on Friday. “It’s not the way the Americans like to go about their business.”

Yves here. The evidence that US capital markets firms are firmly in the hands of hopeless sociopaths continues to mount.

The fact set is undeniable: the big firms in the industry engaged in a massive campaign of looting, of running enterprises in which the employees were consistently overpaid relative to the risks and true profits of the firms. The result was that they were overleveraged. The only reason the industry survived was due to massive public subsidies, from equity injections to special lending programs to super low rates to regulatory forebearance. By any right, the firms should have failed, and the bankruptcy course should have gone full bore after the pay earned in the bubble years as fraudulent conveyance.

—

The astonishing bit is that the US banking execs have the temerity to self-restraint on pay “socialism”. They are benefitting from what most would call socialism for the rich, but is more accurately termed Mussolini-style corpocracy or good old fashioned pilfering from the public purse.

As Barry says:

That is what happens when we elected to go Japanese rather than Swedish on the financial sector — We saved the Banks, but sacrificed the Banking System.

Even Warren Buffett says that the folks that run these institutions should pay the price:

“It has not been shareholders who have botched the operations of some of our country’s largest financial institutions,” wrote Buffett. “Yet they have borne the burden, with 90% or more of the value of their holdings wiped out in most cases of failure. Collectively, they have lost more than $500 billion in just the four largest financial fiascos of the last two years. To say these owners have been ‘bailed-out’ is to make a mockery of the term.

“The CEOs and directors of the failed companies, however, have largely gone unscathed. Their fortunes may have been diminished by the disasters they oversaw, but they still live in grand style,” added Buffett.

—

“It is the behavior of these CEOs and directors that needs to be changed: If their institutions and the country are harmed by their recklessness, they should pay a heavy price — one not reimbursable by the companies they’ve damaged nor by insurance. CEOs and, in many cases, directors have long benefited from oversized financial carrots; some meaningful sticks now need to be part of their employment picture as well,” he wrote.

With or without a paddle?

Mark Steyn:

While Barack Obama was making his latest pitch for a brand-new, even-more-unsustainable entitlement at the health-care “summit,” thousands of Greeks took to the streets to riot. An enterprising cable network might have shown the two scenes on a continuous split-screen — because they’re part of the same story. It’s just that Greece is a little further along in the plot: They’re at the point where the canoe is about to plunge over the falls. America is farther upstream and can still pull for shore, but has decided instead that what it needs to do is catch up with the Greek canoe. Chapter One (the introduction of unsustainable entitlements) leads eventually to Chapter Twenty (total societal collapse): The Greeks are at Chapter Seventeen or Eighteen.

Are unemployment benefits about to leave a number of jobless workers hanging?

“1.2 Million to Lose Unemployment Benefits Today”

I doubt it. Congress will pass extensions. But it’s my belief that continuing to extend benefits tends to make unemployment worse, not better, as it considerably reduces the incentive to find a job.

If they extend benefits for another year, is there any rush at all for some of these folks to get a job? Any job?

Mish has more on the job situation.

Notes on the latest moves in the industry groups:

• Still only a few groups, like the biotechs, retail and airlines, are edging out to new high ground. We’ll have to see more to get the market moving meaningfully higher.
• Browse through the group charts on your own if you’d like: 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, the industry group tools at Finviz.com, or the list of Morningstar industry groups at FreeStockCharts.com.

We mentioned yesterday the continuing ‘games’ going on in the housing arena, as the gov’t tries to ‘prevent’ the inevitable.

I ran across this on Mish’s site yesterday:

Radical Proposal Addendum:

Grrr Writes:

I’ve come up with a radical scheme that could possibly work to end the housing crisis:
1) People that can’t or won’t pay their mortgage lose the house.
2) The banks take the house and sell it to people who can afford it.

There are a few flaws:
1) It doesn’t require massive amounts of government money.
2) It doesn’t protect people from their mistakes.
3) It doesn’t punish responsible people who are patiently waiting for houses to become affordable.
4) It could result in the banks that helped create this mess failing.

In spite of these issues, I believe we should give it a try.

Ya know, that one might just work…

Update: Hmm. Rogers denies making the comments below. (Thanks, Viresh).

So says Jim Rogers — and I’m not one who is all that willing to argue with him:

Jim Rogers, co-founder of the Quantum Fund and founder of the Rogers Commodities Index, was quoted in a recent press release that the United Kingdom Pound is on the brink of utter collapse, which could happen within the coming weeks and there is nothing governments can do about it.

Rogers, making statements prior to delivering a keynote speech at next month’s Global Trading Day seminar in Westminster, believes the collapse of the Pound could foreshadow a global economic disintegration before the end of the year. The last few months of increases in the markets have been a “false bounce” and occurred due to government interference in the market and throwing everything at it except for the kitchen sink.

“But it can’t last. We’ve been applying temporary sticking plasters, not long-term cures. Later this year we’ll see the start of the real recession, with more Lehman-scale disasters and a fallout which won’t stop until the underlying malaise is genuinely cured,” said Rogers.

There are those ’sticking plasters’ again… And everyone’s been so preoccupied with the Euro that they haven’t been paying much attention to the pound.

Our weekend check of charts of the Sector SPDRs finds that the market is making a bet on the consumer, with the Staples and Discretionaries being the only two sectors reaching new high ground. The rest of the SPDRs are still questionable at best, floundering at worst:

The numbers as we move out of February:

Charts courtesy of StockCharts.com

A late start, out west:
Carson River Community Bank, Carson City, NV

Washington adds a second:
Rainier Pacific Bank, Tacoma, WA

The black holes continue to implode. Does this story ever end??

First, there’s AIG:

AIG said Friday it lost $8.87 billion in the fourth quarter as its general insurance business remained weak and the company ran up expenses from paying back government loans.

The troubled insurer also said in an annual regulatory filing that it may need additional support from the government.

And then, after the bell, we get Fannie:

Fannie Mae needs another $15 billion in federal assistance, bringing its total to more than $75 billion. And worse, the mortgage finance company warned its losses will continue this year.

The rescue of Fannie Mae and sister company Freddie Mac is turning out to be one of the most expensive aftereffects of the financial meltdown. The new request means the total bill for the duo will top $127 billion.

And the pain isn’t over. Fannie warned Friday that it will need even more money from the Treasury, as unemployment remains high and millions of Americans lose their homes through foreclosure.

The government is doing so well with its ‘investments’ in these companies, isn’t it?

Sure, just keep flushing our money down the toilet. We’ll borrow more.

An all-day sleeper.

Internals were mixed on rather sickly volume. Advances/declines were 3 to 2 on the NYSE but 9 to 10 on the Nasdaq, with up/down volume 3 to 2 on the NYSE and 10 to 9 on the Nasdaq. New highs/lows were 199/3 on the NYSE and 99/10 on the Nasdaq.

Leaders — Airlines (+3.49%), Hospitals (+1.44%), Transport (+1.10%), Metals (+1.10%), Banks (+0.89%), Gold/Silver (+0.87%), Homebuilders (+0.86%), Broker Dealers (+0.81%)
Laggards — Paper (-3.05%), Insurance (-0.74%), Utilities (-0.67%), Comp. Hardware (-0.25%), Disk Drives (-0.23%), REITs (-0.03%), Software (+0.00%), Commodities (+0.01%)

Treasury Yields — 6-Month: .18%,  2-Year: .80%,  5-Year: 2.30%,  10-Year: 3.62%,  30-Year: 4.56%

Energy Prices — Crude oil: $79.68/barrel,  Gasoline: $2.0879/gallon,  Natural Gas: $4.792/mmBTU

US Dollar Index — 80.387

Precious Metals — Gold: $1116.50/ounce,  Silver: $16.49/ounce,  Platinum: $1539.00/ounce

BMB Note:  
Again, not much to say when the market doesn’t move and attracts no volume.

The first thing we’d like to see to start turning our view to the bullish side would be a move above last week’s retracement highs (not too far up from here), and ideally, a takeout of the January highs in the indices. We’re a ways from those levels, and we’re going nowhere for now.

…coming in housing.

A virtual ‘ban’ on foreclosures, principal reductions…

The games never end. If the economy were in as great of shape as we’re being told it is, would we need to keep playing these games?

On principal reductions, CR says:

This is a pretty limited program. If principal reduction was offered on a widespread basis, millions of homeowners would probably immediately default.

Uh, ya damn right they would. And who could blame them? Anyone at all who’s carrying a mortgage would love to see their principal reduced, wouldn’t they?

I don’t care how ‘limited’ these programs are. All of them are so blatantly unfair to those that have been fiscally responsible, it just makes me spit nails. There is simply no sense of responsibility, or consequences for actions anymore.

Sharp drop in January’s numbers. As always, Calculated Risk has the story and the updated charts:

Possibly. That’s the way Larry McMillan sees things (click here to view column with charts):

The baton is poised to be passed back to the bulls. The one thing that stands between the bulls and a probable test of the January highs is resistance in the 1110 area.

There is resistance at 1130-1150 and support at 1060-1080. Both were strong levels, and so $SPX may spend some time in the trading range between those two levels.

Equity-only put-call ratios rolled over to buy signals this week. You can see that both ratios (Figures 2 and 3) were moving steadily higher for about a month, but now have rolled over and begun to trend downward.

Market breadth was extremely overbought about a week ago, and that led to the stall in the rally and some down days this week. This week’s negative action has served to alleviate those overbought conditions without actually degenerating into sell signals.

The trend of volatility has resumed a downward direction. The previous uptrend in $VIX was broken this week, and the chart ion Figure 4 shows that the current trend is now down. That is bullish for stocks.

In summary, then, if $SPX ascends above the 1110 level, that should be short-term bullish.

Hard decisions are what’s needed, at every level: city, county, state and federal.

But I have yet to see many, if any, of those hard decisions being made:

Neither Obama nor Becerra — nor any other Democrat — addressed the issue of double-counting. And the only response to Ryan’s point about the Doc Fix was a rather oblique statement by Obama that “if what you’re saying is that we can’t make hard decisions on entitlements, then we’re in big trouble.” In fact, that’s exactly what conservatives have been saying: Not only can’t the political class make hard decisions on entitlements, the Democrats are trying to create a new entitlement and hide its cost. And if they succeed, we are in very big trouble.

You can travel the world over — but you’re going to have trouble finding a trend. Well, unless you count sideways…

Charts courtesy of StockCharts.com

Internals were slightly negative, on a bit of a pickup in volume. Advances/declines were flat on the NYSE but 8 to 11 on the Nasdaq, with up/down volume just below the flat line on the NYSE but 7 to 12 on the Nasdaq. New highs/lows were 124/7 on the NYSE and 78/15 on the Nasdaq.

Leaders — Gold/Silver (+2.95%), Metals (+1.76%), Steel (+0.93%), Commodities (+0.86%), Natural Gas (+0.49%), Transport (+0.48%), Disk Drives (+0.39%), Retailers (+0.37%)
Laggards — Comp. Hardware (-1.77%), Hospitals (-1.32%), Banks (-0.97%), Chemicals (-0.70%), Oil (-0.69%), Airlines (-0.68%), Internet (-0.59%), Network (-0.58%)

Treasury Yields — 6-Month: .18%,  2-Year: .82%,  5-Year: 2.33%,  10-Year: 3.64%,  30-Year: 4.58%

Energy Prices — Crude oil: $78.27/barrel,  Gasoline: $2.0456/gallon,  Natural Gas: $4.785/mmBTU

US Dollar Index — 80.689

Precious Metals — Gold: $1105.60/ounce,  Silver: $16.08/ounce,  Platinum: $1531.00/ounce

BMB Note:  
Nothing in the way of new comments. A dearth of interesting news and a schizoid, but range-bound market don’t lend themselves to a lot of stirring discussion.

…is a rumor.

And of a split, no less, which is a zero sum game. Pure lunacy. But at least it explains why the Dow jumped 80 points mid-afternoon. Well, no, on second thought, it really doesn’t…

But it was a good excuse to squeeze the morning shorts out, wasn’t it?