Fully Detached Markets Ignore News, Post New Gains

The January Producer Price Index (PPI) rose 1.0% month-over-month, compared to the expected rise of 0.4%. That leaves PPI up 7.4% y/y, the highest level since October 1981 and PPI ex-food and energy up 2.3%.

In response to the alarming PPI figures, Federal Reserve Vice Chairman Donald Kohn said the danger the U.S. economy will weaken is a bigger worry than higher inflation and the Fed is ready to do what it needs to respond.

The Fed governors have reached new levels of financial hilarity. Let's keep the money flowing, even if a raw chicken costs $15 and a gallon of gas is $4.25. It's OK for people to (take your pick) freeze or starve, so long as the GDP continues to grow.

With interest rates at 3% and promised to go lower, maybe by this time next year, the Fed will pay us to borrow their worthless greenbacks.

In other economic news, The Conference Board said February consumer confidence fell to 75.0 from the prior reading of 87.3. Economists expected a reading of 82.0. The market tends to overreact to these readings, as they are only surveys. Briefing.com puts more weight into the personal consumption data that comprise 72% of the GDP, which will be released later this week.

Standard and Poor's reported existing home prices fell at a record pace of 8.9% in 2007. in the S&P/Case-Shiller U.S. National Home Price Index.

On the other side of home-ownership ledger, total foreclosure filings in January, which include default and auction notices as well as bank seizures, increased 57%, tracking firm RealtyTrac said.

Minyanville posted an excellent article by Mike Shedlock, a registered investment advisor representative for SitkaPacific Capital Management on the corrupted debt ratings issued by Moody's and S&P.

Mr. Shedlock makes comparisons between MBIA, which had its AAA rating confirmed and Pfizer (PFE), which had its rating cut from AAA to aa1.

Maybe the most obvious discrepancy was in the return on equity. MBIA's was a head-turning -35.54%, compared to Pfizer's +12.13%. The debt-to-equity ratios are equally out of whack, and Mr. Shedlock makes no bones about calling the puzzling ratings discrepancies either "incompetence or corruption."

Amid the toilet-like swirl of depressing economic news, mention that oil priced at over $101 a barrel in mid-day trading and finished at a record close of $100.88, up $1.65, was hardly worth mentioning.

Whew! That's quite a load of bad news.

One would have expected - considering that all of the news was not only negative, but extremely negative - stocks to lose value. But in this bizarro-world stock market, they went up. And not just a little. They went up a lot. Shortly after 1:00 pm, the Dow was 150 points higher, the NASDAQ up 31 points and the S&P had tacked on a gain of more than 13 points.

The rally settled out into the close, with all indices posting healthy (?) gains.

Dow 12,684.92 +114.70; NASDAQ 2,344.99 +17.51; S&P 500 1,381.29 +9.49; NYSE Composite 9,302.80 +92.72

Maybe some good news will deflate the market. It couldn't hurt. Seeing the fabulous rises in the indices, I figured it was time to fire up the bong, crack open a bottle of aged whiskey and join the party. Whooopie! Talk about irrational exuberance. I expected to see Joe Cocker appear on the trading floor, singing, "Let's Go Get Stoned."

The Dow should be just about petered out, as there's a significant area of resistance in the 12,724-12,783 range. Considering the prevailing attitude, however, a breakout is now more likely than not.

As expected, advancers crushed decliners, 4420-2084. By the narrowest of margins, new lows maintained their edge over new lows, 159-158. Look for that measure to flip to the new highs for at least a couple days before the market heads back down. The last time there were more new highs than lows was a two-day stretch in December. This one could last a few weeks unless some kind of sanity is returned to trading desks.

Gold was up $8.40, to $948.90. Silver continued to shine, adding 64 cents to $18.72.

Only one question remains: When will the markets crash?

NYSE Volume 4,014,953,250
NASDAQ Volume 2,317,563,500