Summary: strong bullish rally emerges out of nowhere in Dow's blue chip cyclicals (after 3pm EST); commodity markets lively despite lagging indexes; Cocoa drinkers switch to coffee on hump day; clarification of Bundesbank gold announcement; effectiveness of manipulations is based on their inconspicuous strategy.

In a late session rally maybe like they used to see more often in the old bull market Dow bulls tossed aside break downs by Intel and Hewlett Packard, as well as news that Federal Prosecutors have opened a preliminary inquiry into whether Computer Associates misstated profits, news that the Argentine President was inundated by protests and inflation, as well as news that Congress is widening the Enron probe to include its "boosters," to close up almost 200 points, or 2%.

They must be tired of bad news.

The broad market followed but visibly lagged - breadth went to the bulls by a margin of 15 to 9, while volume on the NYSE approached 1.7 billion shares.

The best Dow performers in Wednesday's rally were Disney, Honeywell, GM, AT%T, and Eastman Kodak, all up from 3.9% to 6.4%.

Disney shares are poking at another fresh post September high. For all we know investors are buying Disney because the company hasn't been fingered for any misdeeds.

Indeed, Mr. Eisner (CEO) declared in a shareholders meeting yesterday that the company will no longer retain auditors for services outside of well, auditing things. But then that was old news.

That's terrific . The company is trading at 30 times forecast 2003 earnings, and has grown its earnings by 7% on average in ten years and less than 4% on average over the past five years. Geez, I keep looking around for something that has happened to the company's business or industry that will suddenly allow them to grow at above average rates in the medium term future, but just come up empty.

Honeywell announced a new CEO, David Cote, Chairman and CEO of TRW (an auto parts and electronics company). HON bulls are trying to build a bullish foundation off of what could be a developing head and shoulders continuation pattern on the chart, if they're lucky (see chart above).

GM shares made it to a new high within a short-term sequence, but closed below the peak made in December, and AT&T shares bounced after breaking down from a head and shoulders bearish formation just yesterday. Maybe it will be a takeover target, or just get caught up in the communications hoopla that comes of this news:

US Media Groups Welcome Ownership Ruling - The leading media companies on Tuesday cheered a US appeals court decision that will force regulators to review rules that limit the ownership of television stations, and could open the way for further industry consolidation in the US. The court ruled that a Clinton-era Federal Communications Commission (FCC) decision, which retained media ownership limitations, was "arbitrary and capricious and contrary to law". However, the court stopped short of calling the earlier ruling unconstitutional - FT.com

Nonetheless, the market said that investors sure liked the cyclicals today, and were fed up with all the bad news. Joe Kernan (CNBC) figured it was a good day because there were no accounting worries. Though it was too bad the bond pits shut down before having a chance to object to the late enthusiasm on Wall Street by adding a few worries of their own.

They were trading well for most of the morning, until the stock market turned up from a test of Tuesday's low. At that precise moment, bond prices gave back most of their gains with the 2 year note falling into the red by the end of the day.

Dow leaders threatened to breakout but didn't. Neither did Intel, Hewlett Packard, nor AT&T successfully reverse this week's breaks. So what was this move all about?

It could be nothing, but it was one of those rallies that came out of nowhere so it has to say something. Maybe it says something about tomorrow that we don't know yet. Markets are expecting news on Jobless claims, an announcement from the Treasury (re: January budget), as well as a reading of leading misindicators. Take your pick. Maybe it's something else, I don't know.

Then again, it could be nothing but a fake. We'll see Thursday morning I suspect. Commodity markets were lively on Wednesday, despite a generally flat reading in the indexes, weighed down by Cocoa and Oil, both of which were down by about 3%.

Coffee prices soared by almost 5% and Sugar prices gained nearly 2% to reverse the recent downtrends that began in January this year. Base metals were all up slightly, with leadership in Nickel, which was up 3.64% on the nearest contract. The Wheat, other Grains, Livestock, and Lumber contracts also all gained on Wednesday, though at a less torrid pace.

The latest clarification on the Bundesbank announcement, from Reuters:
GOLD - Closes in London at $291.30/292.30 a troy ounce, after falling from $292.95/293.95 at COMEX close. Hit by fund selling in New York after German central bank clarifies no gold will be sold to 2004 but outlook beyond is not yet clear - REUTERS.

Finesse, that's what it's all about when making (manipulating) markets. People have basically three ways to understand them - through the large pool of data available to them, through the media, and also through other people (brokers, friends, etc.).

I don't think it needs to be said that the latter two mediums , for the most part, offer an interpretation of this "pool of data" (unless they're interpreting other mediums) and so add their bias into the mix as well, akin to the way that any gossip or news is distorted each time it is passed on to someone else.

Even when we're looking at the raw data, it is filtered through our own bias, or world outlook, or belief system.

If the government were in a position to influence the data, the media, and the people we are in contact with each day, guess what? Nobody would know it? Do you know why? Because, if they did then the government wouldn't be in that position.

Government aside, if I were a manipulator (Bugos puts on his hat and lights a cigar), and was in charge of keeping oil prices down it isn't good enough to just sell oil each time it seemed to want to go up. If I did that into a strong market it would just eat up our supply, or ammunition. It's all about finesse. But let's add another twist, for instance, that my government needed to accumulate reserves simultaneously and it had commissioned our aid.

The first thing to do is create an argument for the supply side, so that we could keep the participant's eyes on that ball. The argument could be how quickly marginal oil reserves come to market on an uptick in the price, or that a new discovery is made somewhere, or it could be that rising inventories mean future supply. The next thing to do is create research supporting the arguments. These reports are first-class, and valid under the assumptions made. Moreover, they can be filed in the Fed's deflation policy drawer.

It can be argued that one of the reasons explicit price controls don't work is because the government's (or who's ever) influence becomes too obvious.

At any rate, once the arguments have been disseminated, it's time to condition the market so that prices fall when inventories are rising, and rise only when, say, asset prices are rising. This is the part where we influence the data. But here we need to assemble allies to combat other big groups with influence, such as OPEC.

Perhaps we could even make an ally out of OPEC under the right conditions, whereby vested interests are shared. It could be argued that OPEC doesn't want oil prices to rise too strongly for fear that the incentive might be higher for the world to invest in alternative energy solutions, for instance. If only we could get them to like dollars…

Nonetheless, just in case they don't want to play we can draw on foreign oil policy to persuade them. I don't want to delve into that too much because there are so many dark corners to navigate through. Obviously our government's interest in the Middle East may extend beyond oil, but we sure need the stuff over here.

But let's say that one day oil prices become stronger despite our efforts, and that our inventories have suffered as a consequence. For one, we're going to have to ditch the just-in-time inventory management in the new economy "line."

All kidding aside though, why couldn't we help prices rise just long enough to draw in some weaker hands?

Ok, so let's give the Russian guy a call and see what it takes to get him on side with our oil strategy. Not much we find out.

Terrific! We just got a huge player on side. Only, the whole world has known about the Caspian project forever, therefore we can't be sure that well disseminated supply information from the Russian side will be enough to depress prices.

Well, as the great Livermore used to say, if the market wants to go up, help it up but then when it goes down, help it down. Heeding that sage advice then we'll prepare a sting, such as getting the Russians to announce supply cuts. It does not matter that they are marginal, only that the market wasn't prepared while we were.

News like that in a market that seems unwilling to decline at least and where bearish sentiment is high (thanks to our disseminating machines) is going to be as sure a bet as any market maneuver. But just when confidence abounds that the Russians are bulls, they send conflicting signals to OPEC when it is trying to strike a deal, one day on side, the next day not, and finally committing only a marginal cut.

But the reports continue to conflict, in effect undermining their credibility, and taking the rug out from underneath a rally, or at least that's our plan.

Why would the Russians commit their main industry to the aid of our government? I can only speculate. Perhaps it costs them nothing if the price of oil just continues to go up.

Then again, maybe none of this goes on after all. Maybe nobody tries to rig the field except for the people that are discovered by the press.

Speaking of Russia, here is the real status: the cuts Russia has agreed to are for the first quarter only, and they have not "announced" whether they will contribute in the second quarter yet. Meanwhile, there is no similar restriction on Crude "products."

It is not surprising then to see the media play up confusion about this news that we are supposed to already know. But the whole point is that in both the case of gold, as well as oil, the market is in the process of absorbing old news, which aim can only be to undermine confidence in fresh weaker hands. Furthermore, in both cases, it is likely that some of the main players are in the process of accumulating now.

To be sure, I have every confidence that the shortages apparent in many commodity markets today are the consequence of long periods of mismanagement by policy.

Furthermore, if we were to gauge the effectiveness of today's manipulators (I mean policymakers) it almost seems as if they're running out of ideas, doesn't it?

Of course ideas can come out of nowhere. But find me an idea that can keep prices at desired levels without creating unmanageable consequences elsewhere, or even later, in the original market. That would be a good idea.

Everything else just means that sooner or later these strategies won't work, because either the resulting imbalances will be too big for policymakers to handle, or they will be widely known to exist.