Friday, September 12, 2008

Currency Trading: The Least Ugly Fiat Money

I thought today's reversal in the Dollar's prospects made this quote from Jack Crooks at Black Swan Capital particularly poignant, timely, and accurate:

Since the dumping of the gold standard, fiat currencies have been given about as much respect as a red‐headed step child. Since then, as many have pointed out, currency investing is like judging an ugly contest. Find the least ugly and buy it; find the most ugly and sell it.
Much of the dollar’s recent rally has stemmed from the idea that other countries’ economies and currencies are getting uglier while the US economy and dollar is remaining the same amount of ugly. This shift towards ugliness is sparking a shift in capital into the United States and the US dollar.
When I trade currencies, as I did today, this is precisely the attitude that I take. Which is the least ugly? Today, the Dollar was more ugly than all the others. Who knows what tomorrow will bring?

Jack Crooks is the head market strategist at Black Swan Capital, a currency trading consultant firm. I have been a subscriber to his daily currency trading newsletter for years.

The Dollar Get's Pummeled Today

The Dollar's reversal of fortunes is significant today because the Dollar's drop has wiped out an entire week's worth of Dollar gains. The perception that the Dollar would benefit from the weakness of the global economy has been a good trade over the past month, but that perception shows signs today of having run its course. All the major currencies are significantly higher against the Dollar today, including the Euro, the Australian Dollar, the British Pound, the Swiss Franc, and the Canadian Dollar. The Canadian Dollar especially has held its own against the US Dollar over the past few weeks.

Corn Limit Up on Revised Downward USDA Estimate

The grains have been mixed today, influenced by the price of crude oil, the reversal of the US Dollar's recent fortunes, and this morning's USDA downward revision. Corn has now reached its limit up price this morning, a sign that perhaps the downtrend for corn may be nearing its end. This revision is particularly noteworthy because for the past three years, the USDA has revised its estimates higher in September, only to revise them downward in future months. If the USDA revised its estimate downward today, what will happen next month?

Another Roller Coaster Day Trading Stock Futures

What an amazing day for trading stock futures. The Dow plunged at the opening bell by about 150 points, rallied all the way to positive territory, and now has fallen again into triple-digit loss territory once again. Ride the wave!

Change of Contract Months

This morning, I changed all of my equity index and currency futures contracts from September '08 to December '08. Higher Open Interest and volume levels were the criteria for change. I keep a Hull Moving Average of the sum of open interest and volume on my daily chart at all times. It gives me a reminder that it is time to change when the Hull Moving Average begins to drop significantly. This visual reminder helps me to stay on top of this important aspect of trading, and avoid costly surprises later when contracts expire.

Russell 2000 Futures to be Eliminated by CME Next Week
Open Interest for the Russell 2000 futures at the Chicago Mercantile Exchange has fallen from about 2,000,000 contracts to only 30,000 now. Volume is very low, and liquidity is too poor to trade. The Russell 2000 futures contract will be eliminated at the CME at the end of trading next Friday, Sept 19th. The CME will no longer offer the Russell 2000 index futures after that date. As of today, I am no longer tracking it. The Russell 2000 index futures will be picked up by the Intercontinental Exchange (ICE) after Sept. 19th.

It will be interesting to see what stock index futures traders will use instead. Personally, I like the S&P Smallcap 600 futures index, which is also offered by the CME. The chart has been virtually identical to that of the Russell 2000, but with about half the margin requirement. Traders could double the number of contracts they trade, if they wish. However, liquidity for the S&P Smallcap 600 has been poor thus far. CME is offering "no fee" trades for both the S&P Smallcap 600 and the S&P Midcap 400 futures until January 2009, as an incentive for traders to switch. Liquidity for the S&P Midcap 400 futures has remained good throughout the summer and early Fall. I like trading the S&P Midcap 400 futures; it has less noise than the S&P 500, with a lower margin requirement, and with good liquidity. However, it doesn't track the chart of the Russell 2000 as well as the S&P Smallcap 600.

USDA September Grain Forecast Bullish

From Arlan Suderman at

After drifting in a sea of bearish news this summer, the grain market may finally be ready for a change in the tides. USDA slashed its estimate of 2008 corn production more than expected this morning, which should help prices move higher today.
Are we seeing the tides shift again toward higher grain prices? The USDA report this morning certainly seems bullish.

Thursday, September 11, 2008

CFTC: Speculators NOT Responsible for Run-Up of Crude Oil Prices

The CFTC released a report today, after a year-long investigation and data analysis, indicating that there is no evidence that speculators were the engine behind the run-up in crude oil prices this past spring and early summer. In fact, the report suggests that if anything, speculators are a moderating influence on higher prices.

While some may not want to accept the findings of the CFTC, and may even question their motives, the fact is that the CFTC, unlike Congress, has no agenda nor ax to grind. It is simply an independent regulator. It's five commissioners and chairman have 5-year appointments that are staggered so that they remain independent, and CFTC regulations require that no more than three can be of any one political party, so they have no reason to slant the report one direction of another. Furthermore, it was the CFTC staff the researched and prepared the report, not the commissioners themselves. The bottom line is that the facts and the data do not support the opinion that speculators drive the commodity markets. The full report can be found here:

Staff Report on Commodity Swap Dealers and Index Traders with Commission Recommendations

A Few Highlights from the Report
  • The report indicated that speculative index funds represented only 17% of the total number of contracts traded in the commodity futures markets, of which approximately half were long, and half were short at any given time.
  • Speculative funds represented a higher percentage of total contracts two years ago, before the current run-up in commodity prices. Speculators had decreased their presence during the period of time of great price escalation.
  • For crude oil, speculative funds only represented 13% of the total! It is noteworthy that during the period of time when crude oil experienced its greatest price increases, the speculative traders were decreasing their size and presence in the commodity markets. During this time, speculators were scaling back their long trades, even while prices were advancing the most. This suggests that the presence of speculators held the price rises in check, rather than pushing them still higher!
  • The number of net long crude oil contracts by speculators decreased by 45,000 contracts precisely during the time when crude oil prices reached their highest levels, from Dec '07 through June '08. Speculative interests in crude oil decreased by 11% precisely when crude oil prices were reaching their highest levels. Speculators were net sellers, not buyers, during this time! If anything, their influence would have been to push prices lower!
  • It is also notable that the commodities (wheat) that had the largest notional value of speculative interest were the commodities that experienced that least increase in prices. While the price of wheat advanced, it didn't reach the record price territory that corn and soybeans achieved, despite the fact that nearly half of all wheat contracts were speculative at one point (47% at their peak). Speculative interests in corn was less than half of that of wheat (only 23% at peak), and yet prices for corn escalated much more rapidly than for wheat.
That's hardly a convincing argument for more regulation of the commodities markets, and only confirms earlier data that had previously been available. In fact, the results of the study would suggest that the best way to moderate and lower commodity prices is to increase the presence of speculators, because when speculators leave the markets, prices go much higher. Speculative influence in the markets tends to moderate prices spikes and drive prices lower, not higher!

The report is 71 pages, and is not light reading. I recommend it as an alternative for a sleep aid.

Ever Remember

Stocks look destined to dip lower at the open today, perhaps in memory of the catastrophic events on this date seven years ago. Worry, worry, worry in the equity markets! The daily charts (not shown) appear to be on the verge of a breakout to the downside. Some equity sectors already have! And I thought that after the Fannie/Freddie rescue, the market was supposed to turn higher.

Hadn't we hit bottom? Apparently not! I say this to underscore the absurdity of those who constantly declare that we've hit bottom. Lose your opinion, not your money! Predicting the future is for prophets, not profits! Those who try, lose the latter.

Wednesday, September 10, 2008

Solzhenitsyn Prescient of Emerging Western Standoff With Russia

In his weekly newsletter, John Mauldin has again published a report from Stratfor regarding Russia and its relations with the West. Interestingly, Russia over the past few days has intentionally sought to provoke the United States by engaging in naval military maneuvers in the Western Hemisphere with Venezuela in clear defiance of the Monroe Doctrine. The White House press secretary brushed aside the significance of the event by saying that these Russian ships were the only ones the Russians could find that could make it as far as Venezuela, but we in the West would be wise not to underestimate the determination of the Russian bear, given its long history and recurring character.

This article draws from the writings of Alexander Solzhenitzen, the former political prisoner of the Soviet Union who published his book, "The Gulag Archipelago" more than 25 years ago. I remember reading his book as a teenager (yeah, heavy stuff for a sixteen-year-old), and was shocked that such places existed in this world. It was about 800 pages! But it opened my eyes to the real world, and it was an awakening that every citizen of the West could benefit from. Solzhenitsyn died just days before the invasion of Russian troops into Georgia, but his characterization of the Russian political soul is just as timely and accurate today as it was nearly three decades ago. Ironically, even though the Soviets permitted the book to be published, they continued to maintain their gulags until the very last day when the Soviet empire was (supposedly) vanquished.

Just as existed in the West during the Soviet era, many in the West today, especially among the intellectual class, deny the true monstrosity of what is happening in today's Russia.

Here is John Mauldin's introduction of the article:
"Read this obituary essay from my friend George Friedman over at Stratfor. George puts Solzhenitsyn in historical context, using his life and writings to illustrate not just the evolution of the Russian/Soviet/Russian system but also the Western perception of Russia and what it says about future relations. It's uncannily ironic that Solzhenitsyn died just days before Russia forcefully punctuated its geopolitical prominence in going to war with Georgia. You can almost imagine Solzhenitsyn shrugging and asking, "What did you expect?" Over the Labor Day weekend, Russian President Medvedev used a press interview to lay out five points that will define Russian foreign policy going forward. Allow me to translate (loosely) from the Russian: 'We're back.'"
Here is the full article. Do not pass this over! This is truly fascinating stuff:

Solzhenitsyn and the Struggle for Russia's Soul

PIMCO Has Most Profitable Day Ever -- At Taxpayer Expense

PIMCO's Total Return Fund had its most profitable single day ever the day the Fannie Mae/Freddie Mac bail-out was announced by Treasury Secretary Paulson. Mortgages owned by the fund surged in value after the Federal government extended its guarantee over the mortgage giants.

Bill Gross, CEO of PIMCO, indicated that he would buy more of the mortgages with the expectation that the government's guarantee would also make them more valuable. Just last week, Gross indicated that he would boycott buying any more of Fannie and Freddie's mortage paper unless the government stepped in and took over the two companies. He also called for the Federal government to do just that. Apparently, Mr. Gross sees the takeover of Fannie and Freddie as a green light to buy more of the securities now. Bill Gross is a billionaire and is one of the Forbes 400 wealthiest Americans, with a net worth of $1.37 billion. Now, thanks to America's taxpayers, he'll be worth much more!

This is proof that Wall Street is the chief beneficiary of the bail-out, not the American people. What a sad day for our Republic that a coal miner in Pennsylvania, a farmer in Minnesota, and a nurse in Seattle are forced to accept the debt obligations of huge corporations so that America's billionaires on Wall Street can make even more money at their expense. I believe this is nothing short of criminal!

Tuesday, September 9, 2008

U.S. More Likely to Default

The nonpartisan Congressional Budget Office today indicated that the debts of Fannie Mae and Freddie Mac should be placed on the balance sheet of the Federal government. Credit default swaps for the U.S. government continue to rise such that it now costs 18 basis points to insure against default.

Tim Backshall, chief strategist at Credit Derivatives Research, said the price implied that the US was more likely to default on its obligations than Japan, Germany, France, Quebec, the Netherlands and several Scandinavian countries.
Here is the entire article:

Cost of U.S. Loans Bail-Out Emerging

OPEC Cuts Oil Production

With oil at still more than $100/barrel, OPEC's oil minister, Chakib Khalil, announced today that the cartel will cut production by 520,000 barrels per day. Indonesia also announced that it will suspend its membership in the organization.

The Ruble Is Rubble

The Russian ruble and the Russian stock market have both been severely punished for the invasion of Georgia one month ago. Global investors continue to liquidate their equity holdings and sell the ruble, as they realize that there is no safety of capital or property in Russia, causing both the currency and the stock market to continue to drop. The Russian stock market has fallen nearly 50% in the past 2 months, and neither the business climate nor the ruble show any signs of recovery anytime soon.

...And Time Wounds All Heels

The futures markets are quite merciless to those who don't know what they're doing. I've heard it said of the futures markets that there really is something called "beginner's luck". Many beginning traders have a string of lucky trades that boosts both their ego and their confidence. When they first begin, they have no fear because they don't know the pontential destructive power of the futures markets, so they trade without fear. They often enjoy a degree of success. However, every trader who has been around for awhile eventually gets burned badly by the markets. That's when these beginning traders learn some very excrutiating lessons. Most blow through their accounts and eventually drop out. If you don't understand the futures markets, and don't respect their potential for destruction to your trading account, you'll eventually be wounded -- badly!

Time Heals All Wounds...

...but government bailouts don't!

We have lived in a society where no pain is acceptable. We want instant gratification. Heaven forbid that we should have to pay a price for our societal mistakes! Spare us the consequences of our irresponsibility! It has practically become politically incorrect to accept, much less endure, the pain of a recession.

Too bad! We may have to endure one anyway! Today's stock market (see above chart) is an example of what I mentioned yesterday -- that government bailouts tend to have short-lived effects. The Dow dropped 280 points just one day after the government's Fannie/Freddie bailout. Not much bang for that buck, huh?!

Is it so awful to experience a little discomfort once in awhile? If we are patient, we'll learn from our mistakes, we'll emerge stronger and more resilient, and we'll also be a little more humble. And that's a good thing!

But what really scares me is the second part -- the longer-term effect -- that I mentioned yesterday. The more blundering bailouts we see, and the more times government officials make erroneous statements about the state of economic affairs, the more it erodes confidence in the financial markets and the capacity of government to "fix" things time after time. The more mistakes are made, the less beneficial impact that the next bailout will have. It sends to the market the message that it's just more lipstick on the pig! Meanwhile, the politicians think they have to play our paternalistic parent and keep meddling and messing with everything!

We just may have no choice but to allow time its balm to heal all wounds. There is no substitute! Not even government!

Equipment Failure, So No Trading Today

Equipment and software failures occur from time to time. Yesterday, I had some software problems. I also use a battery backup system that powers my trading computer, router and cable modem, monitor, ethernet hub, and wireless keyboard and mouse. If the power fails, as it has before, I have about 30 minutes to complete a trade and close down my computer before I lose power.

The rechargeable battery to my wireless mouse died overnight. I thought I had a spare stored in my desk, but couldn't locate it, so I frantically went looking for a new one this morning. I was hoping to find one that was pre-charged, since I had seen some on Radio Shack's website. However, Radio Shack no longer makes them, and they had none remaining in the local store. Thus, I am stuck waiting for the batteries to charge sufficiently for me to begin trading again.

At first, I was climbing the walls! However, I am using the time productively. I am using my laptop to revise and update my trading plan. I am gradually evolving away from day trading to trading on a longer-term basis. I have been able to build up my account to a point that I can be more deliberative on my trades and take longer-term positions. This also permits me to take more positions in different instruments. Bid/ask spreads are also less of an issue, and I can take trades on instruments that have less Open Interest.

Instead of making a decision on a moment's notice, I can look at the charts in the evening and make a more studied decision. I have devised a method of trading that, even with long-term trades, I can keep my risk of loss very low, generally no more than about 5-7 ticks. Not bad!

"Skate Where the Puck Is Going, Not Where It's Been"

The headline of this post is a famous quote attributed to Wayne Gretsky, the famous hockey player that many consider to be the greatest hockey player of all time. They simply call him, "The Great One", and deservedly so. I understand that it was Wayne's father, Walter, that taught this principle to his famous son.

I have often thought that the same principle applies to trading. The truth is that no one really knows with certainty where the market is going, but over a period of several years, patterns become so familiar and they repeat with such frequency that traders can anticipate many of those patterns. Hence, I would extrapolate from Gretsky's quote that we should "trade where the market's going, not where it's been".

Often, traders will jump into a trade when they see momentum suddenly take off, and they frequently find that they have jumped in just in time to see the market reverse in the opposite direction. Then, they sit, wait and hope, with a prayer that the market will reverse again and bail them out. It rarely does. I've done this myself. It is called, "chasing the market". Never allow the market to control your success! Only allow the market to confirm your success!

This is why it is important for me, as a trader, to become sufficiently familiar with market patterns that I can anticipate where the market is going, not where it has been. I am often wrong. However, when I'm wrong, I am quick to correct myself and either reverse direction or at least exit a wrong trade. If the direction that I anticipated is wrong, I get out as quickly as my fingers can hit the mouse button. Small losses are a blessing!

Monday, September 8, 2008

Jim Rogers: USA Now "More Communist Than China"

Jim Rogers, the famous billionaire commodity guru, commented on CNBC earlier today that with the Fannie Mae/Freddie Mac bailout, the USA is now "more communist than China". Rogers was one of the geniuses that made George Soros' Quantum fund such a monumental success, and helped Soros acquire his own billionaire status. Here is an article that details the story:

Fannie/Freddie Bailout Makes America 'More Communist Than China'

If this doesn't fix the credit crisis, and economic conditions continue to deteriorate, this latest bailout is so big that it could be looked at through the retrospective lens of history as the biggest economic catastrophe in history. Let's hope our financial system survives this one, because the next shoe to fall could be too big for even the U.S. government to apply a tourniquet!

"Infinite" Cost to Taxpayer

Steve Liesman, chief economist for CNBC, when asked what the upper limit cost would be under the new Fannie/Freddie bailout for the taxpayers, said that the cost to the taxpayers could be "infinite".

Does the Government Have to Worry About Running Out of Credit?

Since we know that the Federal treasury doesn't have to worry about running out of money (no limit to the printing press or ones and zeros on a computer), the more important question then becomes this one:

Does the U.S. government have to worry about running out of credit? Now that's a good question!

Today's action substantially increases the risk that the U.S. government's credit rating will be adversely affected, and that eventually, interest rates will go higher. Today's bailout of the mortgage industry is a short-term attempt to shore up confidence in the financial system. However, it simultaneously sews seeds of longer-term erosion of that same confidence. As other debt sectors, including credit card, auto loan, and corporate debt also shows signs of stress in the coming months, what will happen then? At some point, more bailouts will no longer be an option, because the capacity of the U.S. government and the taxpayers will no longer be able to provide support without straining the economy and collapsing the underpinnings of our financial system. We are rapidly approaching that point!

If a train is chugging toward a chasm, and the bridge over than chasm is out, would it be wise to increase the speed of the train in the hopes that the train might be able to magically fly across the chasm? It will be quite a spectacle; it will even be very exciting, but it won't be a pretty sight!

Paulson's Socialist Bailout Bazooka!

Treasury Secretary Hank Paulson fired his bazooka today, after assuring Congress just 2 months ago that having it would ensure that it would never be necessary or used. In fact, it raises memory of other famous (now infamous) statements by Fed and Treasury officials that the financial crises over the past year would never happen. They happened! Remember Paulson's statement that the subprime mortgage mess would remain contained? That was a joke!

The fact is that like other past government bailouts, they do work -- but only short-term, like a band-aid on a hemorrhage. There is a perennial debate between market forces that insist that if left alone, free markets will eventually clean out the mistakes and return to normal, despite pain along the way, and opposing forces that insist that government has an appropriate moderating role. Today, we have seen the latest bailout from Treasury Secretary Paulson. We saw the overnight nationalization of the nation's mortgage system.

How many government rescues and bailouts have we seen since the credit crisis began 13 months ago? I have lost count! And have they prevented the crisis? Or just prolonged it? Have they even slowed it down? It doesn't feel like it! I wonder what would have happened if we had allowed the markets to self-correct as they are intended to do, without constant government interventions. Would we have had a painful recession that would be a historical, distant memory by now? The average recession only lasts 7-9 months! We might have been in recovery by now! From a statistical standpoint, odds are that we would have been. But we continue to flounder instead, stumbling from one bumbling blunder to the next, stubbing our economic toes again and again.

And what industry will be socialized next? Healthcare? Airlines? Autos? Energy and oil? Where will it stop? With all the investment banks? Or the commercial banks? At what point will the government become the biggest business management system in the world, with only token tiny private enterprise left? Whether or not more industries will be nationalized is ultimately irrelevant. The fact is that now, the government can! Overnight!

Why would the government take over your business, or you employer's company? Because it can!

Learn the Lessons of History, America!
Americans would be shocked to realize that they are following some of the same steps, and are now on the same path, that Hugo Chavez has done to the Venezuelan economy. But America's socialists are wise enough to realize that as long as they don't call it socialism, they can get away with a lot more socialism. Americans have not been taught to recognize socialism, so they accept it without seeing it for what it is. But a spade is still a spade, whether we call it a scoop... or paint utopian lipstick on the pig and label it as a gleaming silver spoon! Please! Let's call a spade, a spade, and stop deceiving ourselves!

As more and more shortages occur in Venezuela, and more and more economic crises manifest themselves, Chavez' answer to each new crisis is to nationalize the industry. More government! Bigger government! Government is the answer! The answer, he says, is for the government to take over from the greedy, self-serving, inept, inefficient largesse of private businesses and private landowners. He ignores that competition forces private enterprise to be efficient, productive, and to cut margins -- and profits -- to the bone. So things go from bad... to worse. Much worse!

The Venezuelan government just keeps stealing the productive capacities of more and more industries. Food industries, concrete, publishing, shipping, construction, oil production, and on and on. Ranchers are escorted at gunpoint off their own lands, and production plummets 90%! And as each industry is nationalized, production of each industry diminishes even more! And the worse it gets, the more they nationalize! And the more they nationalize, the worse it gets! While the United States hasn't gone that far yet, it should be an ominous sign to Americans that now, it can! It has now empowered itself to do it quickly and easily -- literally, over a weekend! And if it can do it with the mortgage industry and America's largest businesses, it can do it to any industry, and any business! If we are wise, we'll learn from Venezuela's Chavez disaster. But if we're not wise...
"Those who cannot learn from history are doomed to repeat it". George Santayana
We had better be (more) careful what we wish for. We just might get it, and then we'll be really sorry. Not all change is change for the better. And once it happens, and we awaken to realize it is no sleeping nightmare, but instead, a conscious crisis, it may just be too late!

Grains Grind Sideways

Corn and wheat are almost flat today, while soybeans are modestly higher. This wheat chart says it all. Booooor-ing!

And here is corn. Less than one cent of change for the entire day so far:

A Now, Reversals of Reversals

After a stark sell-off of treasuries today, banks are buying them again on news of tightening interest rate spreads. It's beyond me why anyone would be willing to own treasuries long-term. I think most are buying them for the same reason that I am -- making money on the margins on the interest rate fluctuations. I would never hold them for the interest because I would be losing money to inflation.
Stocks, after opening nearly 350 points higher at the open, have erased the majority of the rally, but are still in triple-digit positive territory.

I am reminded of something I read in Chick Goslin's book, Trading Day By Day. He says that in an existing trend, news-related shocks to the financial system tend to have short-lived impacts. Eventually, the underlying fundamentals turn the market back into its original trend path. In other words, the market eventually reverses the reversals!

Russians Turn Back UN Aid Convoy

Russians today refused to allow a UN aid convoy to enter the war-torn regions of Georgia. The convoy was filled with flour, pasta, sugar, and other staples. Here is the story:

Russia Turns Back Aid Convoy

"The Russians started this three centuries ago. They want us to become like them -- pigs," he said. "We are not like this." Russian soldiers had been stopping at houses in the village to demand food and drink -- asking the locals why they favor the U.S., not Russia, said a South Ossetian man.

Treasuries Plunge On Fannie, Freddie Takeover

Investors shouldn't underestimate the significance of the U.S. Treasury takeover of Fannie and Freddie. Now that the U.S. taxpayer has been forced to accept repayment obligations for the two mortgage giants, U.S. government debt has exploded (as if it hadn't already). Nevertheless, U.S. government debt is expanding at an even faster rate. As a result, interest rates have risen and U.S. government debt has sold off. Oddly enough, it is causing interest rates for mortgages to rise, too!
Are you skeptical of the impact? Just look at the daily chart for the 10-year note (above). That last red candle is just the impact on overnight trading!

Since the takeover has effectively equalized U.S. treasury debt and Fannie/Freddie debt, instead of interest rates on Fannie/Freddie debt going down, U.S. treasury debt interest rates have moved higher. There is an increase in perceived risk, and investors are demanding higher interest rates for that risk. This increased risk is real. Fannie and Freddie have derivatives instrument with leverage of about 50 to one (50:1). Even most hedge funds, which are now dropping like flies, only had leverage of about 20 to one (20:1). Now that the taxpayers have been forced to accept that kind of debt obligation, the surging debt of the U.S. government causes increased risk of default for investors. Thus, interest rates must rise.

This increases exponentially the counter-party risk that the U.S. taxpayers incur on all of these derivatives instruments. If, as was announced last Friday, mortgage foreclosure rates continue to rise, the cost of that risk rises exponentially, not incrementally. For more on this subject, read the links to John Mauldin's newsletters that I posted over the weekend. Mauldin's warnings were well-timed!

Also as an odd twist: the increased interest rates that the world requires will force the U.S. government to pay out higher rates, and thus increase the deficit even more!

It's a Traders Market

The stock market futures have been in a such a tight trading range for so long now (2+ months) that it appears that we may continue in that pattern for the foreseeable future. The takeover by the U.S. government of Fanny Mae and Freddie Mac over the weekend is being seen as a positive by some stock market bulls. The Dow futures rallied instantly by more than 200 points in Sunday evening trading! However, many traders are so accustomed to buying the dips and selling the rallies that the overnight trading rally may be nothing more than that. Who knows! The reasons are irrelevant!

From my experience, these dramatic moves by Federal authorities create huge supp0rtive rallies for stocks, but they don't tend to last too long - days, not weeks! Once more negative economic data comes forth, the mood gradually shifts, and negative sentiment returns. I buy these rallies, too, until the morose mood returns. Why miss out on the profits? I'm neither a bull nor a bear, but why swim upstream? I give the market what it wants!