Friday, November 28, 2008

Stocks Stagnate After 5-Day Rally

Stock futures are stagnant and almost untradable today. Volume is thin, but sufficient to trade. No doubt many stock traders are either on vacation today for the holiday, or perhaps reluctant to place positions before the OPEC meeting this weekend.

Crude Tumbles Pre-OPEC Meeting

Crude oil prices have dropped today in anticipation of disagreement and turmoil at the OPEC meeting Saturday. What a timely tumble!

Click here for a story in the Washington Post on OPEC's inner conflicts.

Tradestation 8.4 Issued

Tradestation has just released the newest version of their software. It has a great new feature called a Scanner that allows me to enter a very diverse list of criteria, including volume, price, indicators, etc., and the software will scan at programmed intervals for those criteria. I haven't installed the new software yet, but will install it and play with it over the weekend. It looks like a great new feature that will save me a lot of time!

Treasuries Thin Also; What's Trading Well

Traders in treasuries must have gone on vacation en masse today also. Volume is so thin that the tick chart is lagging severely behind even the shortest time interval charts.

However, I have had good results today so far trading the Eurodollar futures! They are very liquid, probably because many European trading desks are unaffected by the Thanksgiving Holiday.

Shorting the Euro currency futures has also been a good trade. The US Dollar has shown some solid strength today, after showing considerable weakness over the past few days. I trade what the market tells me to trade.

Grains Open With Very Thin Trading Volume

From Arlan Suderman, Market Analyst at Farm Futures:

"Low Volume Trade is Expected Today
"Overnight trade was very thin, suggesting that today’s market should see even fewer traders than Wednesday.
"Wednesday’s trade was thin and choppy as many traders skipped out of town early for Thanksgiving. Overnight trade was very thin, suggesting that today’s market should see even fewer traders than Wednesday, with the closing bell ringing at Noon central time. As a result, we may see a few traders try to play a few games within recent trading ranges, but traders generally don’t like to extend things too far under these conditions.
"The dollar pushed higher overnight and crude oil prices slid lower, causing early gains to evaporate in the grain and oilseed markets."

For his entire commentary, click here.

Needless to say, I won't touch grains today.

Thin Holiday Trading Volume

It is typical to see thin volume on the days before and after a holiday, and especially the Friday following Thanksgiving. I am watching the charts carefully today, and if they appear to be unusually erratic -- a hallmark of thin volume -- I may decide to sit on the sidelines today.

Thursday, November 27, 2008

The Real Unemployment Data and the Millenium Wave

A few short excerpts from John Mauldin's latest newsletter:

"The economic news just continues to be bad. New unemployment claims were over 529,000 on a seasonally adjusted basis. The "real" number was 606,877 lost jobs. New home sales were off by another 5% and down 40% from a year ago, as builders slash inventories. The Chicago Purchasing Manager index came in at 33.8, the weakest number since the serious recession of 1982. The national number due next Monday will be just as ugly, as durable goods were down far more than expected, by a negative 6.2%."

"And while the stock market may enjoy a serious rally over the next few months, we are not out of the woods. The fire is still raging and we are witnessing ever-more aggressive attempts to get the fire of the credit and housing crisis under control."

"The Fed is going to have some room to pump up the money supply without seeing inflation rise precipitously. I think this is the first of what will be several large injections, as they will keep it up until the economy begins to recover..."

I'll let you read Mauldin's newletter for the really cool stuff about the Millenium Wave.
Click here to read the whole thing.

Happy Thanksgiving!

Wednesday, November 26, 2008

Fed Funds: The Surest Bet in Futures

Fed Funds futures are pricing in a nearly 100% chance of a Fed rate cut when the Fed meets mid-December. In the past two months, this was the surest bet in the futures industry.

Buying More Treasuries

After a two-day hiatus, I am buying treasury futures again. Fear still drives the markets. I personally an convinced that eventually, treasuries will be sold of in a panic as investors realize that the bubble of debt of the United States government will never be paid. However, my technical indicators will tell me when is the best time to sell. I will be one of the first ones to head for the exits! For now, however, like many others, I am buying treasuries!

The daily chart is shown below. Treasury prices are at the highest prices of the year, and the short-term treasuries are near negative yields!

New Home Sales Worst Since 1991

From Bloomberg:

"Purchases dropped 5.3 percent to an annual pace of 433,000, lower than forecast and the fewest since January 1991, the Commerce Department said today in Washington. The median sales price decreased to a four-year low. Other Commerce reports today showed consumer and business spending tumbled last month."

Here is the entire Bloomberg story.

October Durable Goods Plunges 6.2%

The drop in durable goods orders was twice the forecast amount, and is being blamed for sagging stock indexes today.

Click here for the Bloomberg story.

Volume Light On Pre-Holiday Trading

Volume for futures trading is light today in anticipation of the Thanksgiving Holiday. Liquidity is particularly poor for grains and eurodollar contracts today. Tomorrow, a few contracts will still be trading, notably currencies and energies. Due to poor volumes, trading can be particularly erratic on the days surrounding holidays.

Real Estate Contracts Have 47% Default Rate

Major homebuilders have indicated that 47% of all new real estate contracts don't reach completion of the transaction. This is the highest ever reported. It indicates that for every 2 contracts to purchase a new home, nearly 1 in 2 of those will never actually purchase the home.

Oppenheimer's Meredith Whitney: TARP Funds Used Up By Write-Downs

In a report released this morning, famed analyst Meredith Whitney is saying the the TARP funds injected into America's banks are likely to be used up in write-downs ($44 billion in the 4th Quarter alone) and reserve requirements rather than lending.

Here's the Bloomberg article.

More bad loans to come, apparently! Were the taxpayer bailouts premature? Does this mean all those funds injected into the banks were wasted, if all they did was provide the banks with funds to write off more bad debt? And does it mean the taxpayers will be on the hook to pay all those bad debts -- with interest -- now that that debt has been transferred to the Federal balance sheet? Sure looks that way!

Tuesday, November 25, 2008

Cisco Shutters Doors During Holiday to Cut Costs

Cisco Systems, the bellweather technology company that overwhelmingly dominates its sector, has announced that it will temporarily close its shop for a few days at the end of the year to save money. I suppose this means that all its employees will lose their salaries during that period of time also. Wow, now that's an innovative approach to cost-cutting!

Bailout Euphoria Proves Temporary, Stock Futures Turn Negative

Despite the latest bailouts announced today by the U.S. Government, stocks have now slid into negative territory for the day. Over the past year, I have noticed that when government bailouts are announced, strong rallies have occurred. However, within 1-2 days, the markets reverse once again and move lower. This phenomenon appears to be manifesting itself once again today.

Is the Dollar On the Cusp of the Next Leg Down?

With almost daily announcements of new Federal bailouts and new additions to the national debt, the global financial markets are showing increasing concerns for the value and safety of the U.S. dollar. This chart shows that the rise of the Dollar has ended, and extreme stress is showing that the greenback may be on the edge of a new leg down. This should worry all Americans, because if it occurs, the prices of commodities will begin a fresh trend to the upside at the worst possible time for the economy.

Russian Analyst Predicts Collapse of U.S. Economy, World Power

A political analyst from Russia says that "The dollar is not secured by anything. The country's foreign debt has grown like an avalanche, even though in the early 1980s there was no debt. By 1998, when I first made my prediction, it had exceeded $2 trillion. Now it is more than 11 trillion. This is a pyramid that can only collapse." Igor Panarin also added that the U.S. economy "is already collapsing. Due to the financial crisis, three of the largest and oldest five banks on Wall Street have already ceased to exist, and two are barely surviving. Their losses are the biggest in history. Now what we will see is a change in the regulatory system on a global financial scale." Panarin also predicts that the United States will break up into 6 smaller countries and that Russia and China will emerge as the world's great powers, both economically and militarily.

Good News! Consumer Confidence Rises!

Consumer confidence recovered somewhat for November, largely attributed to falling gasoline prices over the past few months. The index rose to 44.9 in November from 38.8 in October.

Only $20 Billion Left of Treasury's $700 Billion

After today's announcement of an additional $200 bailout by Treasury Secretary Paulson, only $20 billion remains of the $700 bailout that Congress provided to the Treasury Department in the September bailout package.

FDIC Loans Lose $7.6 Billion

The FDIC has announced that 171 banks are now on its watch list of troubled institutions. It also released figures that show a ten-fold increase for losses over the past year for bad loans.

Moody's Downgrades PRIME Mortgage Debt

As if the subprime mortgage market wasn't frightening enough, this morning Moody's has downgraded tranches of prime mortgage debt, based upon rising default rates. Prime mortgages are the ones that 90% of working Americans have securing their home loans. These are supposed to be the good loans! Moody's downgraded $10 trillion of prime mortgages from Aaa to Caa3 today because default rates have risen to 3%. This is surprising, especially in light of the fact that these tranches were created with the estimation that they would never rise to default rates above 1%.

Case-Shiller Declines 16.6%

Real estate prices declined during October by 16.6%, according to the latest figures from the Case-Shiller real estate index. Prices declined in all cities where prices were measured for the sixth consecutive month, and was a record decline for the history of the index. The picture above is worth a thousand words.

Federal Reserve Bailout Du Jour -- Another $800 Billion

The Fed has announced this morning that they will begin buying even more toxic debt, including student loans, auto loans, and credit card debt. The Federal Reserve has now committed $800 billion more to the credit markets.

This can not end well, in my opinion. We should all prepare for chaos, and the time is coming that it will no longer be contained to Wall Street and the financial markets. The Mother of all Bubbles is going to blow up, and I believe it is going to happen sooner rather than later. Market mayhem is coming!

Here is the Bloomberg story.

Commodities Showing New Signs of Life

Commodity prices are showing signs of price reinvigoration again in recent days. Yesterday's rapid rise in stock index futures has given a strong shot in the arm to commodity prices as well.

Jim Rogers Was Right In Predicting Temporary Dollar Rise

In April this year, famed investor/commodity guru Jim Rogers accurately predicted that the U.S. Dollar would rise temporarily. Now, however, he is predicting that the greenback will be devalued as policymakers seek to weaken it to artificially make the U.S. more competitive. He says that the Dollar is "going to lose its status as the world's reserve currency,'' he told Bloomberg yesterday. "It will be devalued and it will go down a lot. These guys in Washington, they want to debase the currency.'' Rogers has a good track record with his predictions, and he puts his money where his mouth is.

Here is the Bloomberg story.

3Q GDP Worsens, Revised Down to -0.5%

The U.S. economy shrank by more than originally expected during the 3rd Quarter. Estimates were revised downward from -.3% to -.5%. Some surprise!

Here is more info from Marketwatch.

Fed Paying Above Market Value for Toxic Debt

It now appears that in order to try to shore up the economy, the Federal government is now paying premium prices for toxic debt. Private investors that were willing to buy these troubled assets are withdrawing offers because the government is so willing to pay a higher-than-market price for the same debt in the hopes that they will increase in value sometime down the road. This is a fine prescription for saddling the American taxpayer with crushing debt and monstrous losses in the future as more and more of these instruments continue to lose value. The government is betting against private capital that they can make them increase in value despite the views to the contrary of the finest minds in private industry. This is risky at best because our government is betting that these bad loans have greater value than the price that private distressed debt experts believe they are worth. History suggests that the government will be wrong and that the American People will pay a much heavier price for the indulgent overconfidence of government beaurocrats. Not only is the government over-paying for this debt now, but the American People will pay for it again at some point in the future. So this is what the Plunge Protection Team really looks like?

Monday, November 24, 2008

$7.7 Trillion of U.S. Government Bailouts -- So Far!

From Bloomberg this evening:

"The U.S. government is prepared to provide more than $7.76 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. debt yesterday."

Here is the full Bloomberg story.

Dollar Get's Drilled!

Now this is looking ugly! Are the chickens now beginning home to roost for profligate spending and irresponsible fiscal and monetary policy? As the Dollar drops, commodity prices (ie., inflation) will start to pick up steam again.

President-Elect Obama's News Conference Calms Markets

The financial markets appear to have been reasonably pleased today with President-Elect Barack Obama's performance in a news conference announcing his plans for economic stimulus and appointing his economic advisory team. He has passed his most important test thus far.

The Mother of All Bubbles Is Building!

The Mother of all Bubbles is building. This bubble is the largest in human history, and when it pops, everyone will be affected. It will cause market mayhem and a run for the exists the likes of which has never been seen before. What is it?

"The American government bonds are the world’s last bubble and the price of commodities has to increase." Jim Rogers, famous investor and commodity guru

The Mother of All Bubbles is U.S. Government debt!

There is no such thing as bankruptcy for an entire country. There is no International Bankruptcy Court. Bankruptcy for a nation is done by monetizing the debt of that country. It is done by creating monstrous amounts of new money with the intent of inflating a nation's way out of a crisis. Sound familiar? It should! It has been done by other nations in the past, including the Roman Empire, the Weimar Republic, and in Zimbabwe today. We're in the early stages of that phenomenon now here in the United States. We have created the Mother of All Bubbles!

Dollar Down, Commodities Up!

Q4 GDP May Drop 8%

Whisper news for the 4th Quarter GDP is that the U.S. economy may contract as much as 8%! If so, stocks will probably drop even further. Hold onto your money folks!

Why Are Food Prices So High When Commodity Prices Are Falling?

Food commodity prices have plunged 45-60% in the past six months. So why are food prices at the grocery store substantially higher than one year ago? Grain, dairy, meat and soft commodity prices are the lowest we have seen in two years, so why are prices at the grocery store still higher than one year ago? Gas prices have plunged over the past six months due to the lower crude oil price, but food prices have remained stubbornly high. Either wholesale food distributors are hanging onto the higher prices while their own costs drop, or the grocery store chains are gouging consumers to pad their pockets. One of these two groups -- or a combination of both -- is keeping the excess profits and taking advantage of consumers by not passing on the lower commodity prices to the people who buy their products.

Gold's Message to Global Financial Markets

While commodity prices have collapsed worldwide due to the economic weakness, gold prices over recent days have surged higher instead. Why? As the ultimate barometer of both economic uncertainty and inflation fears, the price of gold futures has surged in the past few trading sessions. What conclusions are we to draw from this? That with the Fed having incresed the money supply by 39% in 2008 alone, the financial markets are anticipating higher inflation ahead. However, I suspect that this higher inflation will likely occur only if the economy begins to rebound.

Sunday, November 23, 2008

Citigroup's $326 Billion Bailout Package

From Bloomberg:

"The U.S. government agreed to protect $306 billion of loans and securities on Citigroup Inc.‘s books against losses, as it seeks to shore up investor confidence in the bank."

(Citi was also given another $20 billion capital injection.)

Click here for the entire story.

Text from joint FDIC, Fed, Treasury statement.

Little Follow-Through After Friday's Rally

There appears to be little follow-through momentum on the stock rally from last Friday. The fear and sense of foreboding appears to have returned over the weekend. Even the Asian markets are mixed, but with a downward bias.

Futures Liquidity Drying Up

One of the reasons that I have been transitioning toward longer-term trades is that liquidity in the futures markets has decreased by about 50% over the past 3-6 months. The Open Interest for crude oil has decreased by more than 50% in the past 4 months. The decrease in Open Interest for grains has been about 45% in the same period. As liquidity decreases and spreads widen, the only way to compensate, I believe, is to increase the length of time that a trade is open, permitting price trends to compensate for the decreased liquidity and widening spreads. I have also begun to concentrate more and more on futures with smaller margins.

Nuclear Alarm

From the Wall Street Journal:

"Since the end of the Cold War, the U.S. nuclear weapons program has suffered from neglect. Warheads are old. There's been no new warhead design since the 1980s, and the last time one was tested was 1992, when the U.S. unilaterally stopped testing. Gen. Chilton, who heads U.S. Strategic Command, has been sounding the alarm, as has Defense Secretary Robert Gates. So far few seem to be listening."
"The U.S. is alone among the five declared nuclear nations in not modernizing its arsenal. The U.K. and France are both doing so. Ditto China and Russia. "We're the only ones who aren't," Gen. Chilton says. Congress has refused to fund the Department of Energy's Reliable Replacement Warhead program beyond the concept stage and this year it cut funding even for that."

With the Democrats in control of Congress and a President-elect that has indicated that he wants to cut funding for defense, including the U.S. missile defense shield, what are the odds that the nation's nuclear deterrent will be kept viable over the next four years?

Read the rest here.

Fed More Leveraged Than a Hedge Fund

From Barrons today:

"IF THE FEDERAL RESERVE BANK WERE A COMMERCIAL LENDER, it would be a candidate for receivership, based on its capital ratios. Bank examiners generally view any lender with a ratio below 2% to be dangerously undercapitalized. The Fed's current capital ratio, or capital as a percentage of assets, is 1.9%.
The Fed has provided so many loans and emergency credits -- to banks, brokers, money funds and foreign countries -- that its balance sheet, viewed one way, is as leveraged as any hedge fund's: Its consolidated assets amount to 53 times capital."

Here is the full story (requries membership)