Grains Regain Footing in Anticipation of Lower USDA Forecasts

Grain futures have begun to show signs of price recovery recently, after moving higher two of the past three days and crossing above the Exponential Moving Average today. If prices hold above this level, it will be a bullish sign. The Klinger Volume indicator, as shown in the lower panel of this chart, still appears bearish, however. Note that at the far right side, today's Klinger remains red despite grains having moved higher overnight. I will be watching closely to see what happens during the main trading session today.

Volume remains light for all futures during the Christmas Holiday period. This is typical for December. I don't expect volume levels to recover until January. I am always cautious during December's weak volume period because there is more market noise and greater erratic volatility than usual.

Here is a good Bloomberg article explaining the more bullish sentiment.

GMAC Too Poorly Capitalized to Become Bank Holding Company

It has been announced this morning that GMAC needs $30 billion of capital in order to qualify to become a bank holding company. They don't have the funds. This further underscores how desperate the auto companies are. This has the potential to impact the capability of auto dealers to fund their purchases of the cars in their show rooms, and of consumers to borrow enough to pay for new cars.

Meredith Whitney: No Amount of Government "Mitigation" Will FIx Housing

Meredith Whitney, the analyst from Oppenheimer whose predictions have been amazingly prescient during this crisis, said this morning that all the government bailouts for the housing and mortgage industry have proven instead to be "throwing good money after bad". She said she knows of nothing the Fed or Treasury can do that will fix the problem, and that the real estate market correction will continue regardless of what the government does. Default rates continue to rise, even following renegotiated mortgage contracts. She also predicted that consumer credit is being cut back sharply by banks, and that credit card debt will be the next shoe to fall. She said the government should pour its resources into trying to shore up this next crisis instead of continuing to pour money into mortgages and real estate.

And Now, the Dow, Turns Black

News of the automaker bailout deal nearing completion appears to have energized stocks today.

Deal... or No Deal... for Automakers?

"Democratic leaders sent the White House a $15 billion bill to rescue the domestic auto industry on Monday, a proposal that requires long-term restructuring plans and other concessions from the Big Three in exchange for a federal lifeline... The Bush administration, however, is already concerned by some aspects of the auto bill, the Journal reported."

Here is Martketwatch story.

Regulators to Blame For Mortgage Meltdown, Economic Crisis

“It is remarkable that during the period that Fannie Mae substantially increased its exposure to credit risk its regulator made no visible effort to enforce any limits,” Frankline Raines, former Fannie Mae CEO.

But the S&P 500 Turns Positive

The Dow is still down, but the S&P 500 has now moved into positive territory for the day, yielding a mixed picture for stocks after the first hours of trading.

Headlines That Hurt

Sony Axes 16,000 Jobs

"The cuts include 8,000 full-time employees, or 5 percent of the company’s electronics workforce, and another 8,000 part-time and seasonal workers, Sony said. The reductions highlight the severity of the slump in consumer spending at a time when companies typically focus on the peak Christmas shopping season."

Fedex Cuts 2009 Earnings Forecast

"FedEx fell 12 percent to $65.86 after saying annual profit may be as much as one-third lower than analysts expected."

Existing Homes Sales Declines Further

"Fewer Americans signed contracts to buy previously owned homes in October as credit markets seized, signaling the housing slump will extend into a fourth year."

Grains Give Up Gains

From Vic Lespinasse:

"A lower start is likely this am in what could prove to be a "turn-a-round Tuesday" session with the market giving back some of yesterday's big gains. The $ index is up while crude oil and the equities markets are lower, a bearish combination for the grains."

Here is Vic's website for more detail.

Dollar Drag

One consequence of today's commodity surge is that the US Dollar has drifted lower and is now at the lowest levels of its recent range!

Mortgage Modifications Aren't Working!

From Marketwatch.com:

"Office of the Comptroller of the Currency director John Dugan on Monday released statistics showing a high re-default rate on mortgages that have been modified in the first two quarters of 2008. "The results were surprising, and not in a good way," Dugan told a gathering in Washington at the Office of Thrift Supervision's annual conference."

Click here for the whole story.

58% of mortgages that have been modified by the government had defaulted again within months of the modifications. Unfortunately, the American People are going to be left holding the bag for this!

OPEC Promises "Severe" Crude Production Cuts Coming

From Bloomberg:

"Crude oil rose for the first time in seven days in New York after the Organization of Petroleum Exporting Countries’ president said there was consensus for a “significant” production cut when the group meets next week."

Click here for the complete Bloomberg story.

Crude oil is up nearly $2 tonight from last Friday's lows. Corn and soybeans, the two grains associated with biofuels, and therefore linked with the price of crude oil, are also somewhat higher.

The Bond Bubble

“Why anyone would give money to the United States government for 30 years at three or four percent is beyond comprehension. Everyone is pumping bonds like crazy. It’s clearly a bubble.” Jim Rogers

Grain Prices at Multi-Year Lows

Because of the collapse in commodity prices, I decided to check to see how low current corn, soybean, and wheat prices are compared to the past several years. I was stunned to learn that all three grains haven't seen prices this low at any time this century! This current price deflation is likely to lead to production cuts, increased demand, or both. That inevitably will lead to higher prices again at some point, but no one knows when!

Bulls Battle Back

I don't know if this is a short-covering rally or if the bulls have managed to battle back to the flatline today, but it is certainly a bullish sign that following such horrendous job and employment news, the stock market indexes have pulled back to positive territory thus far today. It will be interesting to see if, over the next two hours, the longs are willing to hold those positions over the weekend, or if negative sentiment will lead them to liquidate again instead. Anything can happen in the last hour of trading.

My gut instinct tells me that Wall Street is erroneously assuming that the worst just has to be over, that all the bad news is now priced into the market, and that therefore the market just has to go up now. It is true that many of the largest stock market rallies in history have been bear market (sucker's) rallies. I'm convinced this is more "irrational exuberance", to put it in Alan Greenspan's terms. Just because stocks have dropped a lot doesn't mean they now just have to go higher. What goes down can still go lower, and I suspect that in time, it will!

Unemployment is Worse than the Headline Indicates

The true unemployment numbers are far more horrific than the headline this month. The household survey showed -673,000 jobs lost last month. Furthermore, The BLS' unemployment statistic has a strong tendency to be understated during a recession. This is baked into the cake due to the way the BLS calculates and makes adjustments to the figures. That's why the September and October figures were revised strongly downward. It is very likely that next month, the November figures will also be revised downward. And December is starting off like a nightmare too. In the first five days of December, we have also seen job cut announcements by large corporations of more than 300,000 jobs to be eliminated this month. If that pace continues throughout December, the November figure we saw this morning will seem like a paltry pitance compared to what's yet to come! Over the weekend, John Mauldin will report some of the internals beneath the headlines. I'll post some of his newsletter, or a link to it, here.

Frequently, I will take a lunch break at this hour of the trading day and return again to trade the volatility of the closing hour of trading.

Those Poor Grain Farmers!

The global asset sell-off is causing grain prices to plummet. Funds are liquidating grain futures and open interest is plunging. Note the intraday corn chart above and the daily chart below. The same speculators that were blamed for driving commodity prices higher six months ago are getting no credit or thanks for selling and driving prices to excessively-low levels now. Where's the justice?

Prices have now dropped so low that prices for corn, soybeans, and wheat have dropped below farmer's production costs. The high cost of fertilizer, fuel, seed, etc. will force many farmers to make the decision to leave some of their land fallow and claim a government check instead. With grain in storage at record multi-decade low levels already, these low prices may influence many growers to cut production in the 2009 growing season. This will undoubtedly lead to not only higher prices, but quite possibly food shortages in some parts of the world. It will become more expensive to eat!

Treasuries Regain Their Footing

I was so surprised when treasuries temporarily sold off earlier this morning. What a great time to buy more treasury futures at a discount. Now, treasuries have regained their footing and are rising again. The 10-year note shown in this chart has just crossed into positive territory for the day (see yesterday's close as the purple line in the left chart)!

Stock Market Bulls Push Back on a Down Day

I remain bearish personally, but stock market bulls have pushed back quite forcefully this morning for the second time since the disastrous jobs report a few hours ago. I use these times to take profits and to get ready to sell into the rally when it shows signs of weakness again. Those poor perma-bulls have been getting slaughtered throughout this year. But as they say, "Where's the beef?" Anyone for a steak?

Mortgage Delinquencies Reach Record 6.99%

In other news today, mortgage delinquency rates have also reached a new record -- 6.99%! Foreclosures are also nearly 3% of all mortgages!

Click here for the story on Marketwatch.com.

Crude Continues to Plunge On Weakening Economy

Crude oil has also continued its fall as propspects of even weaker demand drive prices still lower. Who would have ever predicted that crude oil would reach $42/barrel, and plunge of more than $105 in just four months!

Surprise Sell-Off In Treasuries

Look at the surprise sell-off of U.S. treasuries following the announcement of the job losses this morning!

U.S. Economy Loses Over 1.2 Million Jobs in 3 Months

With the unemployment rate reaching 6.7% in November, and job losses for the month reaching an unexpectedly high 533,000, it appears that the economy is deeping in its recession. Additionally, the BLS revised job loss numbers downward for the previous two months as well. In total, the U.S. economy has now shed more than 1.2 million jobs in the past 90 days. The blood-letting continues!

Here is an article with more details.

Surprisingly, however, stock index futures have not dropped precipitously! Just wait until the market opens! It will be an interesting day!

Read here the reactions to varoius economists to the news on the Wall Street Journal's website:

"almost indescribably terrible"

Leading Indicators: Pointing to Even Worse Times to Come

Leading economic indicators are pointing to even worse times to come, unfortunately. Those who opine that we have hit bottom may have buyer's remorse when they realize that the indicators that point to the path forward are indicating that the economy is going to get even worse than they are now. Some leading indicators are setting all-time record lows that have never been recorded before.

Jobs, Jobs, Jobs: Hold On For a Wild Ride Today

With the monthly Non-Farm Payroll report to be released this morning at 8:30 am EST, the focus in trading today will be almost exclusively on jobs. With announced job cuts this week alone of more than 300,000 for large corporations, the job situation is probably only going to get worse next month.

Today's data release is expected to be bad, so a terrible jobs report will not necessarily send the stock index futures lower. However, if the jobs report is even worse than the 350,000 drop that is expected, another volatile down day for stocks could be in the offing. Right now, the stock index futures are dead flat in anticipation of the release of this number, and I don't expect much trading until that time. Other futures are hanging on the result of the jobs report also, including even grains and crude oil.

The See Saw Continues

Key word: Optimism! The Dow closing hour yesterday:Key word: Pessimism! Buy the rumor (above) and sell the fact (below)?
The Dow closing hour today (see below):
It appears that the financial markets aren't convinced, after seeing the automaker's CEOs testify before Congress today, that this bailout will work. But they are convinced that it will cost the American People a lot of money! Dr. Mark Zandi of Moody's testified that it won't cost just $34 billion; he said it will cost a figure closer to $125 billion. Look out belooooow:

Job Cut Parade

Dupont cutting 2,500 jobs (+ 4,000 contractors)
Credit Suisse cutting 5,300 jobs (mostly in U.S.)
AT&T cutting 12,000 jobs
Nomura cutting 1,000 jobs
Belden to cut 20% of staff
Viacom to cut 7% of staff
Adobe to cut 600 jobs

New unemployment claims fell last week by 21,000. However, the 4-week moving average, which is the number market insiders watch, continues to climb.

Here Come the Automakers, Round 2

Did you see the testimony of Dr. Mark Zandi, chief economist for Moody's economy.com website? He said that it was very likely that the automakers would be coming back to the U.S. government for more money by Q3 2009. He said the total tin cup request by the Big Three could be as high as $125 billion!

Central Banks Slashing Rates

The Bank of England, the Reserve Bank of New Zealand, and the European Central Banks are all cutting interest rates today to try to stimulate growth and emerge from the respective recessions in their countries.

More Bad News From Merck, Dupont, AT&T

Volatility Is NOT Good When It's a See Saw

Volatility is the bread and butter of traders like me. Market movement is very good when it brings large moves in one direction or the other, and whether that movement is up or down doesn't matter. However, on a day like today, when the market is volatile, but in several directions on the same day, it becomes much more difficult to trade, and can often bring sharp losses.

Harvard Endowment Fund Loses Nearly 1/3 of Its Value in 2008

"Harvard officials said they were planning for a decline of 30% in value for the year. Harvard said the school's worst single-year investment loss was 12.2% in 1974, when the endowment stood at less than $1 billion and its funds contributed far less to the school's operations."

Here is the rest of the Wall Street Journal article.

Liquidity matters! When I read this article, I realized that Harvard made investments that were profitable, but which couldn't be sold when they started to lose momentum. This is why I try to concentrate my trading on futures instruments that are liquid. If you can't get rid of it, you can't turn paper profits into real ones! "Honey, Junior's tuition is going to go up!"

Stock Market Freefall

The picture says it all. After spending most of the trading session today in positive territory, stock index futures have collapsed. I don't even know what news announcement precipitated this collapse, but does it matter? This is one of the reasons that I trade using technical analysis. The charts will tell me that something has happened, even if I don't know what that event was.

Treasury-Trove of Profits

Buying treasury futures over the past few weeks has been one of the most reliable sources of profits. Now, with stocks finally sinking today, traders are buying still more treasuries, escalating prices to new record highs again today.

ISM Services Falls to All-Time Record Low

The ISM services index is also down 5 points more than expected, falling from 44.4 in October to 37.3 in November. This is an awful number, indicating a sharper service sector contraction than expected. Stocks, however, are moving modestly higher following the report. We are seeing the financial markets ignore bad news. This is typically a bullish indicator when traders are expecting such bad news that even disappointing news is discounted.

Click here for a Bloomberg story with details.

And here is the Marketwatch story.

ADP Jobs: Down 250,000 in November

The ADP jobs report, a private report issued monthly two days before the BLS report issued by the U.S. government's NFP report, shows that employment declined in the United States by 250,000 during November. Unlike the U.S. government figure, the ADP only includes private sector jobs. It suggests that perhaps Friday's NFP figure may also disappoint to the downside. The figure was a larger drop than expected, and stock index futures are moving somewhat lower as a result. However, despite the lower open, the futures don't appear to me to be powerfully down.

$34 Billion Big Three Bailout Pricetag -- For Now!

The three American automakers presented a plan to Congress yesterday for a bailout request of $34 billion. GM and Chrysler have indicated that without the bailout, they will be forced into bankruptcy before the end of this month. Tomorrow, the companies' CEO will testify once again before Congress.

Chrysler is a private company. The company was taken private when Cerberus bought Chrysler from Daimler Benz several months ago. Why are the taxpayers being put on the hook to bail out a private equity-owned company?

Isn't this just money down a rat hole? If the automakers want a bridge loan, then where is the bridge to? And since the government doesn't have the money to fund the bailout, the only way they can do it is to borrow even more money. Doesn't the government need a plan to avoid bankruptcy even more than the automakers?

Click here for a great Wall Street Journal editorial on why it won't work.

GM Needs $1 Billion/Week to Survive Til 2009!

Imagine! General Motors has indicated that they need $4 billion just to survive until next year, nearly $200 million each business day. And they want the taxpayers to fund it for them.

Here is the Bloomberg article.

Treasuries Drive Still Higher

U.S. treasury futures continue to drive still higher, pushing interest rates lower. This is a great bull run for treasuries as shown on this daily chart, and Fed Chairman Ben Bernanke yesterday promised to continue buying treasuries to drive interest rates down and inject more liquidity into financial markets. Despite a higher stock market today, investors worried about economic prospects continue to bid treasury futures even higher.

Worst Recession in Post-WW II Era

That headline is not mine. It is one of the bullet points in the latest assessment of the U.S. economy by David Rosenberg, North American Economist for Merrill Lynch. Here is a small excerpt:

Expect the worst recession in the post-WWII era
First, this is going to be the worst recession in the post-World War II era, in our view. The ECRI leading indicator hit a record low for the fifth week in a row – down to - 29.2 as of the November 21st week versus -28.2 the week before. This index, which leads real GDP by two quarters with a 70% historical correlation, is getting further and further away from the prior all-time low of -19.8 that defined the worst recession of the post-WWII era and saw a six-quarter consumer recession coincide with a 45% peak-to-trough decline in the stock market. Perhaps the fact that this bear market is proving to be even more severe is symptomatic of an economic downturn that will also prove to be deeper and more prolonged. After the flurry of data released just before Thanksgiving, we are now tracking close to a 4.5% QoQ annualized fall in real GDP in 4Q. This would be the largest pullback since the 1982 recession, and we see a similar contraction in the first quarter of 2009.

Translation: It's bad, folks! And, if he's right that we will see another 4.5% GDP contraction in the first quarter of 2009, it's going to get a whole lot worse!

Stocks: "I Want to Believe"

This chart today reminds me of the poster than Fox Mulder, the protagonist from the television series "The X Files", had placed on the wall in his office. Stock index futures are higher this morning, but not yet showing strong conviction in the still steeping, stagnating economic outlook. Stock market bulls want to believe that we can see a rally, but despite higher prices today, it is difficult to find good reasons to buy and drive prices significantly higher. A guarded, but positive outlook for GE's finance company this morning, and hope for a reworked plan to bail out automakers, appear to be market drivers today.

P/E ratios for the S&P 500 remain too high once next year's plunging earnings are taken into account. Analyst estimates continue to be revised downward, and as they do, current P/E's will appear to make the market appear still high-priced. Hard to believe, but just wait, watch, and see.

Beaten Down Commodities

From Bryce Knorr at Farm Futures Magazine this morning:

"Open in interest in the corn market dropped by a staggering 350,000 contracts after expiration of December options, according to the latest CFTC commitments report, delayed due to the Thanksgiving holiday. Funds were net buyers on the week, however, though speculative hedge funds remain net short overall. Open interest dropped another 10,000 contracts yesterday on December deliveries, with 1,850 contracts put out. Stoppers are starting to emerge, as holding corn provides a better return that investing in Treasuries."

This one statement seems to be symbolic for many futures in the current market. The accompanying chart for soybeans, a favorite of traders, shows how erratic trading has become for the grain markets over the past few months, and liquidity has dried up and funds have liquidated their positions. This is not the sign of a healthy market. Liquidity has been more than halved over the course of the summer and fall months. It is significant that funds remain net short also. Everyone blamed funds and traders for the rise in commodity prices over the first half of the year, but no one gives them credit for also driving prices down more than 50% over the past four months to prices that are near two-year lows.

Dow Gives Back 680 of Last Week's 783-Point Gain

Wow! What a sell-off!

It's Official Now! We're In a Recession!

The National Bureau of Economic Research, the non-partisan group of economists that determines economic cycles, today officially announced that the United States began a recession in December 2007. The official announcement always arrives in a belated manner because the nature of the data only permits economists to analyze and recognize a recession after it has begun. This may seem like just a semantic technicality, since most people already acknowledge that the United States is in a recessionary period. However, the NBER is the group that makes the designation official. Therefore, there can no longer be any debate about whether it is a fact. It is a fact!

Here is a story on Forbes about the announcement.

Treasuries Rocket Higher When Bernanke Speaks

At the precise moment that Fed Chairman Ben Bernanke's speech was released today, treasuries, which had already risen dramatically today, rocketed still higher and at an accelerated pace. The green arrow on this chart represents the moment that Mr. Bernanke began his speech. This reaction was almost certainly due to Mr. Bernanke's comment that the Fed may lower interest rates even more at the next FOMC meeting mid-December, and that the Fed will continue to buy treasuries, probably at an accelerated pace. The Fed funds rate is at only 1% now, so the Fed can't lower rates too much more. JP Morgan has predicted that the Fed will cut rates to 0% in January '09. Fed Fund futures traders seem to agree.

As a policy, at the moment that a Fed governor is scheduled to begin a speech, the Fed will post the text of that speech to the Fed's website. Thus, all the financial markets receive the text of the speech at the same moment in time, and the markets often react immediately to the remarks being made, even though it may take several minutes for the speaker to deliver their comments.

There is only one thing that I can't figure out: How do people read through those speeches and react so quickly? :) The market response usually occurs within seconds of the speech being released. I'm a good reader, but even I'm not that fast!

Click here for a good article on Mr. Bernanke's speech from Bloomberg.

Eurodollars Take Off

I love to trade Eurodollar (this is the interest rate instrument, not the Forex-related one) futures because they are very liquid (OI > 1,000,000 contracts) and provide one of the most reliable signals in futures. However, I must admit that I haven't the slightest idea what moves this futures instrument. It does not correlate at all with treasuries. The CME's website says that the Eurodollar represents US Dollars on deposit in banks outside the United States and that the contract is settled upon delivery at the LIBOR rate. However, it seems to operate with very little correlation to the US Dollar Index, LIBOR (except on the delivery date), or treasury interest rates. It also tends to move much more gradually than most other trading instruments, so I don't have to have a lightening-fast clicking finger to trade it.

Dow Down 400 Points!

Volatility continues, and the Dow has now erased most of last week's record-setting rally.

And Now, Grain Prices Plunge Into the Depths, Too!

With grain prices having been so strongly linked to demand decay and poor economic performance lately, grains continue to show weakness in the price complex. I fully expect to see a stout rally in the grains sometime this winter, but today, prices continue to show weakness. We should keep in mind that Congressional mandates for the 2009 season require that nearly 50% of all domestic corn production be used for ethanol, an amount significantly higher than it was for 2008.

This price weakness for grains (corn and soybeans especially) is significant because farmers may decide to significantly cut production next Spring if prices remain at these levels. Current corn and soybean prices are below farmers' production costs according to recent reports from analysts, so either the supply will diminish at these prices levels (as farmers cut production), or perhaps demand will rise. Typically, however, during an economic slump, demand remains soft for commodities, thus suppressing prices. Still, food commodities tend to establish very firm bottoms and move higher while other commodities like industrial metals continue to fall. After all, we still have to eat even when industrial production slumps!

China PMI Causes Global Asset Sell-Off!

China's government data released last night indicated that the manufacturing sector there is contracting rapidly. This caused all sorts of assets, including all physical commodities and equities, to sell off heavily today. China has continued to report high GDP growth, and this report suggests that there is a likelihood of a hard landing in China, and that will in turn crush demand for many commodities.

I had read over the weekend news reports that in China, manufacturing company CEOs are disappearing without a trace. In China, bad performance may not only result in poor bonuses. Because of the legal loopholes and often onerous government oversight, poor performance may result in being imprisoned or even worse. Thus, some manufacturing executives, rather than run the risk of terrible consequences, are choosing to run or hide instead.

Good Black Friday Retail Numbers, But...

Black Friday's retail sales numbers looked good, so why are stocks slumping today? The headline figure, showing a healthy increase over last year's numbers, looked great. However, the devil is in the details, and they show some rather dour internals. It isn't my purpose to review them here (too busy trading), but many shoppers indicated in surveys that they have alread completed all their holiday shopping. (I am one of those. I finished shopping more than a week ago. However, I've always tried to complete my Christmas shopping list before Thanksgiving.) Furthermore, retailers have slashed their prices so far already that margins are terrible.

OPEC: No Change in Production!

Crude oil has plunged today also, given that OPEC was unable to reach agreement over the weekend on a production cut. The price of crude oil has fallen far enough today that the line showing last Friday's settlement price no longer even appears on the screen shot. It is down about $4.50 so far today. Take that, Hugo Chavez!

It is still my person opinion, however, that crude oil will eventually reach a bottom and move higher once again. Within the next 5-6 years, both Mexico and Britain will run out of oil and will be forced to begin to import oil. Russia's production is also declining. In 2008 alone, global crude oil reserves have declined by 6-9%! This dwindling supply dynamic is bound to eventually push prices higher again, and perhaps at an accelerated rate.

Stock Sentiment Turns Sour Again!

Stock index futures have plunged this morning, quickly erasing much of last week's rally, and the day is just getting started! Prices have already reached levels near Tuesday's close from last week. What may happen the rest of the day today is anyone's guess, but it doesn't look good to be down nearly 350 points on the Dow in the first 30 minutes of the session. The picture says it all!

U.S. Treasuries Reach Lowest Yields -- EVER!

Treasuries continue to be bought heavily, both by fearful investors and the U.S. government itself to fund its on-going rescue operations. I believe this is the biggest bubble in history, as yields continue to plunge, in some cases even going negative, as fear drives strategies around the world. I have been buying treasury futures also, but I don't buy them for the yields. I will hold them only as long as they continue to rise. Once a reversal or consolidation occurs, I'll exit. I watch my Exponential Moving Average meticulously, and I watch the Klinger Volume indicator for early signs that momentum is shifting to the sell side. So far, so good!

The fact that since record-keeping began, treasury yields have never before been this low, is a sign of how stridently negative the sentiment remains in the financial markets of the world.

U.S. Treasuries Continue March Higher

Amazing that despite historic low interest rates, the 10-year treasury futures continued to march still higher (interest rates, lower) in overnight trading! U.S. treasuries are perceived as the ultimate flight to safety, and thus, rising treasury prices are considered to be a barometer of negative market sentiment.

Moody's Mark Zandi: 0% GDP Is "Optimistic" for 2009

Moody's economist.com chief economist Dr. Mark Zandi is now saying that if the United States sees GDP at 0% growth for 2009, we'll be lucky! He says that 0% GDP for 2009 is optimistic rather than realistic!

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.

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!

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!

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?

$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.

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)

Pure, Unbridled Panic!

Here are prominent headlines from today's business news:

Auto Industry Bailout Compromise Fails in Congress

Treasuries Reach Price Levels that Equal 0% Return on Panic Fear Buying

Dow Drops Through Floor to Price Levels Lower Than Last Recession Lows

Unemployment Claims Reach Historic Levels

Citigroup: At $2 Trillion, Too Big To Bail Out

Crude Drops Below $50 Per Barrel

Even Biggest Insurance Companies Line Up at the Bailout Trough

Saudi Prince' Investment in Citi Fails to Calm Investors, Price Plunges 25% to Under $5

IAEA Announces Iran Now Has Enough Enriched Uranium for One Nuke

Treas. Secretary Paulson's Speech Fails to Reassure Markets

Dow Drops to Fresh Lows, Down 444 Points

Markets End in Tatters

Quite honestly, in my time as an investor and trader, I have never seen such levels of fear and panic as I saw today. Perhaps Rick Santelli, CNBC's reporter on the floor of the Chicago trading pits, said it best when one of his peers quoted Sec. Paulson in his speech today. Paulson said that without the government's $700 billion bailout package last month, the American People would have paid a very heavy price for a collapse in the financial markets. Rick Santelli replied that the American People are paying that price anyway!

Transitioning To Longer-Term Trades

I am in the process of transitioning to longer-term trades. This may permit me to spend more time during the day studying markets and, yes, blogging. I am also considering the possibility of starting a futures brokerage with a fellow futures trader who is an experienced broker. He trades on fundamentals and I trade on technicals, so it could be a complimentary relationship, both for me professionally and our clients.

With longer-term trades, I will be able to take more positions in different commodities and futures, including the softs, oats and rough rice, livestock (meats), interest rate futures (Eurodollars, swaps, fed funds, Euroyen Tibor) etc. This will be a way of not only spending less time trading, but also spreading and diversifying my risk.

Global Economics Headlines: Are We Headed for the Abyss?

Ken,

I don't know if you had a chance to research the headlines over the weekend, but these are the ones that stood out to me:

G20 Meeting Was a Disappointment to Markets

G20 Agrees to "Stimulate", Mostly Through Big Government Infrastructure Projects (Bridges, etc.). Deficits Without End!

Government Data Showed that Europe is Now OFFICIALLY in Recession, Second Quarter of Neg Growth

Dems in Congress Determined to Bail Out Auto Sector, Protect Union Jobs

Hong Kong Data Shows Recession Now Official

Japan Government Announces Official Data Validates Recession

European Banks In Worse Shape than American Ones; Slumping Investments in Emerging Markets 6X More Than American Banks' Exposure to Mortage Mess

Citigroup to Lay Off up to 40,000!

Auto Parts Makers Now Want Piece of Bailout

Pres Elect Obama Wants Infrastructure Projects

$1 Trillion U.S. Deficit Possible in 2009

Toyota May Lose AAA Credit Rating

JP Morgan to Lay Off Early 2009

Strange, but the stock futures moved HIGHER, but only temporarily. Probably a bounce from Friday's Sell-Off. Started to move lower 1 hr ago. I expect more weakness during the day session, unless an intervention or good news surprises to the upside. But anything can happen! We may test those recent lows again soon! Morose mood!

I also found an interesting blog. It is a blog dedicated to one of my favorite investors -- Jim Rogers. He is considered to be the global guru on commodities. He even has ETFs named after him. He says the world's largest un-popped bubble is U.S. Government debt! He said when that pops, there will be a global financial collapse and inflation will skyrocket. John Mauldin expressed similar concerns in his weekend newsletter, but is less pessimistic.

It's 3:15 am, and I can't sleep! Ugh! Been awake two hours!

I just heard a very good analyst -- Kirby Daley -- on CNBC suggest that there may be a stock rally before the end of the year. Very sharp guy! He recommended holding cash and selling into it when the rally slumps again. He said it will be a typical bear market (temporary) rally.

You and Cason enjoy the Jazz game tonight. WIN, OK?

Steve

$451 Billion and Climbing

The numbers are now official. The total interest paid on the U.S. national debt for the 2008 fiscal year (that ended Oct 31 2008) was $451 billion. Last year, it was (only) $230 billion. With an expected $1 trillion budget deficit for 2009, the interest is likely to rise to more than $500 billion.

As the deficit continues to mushroom higher, one can only wonder how much higher the figure will go, especially since the mushrooming debt is likely to push not only the interest amount, but the interest rate, higher!

Welcome to the White House, President-elect Obama!