Thursday, January 15, 2009

Stock Rally #2 Sticks


Stalled Stock Rally

Going into the closing minutes of today's trading, the stock market rally has stalled and has once again turned negative. However, most of the loss has been erased. The closing minutes, as usual, are exciting!

Crude Finds New Low Below $34

What a stunning chart of the soon-to-expire front month crude oil contract! A picture is worth a thousand words!

Dow 8000 -- and $850 Billion -- Pump Bulls

Stock market bulls strongly defended the Dow 8000 level today, fueled by an announced $850 billion stimulus package by Congress. How long will this one last? It's anyone's guess!

Jobless Claims Continue to Rise

The moving average of jobless claims has spiked higher today.

Foreclosures Surprise Market, Spike Higher in December

"The /foreclosure/ numbers continue to go up frankly because none of the /prevention/ programs that have been adopted so far have had any material effect." Rick Sharga, VP Marketing, Realtytrac (Realtytrac specializes in providing data and services regarding foreclosures in the United States.)
From Realtytrac's website:
“State legislation that slowed down the onset of new foreclosure activity clearly had an effect on fourth quarter numbers overall, but that effect appears to have worn off by December,” said James J. Saccacio, chief executive officer of RealtyTrac. “The big jump in December foreclosure activity was somewhat surprising given the moratoria enacted by both Freddie Mac and Fannie Mae, along with programs from some of the major lenders and loan servicers aimed at delaying foreclosure actions against distressed homeowners.

“Clearly the foreclosure prevention programs implemented to-date have not had any real success in slowing down this foreclosure tsunami. And the recent California law, much like its predecessors in Massachusetts and Maryland, appears to have done little more than delay the inevitable foreclosure proceedings for thousands of homeowners.”
Realtytrac issued a report this morning that 2.3 million properties were subject to a foreclosure filing in 2008, a 81% increase from 2007. When considering that foreclosure filings had spiked higher in 2007 also, this is a gargantuan increase -- up 225% since 2006. Foreclosure filings were up 17% just in the month of December alone! It is a stark jolt back to reality, especially when during this same period, the government has been bending over backwards to modify mortgages and keep people in their homes that couldn't pay their mortgages. Realtytrac also reports that there are currently more than 1.5 million foreclosed properties in the system.

Nat Gas Price Drops Through the Floor on Weak Industrial Demand

While the arctic chill that has struck the eastern United States has created increased demand and prices for heating oil, collapsing industrial-sector demand has caused the floor to collapse under natural gas prices. This is an amazing development given that prices are now lower for natural gas than during all of 2007 and 2008. The price of natural gas has now fallen more than 70% since the highs last spring. I hope the various state utilities commissions will require that the gas supply companies provide either lower prices or a rebate to their customers!

Fresh Worries of Banking Crisis

Worries over the dismantling of Citigroup and the necessity of fresh capital injection into Bank of America by the U.S. authorities is creating worries of a system-wide banking crisis of confidence. Bank of American absorbed both Countrywide Mortage and Merrill Lynch in short order last year, and despite having 10% of the nation's savings deposits, has seen its share price steadily eroded as confidence in the banking system has failed to materialize. JP Morgan Chase has also been under pressure in recent days and weeks, after absorbing Washington Mutual late last year. The Dow has been lower throughout the evening and overnight session thus far.


Here is a related Bloomberg story.

Wednesday, January 14, 2009

Q4 GDP Revised Downward

JP Morgan today revised downward its estimate of the U.S. GDP for the 4th quarter of 2008. They changed it from -3% to -5%!

Stocks Freefall on 98% Down Day

Sellers today outnumber buyers today by nearly 50 to 1 volume. This is not a good day to be long stocks, because if you are, I'm taking money away from you. At the time of this writing, the Dow is down 300 points.

Retail Sales Slump Twice the Forecast Amount

Retails sales for November have been revised downward, and retail sales for December were also worse than anticipated, reflecting an even worse scenario than analysts had expected. Retail sales for December were down 2.7%. Chain store sales were down a staggering 9.8%, the largest drop on record. Does the bad news never end? Stock futures are reflecting the dour news. Folks, we may yet again test the lows from last November! Key support on the S&P 500 is around 850.

Here is a good summary by Marketwatch.

Madoff Ponzi Scheme Hits Pension Funds, and Now Tax-Payers - Hard!

This morning's news indicates that the Madoff Fund crisis may have been even more far-reaching effect than we thought even a few days ago. Why? This morning's news suggests that several pension funds ignored the tried-and-true principle of diversifying risk by spreading their investments across various asset classes and management companies. Several pension funds have now admitted that they invested their entire funds in a single management company -- Madoff's. Now, their pension dependents have lost their entire retirement, and the government's pension guarantee fund will be forced to foot the bill.
If there is any good news at all in this, it is that the pension funds involved have been relatively small. However, that is small consolation for pensioners whose life savings have been compromised, because the government guarantees will reduce their benefits substantially.

Conflict Between Weather and Crop Report

From Farm Futures magazine:

Monday's market was about surviving USDA's bombshell and /Tuesday's/ was about sorting the severely wounded from the slightly injured. Corn took a beating once again, while soybeans and wheat managed to bounce modestly on weather concerns. Yet, all suffered from bearish signals in the outside markets and ongoing index fund portfolio rebalancing.
Fund managers may still have every intent to own corn, soybeans and wheat for 2009, but bearish chart signals could tempt them to wait until a bottom is found to establish their long (bought) positions. Meanwhile, Wall Street is in the dumps once again, worried that the current economic crisis could struggle throughout much of 2009. That tends to add to bearish sentiment at a time when the market is already vulnerable.
The bright spot continues to be weather related, with adverse growing conditions providing support for both soybeans and wheat. Ironically, the rapidly rising new-crop soybean/corn price ratio may leave the U.S. desperately short of corn acres this year, with farmers reluctant to pay high input costs without a better promise from the market. That could lead to quite a wake up call for the market when USDA releases the results of its producer planting intentions survey on March 31 if things don't turn soon.

When conflict exists between bullish and bearish forces, consolidation and erratic trading can often be expected. The bearish USDA crop report two days ago conflicts with the bullish weather to create inherent volatility. However, since weather will put the larger-than-expected crop at risk, it would appear that the bullish weather forecasts will probably trump the larger crop expectations. Farm Futures particularly looks at longer-term weather patterns, with a La Nina pattern having developed in recent weeks. Until the weather looks more favorable, grains are likely to see price support. Thus, grains have rebounded higher overnight, and soybeans and wheat are showing particular strength.

Tuesday, January 13, 2009

Are These the Lies or the Statistics?

John Mauldin has more on the details and the real facts behind last Friday's awful jobs report from the U.S. Bureau of Labor Statistics. He says that these facts are in the BLS report and not not hidden, if someone just takes the time to look for them. He also states that the deceptiveness of the headline numbers are not due to conspiracy, but just the methodology that tends to understate the gravity of unemployment during times of economic trauma.

He has posted it under the heading, "Lies, Damned Lies, and Government Unemployment Numbers":

There are some who see a ray of hope in the recent jobless claims reports, which have dropped back to “only” 467,000 in initial unemployment claims, down from 491,000 for the last week, after being over 500,000 for several weeks. Those numbers are seasonally adjusted. That hope disappears if you look at the actual numbers. For the current reporting week ending January 3, 2009, the advance number of initial claims came in at 726,420. Last week’s advance number was 717,000. We have been above 600,000 new initial claims every week since the third week of November. Continuing claims jumped massively, by 744,000 to 5,316,124...

In December, the number of unemployed persons increased by a seasonally adjusted 632,000 to 11.1 million and the unemployment rate rose to 7.2%. Since the start of the recession in December 2007, the number of unemployed persons has grown by 3.6 million, and the unemployment rate has risen by 2.3% and is now at 7.2%.

I happened to be watching CNBC at the time of the release of the data, and several commentators remarked how much better the number was than they thought it would be. I wish they were right, but again, the actual numbers showed a loss of 954,000 jobs, over 50% more than the headline number reported in the press release. And that assumes that new businesses created 72,000 jobs from the birth/death model that I so frequently write about. It is possible that almost 1 million jobs were lost in December. I doubt the market would have liked that number.

I should note that the Bureau of Labor Statistics does not hide that number. You can find it if you dig for it. But most analysts seem to prefer just to take the press release and go with it. And most of the time that is fine. But in times like this, when trends are changing, you miss the bigger picture and get misleading data...

If you add people who have part-time jobs but would like a full-time job, and what are called marginally attached workers, the current rate is already 13.5%.

Even Mauldin's figures don't state the full total in a single figure. If we add the number of reported jobs losses and the assumed jobs created that weren't really created, the total jobs lost in December were:

1,026,000 jobs lost -- and that's one month!

Here is the entire newsletter.

Today's Grain Rally Feels Weak, Unconvincing

This chart shows the soybean futures intra-day just moments after today's close. After rallying more than 20 cents higher early in the session, soybeans closed only 7 cents higher. Needless to say, today's rally has largely fizzled. After this morning's rally at the open, soybean futures lost momentum fairly quickly, and had shown more and more weakness as the trading session progressed. After closing limit down 70 cents yesterday, closing only 7 cents higher today suggests continued weakness to my mind.

Corn gapped lower this morning, and continued to drop throughout the trading session. This is significant because corn and soybeans often tend to trade somewhat in lock step with each other, so when one or the other moves independently of the other, it is very noticeable. Wheat moved higher at the open, but like soybeans, slowly edged lower since. Wheat has now closed near the flatline for the day. This also suggests bearishness. I wouldn't be surprised if more selling/liquidations occur over the coming days, driving prices still lower. Of course, a weather event could change everything -- literally overnight! We will now be trading weather through mid-May 2009.
The daily chart (above) for soybeans shows how strong yesterday's limit down price thrusts were, but it also depicts visually how weak today's attempt at a rebound was. If, following a strong one-day move that crosses over the Exponential Moving Average (in this case, crossing below the EMA yesterday), prices attempt a rebound back toward the previous trend (in this case, soybeans had been on a solid uptrend throughout December and early January), but fails to cross back over (above) the Exponential Moving Average within the next few days, a confirmed new trend (in this case, a downtrend) is confirmed. The fact that the rebound did not cross back above the EMA into bullish territory, increases the probability of a confirmed downtrend. Once an EMA crossover occurs, I will only trade the direction of the new trend, in the hopes of entering the new trend at a fairly early stage to maximize my profit. Since today's rally appears to be faltering, by shorting grains today, I hope to take advantage of the early emergence of a new downtrend in grains, if it occurs. I will continue to place short-only trades as long as the closing price remains below the EMA, or until prices crawl back above the EMA and create a fresh uptrend.

A consolidation is obviously a possibility as well with these strong movements in price. It is possible that for several days, price may move erratically back and forth within a range. If a downtrend is not confirmed within a day or two, I will pull back and stop trading until a new trend asserts itself and is confirmed. If the Bollinger Squeeze indicator turns red (not shown), this is an indication of a consolidation pattern and tells me that I should stop trading that futures instrument and watch for a new trend to emerge.

Even though soybeans closed higher today, the daily chart clearly shows the weakness of today's higher close. Corn continued to drop significantly throughout the session, confirming a downtrend, and wheat, while rallying with soybeans early in the session, closed nearly flat, signifying potential further weakness ahead. Since corn futures have greater open interest than the other grains, its movements tend to carry more weight in my decisions. It's lower close today creates a bias in my mind for further downside potential.

Grains Struggle to Build Foundation Following Yesterday's Bloodbath

Grain prices, just as they did last week, have rebounded modestly following yesterday's limit down move. Corn remains week and has dropped modestly lower this morning, but soybeans (see chart) and wheat have not confirmed a downtrend, and have moved higher instead. Note, however, that in the daily chart for the grains (not shown here), the Klinger Volume indicator is showing a bearish divergence. When this occurs, I will tighten my stops and maintain tighter stops for the next few days until either 1) prices drop through my stop and liquidate my position, or 2) prices rebound solidly higher, suggesting that the bearish divergence wasn't valid. In either case, maintaining a tight stop beneath the recent lows will help me to both protect my profits and leave room to the upside for further price increases.

Dollar Moves Higher Like Fireworks as Trade Deficit Narrows

This morning's data that the U.S. trade deficit narrowed has provided rocket fuel for the U.S. Dollar. A smaller trade deficit is beneficial for the greenback. Go Dollar!

Monday, January 12, 2009

Crude Oil Sinks

Crude oil has also continued its decline, largely on anticipated weak demand due to poor economic conditions.

Grain Prices Collapse To Near Limit Down

Grain prices today collapsed to near limit down almost across the board. This chart for wheat shows the daily chart on the left and the 15 minute intra-day chart on the right. Note the huge downward spike on the daily chart that occurred right at market open today. The dotted line at the bottom of the upper panel of the 15 minute chart represents the exchange's maximum permitted downward move for today.
The large ETF DBA began an immediate sell-off when the stock market opened this morning, confirming the bearish market sentiment for grains one hour before the grain futures trading began trading at 9:30 am CST. I often look at this and other ETFs during off-market hours to gauge virtual market sentiment. This also works after the stock market closes because if ETF traders continue to sell the ETF after the grain market closes at 1:15 pm CST, it is likely that the futures will continue to sell off when trading resumes at 6:00 pm CST.

This chart is typical of grain prices throughout the entire spectrum. Corn and soybean prices also have either touched or are very close to limit down today. This is one reason why I always abide by Phantom's Rule #1 and keep extremely tight stop loss orders. If a trade isn't making money, I exit very quickly. I exited my soybean trade late last night that I initiated during the day session yesterday. When soybean prices collapsed about 1:30 am EST last night, my stop loss order was activated and I exited the trade with a modest profit. Corn and wheat prices were both soft during evening trading, which was a red light to me. Since then, grain prices have gone straight down! Crude oil prices also showed even greater weakness, putting additional pressure on the bio-fuel grains, corn and soybeans.

The USDA released a crop report this morning that was bearish for grains, with the USDA announcing greater than expected acreage plantings for spring 2009 for both corn and soybeans. Wheat was slightly bullish because the USDA estimated fewer acres planted in wheat (although they also increased the estimated end stocks due to lower feed demand) , but the price chart indicates the fervor of the sell-off today, with wheat plunging in sympathy to the other grains. Now, we will begin building a new base and I will look to find a bottom and reenter the market. If prices continue to drop this week, I will consider a short trade. I will trade weather conditions for the rest of the winter, as well as acreage updates for the next 3-4 months.

(Interest Rate) Eurodollar Futures Continue to Move Higher

This chart does not depict the Euro Forex futures, but the Eurodollar interest rate futures. Eurodollars are U.S. Dollars deposited in banks outside the United States. Like treasury futures, the price of Eurodollar futures moves inversely to interest rates, so this chart suggests that Eurodollar interest rates continue to drop.

Soybeans Continue March Higher

While corn has gone flat, the price of soybean futures continues to march higher overnight. Wheat is also marginally higher. On the left we see here the longer-term daily chart and the uptrend, and on the right, we see the tick chart showing the overnight price rise.

Friday, January 9, 2009

Soaring Soybeans

I believe that more investors are beginning to bet on future inflation by returning to the commodity markets. This is one reason why the price of gold has continued bouyant despite soft prices for other commodities. Soybeans are benefiting handsomely today. Other grains have also moved higher, but to a lesser degree.

The Myth That the Bad News Is "Priced In"

In John Mauldin's weekly newsletter last week, he invited Bennet Sedacca of Atlantic Advisors to write an opinion on the state of the U.S. economy. Here is a very brief excerpt from a very good opinion called "Setting the Bull Trap":

"Forcing money into risky assets is perhaps the most dangerous experiment ever done, and is so large in scale and so unprecedented that we have no idea how it will end. I expect it to end poorly and with hyper-inflation. The funneling of assets into risk is masking the deteriorating fundamentals and giving the appearance of a market that has bottomed. But this is sleight of hand, an illusion.
"The Fed has declared a war on savers, a war on prudence and provided the ultimate Moral Hazard Card-and with our money no less. They are also setting up the ULTIMATE BULL TRAP-a trap so large that when it is sprung, perhaps as early as the end of the first quarter/beginning of second quarter that there will only be sellers left.

  • Unemployment on every front is rising. market that has bottomed.
  • Tax receipts are down and State Governments are suffering.
  • The debt market, except that artificially supported by the Government is closed.
  • Earnings estimates for the S&P 500 are down 60% year-over-year.
  • Stocks (using the Dow as a proxy) are at the same level they were 10 years ago.
  • Industrial Production around the globe is imploding.

"Here is the magical question: "why is there is so much bad news, and is it fully discounted in prices?" If so, "why are the Fed, FDIC and Treasury Department so desperate to drive down interest rates to zero, buy troubled assets, ruin what used to be an efficient debt market in Mortgage Backed Securities, Corporate Bonds and Preferred Stock?"


Read the entire newsletter here.

Stocks Head South On Dismal Unemployment Data

Stock traders and investors must not have liked the internal data released by the Bureau of Labor Statistics, because now, the sell-off has begun. Note how solid the selling is over the past 30 minutes.

Grains Continue to Rebound Overnight

Grains have continued to rebound after Wednesday's losses, with soybeans (see chart) leading the way significantly higher.

Employment Falls 524,000 in December, Jobless Rate Climbs to 7.2%

The headline job losses in December were roughly as expected -- 524,000 jobs lost. However, traders were prepared for a much larger number, so the first reaction will likely be positive. The unemployment rate rose to 7.2% (highest since 1993).

The average hourly work week slid to 33.3 hours, and since this number is a leading indicator, it suggests even more job losses yet to come, since most employers cut hours worked before they cut the jobs themselves. This is the lowest average workweek figure in history since records were began in 1964. The implication of this is that job losses will continue to accelerate over the coming months! It is still getting worse!

The revisions for the previous six months (June - November 2008) have increased the job losses for each of those months. Most troubling to me was that service-sector job losses represented more than half the losses in December, since in previous months, this sector had remained fairly resilient and job losses were minimal. This suggests that job losses are spreading and broadening. This was the worst annual job loss in the United States since World War II!

From my experience, the initial reaction of the financial markets is usually short-lived. As economists begin to study the underlying internal numbers and react to those over the weekend, we may see a different reaction on Sunday evening or Monday morning.

From the U.S. Bureau of Labor Statistics website (pay particular attention to the household survey -- it is usually the most telling):

Nonfarm payroll employment declined sharply in December, and the unemployment rate rose from 6.8 to 7.2 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Payroll employment fell by 524,000 over the month and by 1.9 million over the last 4 months of 2008. In December, job losses were large and widespread across most major industry sectors.
Unemployment (Household Survey Data)
In December, the number of unemployed persons increased by 632,000 to 11.1 million and the unemployment rate rose to 7.2 percent. Since the start of the recession in December 2007, the number of unemployed persons has grown by 3.6 million, and the unemployment rate has risen by 2.3 percentage points.

Thursday, January 8, 2009

Grain Bulls Bounce Back

Despite the weakness in equity and crude oil markets today, grains have bounced back strongly. Analysts were expecting continued weakness in the grain markets, but grains have rebounded forcefully almost from the opening bell.

A Little Good News Today

Following the disappointment of Wal-Mart's earnings and sales announcements this morning, other news has helped to put a floor -- at least temporarily -- under the stock index futures. Target reported that their sales slumped only half of the expected amount.

Additionally, the U.S. government reported that new jobless claims were less than expected. However, this data is somewhat suspect, because yesterday, the government also reported that the telephone lines (for people to call in their new jobless claims) crashed because they were so overwhelmed from people calling in to place new unemployment claims. This can only be a very negative sign.

Wal-Mart Earnings Disappointment, Lower Earnings Forecast, Send Stocks Lower

The Wal-Mart earnings disappointment and revised lower earnings forecast has sent stock futures lower in early pre-market trading. As a Dow component, Wal-Mart shares are dropping in pre-market trading, sending both the Dow and S&P 500 index futures lower.

So How Bad Was December Retail?

This week, we are awaiting reports on how bad the retail Christmas figures were. The market is expecting bad news, but how bad is a question for debate. Here are a few headlines being released this week:
  • Costco Sales Fall 4%
  • Sears Drops 7.3%
  • Williams-Sonoma Comparable Sales Drop
  • Macy's to Close 10 Stores
  • Abercrombie Posts 20% Decline
  • Limited Sales Down 10%
  • Wal-Mart Expected to Outperform
  • Weaker Holiday Gift Card Sales
  • Supervalue Sales Decline
  • Wal-Mart Steers Profit Forecasts Lower
  • Saks and Nordstrom Remain Laggards

Note: Despite the above headline, even Wal-Mart's December sales were up only 1.7%, disappointing analysts, who expected a 2.8% increase. Sam's Club sales, like its competitor Costco, were down!

Bursting the "First Five Days of January" Myth

Every year, I hear the pundits on the various business channels perpetuate the debate about whether the first five days of January will be a predictor for the rest of the year. Mark Hulbert, who has spent his journalism career studying such phenemenons as indicators and especially market-sentiment indicators, wrote this piece today:

"...You can make no rational bet about the market's direction in 2009 based on how the stock market performs in the first five days of January."

Here is his article.

Earnings (Disappointment) and Lay-Off Season

The Dow is down another 50 points at this writing, and both Eurozone and Asian stock markets are down almost across the board. (So are my beloved grain futures.)

David Calloway wrote this prescient editorial on Marketwatch:

"Everybody should have known the holidays would only delay it. The freight train of job cuts, plunging earnings and massive spending cutbacks set to hit the economy was, thankfully, pushed back a few weeks while stunned investors and workers across the globe caught their breath after the worst fourth quarter in decades.
"...Earnings season, the time for companies to 'fess up just how bad it's been for them in the last three months, is here."

Read his entire commentary here. He says now, "the great dying begins".

And now, the earnings disappointments begin. Yesterday, the stock market dipped when three Fortune 500 companies all issued earnings disappointments and reduced their earnings forecasts. Two also announced lay-offs. The three companies were from different industries, but seemed to bring a cold dose of reality to the optimistic sentiment of the past few weeks, especially since a few were from sectors that had previously thought to be resilient. Last night, Lenovo, a technology company, also issued dissapointing earnings news, throwing more cold water on the idea that technology stocks would escape the bloodshed and pain. They won't.

I have thought throughout this recession that eventually, investors would be disappointed, since in past recessions, technology purchases, representing discretionary spending for consumers, have always been hit hard. Tech stocks are not a safe haven from the dip in consumer spending.

And here is an article from Bloomberg today about the effect on stocks due to an expected onslought of earnings disappointments:

Stocks in Europe and Asia dropped, sending the MSCI World Index lower for a second day, on concern the deepening economic slump is wiping out earnings growth and demand for commodities. U.S. index futures declined.

Here is the entire story.

Have a Glass of Milk! It's Very Cheap!

Milk futures have been plunging since the beginning of December. Why haven't prices dropped at the grocery story then?

Wednesday, January 7, 2009

Grain Bull Ends!

The grain markets have signalled an end to the bull trend that lasted throughout the month of December. The collapse in equty markets today appears to have been the cause. If prices confirm by moving lower during the next trading session (this evening or tomorrow), then a complete liquidation of grain futures is warranted.

Note: Grain prices moved lower across the board during evening trading, confirming the sell signal. The grain bull is dead!

Bank of England: Lowest Interest Rate in Over 300 Years!

From Marketwatch tonight:

On Thursday, the Bank of England is widely expected to make a landmark statement of its own.
Facing what many economists expect to be the deepest recession since World War II, the nine-member Monetary Policy Committee is seen as virtually certain to drop the central bank's key lending rate to the lowest level since its founding in 1694.

Here is the full story.

The Magnitude of the Monster

Great editorial from the Wall Street Journal tonight:

Whether or not you think new spending will stimulate the economy, the one undeniable truth is that this money has to come from somewhere, which means that it is borrowed or taxed from the private economy. This spending blowout is all but guaranteeing huge future tax increases, and anyone who thinks only the rich will pay is living an illusion. Taxpayers need some new champions in Washington -- and fast.

Read the entire article here. Be prepared to be afraid. Very afraid!

CBO Projects Staggering $1.2 Trillion Deficit -- Before Counting the Obama Stimulus!

From Marketwatch today:

The U.S. government will run a $1.2 trillion budget deficit in fiscal 2009, the Congressional budget Office estimated Wednesday, offering a stark assessment of the red ink facing the country and the incoming administration of President-elect Barack Obama...
"The overall deficit number is a challenge to President-elect Obama, who is seeking to enact a major stimulus plan of close to $800 billion...
"Enactment of an economic stimulus plan would add to that deficit," the CBO warned Wednesday..."
Here is the rest of the story.

Do you get that? This article is suggesting that the total 2009 U.S. Government deficit is likely to reach $2 trillion this year, if the Obama economic stimulus package is enacted as expected! And that doesn't even include the debts and balance sheet obligations incurred by the Treasury and Federal Reserve!
Perhaps this is why treasuries are selling off today (see above chart).

Poor ADP, Earnings Sock Stocks

The ADP unemployment report this morning was worse than expected, manifesting additional weakness in the United States economy. This month, however, instead of job losses being centered in the construction, housing, and financial sectors, the majority of job losses occurred in the services sectors of the economy for the first time. The ADP jobs report includes only private-sector jobs losses, and occurs as a precursor to the BLS (government) jobs report on Friday. However, since ADP reported that the private sector job losses alone were 693,000 during December, it raises questions about how bad the BLS version will be on Friday. ADP reported that they have adjusted their methodology so that it more closely reflects the BLS figures due out on Friday. If this is true, in future months the ADP figures may take on greater significance to investors.

Tuesday, January 6, 2009

Transferring the Risk -- To the Taxpayers

From Bloomberg today:

Chairman Ben S. Bernanke sees the thawing of frozen credit markets as critical to a recovery, and is determined to try to prevent a second wave of credit distress as the U.S. weathers bad economic news over the next two quarters. The Fed is now looking at ways to revive lending by using its balance sheet to hold loans and bonds that investors don’t want.

Here is the complete story.

It is my belief that as long that the United States Congress continues to spend without limit, the Federal Reserve Bank continues to print without limit, and the United States Treasury continues to borrow without limit, the future will eventually reflect a very ugly scenario!

The New Commodity Bull

Just when the central banks of the world are deluding themselves with the idea that inflation is under control, commodity prices are surging much higher once again.

Soybeans (other grains have similar charts) - up 30% over the past month

Crude Oil - up 40% in 7 trading sessions. Crude has touched $50/barrel today.

Tuesday, December 30, 2008

Case/Schiller Beyond Dreadful

The Case/Schiller home price index for the past few months was reported this morning. It indicated that not only is it much worse than expected, but it also suggests that the bottom in housing is still far away. In October alone, home prices were down more than 19%! Housing prices will almost certainly continue to decline.

Monday, December 29, 2008

Company Matches for (401)k Being Suspended

We are seeing more and more company match plans for (401)k plans being eliminated. Fedex was the latest today to eliminate the company matching funds for the retirement funds. Pensions have already come to an end over the past few decades. Now, even company matching funds are coming to an end. Americans must eventually come to realize that they alone are responsible for their well-being and retirement. We will learn that lesson voluntarily, or involuntarily, but we will learn that lesson. Government will not be able to provide it for us!

Liquid Illusion

Here is an excellent article on global central bank attempts to create liquidity, and why it is largely an illusion of liquidity. Delusions of reserve grandeur? Great article by Satyajit Das!

In recent years, there has been speculation about the amount of capital or liquidity available for investment globally. The substantial reserves of central banks and their acolytes, sovereign wealth funds, were frequently cited in support of the case for a large pool of "unleveraged" liquidity − that is, "real" money. In reality, the available pool of money may be more modest than assumed.

Click here for the entire article.

Dollar, Ruble Continue Devaluation Tumble

The Dollar overnight has shown new signs of vigor in its devaluation drive. The Russian central bank has also devalued the ruble for the eighth time this month.

Here is the FT story on the ruble.

Here Come the Bankruptcies

Now we are beginning to see the corporate bankruptcies. The retail federation predicts that 12,000 major stores will shut their doors in 2009. This is only the beginning! The retail federation also estimates that 73,000 small retail stores will shutter their doors this year! That is a mind-numbing figure, especially when one begins the number of lost jobs that will result from those losses!

U.S. retailers face a wave of store closings, bankruptcies and takeovers
starting next month as holiday sales are shaping up to be the worst in 40 years.

Here is a Bloomberg article: Holiday Sales Slump to Force Store Closings, Bankruptcies

Friday, December 26, 2008

Investors Betting on Inflation, Dollar Devaluation

Investors are beginning to show concerns for inflation again, as they are buying gold and agricultural commodities. We have now seen a divergence between consumption commodities like energies and industrial metals, and food and safe haven commodities like gold and grains. As long as economic conditions remain weak, consumption commodities will also remain relatively week. However, as long as financial fear motivates people, and they can't get yield from fixed income investments without high risk, both food and precial metals futures will remain strong. This chart shows the surge in gold on today's intraday charts. Despite this, even crude oil has moved 7% higher today, pushing the Dow into positive territory for the day on energy company strength.

Grains Continue to Move Stoutly Higher

Look at the size of that last candle on this daily chart for soybeans today. That maribozu candle says it all -- that grain commodities are in a new bull trend! Soybean prices have been higher 11 of the last 14 days. Weather will be the primary driver for grains from now until Sping '09. And to think that all the analysts' opinions that I read each day indicated that grains would open flat to lower today! At the same time, however, this bull trend is beginning to look a little too parabolic for my comfort. I wouldn't be surprised to see a retracement soon, before prices continue even higher.

Headlines Influencing My Trading Today

I am watching the following headlines that are likely to affect my trading today:

Retailers' Holiday Sales Drop 5.5 to 8%

Great Series of Articles on Finance in Russia on FT

Battered Commodities to Perk Up in Late 2009

Russian Trading Halted After 12% Drop

CA Courts Affected By Budget Crisis

Moscow Agrees to Oligarch Bailout

Japan's Factory Output Plunges 8.1% to 55 Year Low

Holiday Sales Tumble as Consumers Cut Spending

Russia's Central Bank Devalue Ruble Again

GMAC Now Bank Holding Company

Monday, December 22, 2008

2008 Bailouts Cost Most Than All U.S. Wars Combined

The total value of the bailouts undertaken by the federal government in 2008 now exceeds the combined cost of every major war the United States has ever engaged in, according to a comparison of war costs calculated by the Congressional Research Service (CRS) and the value of the bailouts as calculated by Bloomberg News or Bianco Research. According to CRS, all major U.S. wars (including such events as the American Revolution, the War of 1812, the Civil War, the Spanish American War, World War I, World War II, Korea, Vietnam, Iraq and Afghanistan, but not the invasion of Panama or the Kosovo War), cost a total of $7.2 trillion in inflation-adjusted 2008 dollars.

Volume This Week Just 1/3 of Normal

The trading volume for many futures this week is only about 1/3 of normal. I have decided that liquidity is so poor, I'm not going to attempt to trade again until next week.

From Junk to Junkier

From Bloomberg:

General Motors Corp. and Ford Motor Co., the two largest U.S. automakers, had their debt cut further below investment status by Standard & Poor’s and Moody’s Investors Service.
GM’s unsecured debt was trimmed one level to C, or 11 grades below investment quality, by S&P. Moody’s lowered its rating on $26 billion in Ford debt by two grades to Caa3, or nine below investment quality.

Click here for the entire story.

Stocks: Five Consecutive Down Days

Today was the fifth consecutive negative day for stock index futures. However, it has taken these five days to eliminate all of the last stock market rally that occurred last Monday, one day before the Fed's rate decision. Sometimes it seems that an eternity can occur in one week!

Dollar, Ruble Both Devalued Today

From Bloomberg:

The dollar fell for a second day against the euro before U.S. reports today that economists estimate will show sales of new and existing homes approached the lowest level in at least nine years in November... The ruble slid to the lowest level against the dollar in almost three years as Russia devalued the currency and tumbling oil prices battered its economy.
Click here for the entire story.

Stock Market Slow Leak Today

After spending much of the trading day trading without much direction, we are now seeing a slow slide downward.

Toyota Expects 2009 Operating Loss

This morning, Toyota announced that it expects its first operating loss in 70+ years during 2009. The company also admitted that selling hybrid cars, including the Prius, is a money-losing proposition. Hybrid cars are so expensive to make that they lose money on each one they sell.

Interestingly, during the recent testimony of the auto company CEO's before Congress, they promised to build more and more hybrid cars. If these companies, including Toyota, can't build a hybrid and sell it profitably, then how will the Big Three American can companies become profitable by promising to build and sell more hybrids?

Bailout Du Jour: Commercial Real Estate Developers Line Up at the Taxpayer Trough

Commercial real estate developers are now approaching Congress for a bailout, saying that commercial real estate mortgage defaults are now rising rapidly. The developers have told regulators that because credit has tightened, they are having difficulty rolling over their loans when they come due. Commercial real estate typically uses mortgages of 3-5 years, especially during the construction phase, after which they roll them over to new mortgages, often with a different lender. The tight credit market, combined with rising default rates, is proving to be a perfect storm in the commercial real estate market.
Regular readers will recall that about two weeks ago, I mentioned here that Eric Hovde had predicted that commercial real estate would eventually result in another economic crisis, and another shoe would fall.

"I Think It's Going to Be Getting Much Worse"

The above statement was made by John Dugan, U.S. Comptroller of the Currency on CNBC this morning. The Comptroller of the Currency is the administrator of the national banking system. He was reporting on a study recently released that indicated that loan modifications are not successful in averting mortgage default and foreclosure for most of the homeowner-borrowers that have been its beneficiaries.

“Re-default rates increased each month and showed no signs of leveling off after six months,” Dugan said in a statement. “This trend of increasing delinquencies underscores the need to understand why these modifications have not been more sustainable.”

Mr. Dugan wasn't sure if the modifications don't work because the modifications weren't drastic enough, or if the people simply were in over their heads so deep that no form of loan modification would have any hope of helping them. In either case, between 50-60% of loan modifications result in new defaults and foreclosures within 6 months of the modifications. Doesn't it make sense to know this before the modifications are made so that taxpayer funds aren't wasted by throwing good money after bad? (One of my cardinal rules of trading is never, never, never add to a losing position. You always lose money that way.) Regardless, this is why Mr. Dugan said that the mortgage crisis is going to get much worse and foreclosures are certain to continue to rise! (And Congress will continue to create more debt so they can throw good money after bad!)

Difficult Trading Expected This Week!

Many traders have either finished their 2008 trading year or have simply gone on vacation. Volume is light and price action is very choppy. We should expect difficult trading conditions, with erratic price action for the balance of the year, but especially for the next few days before and after Christmas.

Soybean Meal Still Looks Good

Soybean meal has been up 9 of the past 11 days! I had been trading soybean oil, but it has been flat for the past week. Perhaps meal deserves more of my attention! I sure like this chart! Soybeans has also continued to rise, but not as solidly and consistently as the meal. Wheat and corn are showing signs of price exhaustion the past couple of days.

I am watching the grains closely, but I am also watching stocks and the Dollar. The price of grains over the past few months has been linked to both to some extent. If the Dollar drops, that will be supportive of grain prices. The same holds true to a lesser extent with stocks. If stocks rise appreciably, that is also supportive of grain prices. If, on the other hand, the Dollar rises and stocks drop, it will tend to suppress grain prices.
But what will happen if a combination of the above occurs? For example, what effect with we see on grains if the stock market tanks, and the Dollar drops also? All bets are off in that situation. Perhaps we would see a consolidation, which is typical in an environment of conflicting fundamentals.

How Does the Fed Find the Money To Buy All Those Treasuries?

Isn't that a good question? The answer:

They print them! Yes, out of thin air! Or computer 1's and 0's!

How strange that the Fed would try to stimulate the economy by printing more and more money, and using that money to buy more and more treasuries to suppress interest rates. Mean while, Congress is trying to stimulate the economy by going deeper and deeper in debt, selling more and more treasuries. It seems like a very vicious circle.

This same method of stimulation, known as quantitative easing, was used by Japan over the past 20 years. Unfortunately, it didn't work. But unlike Japan, the United States doesn't have vast reservoirs of foreign reserves to spend. The United States is building up only one thing: debt!

U.S. Federal Deficit Skyrockets

As if the U.S. Government debt wasn't high already, we have just jumped from the frying pan into the fire.

Federal spending grew 25 percent in 2008 according to a joint White House-Treasury Department report released this week. Taxpayers will end up more than $1 trillion this fiscal year alone (2009) in the hole thanks to this steep rise, which is accounted for mostly by significant growth in veterans' benefits and tax revenues that have remained static due to a yearlong recession. The scary part is that this trillion-dollar red mark comes before Uncle Sam's bailout escapades are taken into account. President-elect Obama's plan for another stimulus package early next year will only increase the federal deficit, which went from $162.8 billion in fiscal 2008 to $454.8 billion just one year later. But never fear, members of Congress are set to receive a pay raise of $4,700 a year beginning in January.

This "damn-the-torpedoes" strategy of not worrying about the deficit during times of economic strain will one day sink the American economy. This year, the federal government will spend $450 billion on just the interest on the national debt. Again, that's interest on last year's total federal debt. That interest payment ranks fourth in total government outlays, behind Medicare-Medicaid, Social Security and defense. In 30 years, the government's current tax revenue will cover only half of what it owes. We're soon going to be looking for change, all right. Pocket change!

Sunday, December 21, 2008

The Shrinking S&P 500 Index

From Marketwatch.com:

"Standard & Poor's said late Thursday that it has changed the market capitalization guidelines for its U.S. indexes, cutting what a company needs to be worth before it can enter one of its categories. For large-cap stocks, reflected by the S&P 500, the value was cut to $3 billion from $4 billion."

Click here for the entire story.

Saturday, December 20, 2008

John Mauldin on Stocks

John Mauldin subtitled this week's newsletter, "Collapsing On Schedule". It appears aptly named. And guess what? Mauldin considers himself optimistic. He expects a recovery in late 2009. He is definitely no perma-bear!

"So a P/E of 15 at the stock bottom sounds reasonable, but would put the S&P 500 index at 600 then, down 32% from here and 61% below its record close on Oct. 9, 2007. Wow! .... Last month, the S&P 500 fell below 777. It has since bounced, but probably not for long as new lows lie ahead."

Note: The S&P 500 index closed yesterday at 887.88. A decline to 600, as Mauldin forecasts here, would be an additional 32% decline from yesterday's close.

Mauldin on Quantitative Easing by the Fed

"Washington officials cringe at the suggestion that these measures amount to "quantitative easing," the Japanese policy initiated in 2001, because it failed to rapidly spur Japanese bank lending and the economy and arrest deflation. The Bank of Japan drove its target rate to zero with no effect and then tried to hype the quantity of money by buying government bonds, asset-backed securities and even stocks.
[My Note: just this week, the Japanese government announced that it will spend more than 220 billion dollars to once again buy stocks in an attempt to put an artificial floor under the Japanese stock market. It didn't work last time, but... At least the Japanese can do it with reserves instead of going into debt like the U.S.!]
"Current quantitative easing by the Fed may not be any more successful than it was in Japan since the global financial system is in a classic liquidity trap, as in the 1930s when bankers were defined as people who wanted to lend to those who didn't need to borrow and didn't want to lend to those who did. Today, banks don't want to lend to anyone but the U.S. Treasury.
"Conventional monetary policy ease through central bank target interest rate cuts at present is nearly useless, i.e., pushing on a string. Qualitative easing, now actively pursued by the Fed and the Treasury and by central banks and governments abroad, will probably at best only stabilize demoralized financial structures by substituting government securities for questionable assets with little near-term rejuvenation of lending and economic activity. "

FDIC Woes! Hedge Funds Collapse!

More from John Mauldin:

"The FDIC recently announced that the institutions it insures had only $1.7 billion in earnings in the third quarter, down from $28.7 billion a year earlier. And financial troubles aren't confined to banks. Many hedge funds have suffered huge losses on their highly leveraged positions this year. And their sales of securities to limit further losses and to meet investo redemptions are adding downward pressure on many markets. In some, assets are down 50% while others are folding their tents and still others are limiting redemptions, only adding to investor restiveness. Redemptions are expected to jump early next year."


Note: If the banks that the FDIC insures slide further and begin to lose money as a group, instead of the meager $1.7 billion in profits they earned in Q3, then they will be undercapitalized once again, despite the injection of $350 billion of taxpayer funds into the system. They won't be able to resume lending because their reserve requirements will still force them to raise additional capital and hold onto their cash instead of risking it by lending it out.
Hedge fund redemptions were the primary cause of the plunge in the stock market during the fall of 2008. If Mauldin is correct in forecasting additional redemptions in early 2009, this could precipitate the plunge in the stock market the he forecasts in my later post.

Housing and Economic Update: Realty Reality Check

John Mauldin's latest newsletter has an economic outlook for the first half of 2009. It includes an update on the status of the housing sector. Here is a brief exerpt:

"At present around 12 million homeowners, a quarter of those with mortgages, are underwater with their houses worth less than their mortgages. Among those who bought their homes in the past five years, 29% are underwater. If our forecast of a 37% house price fall is reached, about 25 million, or almost half the 51 million with mortgages, will be underwater."

Click here to read the entire newsletter.

Friday, December 19, 2008

Stock Sizzle Turns to Stock Fizzle

The bulls need to step things up soon, or sentiment could turn negative in a hurry. This would be a terrible shock to see the most bullish news this week turn into a rout instead.

Corn Sales Down, Prices Follow, As Do Other Grains

The USDA has reported that corn sales for the new crop year (started Sept. 1) are well behind last year, causing grain prices to open down today. U.S. corn sales are 700 million bushels behind the 2008 crop year pace after just three months. The stronger U.S. Dollar is also suppressing prices.

Despite that wheat opened lower also, there is growing concern of damage to the winter wheat crop in the ground. Lack of snow cover and icy temperatures threaten to damage the crop. Snow cover helps to protect the tiny seedlings because it insulates them from the coldest temperatures.

Oil Dips Below $34 on Expiring January Contract

Interestingly, however, the February contract is still priced much higher, as traders are anticipating much higher crude oil prices to come.

S&P Downgrades Debt Ratings on Largest Financial Institutions

Standard and Poors has now dowgraded the debt on 11 major financial instutitions, including Bank of America, Deutsche Bank, JP Morgan, Morgan Stanley, Wells Fargo, and Goldman Sachs. And to think that JP Morgan, Bank of America, and Wells Fargo were touted as the strong ones that could rescue some of the others! Ouch!
Even more bad (debt) news. Jumbo prime loan instruments are also now being downgraded too as default rates are rising rapidly. This is ominously frightening in that it portends the likelihood of a flood of new mortgage defaults and foreclosures on the homes of America's wealthy borrowers.

Oh What a Relief Rally... It Is!

Stocks rallied upon the revelation of the details of the auto company bailout revealed this morning by President Bush. Unfortunately, the terms of the loan can be changed at any time, so Mr. Bush is merely passing the baton in a relay race. This creates even more uncertainty about the future than the bailout that Congress was negotiating. Is that perhaps why the rally is starting to fizzle already, just 15 minutes after the news is announced?

Auto Bailout: $13.4 Billion Sticker Shock

From Politico.com:

"President Bush is announcing a $17.4 billion bailout for auto manufacturers, with the loans contingent on the firms proving that they can become "viable" ongoing firms. Of the total, $13.4 billion will be paid out in December and January. The last $4 billion is contingent on the second installment of the Wall Street bailout funds from Congress."

Here is the full story.

GE's Investment Grade Bond Rating at Risk

Standard and Poors has downgraded the debt rating of General Electric. It has now rated the likelihood of GE's debt being downgrade to below investment grade at 30%.

Thursday, December 18, 2008

Here We Go Again! BOJ Threatens Interventions!

The largest trading loss I ever took occurred about 4 years ago when the Bank of Japan intervened in the currency markets just after I took a trade. I sold the USDJPY currency pair with several lots shortly before the Bank of Japan intervened to suppress the Yen to protect exports. I not only got clobbered, I added to my position and held onto it until the losses became so great that I could no longer endure the pain.

Here we go again! The Bank of Japan has now begun engaging in verbal interventions in the currency markets because the Yen has been rising steadily for several weeks. Now, with the Dollar falling following the Fed's interest rate cut to 0%, the Yen is rising even against the Dollar. Eventually, once the verbal interventions are no longer effective, the Bank of Japan will once again intervene with huge injections of trillions of Yen to push the price of the Yen downward.

Credit Suisse Predicts 4X More Foreclosures

From Bloomberg tonight:

"Over the next four years, 8.1 million U.S. mortgages will enter foreclosure as the recession worsens and home prices continue to fall, Credit Suisse said in a Dec. 4 report. Banks, insurers and mortgage companies have recorded about $1 trillion of losses worldwide since the start of the global credit crunch in 2007."

This is a staggering figure considering that so far, about 2 million homes in America have entered foreclosure! Folks, we are just getting started!

But it gets worse! From the same article:

"Almost 53 percent of borrowers whose loans were modified in the first quarter were more than 30 days overdue by the third quarter, John Dugan, head of the Treasury Department’s Office of the Comptroller of the Currency, said last week at the National Housing Conference in Washington."

This article is telling us that all those loan modifications don't work! Once the ink is dry on them, people default on their loans again and their homes go back into the foreclosure process a second time!

Click here for the full story.

Wheat: Yes, They Call This An Uptrend

Wheat has been moving solidly higher for two weeks now, primarily because weather conditions for winter wheat are not good. Concerns for winterkill are rising, and with it, so are prices. Also, Argentina has cut its wheat forecast.

Stock Market Free Fall Means the Bears Won Today


We have now wiped out the entire Fed rally from Tuesday!

Strong Forces Battling in Stock Markets

After the 359-point rally of the Dow following the Fed's announcement two days ago, a few forces appear to be in a deadly battle for the foreseeable destiny of the stock market. Prices closed convincingly higher than the 50-day moving average on Tuesday, which is highly significant, especially for longer-term traders. Prices have also remained above the 50-day moving average since then. This is quite bullish!

On the other hand, prices have shown no follow-through to move higher over the past two succeeding days. Today's pattern looks like radio static, and is nearly impossible to trade with any consistent success. We may also see a new round of hedge fund redemptions within the next few weeks, as investors try to cash out. We have yet to see a genuine sense of capitulation in the stock markets, despite all the bloodshed. There still remains an amazingly resilient and optimistic set of investors that haven't seen the need to "get liquid" and move to cash yet. Additionally, bond traders are seeming to predict a depression, and these guys have one of the most accurate track records in a historical sense. This is quite bearish!


Thus, we see a classic bull/bear battle playing out in the stock market index futures. This typically results in a consolidation pattern. Add to that the fact that volume is weak during the Christmas Holiday season, and we could see some very interesting patterns over the several days, probably lasting until the new year, when volume levels, along with many traders, will return to the markets.

EUR/USD Currencies: Too Far, Too Fast

After the plunge in the value of the Dollar over the past few days, I have begun to think that the Dollar had fallen too far, too fast. Likewise, the Euro had climbed against the greenback too far, too fast.

This wasn't surprising, given the shock delivered by the Federal Reserve on Tuesday. Even with the Federal Reserve's notice that it was reducing rates to 0%, and its new strategy of quantitative easing, the Euro had been rising rapidly (Dollar falling rapidly) for at least a week before the Fed's shock. By looking at the daily chart of the Euro (not shown, this chart shown here is the intraday for today), I couldn't help but notice that even the opening prices occurred outside the Bollinger Bands. That phenomenon can be easily seen on my previous posts of the Euro and Dollar over the past few days. That means that prices were printing at three to four standard deviations outside the norm. The statsitical probabilities of that occurring, much less being sustained at that pace, are astronomically and statistically small. Interestingly, today's retracement, as shown on the daily chart, is a relatively small one.

Needless to say, that is a parabolic price move by any standard or measurement. It is unsustainable for more than a few days. With such a rapid and powerful movement, we are more likely to see a Cahen bubble pattern rather than a long, sustained set of parallels (see earlier posts explaining the two, or Cahen's book). Thus, as I was reviewing my charts last night and noticing such extreme price movements, I began expecting either a regression to the mean (reversal) or a consolidation for a few days until the bands -- and market sentiment -- can catch up. We may then see another strong movement higher (for this chart, the Euro).

Does that mean the Dollar downtrend/Euro uptrend is over? Not necessarily, but we certainly need to take a breather for a few days, at the very least. After such a monstrous move in the currency markets so quickly, a consolidation period is not only warranted, it is expected. In fact, the more extreme a movement is, the more likely the market is to reverse rather than merely consolidate. We'll know which it will be within a few days. My bias is for further downside to the Dollar, but now that I have acknowledged my bias, I will try to ignore it in trading.

I have noticed also that after such a forceful and fast movement, there are often unintended consequences, or perhaps better said, unexpected effects, that follow within a few days. These unexpected effects tend to amplify the original movement. Forces are set in motion that become almost unstoppable, and we never know what those forces will be or what they will unleash! Sometimes those forces take a few days to creep through the financial system and take effect. Hence, my bias for a deeper Dollar plunge. But no one really knows. Anything can happen in the financial markets.

Obama Increases Size of Proposed Stimulus Plan

From Bloomberg:

"Barack Obama may ask Congress next year to approve a stimulus plan of around $850 billion, an amount that has grown as the U.S. economy sinks deeper into recession, an adviser to the president-elect said."

Wednesday, December 17, 2008

Crude Oil Dips Below $40

From Breitbart.com:

Oil prices tumbled below $40 for the first time since the summer of 2004 Wednesday despite an announcement from OPEC of a record production cut of 2.2 million barrels a day...
"There's just so much oil in inventory out there right now," said Michael Lynch, president of Strategic Energy & Economic Research. "Nobody wants to buy this stuff."
Crude prices have fallen so low, producers have leased supertankers to store the oil at sea, hoping that oil will rebound.

Click here for the full story.

Wow! Amazing that on a day when OPEC cut production by 8%, the price of crude oil on the Jan 09 contract briefly dipped below $40/barrel.

Russia Considering Joining OPEC

“I would like to say that we are prepared for this [joining OPEC]. We must defend ourselves, since this is our revenue base, both from oil and gas. These kinds of defensive measures could be tied to lowering oil production, and participating in the existing suppliers organization, and participating in new organizations, if we can come to an agreement beforehand, so to speak.”

Russian President Dmitri Medvedev

If Russia does join OPEC, Europe will be even more at the mercy of Russia, since it buys much of its energy resources there. It could have costly consequences for Europeans who like to drive or stay warm in the winter.

Cuckoo for Cocoa!


I looooove chocolate, especially when the price is rising due to lack of supply from African producers! And I like even more every day!

Some of the Immutable Laws of Trading

Today I posted a comment to help a fellow investor/trader on Marketwatch.com.
Here is an excerpt of my comment:

"One of the cardinal rules I use in trading is called Rule #1 from a book by a very successful trader (who, by the way, gives it away FREE):
"Rule #1: Assume it is a bad trade until proven correct! Positions established must be reduced and removed until or unless the market proves the position correct. (from Phantom's Gift -- see my blog site for more info on the book -- absolutely at no cost whatsoever.)
"This rule has saved me a lot of pain, and has ironically also made me a lot of money! Not only is maintaining a losing position bad for my pocketbook. It is bad for my emotional state and it gives control of my money to the market instead of me keeping control of it in my hands."

If you'd like to read my entire comment, including some other laws of trading, you can read it here:
Treasuries Rise Again

The essence of Rule #1 is that you only stay in a trade if it is a profitable trade within a reasonably short period of time. All other trades are exited quickly! You don't put on a trade and then sit around praying that it will make money, all the while waiting with white knuckles and baited breath. By doing this, I save not only my money, but my sanity! I also guarantee that I will have money to trade another day!

Building the Treasury Bubble

Treasuries continue to move even higher. This is one monster bubble!

Has anyone stopped long enough to ask what is going to happen to interest rates when this bubble pops and/or the Fed starts to sell all those treasuries it is buying? One should consider also that when the Fed starts to sell, so will many other traders and investors. Just as many other investors are buying treasuries today (don't fight the Fed, right?), pushing them into bubble territory, when the Fed starts to sell, other investors will sell treasuries also. When that happens, I shudder to think what the consequences will be, both for the American People, and for interest rates!

Now THAT'S a Bull Market!

The Euro is in a new bull market -- higher 10 of the past 12 days (and if you blinked, you'd miss the two tiny dojis where the Euro closed lower). The Euro is higher for the past 6 consecutive days! Now that's one raging bull!

Dollar Continues to Tumble, Euro Continues to Climb

The US Dollar today:
The Euro today: