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!

Are American Capitalism and the American Republic DEAD!?

Overnight, we saw the fifth U.S. government intervention with 24 hours. Even the injection of $180 billion yesterday couldn't prevent the collapse of the house of cards, so they decided to catch and rebuild the cards with a $500 billion bail-out of the entire banking industry and all its toxic bad debt, short-selling ban for 800 companies, money market account guarantees, etc. The American capitalist republic is dead or dieing!

Less than 20 years after the defeat of Soviet socialism, American socialism has arisen. A fitting and timely conclusion to my blog entries.

Welcome to Amerika, comrades! The Devil himself must be laughing!

No More Blogging

I have decided to cease blogging. Why? I created this blog as a journal of my trading. However, I've realized that it is taking time away from my trading. I'm becoming too much author and not enough trader. I've allowed myself to be distracted. No more! This is my last blog entry. I'm taking a vacation for the next two weeks, and won't be writing anything more on my blog when I return.

The New Reality -- Russia Is Back

Stratfor has provided a fascinating analysis of the new world now that Russia is back as a world power. Here is an excerpt:

Putin has tapped many former KGB and current FSB members to fill positions within Russian big business, the Duma and other political posts. Putin’s initial reasoning was that those within the intelligence community thought of Russia the same way he did — as a great state domestically and internationally. Putin also knew that those within the intelligence community would not flinch at his sometimes brutal means of consolidating Russia politically, economically, socially and in other ways. It could be reasonably argued that Russia has become an “intelligence state” under Putin.

Since assuming power, Putin has also worked to strengthen the Russian military and the GRU, Russia’s military intelligence agency. The GRU was undoubtedly very involved in the operation in Georgia, as was the SVR. There are some who suggest that Russian agents of influence may have played a part in convincing Georgian President Mikhail Saakashvili to attack South Ossetia and spring a trap the Russians had set.

Here is the entire article:

The Second Cold War and Corporate Security

Read in particular the section on the implications for business.

Along the same lines, John Mauldin, in his weekly newsletter this week, also has a fascinating article. For example, did you know that that largest KGB office in the world is in Mexico, just as it was during the Cold War? Guess who it is spying on! And did you know that the only country on the planet that recently recognized the breakaway regions of Georgia as part of Russia was one of the United States' neighbors? (Hint: It wasn't Cuba or Venezuela.)

The Russian Resurgence and the New-Old Front

What's Happening Tonight to the Yen?

The Yen has fallen off a cliff tonight. I have no idea why, but look at this chart. It even shows up on the daily chart as a hug maribozu candle.

Has the Federal Credit Card Reached It's Credit Limit?

Here is an interesting article today in the Financial Times that seems to suggest that the Fed is reaching its limits.

The Fed's Out of Money

Oil UP $11 in Two Days

Fill your gas tanks, because cheaper crude oil may have reached an end. Yesterday's inventory report showed a surprising decline in available crude oil.

That Wasn't Enough? $55 Billion More

The Fed has just issued a statement that they have just injected an additional $55 billion into the global financial system. They are "flooding the world with money", according to Steve Liesman, Senior Economics Reporter at CBNC.

Crude oil is up nearly $10 in the past two days. Inventory reports by the US government yesterday morning showed significant draw-downs.

Ultimately, the creation of vast amounts of new money, while the economy is contracting, is inflationary. Funds that are seeking to preserve their capital are once again buying commodities, and especially gold. The money must go somewhere, and the money is likely to go to hard assets. That mean higher inflation in the 6-9 month time frame.

Inflation must go higher. It's guaranteed!

Central Banks Inject $247 Billion More Into Global Financial System

In the past twelve hours, global central banks have injected another $247 billion through swap lines overnight. Eventually, all this new money going into the global monetary system will likely stoke inflation. These are days of unbelievable events and desperate times.

Dow Drubbed 449 Points!

What a day! After erasing half the stock market losses just one hour before the market close, stock plunged a second time, setting new lows for both the day and the year!

Mayhem in the Markets!

Gold has now risen today by more than $90/oz, the biggest one-day leap in history. This is pure fear leading investors to buy gold as the ultimate safe hedge of value.

$230 Billion

That's the amount of interest the American people will pay this year on the national debt. That is a staggering amount.

Buuuuy Cooooooorn!

The pic says it all!