$1.43 Trillion in Federal Debt, Obligations Over Last Year

That's the amount that the Federal Reserve and U.S. government have taken onto their books of debt guarantees, loans, bail-outs, auction facilities, etc. since the beginning of the credit crisis one year ago. To say that this is a staggering amount is an understatement!

$1.43 Trillion -- in One Year!

(source: Steve Liesman, CNBC 7-25-08)

Trading the Dalian Commodity Exchange in China

Traders who have become accustomed to trading corn or soybean futures may want to consider sending their money overseas, as Congress appears determined to force its will on American futures exchanges. It seems hard to believe that the United States would have ever arrived at the point that its financial markets would be less free than those in China. However, it should certainly be considered. Here are volumes for yesterday (7-24) on the Dalian Commodity Exchange in China:

Soybeans #1 Jan 09
volume: 1,111,266 (more than 10X the volume of USA)
Open Int: 544,948 (more than double the OI of USA)
Corn Jan 09
volume: 189,000 (greater than the USA)
Open Int: 352,364
(source: DCE)

On the Chicago Mercantile Exchange
Soybeans Nov 08
volume: 87,848
Open Int: 251,580
Corn Dec 08
volume: 133,145
Open Int:545,632
(source: CME)

The Dalian Exchange already trades with both greater volume and Open Interest on soybean futures than the American exchanges. Corn trades with about 2/3 the Open Interest of the American exchanges, but with substantially greater volume. The Dalian Exchange also offers trading in soybean meal and soybean oil with much greater volumes and Open Interest than the CME. Volume on the Dalian Exchange is also growing at nearly 100% per year!

Goods and Improved Sentiments Lift Stocks

In what feels like a welcome shift in sentiments this morning, both the durable goods orders data and the consumer sentiment data surprised the markets to the upside. Earnings season thus far has been fairly positive also, lifting stocks somewhat to start the day. Even the price of crude oil has been cooperative, giving up its gains from yesterday and moving lower. Good news all!

Moody's Reiterates U.S. Government Rating

Moody's this evening has released a statement indicating that the U.S. Government's credit rating still ranks as the highest possible.

Sorry Day for Stock Indexes

The bear market rally appears to have now fizzled. The latest government bail-out appears to have fallen on ill favor with global investors. It lasted less than 10 days. Today's stock dump is more of a measure of the true sentiment in the financial markets. While poor existing home sales data is being attributed for this decline, the fact is that the stock charts were in free fall 30 minutes earlier than the home data was released. The bear market continues.

Stocks: SELL!

What an unbelievable rout right out of the starting gate this morning with all the leading indexes. The Dow started the day at the flat line, but the bears took charge from the opening bell.

One word: SELL!

Big Oil's Big Challenge... That Will Only Get Worse

Here is a great article today on Bloomberg about why oil companies' share of the world's oil reserves are dwindling. This example is only one of many. Toward the end of the article, additional examples are given. We should be thanking these oil companies that they are willing to deal with these sorts of immense problems to bring energy to America. I can't imagine the headaches these oil companies must deal with as they try to manage relations with some of the world's worst despots!

BP Losing 23% of Production as Russians Assail Investment

These sorts of crippling problems are almost certain to increase the cost of oil going forward.

Commodity Speculation -- The Facts

This is the best article I've read on the subject of commodity price inflation and the role of speculators. The facts debunk the myths and errors.

Congress Blames Index Speculators

Read it. Become informed!

Fed Governor Fisher: Medicare, Social Security to Cost $99 Trillion

Yes, that's not a misprint. It's trillions -- with a "t"! Here is the quote from Fisher's speech a few days ago:

Richard Fisher is the somewhat hawkish governor of the Dallas Federal Reserve Bank. He said, "speaking solely in my own capacity," (in other words, he wasn't speaking as an official voice for his fellow Fed governors) that "the unfunded liabilities from Medicare and Social Security... comes to $99.2 trillion over the infinite horizon. " As if that figure isn't staggering enough, he continues:

This comes to $1.3 million per family of four - over 25 times the average household's income....No combination of tax hikes and spending cuts, though, will change the total borne by current and future generations....We know from centuries of evidence in countless economies, from ancient Rome to today's Zimbabwe, that running the printing press to pay off today's bills leads to much worse problems later on. The inflation that results from the flood of money into the economy turns out to be far worse than the fiscal pain those countries hoped to avoid.

Congress Passes Housing Bail-Out

While the stock market seems oblivious to the idea, the mounting debt burden of the U.S. shows some ominous signs. The credit default swaps indicate that U.S. Government debt is no longer the ultra-safe investment that it had been previously. In fact, the cost to buy credit default swaps for debt of the German government is now half the cost of that of the U.S. Government. This is significant, because interest rates must rise to compensate investors for the rising risk.

Softs Trend Down

The softs are also showing broad trend weakness. These are the only softs that are sufficiently liquid for me to trade.

Cotton
Sugar
Coffee
Cocoa

Today's Trends

Treasuries -- Lower Prices, Higher Interest Rates
Stocks -- Lower Crude Oil Stokes Stock Rally
Grains -- All Lower
Crude Oil -- Relief, FINALLY!
Rogers Commodity Index futures

Corn - Need I Say More?

Commodities always go through boom and bust cycles, and this one is no different than the previous ones. This overnight chart for corn speaks volumes. Corn prices have now broken through previous support at around $6.10/bushel. The charts for soybeans and wheat were similar.

Here is the daily one:

Bulls Barge Back

What a nice rally in the last hour of the stock market today. This has to be somewhat of a relief, especially given the less-than-stellar earnings reports. However, faltering demand for crude oil is finally offering some relief to bulls over these past few trading sessions.

The daily chart also shows stocks firmly back in bull territory:

CFTC Study: Supply and Demand Cause Commodity Price Rise

The CFTC today released the results of the data it had collected on the underlying causes of this year's rise in commodity prices. The result? Supply and demand are the causes of commodity prices. Duh!

Stocks: All-Day Radio Static

This is soooo ugly. The picture speaks for itself!

Definitely a Rally on Crude Oil Weakness, Not Earnings Expectations

The relative weakness of today's stock index futures rally back from the abyss is purely from the further plunge in crude oil, not inherent strength from stocks or earnings reports. Even though the index has erased a 100-point Dow deficit, it is still just barely above break-even. This doesn't bode well for the strength of any continuation, if stocks can't gain a stronger foothold on crumbling crude prices. The drop in crude prices is largely due to collapsing crude oil consumption expectations. And if we get more gloomy forecasts and earnings estimates tonight, that big drop in crude oil prices will have been mostly wasted, as stocks are likely to plunge again this evening. And if stocks lead an economic rebound, then what? Won't crude oil demand surge higher again, thus reigniting crude oil and other commodity prices, and with them, inflation expectations?

Several food manufacturers, including Kraft and Sara Lee, in the past few days have announced that they will push through higher prices within the next few months, due to higher commodity prices and other input costs. How much of a price increase? They say about 20%. That's a hefty increase! That doesn't help the inflation picture at all!

Dollar Shoots Higher

This is also a factor in the plunge of crude oil. Look at today's US Dollar Index futures rally today! That kind of force is rare for the US Dollar Index!

Crude Resumes Downtrend

I wish I could say I had taken the short crude oil trade last week, but I didn't. However, I shorted this morning when Hurricane Dolly showed clearly that it wouldn't impact the oil platforms. Like the grains, I consider this to be a correction rather than a downtrend. In a correction, I keep a very tight stop and am prepared at all times to reverse direction on a dime.

Personally, I am glad to see the price of crude oil plunge, because I know that it will tighten the economic noose on tyrants like Mahmoud Ahmadinejad of Iran and Hugo Chavez of Venezuela. A crude oil market collapse could be just what's needed to bring these guys to their knees. Chavez has so devastated the economic vitality of Venezuela that he has resorted to begging from the very groups that he targeted so brutally with his confiscations and price controls. Good riddance to the Castro of the Continent in South America. The sooner, the better.

Stocks Move Higher on Diet of Bad Earnings, Weaker Crude

How strange! Stock market futures have now turned higher on a steady diet today of disappointing earnings reports. This, again, is why I simply ignore the news... and trade the charts. I suspect this rally is lead by falling crude oil prices, as the potential hit (on oil platforms in the Gulf) from Hurricane Dolly begins to ease slightly. From accuweather.com:

The rough surf should not impact U.S. oil and natural gas operations, since the majority of the offshore oil platforms are in the central Gulf.

Don't Just Trade With the Trend. Find It!

Instead of only trading with the trade, traders need to become more proactive than that. What if I am trading a futures instrument that isn't trending? Then what? If I just keep throwing money into a non-trending market, I'm just throwing away my money.

I am not suggesting that a trader abandon the old adage to "trade with the trend". To the contrary, I live by that adage. I believe in it, and I do indeed strive to "trade with the trend".

I believe that traders must not only trade with the trend. They must look for a futures contract that is in a trend, and then position themselves to benefit from that trend. I know so many traders that always trade the same futures vehicle, resolutely trading this one or that one, regardless of how stagnant the trading instrument is. Most amateur traders only trade the stock index e-mini's. I was short during the recent trend lower on the stock market e-mini's. But right now, the stock market is in consolidation following last week's rescue of the financial stocks by the Treasury Secretary and SEC. If I try to trade in a consolidating market, the amount of market noise and the stagnant, side-to-side trading will eat up my margin account and eventually take me out of the market. That is a losing game! Play it, and you will lose, too!

I am scanning the market constantly to locate the futures that are in a trend, and I am always trying to locate a futures contract that shows signs of being in the initial stages of a new trend. Those are where I make my best profits. Bodies in motion tend to stay in motion. Markets in motion tend to stay in motion. A market in a trend tends to stay in a trend, until something occurs to change it. It is a wise trader than positions himself or herself to benefit from the flow of the market. Go with the flow!

Until last week, the stock markets were in a downtrend. Lately, the grains have been in a downtrend, although I personally believe that the grains will likely consolidate at the same level that they consolidated before, since corn is now at the level where it traded for weeks just one month ago. Chances are, the commercial hedgers will start buying grains at these levels. Treasuries were in an uptrend until the past few days. They are now showing signs of a consolidation also.

Don't just trade with the trend. Find the trend. Then trade with it!

Decoupling Debunked!

This post shows the various stock market indexes from around the world. Each continent of the earth is represented. This is just a sampling. I could have posted the stock market charts for Russia, China, India, Brazil, Canada, UK, France, Germany, South Africa, the United States, or just about any other country around the world. They would all look about the same. I have removed the symbols for the charts. See if you can guess what country's stock market index they represent. It wouldn't really matter much, because they all look about the same.

The point of these charts is simply to make the point that regardless of which stock market is chosen, they are so similar that it wouldn't matter which stock market index a trader chooses to trade, the results would be the same.

Decoupling is bunk, pure and simple!

One Wormy Apple -- Dow Futures Drop 100 Points!

Late breaking earnings reports, including Apple, have caused the Dow futures to plunge 100 points in the past half hour. Those are after-the-close prices plunging on that chart! Apple's future earnings forecasts show signs of being wormy. Even though Apple beat estimates, the forecast shows surprising weakness and the stock price has weakened. SanDisk, Texas Instrument, and Schering-Plough have also disappointed analyst estimates. So much for the safety of tech sector stocks!

American Express is also weak. No good news for any of these stocks this evening.

Dolly to Deliver Hurricane Hell?

Tropical storm Dolly, which is now strengthening in the Gulf of Mexico, is now all but certain to deliver a wallop to oil production facilities. This is one of the reasons why the price of oil has risen today. Note the price spike in oil in the past hour on the above chart. The price spike on the charts is largely due to the rapid strengthening of Dolly, adding to the disappointment of no agreement over the weekend between Eurozone negotiators and Iranian leadership. The chart at right shows Dolly's eye path and potential strength when it makes landfall over the next few days. This was bound to happen eventually! Click on the hurricane eye path image to go to the Accuweather web page for the lastest information on Dolly.

Alternative Exchanges if Congress Acts Against Traders

If the U.S. Congress continues to blame traders for high commodity prices, and imposes artificial margin or other restrictions on the markets, there are other alternatives to trading American futures exchanges. I have recently done some research into some of these alternatives. If free markets in the United States are endangered by current sentiments of blaming the traders, then traders and investors around the world may be forced to export their money to nations where those funds are more welcome.

The primary reason that Congress tries to blame traders for high commodity prices is because it is Congressional policies that have created high commodity prices through overspending that weakens the U.S. Dollar (thus inflating commodity prices), misguided ethanol mandates that inflate food prices, and bans on domestic oil production that inflate the price of crude oil. Congress is the villain, not the hero! But Congress is more interested in power and their own job security than in doing what's best for the American people. Thus, instead of taking responsibility for their disastrous policies by correcting them, they prefer to play politics and partisan party games and loyalties instead. It is very easy for them to blame nameless speculators, because speculators are a small minority, and because they (Congress) know that most Americans are ignorant of the value, functions, and purposes of the futures markets. Traders are an easy target for shameless politicians.

Two exchanges in particular are among those I would consider. I am encouraging my current brokers to provide connectivity to these exchanges, among others. The Dalian Commodity Exchange in China, and the Dubai Gold & Commodities Exchange appear to be potential leaders in the competitive market place. The Singapore commodity markets are also a possibility. Watch them.

The Dalian Commodity Exchange already offers futures volume levels for many agricultural commodities, including corn and soybeans, that rival the U.S. Exchanges. The DCE already has volume levels of soybean futures contracts that exceeds the Chicago Mercantile Exchange. According to data on the DCE's website, the DCE offers corn futures volumes that are about 2/3 of the current volume on the CME. The Open Interest on the DCE for corn is already over 400,000, and the volume is growing by 95% (nearly doubling) each year!

The Dubai Gold and Commodity Exchange is still very small with low volume. However, the nature of Dubai as the emerging capitol of the financial markets in the Middle East is bound to attract greater and greater capital, especially from the immensely wealthy beneficiaries of the limitless spigot of oil money in that part of the world. Dubai is determined to become one of the world's financial capitals, and all the fundamentals point toward success for them.

The U.S. Congress should take extreme caution in imposing artificial, populist regulations on the futures markets that will not help to increase commodity supplies. If they continue to blame speculators, they will very likely permanently damage domestic capital markets and the capital flight out of the United States will cause the US Dollar to collapse even further. This will cause all commodities to increase in prices even more. Congress will literally exacerbate the very conditions they seek to control, as they bully the capital that provides liquidity and continuous price discovery for commodities.

In addition to the effect on the Dollar, Congress should shudder to think that by shutting down the free futures markets, they could literally hasten the day when the US Dollar is no longer the world's primary reserve currency. This would have catastrophic ripple effects world-wide, as the Dollar evolves from the world's primary currency to perhaps the world's pariah currency instead. As investors and governments begin to shun not only the Dollar currency, but also Dollar-denominated debt (especially treasuries), interest rates will inevitably be forced to rise, shutting down credit and mortgage markets, and reducing consumer-driven purchases.

Lastly, Congressional impositions on the commodity markets may also result in the commodities themselves flowing out of the United States and into other countries more willing to pay the market price for them. This may cause shortages of those commodities in the United States, as those commodities are siphoned to those places where the capital is available and the citizens are willing to pay more competitive prices for them. One way or another, the markets eventually punish those who try to restrict them.

The REAL Reason for the Naked Short Rule

Daniel Drew: "He who sells what isn't his'n must buy it back or go to pris'n."

The 600 point stock market rally last week was almost certainly created by SEC Chairman Cox's announcement that the naked short rule would be "imposed" beginning today. It is generally agreed that the rally was due more to short covering than a perceived buying opportunity. However, if naked short selling was already illegal, then why would Chairman Cox need to create such hubbub over it? If there was no real change in government policy, then why would the SEC say anything at all? How could they impose an already-existing law? Doesn't that seem a little absurd?

While Chairman Cox repeatedly clarified that only naked short selling was being banned, I believe that the true message being sent to the financial markets was that the government was taking a position to oppose all selling in the stock markets. Why else would a government official loudly proclaim that they were banning an activity that was already illegal? Why such timing to restate what was already the law? I'm convinced that it was intended as a subtle message to the markets that the government was going to do whatever was needed to shore up the stock markets, and to stop selling in a more general sense. The Plunge Protection Team was working overtime to subtly (or not so subtly) tell the market forces that they were intervening once again. This more subtle underlying message sent the stock market bears running for their hibernation dens.

However, now that the bears are in hiding for the moment, who is going to buy when the economic prospects, according to today's gloomy LEI numbers, are still depressing? Do government officials hope that investors will ignore or forget the downbeat prognosis and buy, despite the negative prospects? Perhaps this is an explanation for the somewhat renewed vigor in selling today, despite relatively good news from Bank of America. Investors have suddenly awakened to the realization that circumstances haven't really improved. There's still a lot of poisonous infection in the market. The bears smell blood! Thus, another government attempt to artificially prop up the market has met with only temporary success. Traders and investors alike should not be so gullible that they can be easily duped by government smoke and mirrors! This is just another government-engineered dog and pony show complete with neon lights, photo ops and cameras, confetti, and bubbly to cheer on the markets.

I don't buy it. Sorry, guys! I just don't buy it!

Grain Bear Market Continues

Corn is is showing some signs of possible firming support just above $6/bushel, but the bear market in grains continues, with bearish weather patterns continuing to support improve crop yield forecasts. Soybeans and wheat are also down today, but all three are now demonstrating some signs of a slight rebound on the intra-day charts, with perhaps some firming demand on the daily charts. At some point, as Arlan Suderman suggested in his commentary last Friday, commercial hedgers will perceive some opportunities to buy bargains, and they will begin to buy again. We may be seeing some of that today, with nearly half of the early losses having been given back from a stronger bid pool. On the daily chart below, prices levels are now at the same level that they firmed up previously. This price level is certainly not lost on the commercials (and most definitely is glaring to technical traders like me).

Daily Chart Still Bearish
Intraday Shows Signs of Buying

Stock Indexes Slide Into Losing Column

Faith in equities seems to be in short supply today, despite flat prices for crude oil and a good earnings report from B of A. This speaks poorly for the sentiment that currently prevails on Wall Street, especially since there has been no demonstrably negative news today. How can this be, when the news this morning has been mostly positive?

The Leading Economic Indicators were slightly bearish this morning, but no more than expected, and they were better than last months' readings. What gives? This is one reason why I prefer to ignore news events, because it doesn't always provide an accurate reading of the moment-by-moment sentiment. If I were to venture a guess, I suspect that last weeks rally was more due to short covering that was artificially imposed the SEC's naked short rule, than enthusiastic buying. Now that the shorts have been shaken out of the market, there are no buyers to keep stock indexes moving higher. Sentiment still remains bearish!

B of A Blasts Estimates, Stocks Move Higher

Respectable earnings results for Bank of America pre-market this morning has given stock index futures a solid foundation to move higher. However, enthusiasm appears dampened somewhat this morning because crude oil has recovered about $3/barrel.