Change of Contract Months

This morning, I changed all of my equity index and currency futures contracts from September '08 to December '08. Higher Open Interest and volume levels were the criteria for change. I keep a Hull Moving Average of the sum of open interest and volume on my daily chart at all times. It gives me a reminder that it is time to change when the Hull Moving Average begins to drop significantly. This visual reminder helps me to stay on top of this important aspect of trading, and avoid costly surprises later when contracts expire.

Russell 2000 Futures to be Eliminated by CME Next Week
Open Interest for the Russell 2000 futures at the Chicago Mercantile Exchange has fallen from about 2,000,000 contracts to only 30,000 now. Volume is very low, and liquidity is too poor to trade. The Russell 2000 futures contract will be eliminated at the CME at the end of trading next Friday, Sept 19th. The CME will no longer offer the Russell 2000 index futures after that date. As of today, I am no longer tracking it. The Russell 2000 index futures will be picked up by the Intercontinental Exchange (ICE) after Sept. 19th.

It will be interesting to see what stock index futures traders will use instead. Personally, I like the S&P Smallcap 600 futures index, which is also offered by the CME. The chart has been virtually identical to that of the Russell 2000, but with about half the margin requirement. Traders could double the number of contracts they trade, if they wish. However, liquidity for the S&P Smallcap 600 has been poor thus far. CME is offering "no fee" trades for both the S&P Smallcap 600 and the S&P Midcap 400 futures until January 2009, as an incentive for traders to switch. Liquidity for the S&P Midcap 400 futures has remained good throughout the summer and early Fall. I like trading the S&P Midcap 400 futures; it has less noise than the S&P 500, with a lower margin requirement, and with good liquidity. However, it doesn't track the chart of the Russell 2000 as well as the S&P Smallcap 600.

USDA September Grain Forecast Bullish

From Arlan Suderman at farmfutures.com:

After drifting in a sea of bearish news this summer, the grain market may finally be ready for a change in the tides. USDA slashed its estimate of 2008 corn production more than expected this morning, which should help prices move higher today.

Are we seeing the tides shift again toward higher grain prices? The USDA report this morning certainly seems bullish.

CFTC: Speculators NOT Responsible for Run-Up of Crude Oil Prices

The CFTC released a report today, after a year-long investigation and data analysis, indicating that there is no evidence that speculators were the engine behind the run-up in crude oil prices this past spring and early summer. In fact, the report suggests that if anything, speculators are a moderating influence on higher prices.

While some may not want to accept the findings of the CFTC, and may even question their motives, the fact is that the CFTC, unlike Congress, has no agenda nor ax to grind. It is simply an independent regulator. It's five commissioners and chairman have 5-year appointments that are staggered so that they remain independent, and CFTC regulations require that no more than three can be of any one political party, so they have no reason to slant the report one direction of another. Furthermore, it was the CFTC staff the researched and prepared the report, not the commissioners themselves. The bottom line is that the facts and the data do not support the opinion that speculators drive the commodity markets. The full report can be found here:

Staff Report on Commodity Swap Dealers and Index Traders with Commission Recommendations

A Few Highlights from the Report

• The report indicated that speculative index funds represented only 17% of the total number of contracts traded in the commodity futures markets, of which approximately half were long, and half were short at any given time.
• Speculative funds represented a higher percentage of total contracts two years ago, before the current run-up in commodity prices. Speculators had decreased their presence during the period of time of great price escalation.
  
• For crude oil, speculative funds only represented 13% of the total! It is noteworthy that during the period of time when crude oil experienced its greatest price increases, the speculative traders were decreasing their size and presence in the commodity markets. During this time, speculators were scaling back their long trades, even while prices were advancing the most. This suggests that the presence of speculators held the price rises in check, rather than pushing them still higher!
• The number of net long crude oil contracts by speculators decreased by 45,000 contracts precisely during the time when crude oil prices reached their highest levels, from Dec '07 through June '08. Speculative interests in crude oil decreased by 11% precisely when crude oil prices were reaching their highest levels. Speculators were net sellers, not buyers, during this time! If anything, their influence would have been to push prices lower!
  
• It is also notable that the commodities (wheat) that had the largest notional value of speculative interest were the commodities that experienced that least increase in prices. While the price of wheat advanced, it didn't reach the record price territory that corn and soybeans achieved, despite the fact that nearly half of all wheat contracts were speculative at one point (47% at their peak). Speculative interests in corn was less than half of that of wheat (only 23% at peak), and yet prices for corn escalated much more rapidly than for wheat.
  

That's hardly a convincing argument for more regulation of the commodities markets, and only confirms earlier data that had previously been available. In fact, the results of the study would suggest that the best way to moderate and lower commodity prices is to increase the presence of speculators, because when speculators leave the markets, prices go much higher. Speculative influence in the markets tends to moderate prices spikes and drive prices lower, not higher!

The report is 71 pages, and is not light reading. I recommend it as an alternative for a sleep aid.

Ever Remember

Stocks look destined to dip lower at the open today, perhaps in memory of the catastrophic events on this date seven years ago. Worry, worry, worry in the equity markets! The daily charts (not shown) appear to be on the verge of a breakout to the downside. Some equity sectors already have! And I thought that after the Fannie/Freddie rescue, the market was supposed to turn higher.

Hadn't we hit bottom? Apparently not! I say this to underscore the absurdity of those who constantly declare that we've hit bottom. Lose your opinion, not your money! Predicting the future is for prophets, not profits! Those who try, lose the latter.

Solzhenitsyn Prescient of Emerging Western Standoff With Russia

In his weekly newsletter, John Mauldin has again published a report from Stratfor regarding Russia and its relations with the West. Interestingly, Russia over the past few days has intentionally sought to provoke the United States by engaging in naval military maneuvers in the Western Hemisphere with Venezuela in clear defiance of the Monroe Doctrine. The White House press secretary brushed aside the significance of the event by saying that these Russian ships were the only ones the Russians could find that could make it as far as Venezuela, but we in the West would be wise not to underestimate the determination of the Russian bear, given its long history and recurring character.

This article draws from the writings of Alexander Solzhenitzen, the former political prisoner of the Soviet Union who published his book, "The Gulag Archipelago" more than 25 years ago. I remember reading his book as a teenager (yeah, heavy stuff for a sixteen-year-old), and was shocked that such places existed in this world. It was about 800 pages! But it opened my eyes to the real world, and it was an awakening that every citizen of the West could benefit from. Solzhenitsyn died just days before the invasion of Russian troops into Georgia, but his characterization of the Russian political soul is just as timely and accurate today as it was nearly three decades ago. Ironically, even though the Soviets permitted the book to be published, they continued to maintain their gulags until the very last day when the Soviet empire was (supposedly) vanquished.

Just as existed in the West during the Soviet era, many in the West today, especially among the intellectual class, deny the true monstrosity of what is happening in today's Russia.

Here is John Mauldin's introduction of the article:

"Read this obituary essay from my friend George Friedman over at Stratfor. George puts Solzhenitsyn in historical context, using his life and writings to illustrate not just the evolution of the Russian/Soviet/Russian system but also the Western perception of Russia and what it says about future relations. It's uncannily ironic that Solzhenitsyn died just days before Russia forcefully punctuated its geopolitical prominence in going to war with Georgia. You can almost imagine Solzhenitsyn shrugging and asking, "What did you expect?" Over the Labor Day weekend, Russian President Medvedev used a press interview to lay out five points that will define Russian foreign policy going forward. Allow me to translate (loosely) from the Russian: 'We're back.'"

Here is the full article. Do not pass this over! This is truly fascinating stuff:

Solzhenitsyn and the Struggle for Russia's Soul

PIMCO Has Most Profitable Day Ever -- At Taxpayer Expense

PIMCO's Total Return Fund had its most profitable single day ever the day the Fannie Mae/Freddie Mac bail-out was announced by Treasury Secretary Paulson. Mortgages owned by the fund surged in value after the Federal government extended its guarantee over the mortgage giants.

Bill Gross, CEO of PIMCO, indicated that he would buy more of the mortgages with the expectation that the government's guarantee would also make them more valuable. Just last week, Gross indicated that he would boycott buying any more of Fannie and Freddie's mortage paper unless the government stepped in and took over the two companies. He also called for the Federal government to do just that. Apparently, Mr. Gross sees the takeover of Fannie and Freddie as a green light to buy more of the securities now. Bill Gross is a billionaire and is one of the Forbes 400 wealthiest Americans, with a net worth of $1.37 billion. Now, thanks to America's taxpayers, he'll be worth much more!

This is proof that Wall Street is the chief beneficiary of the bail-out, not the American people. What a sad day for our Republic that a coal miner in Pennsylvania, a farmer in Minnesota, and a nurse in Seattle are forced to accept the debt obligations of huge corporations so that America's billionaires on Wall Street can make even more money at their expense. I believe this is nothing short of criminal!

U.S. More Likely to Default

The nonpartisan Congressional Budget Office today indicated that the debts of Fannie Mae and Freddie Mac should be placed on the balance sheet of the Federal government. Credit default swaps for the U.S. government continue to rise such that it now costs 18 basis points to insure against default.

Tim Backshall, chief strategist at Credit Derivatives Research, said the price implied that the US was more likely to default on its obligations than Japan, Germany, France, Quebec, the Netherlands and several Scandinavian countries.

Here is the entire article:

Cost of U.S. Loans Bail-Out Emerging

OPEC Cuts Oil Production

With oil at still more than $100/barrel, OPEC's oil minister, Chakib Khalil, announced today that the cartel will cut production by 520,000 barrels per day. Indonesia also announced that it will suspend its membership in the organization.

The Ruble Is Rubble

The Russian ruble and the Russian stock market have both been severely punished for the invasion of Georgia one month ago. Global investors continue to liquidate their equity holdings and sell the ruble, as they realize that there is no safety of capital or property in Russia, causing both the currency and the stock market to continue to drop. The Russian stock market has fallen nearly 50% in the past 2 months, and neither the business climate nor the ruble show any signs of recovery anytime soon.

...And Time Wounds All Heels

The futures markets are quite merciless to those who don't know what they're doing. I've heard it said of the futures markets that there really is something called "beginner's luck". Many beginning traders have a string of lucky trades that boosts both their ego and their confidence. When they first begin, they have no fear because they don't know the pontential destructive power of the futures markets, so they trade without fear. They often enjoy a degree of success. However, every trader who has been around for awhile eventually gets burned badly by the markets. That's when these beginning traders learn some very excrutiating lessons. Most blow through their accounts and eventually drop out. If you don't understand the futures markets, and don't respect their potential for destruction to your trading account, you'll eventually be wounded -- badly!

Time Heals All Wounds...

...but government bailouts don't!

We have lived in a society where no pain is acceptable. We want instant gratification. Heaven forbid that we should have to pay a price for our societal mistakes! Spare us the consequences of our irresponsibility! It has practically become politically incorrect to accept, much less endure, the pain of a recession.

Too bad! We may have to endure one anyway! Today's stock market (see above chart) is an example of what I mentioned yesterday -- that government bailouts tend to have short-lived effects. The Dow dropped 280 points just one day after the government's Fannie/Freddie bailout. Not much bang for that buck, huh?!

Is it so awful to experience a little discomfort once in awhile? If we are patient, we'll learn from our mistakes, we'll emerge stronger and more resilient, and we'll also be a little more humble. And that's a good thing!

But what really scares me is the second part -- the longer-term effect -- that I mentioned yesterday. The more blundering bailouts we see, and the more times government officials make erroneous statements about the state of economic affairs, the more it erodes confidence in the financial markets and the capacity of government to "fix" things time after time. The more mistakes are made, the less beneficial impact that the next bailout will have. It sends to the market the message that it's just more lipstick on the pig! Meanwhile, the politicians think they have to play our paternalistic parent and keep meddling and messing with everything!

We just may have no choice but to allow time its balm to heal all wounds. There is no substitute! Not even government!

Equipment Failure, So No Trading Today

Equipment and software failures occur from time to time. Yesterday, I had some software problems. I also use a battery backup system that powers my trading computer, router and cable modem, monitor, ethernet hub, and wireless keyboard and mouse. If the power fails, as it has before, I have about 30 minutes to complete a trade and close down my computer before I lose power.

The rechargeable battery to my wireless mouse died overnight. I thought I had a spare stored in my desk, but couldn't locate it, so I frantically went looking for a new one this morning. I was hoping to find one that was pre-charged, since I had seen some on Radio Shack's website. However, Radio Shack no longer makes them, and they had none remaining in the local store. Thus, I am stuck waiting for the batteries to charge sufficiently for me to begin trading again.

At first, I was climbing the walls! However, I am using the time productively. I am using my laptop to revise and update my trading plan. I am gradually evolving away from day trading to trading on a longer-term basis. I have been able to build up my account to a point that I can be more deliberative on my trades and take longer-term positions. This also permits me to take more positions in different instruments. Bid/ask spreads are also less of an issue, and I can take trades on instruments that have less Open Interest.

Instead of making a decision on a moment's notice, I can look at the charts in the evening and make a more studied decision. I have devised a method of trading that, even with long-term trades, I can keep my risk of loss very low, generally no more than about 5-7 ticks. Not bad!

"Skate Where the Puck Is Going, Not Where It's Been"

The headline of this post is a famous quote attributed to Wayne Gretsky, the famous hockey player that many consider to be the greatest hockey player of all time. They simply call him, "The Great One", and deservedly so. I understand that it was Wayne's father, Walter, that taught this principle to his famous son.

I have often thought that the same principle applies to trading. The truth is that no one really knows with certainty where the market is going, but over a period of several years, patterns become so familiar and they repeat with such frequency that traders can anticipate many of those patterns. Hence, I would extrapolate from Gretsky's quote that we should "trade where the market's going, not where it's been".

Often, traders will jump into a trade when they see momentum suddenly take off, and they frequently find that they have jumped in just in time to see the market reverse in the opposite direction. Then, they sit, wait and hope, with a prayer that the market will reverse again and bail them out. It rarely does. I've done this myself. It is called, "chasing the market". Never allow the market to control your success! Only allow the market to confirm your success!

This is why it is important for me, as a trader, to become sufficiently familiar with market patterns that I can anticipate where the market is going, not where it has been. I am often wrong. However, when I'm wrong, I am quick to correct myself and either reverse direction or at least exit a wrong trade. If the direction that I anticipated is wrong, I get out as quickly as my fingers can hit the mouse button. Small losses are a blessing!

Jim Rogers: USA Now "More Communist Than China"

Jim Rogers, the famous billionaire commodity guru, commented on CNBC earlier today that with the Fannie Mae/Freddie Mac bailout, the USA is now "more communist than China". Rogers was one of the geniuses that made George Soros' Quantum fund such a monumental success, and helped Soros acquire his own billionaire status. Here is an article that details the story:

Fannie/Freddie Bailout Makes America 'More Communist Than China'

If this doesn't fix the credit crisis, and economic conditions continue to deteriorate, this latest bailout is so big that it could be looked at through the retrospective lens of history as the biggest economic catastrophe in history. Let's hope our financial system survives this one, because the next shoe to fall could be too big for even the U.S. government to apply a tourniquet!

"Infinite" Cost to Taxpayer

Steve Liesman, chief economist for CNBC, when asked what the upper limit cost would be under the new Fannie/Freddie bailout for the taxpayers, said that the cost to the taxpayers could be "infinite".

Does the Government Have to Worry About Running Out of Credit?

Since we know that the Federal treasury doesn't have to worry about running out of money (no limit to the printing press or ones and zeros on a computer), the more important question then becomes this one:

Does the U.S. government have to worry about running out of credit? Now that's a good question!

Today's action substantially increases the risk that the U.S. government's credit rating will be adversely affected, and that eventually, interest rates will go higher. Today's bailout of the mortgage industry is a short-term attempt to shore up confidence in the financial system. However, it simultaneously sews seeds of longer-term erosion of that same confidence. As other debt sectors, including credit card, auto loan, and corporate debt also shows signs of stress in the coming months, what will happen then? At some point, more bailouts will no longer be an option, because the capacity of the U.S. government and the taxpayers will no longer be able to provide support without straining the economy and collapsing the underpinnings of our financial system. We are rapidly approaching that point!

If a train is chugging toward a chasm, and the bridge over than chasm is out, would it be wise to increase the speed of the train in the hopes that the train might be able to magically fly across the chasm? It will be quite a spectacle; it will even be very exciting, but it won't be a pretty sight!

Paulson's Socialist Bailout Bazooka!

Treasury Secretary Hank Paulson fired his bazooka today, after assuring Congress just 2 months ago that having it would ensure that it would never be necessary or used. In fact, it raises memory of other famous (now infamous) statements by Fed and Treasury officials that the financial crises over the past year would never happen. They happened! Remember Paulson's statement that the subprime mortgage mess would remain contained? That was a joke!

The fact is that like other past government bailouts, they do work -- but only short-term, like a band-aid on a hemorrhage. There is a perennial debate between market forces that insist that if left alone, free markets will eventually clean out the mistakes and return to normal, despite pain along the way, and opposing forces that insist that government has an appropriate moderating role. Today, we have seen the latest bailout from Treasury Secretary Paulson. We saw the overnight nationalization of the nation's mortgage system.

How many government rescues and bailouts have we seen since the credit crisis began 13 months ago? I have lost count! And have they prevented the crisis? Or just prolonged it? Have they even slowed it down? It doesn't feel like it! I wonder what would have happened if we had allowed the markets to self-correct as they are intended to do, without constant government interventions. Would we have had a painful recession that would be a historical, distant memory by now? The average recession only lasts 7-9 months! We might have been in recovery by now! From a statistical standpoint, odds are that we would have been. But we continue to flounder instead, stumbling from one bumbling blunder to the next, stubbing our economic toes again and again.

And what industry will be socialized next? Healthcare? Airlines? Autos? Energy and oil? Where will it stop? With all the investment banks? Or the commercial banks? At what point will the government become the biggest business management system in the world, with only token tiny private enterprise left? Whether or not more industries will be nationalized is ultimately irrelevant. The fact is that now, the government can! Overnight!

Why would the government take over your business, or you employer's company? Because it can!

Learn the Lessons of History, America!

Americans would be shocked to realize that they are following some of the same steps, and are now on the same path, that Hugo Chavez has done to the Venezuelan economy. But America's socialists are wise enough to realize that as long as they don't call it socialism, they can get away with a lot more socialism. Americans have not been taught to recognize socialism, so they accept it without seeing it for what it is. But a spade is still a spade, whether we call it a scoop... or paint utopian lipstick on the pig and label it as a gleaming silver spoon! Please! Let's call a spade, a spade, and stop deceiving ourselves!

As more and more shortages occur in Venezuela, and more and more economic crises manifest themselves, Chavez' answer to each new crisis is to nationalize the industry. More government! Bigger government! Government is the answer! The answer, he says, is for the government to take over from the greedy, self-serving, inept, inefficient largesse of private businesses and private landowners. He ignores that competition forces private enterprise to be efficient, productive, and to cut margins -- and profits -- to the bone. So things go from bad... to worse. Much worse!

The Venezuelan government just keeps stealing the productive capacities of more and more industries. Food industries, concrete, publishing, shipping, construction, oil production, and on and on. Ranchers are escorted at gunpoint off their own lands, and production plummets 90%! And as each industry is nationalized, production of each industry diminishes even more! And the worse it gets, the more they nationalize! And the more they nationalize, the worse it gets! While the United States hasn't gone that far yet, it should be an ominous sign to Americans that now, it can! It has now empowered itself to do it quickly and easily -- literally, over a weekend! And if it can do it with the mortgage industry and America's largest businesses, it can do it to any industry, and any business! If we are wise, we'll learn from Venezuela's Chavez disaster. But if we're not wise...

"Those who cannot learn from history are doomed to repeat it". George Santayana

We had better be (more) careful what we wish for. We just might get it, and then we'll be really sorry. Not all change is change for the better. And once it happens, and we awaken to realize it is no sleeping nightmare, but instead, a conscious crisis, it may just be too late!

Grains Grind Sideways

Corn and wheat are almost flat today, while soybeans are modestly higher. This wheat chart says it all. Booooor-ing!

And here is corn. Less than one cent of change for the entire day so far:

A Now, Reversals of Reversals

After a stark sell-off of treasuries today, banks are buying them again on news of tightening interest rate spreads. It's beyond me why anyone would be willing to own treasuries long-term. I think most are buying them for the same reason that I am -- making money on the margins on the interest rate fluctuations. I would never hold them for the interest because I would be losing money to inflation.

Stocks, after opening nearly 350 points higher at the open, have erased the majority of the rally, but are still in triple-digit positive territory.

I am reminded of something I read in Chick Goslin's book, Trading Day By Day. He says that in an existing trend, news-related shocks to the financial system tend to have short-lived impacts. Eventually, the underlying fundamentals turn the market back into its original trend path. In other words, the market eventually reverses the reversals!

Russians Turn Back UN Aid Convoy

Russians today refused to allow a UN aid convoy to enter the war-torn regions of Georgia. The convoy was filled with flour, pasta, sugar, and other staples. Here is the story:

Russia Turns Back Aid Convoy

"The Russians started this three centuries ago. They want us to become like them -- pigs," he said. "We are not like this." Russian soldiers had been stopping at houses in the village to demand food and drink -- asking the locals why they favor the U.S., not Russia, said a South Ossetian man.

Treasuries Plunge On Fannie, Freddie Takeover

Investors shouldn't underestimate the significance of the U.S. Treasury takeover of Fannie and Freddie. Now that the U.S. taxpayer has been forced to accept repayment obligations for the two mortgage giants, U.S. government debt has exploded (as if it hadn't already). Nevertheless, U.S. government debt is expanding at an even faster rate. As a result, interest rates have risen and U.S. government debt has sold off. Oddly enough, it is causing interest rates for mortgages to rise, too!

Are you skeptical of the impact? Just look at the daily chart for the 10-year note (above). That last red candle is just the impact on overnight trading!

Since the takeover has effectively equalized U.S. treasury debt and Fannie/Freddie debt, instead of interest rates on Fannie/Freddie debt going down, U.S. treasury debt interest rates have moved higher. There is an increase in perceived risk, and investors are demanding higher interest rates for that risk. This increased risk is real. Fannie and Freddie have derivatives instrument with leverage of about 50 to one (50:1). Even most hedge funds, which are now dropping like flies, only had leverage of about 20 to one (20:1). Now that the taxpayers have been forced to accept that kind of debt obligation, the surging debt of the U.S. government causes increased risk of default for investors. Thus, interest rates must rise.

This increases exponentially the counter-party risk that the U.S. taxpayers incur on all of these derivatives instruments. If, as was announced last Friday, mortgage foreclosure rates continue to rise, the cost of that risk rises exponentially, not incrementally. For more on this subject, read the links to John Mauldin's newsletters that I posted over the weekend. Mauldin's warnings were well-timed!

Also as an odd twist: the increased interest rates that the world requires will force the U.S. government to pay out higher rates, and thus increase the deficit even more!

It's a Traders Market

The stock market futures have been in a such a tight trading range for so long now (2+ months) that it appears that we may continue in that pattern for the foreseeable future. The takeover by the U.S. government of Fanny Mae and Freddie Mac over the weekend is being seen as a positive by some stock market bulls. The Dow futures rallied instantly by more than 200 points in Sunday evening trading! However, many traders are so accustomed to buying the dips and selling the rallies that the overnight trading rally may be nothing more than that. Who knows! The reasons are irrelevant!

From my experience, these dramatic moves by Federal authorities create huge supp0rtive rallies for stocks, but they don't tend to last too long - days, not weeks! Once more negative economic data comes forth, the mood gradually shifts, and negative sentiment returns. I buy these rallies, too, until the morose mood returns. Why miss out on the profits? I'm neither a bull nor a bear, but why swim upstream? I give the market what it wants!

More Mauldin: Update on The Continuing Credit Crisis

This one is also very good. It provides great perspective on where we're at and how far we still have to go before the economy will recover. For one thing, Mauldin runs the numbers on the current foreclosure and credit crisis. One of every 16 homes in the United States is now in serious delinquency status! And its going to get worse! With Fannie Mae and Freddie Mac both leveraged about 50 to 1, even a 2% default rate will have unimaginable ripple effects worldwide, and especially in the banking system.

Thoughts on the Continuing Credit Crisis

One more note. Keep your eyes on the financial news, especially over the weekend. In addition to new bank closures by the FDIC each weekend, there is a strong sense that an immense bailout of Fannie Mae and Freddie Mac is imminent. Added to the union strike declared last night against Boeing, things will be volatile and interesting over the next few days!

Kremlin KGB Kings

Here is a great write-up sent out by John Mauldin in his weekly newsletter. Mauldin was ranked as the second best investment adviser (only Warren Buffet was higher). He forwards an article written by Stratfor, the world's private intelligence company. Stratfor is an adviser to most multinational corporations around the world regarding security and terrorism.

As investors, having timely and accurate data about dangerous places and nationalistic policies of governments around the world can prevent potentially catastrophic losses. Often, we think of an investment in terms of preventing small losses. However, I have learned by sad experience that in some countries, one can lose the entire investment, sometimes literally overnight, if that country doesn't respect private property. One of those places is Russia. Vladimir Putin and Dmitry Medvedev, the joint KGB Kings of the Kremlin, have transformed Russia over the the past 8 years from a fledgling democracy into a oligarchical fascist dictatorship where there is no free press, freedom of assembly, freedom of speech, private property rights, or due process protections.

As an investor that invests internationally, I recommend this newsletter highly. It is written by an expert on the Russian Federation and has great insights into what is really going on and how it will change the world.

The Real World Order

Stocks Back to Flatline

Stock index futures, after seeing triple-digit losses early on, have rallied back to flat today. Currently, we are printing a doji on the daily chart, which is unconvincing. If the day closes near its current levels, we are likely to see more volatility ahead.

Rough Rice -- A Lonely Bull

While most commodity prices have been softening over the past few months, rough rice has been one of the few commodities that are in a bullish trend of late. After the rice panic last Spring, the price of rice plunged, dropping about 30% over the past few months. Now, rice is rising again! There aren't many commodity bulls right now, but rice is one of them.

Grains Hold Support -- Barely!

Corn, soybean, and wheat prices have held support so far overnight. However, as all three grains remain just a hair's breadth from critical technical support levels, the likelihood of a downside breakout remains relatively high. The following key support levels are currently being held, but are at risk:

Corn $7.50
Soybeans $12.00
Wheat $7.50

If these three support level hold over the next few days and weeks, then as the harvest season ends, a rebound is a good probability. However, if the US Dollar continues to rise, there is a greater likelihood that a downside price breakout may occur. The grains are at key inflection points right now.

Gold Drops Below $800

Gold has dropped below $800/oz. for the first time in a month. With the continued and growing strength of the Dollar, gold weakness should be expected. The gold bugs must be in a tizzy!

Cramer and Gross Call for 1/2 Trillion Dollar Bailout!

Bill Gross and Jim Cramer, in a joint interview on CNBC today, have called on Hank Paulson, the U.S. Treasury Secretary, for a bailout of Fannie Mae and Freddie Mac that would amount to $500 billion. That's unbelievable! No way! Bill Gross is asking for the Federal Government to shore up his bad bets and bad debt! He acknowledged that he purchased much of this debt prematurely, and now, he wants the government to protect him from the consequences of his bad timing.

In a single bailout of the mortgage industry, they are asking for the Federal authorities to engage in a bailout that would double the nation's deficit for the entire year -- in a single day! This would be the first time that the nation has increased its debt by $1 trillion in a single year! This would be unprecedented not only in size, but scope and rapidity.

Bill Gross said that he will no longer keep buying the mortgage debt. He says it's now time for the Feds to step in and bail out the industry. He is saying that he is no longer going to buy this toxic debt. Good! Perhaps then risk will once again be priced into the price of debt, instead of throwing endless and limitless amounts of money at debt that was created to simply give money away!

Why do these Wall Street heavyweights constantly call for the government to bail out Wall Street? Why should the tax payers on Main Street be forced to accept the debt burden of bailing out the garbage created by Wall Street wunderkind who know the price of everything, but the value of nothing? Why should a coal miner in Pennsylvania, or a farmer in Iowa, or a steelworker in Washington, or a nurse in Montana, be the buyer of last resort to bail out billionaire financiers on Wall Street? When does the parabolic escalation of national debt end? When our debt becomes worthless and no one will lend to us any more?

We're no long talking about debt that will hamstring our children or grandchildren. We're talking about debt so crippling that we could become the Weimar Republic in this generation, even in the next few years!

It is time to stop the madness on Wall Street! It is time to say "NO"!

The Bear Market Is Back

Stocks today have slid back into bear market territory, with the Dow now down 20% from its highs last year. The Dow is now down more than 300 points today! With only positive news today in the economic data front, including a further slide in the price of crude oil and other commodities, this is a significant development. Many are viewing the slide in crude oil to be a bearish indicator because crude oil would only slide if the economy were in dire straights.

The daily chart above shows a Bollinger Band breakout of the lower band, after nearly two months of trading dead flat. If the index closes below the band today, and tomorrow continues to move even lower than today's low, a new downtrend is confirmed. However, I also expect to see an attempt to rally back to approximately the 8-period Exponential Moving Average before another sell-off. Some shorts will get shaken out of the market when this happens. I will probably use it as an opportunity to improve my position to improve my price before the selling.

If, on the other hand, the jobs report is better than expected, we may expect a rally that could last for days. Typically, if a Bollinger Band breakout occurs, and prices then rebound back within the bands, prices will often rally back toward the opposite Bollinger Band, often touching the opposing band. This would represent about a 500-point rally for the Dow, although it would not likely occur on a single day. Personally, I don't see this as a high probability scenario.

I also wonder if some of today's sell-off is a way for many traders to lighten up their positions for a possible bad number from tomorrow's payroll report. Obviously, the risk is to the downside tomorrow. Everyone is expecting a slide in unemployment of approximately 75,000. If the number is more than 75,000, perhaps even more than 100,000, then the market will be hit with a shock and could sell off even more. Many traders, who are otherwise bullish and have seen a possible bottom, might possibly be removing their bullish positions in anticipation of the possibility of a bearish jobs report tomorrow. We'll see when the monthly jobs report is released tomorrow morning by the Bureau of Labor Statistics. It will undoubtedly be an exciting day.

Stocks in Steep Decline Today

After just over one hour of trading, stocks are steeping their decline. Even better-than-expected ISM non-manufacturing data haven't helped, with the Dow down by more than 200 points now. This is not a very good sentiment for stocks. Today, I am trading only to the downside, taking profits on bullish corrections, until I see signs of a significant upside correction.

Off to An Ugly Start

Stocks are flat or down every day this week so far! Today is no exception, and the Dow was down over 100 points right from the starting gate! Even the daily chart, which has shown flat trading for the stock indexes for two months, is beginning to show weakness. Is the next leg down right around the corner?

Great Article on Obama's Economic Plan

The Wall Street Journal this morning has a great op ed on why Obama can't seem to close the deal with the American people. The bottom line is that Americans know that when a candidate attempts to buy the votes of people who already don't pay any taxes with promises of more free money, that money will inevitably come from the pockets of those who do pay taxes, and at the worst possible time for working American's pockets and the U.S. economy! Here is the link:

Why Obama Can't Close the Sale

Mr. Obama, you can fool some of the people all of the time, but you can't fool all of the people all of the time!

Content of Email I Sent To a Friend Today

I get the sense from the broader futures markets that commodities are continuing to weaken because a weaker business climate is bringing a drop in demand for everything. If this is prescient, it may get even uglier! Commodity prices usually only weaken like this when poor business brings soft demand.

Tomorrow morning we will get the monthly jobs report! If it comes out worse than expected (about 75k job loss), stocks could get clobbered. There is a sense in the financial markets this week that even with lower oil prices, the economy is not going to recover. Treasuries continue to rise (interest rates lower) despite the inflation risk because treasuries are seen as the only place for money to be safe.When interest rates drop lower than inflation, people must be really scared! There is a feeling that we may be on the precipice of a new move down if we get some bad news in the next few days.

It looks like Boeing's union is going on strike this weekend. Very bad news! That will probably clobber stocks on Monday if it happens. What stupid union leaders! The unions turned down an 11% pay increase by a vote of 87% against! When I was a union employee, we would have been grateful for such a pay increase! And the timing couldn't be worse for the economy! It will drive down the Dow (Boeing is a big component), hit durable goods orders nationally, and hurt one of America's few thriving businesses at a terrible time for the economy. How many other American jobs depend on strong orders from Boeing that will be hit by this impending strike! This has the potential to plunge the American economy into a spiral of deepening unemployment at a time when the economy can scarcely afford it!

I thought this was interesting: On CNBC this morning, Art Cashin mentioned a statistic that following the two party conventions, whoever is ahead in the polls at that point wins 90% of the time!

Grains Under Selling Pressure Despite Bullish Weather

From Bruce Knorr of Farm Futures Magazine in an email to me this morning:

Look for another day of selling on the open this morning, with the futures market torn between conflicting weather news and outside markets that are again under selling pressure.

Here's more:

Dry, hot weather is impacting condition of the corn crop. According to USDA meteorologist Brad Rippey 45% of this year's crop has been dented as of Aug. 31, which is well behind the five-year average of 65%.

"That is something to watch as we head deeper into September and worry about the threat of an early freeze," Rippey says. "We do only have 14% having reached the dent stage in North Dakota; the five-year average is 47%. Only 24% dented in Minnesota; the five-year average 59%."

The dry weather pattern is also affecting soybean conditions, particularly in the northern states.

"We do see in Michigan and Wisconsin now 29% of the soybeans rated very poor to poor," Rippey says. "We've seen some increases in other states as well including Indiana at 18% and Ohio at 23% very poor to poor."

Although the dry weather is causing concern for the corn and soybean crop, it has allowed for nearly all spring wheat across the Northern Plains to be harvested.

The point of this is that while grains are being sold heavily, the grain crop itself is under severe stress. One reason for this is that the cold, wet Spring of '08 delayed planting for weeks in May and June, so now, the crop is well behind normal in its development. An early Fall and cool weather could significantly reduce the grain harvest. This is an increasingly likely scenario as September progresses, unless the crop develops to harvestable condition very quickly. We are in a race against time! Will the crop finish its development and be harvested before cold weather sets in?

While wheat, soybean, and corn prices are all near limit down today, the crop is showing signs of damage and crop yields are increasingly likely to be negatively affected. This will likely eventually prove very bullish for prices, especially if early freezes occur in the Midwest grain-growing regions. An Indian summer would help to relieve this stress. However, some regions of the upper Midwest have already seen night-time temperatures in the 30's.

Because of the crop stress, analysts keep predicting higher prices, but prices keep dropping instead, probably due to fund-related selling of commodities across the board. Why don't the news media ever accuse speculators of driving prices too low? When the weather fundamentals regain ground and their influence over the grain markets, grain prices may rise in a parabolic pattern. I will be watching this development very closely over the next few weeks during the harvest period of the growing cycle, because this could be setting up a tremendous opportunity to buy grain futures sometime this Fall. If cold weather begins to damage the crop, we could see a new bull run in grains that would overpower even the strong Dollar fundamentals! The next few weeks should prove very exciting and interesting!

British Pound Continues to be Weighed Down

Following comments over the weekend by Chancellor Alistair Darling that the British economy is the worst in 60 years, sterling sunk even lower today.

Stock Market Rally Turns to Stock Market Rout

Thus ends the first trading day of September. Perhaps today is a sign of things to come, since September is historically the worst month of the year for stocks.

Soybean Rout Turns to Soybean Rally

This is very bullish to me. Today's grain sell-off turned into a rally. Soybeans recovered 45 cents from its lows, forming a dragonfly dogi on the daily chart after touching limit down. Corn and wheat rallied well off limit down lows also. This appears to me to be a very bullish omen, unless the Dollar strengthens even more.

200 Point Rally Eliminated

Wow! There must be a whole lot of worry, such that on a day when crude oil declined to a fresh new low, the stock market gave up all its gains and is now down for the day. The Dow had gained over 200 points, and is now in negative territory today, despite that crude oil is still lower by more than $5. Now that's heavy-duty worry, if a $5 crude oil plunge can't move stocks to a sustainable rally! What would have happened if crude oil hadn't collapsed?

I am still anticipating much more tough sledding in the stock markets before the business climate improves. I like to see rallies of "irrational exuberance", because the higher the stock market rallies the more money I'll make as it plummets when the next shoe falls. All these traders who convince themselves that the bottom is "in" will be the people whose money I take when I short the market at some point in the future when the bottom falls out again.

The Dollar has been rising not because of any endemic strength but because there is a perception in the global markets that the U.S. has bottomed, or is close to it, and will be the first to emerge from economic malaise. I think this sentiment is erroneous, and eventually, the stock market indexes will plunge again when reality sets in. This is likely to occur sometime this fall when unemployment jumps unexpectedly or if GDP gets revised significantly lower. That is my bias. However, I will continue to give the market what it wants, even if it is "irrational exuberance"!

I have traded treasuries (long only) and stocks (both long and short) today. Grains were so close to limit down that I was unwilling to take additional trades. I'm convinced that unless the Dollar continues to strengthen significantly more, grain prices are very close to their lows for the year. However, for the short term, I expect the Dollar to continue to rise until another shock hits the market like the ones I've mentioned above.

I also traded the Euro futures a few times.

Good day! Nice volatility! It's nice to be back to normal volume levels after a long summer. Very nice day to be a trader!

Trading Volumes Finally Back to Normal

This chart for the 10-year Treasury futures shows very good activity today, after a week of low volume last week. It sure is nice to see the financial markets finally back to normal after the dog days of summer. August is often the most difficult month of the year to trade. Now, we can finally get back down to business!

Don't Forget Tropical Storm Josephine!

Lest we overlook her, Tropical Storm Josephine is also forming rapidly in the Eastern Atlantic. They are coming like dominoes!

China, Russia Economies Slow Down Too

Economic data out of both China and Russia overnight also indicate dramatic economic slowdowns also. This may also be a reason why crude oil has fallen so far, so fast today.

And Hurricane Ike Comes Into the Picture, Too!

And now Hurricane Ike prepares to follow Hurricane Hanna toward the Atlantic coast of the United States. Ike has already become a category 2 hurricane stronger than Hanna, even while still far out in the Atlantic. Fortunately, neither Hanna nor Ike show any signs of endangering oil platforms in the Gulf of Mexico. The Atlantic seaboard may not be so fortunate, however. Will the East Coast be able to evacuate and prepare as effectively as the Gulf Coast states did? I hope so! Click on the graphic to see the latest storm path at accuweather.com.

Crude Oil Fuels Stock Market Rally

Stock markets have also rallied overnight on crude oil weakness. The Dow is up nearly 100 points today. Exciting market movements overnight!

Crude Oil Falls Through the Floor

Crude Oil fell all the way to $105.44, but has also recovered back to the $108.50 level. Wild markets overnight! Demand destruction is being at least partly attributed to the downside breakout.

Personally, I hope that despite the price collapse in the energy commodity sector, Americans will keep up the pressure on their elected officials to become energy independent, or the United States will soon be back in the same energy pinch that we have seen in the first half of this year!

Corn, Soybeans Near Limit Down Overnight!

Both corn and soybeans are very close to limit down overnight, following the lead of crumbling crude oil prices and the strength of the US Dollar. It appears that more and more, these two commodities (corn and soybeans) have become surrogates for crude oil, following it in lockstep. It seems striking that these three commodities (crude oil, corn, soybeans) in particular appear to be closely linked to the US Dollar also. Gold is also significantly lower!

And Here Comes Hurricane Hanna!

As if Hurricane Gustav wasn't bad enough, the National Weather Service has just upgraded Tropical Storm Hanna to a hurricane. The good news is that Hanna doesn't appear to be a threat to the same people and facilities in the Gulf region. The bad news is that Hanna seems intent on targeting the eastern seaboard of the United States. Click on the picture to see the latest update on the hurricane from accuweather.com.

Crude Oil, Natural Gas Sell Off to New Lows

Following relief among market participants that perhaps oil platforms in the Gulf of Mexico may not be as severely damaged as earlier thought, both crude oil and natural gas futures have sold off, reaching new lows today. Natural gas reached price lows today that were lower than those reached one year ago. This is an amazing downtrend considering that the price of natural gas has declined more than 40% since it's high of about $13.75 on July 4th!

This could easily lead to additional fresh selling and a renewed downtrend. Additionally, unlike crude oil, new supplies of natural gas have been developed and are being brought online. This could also contribute to a bearish sentiment for the gas.

"Russia Is No Longer a Free Country"

"This year Russia has become a different country. It is no longer a democratic country. It is no longer a free country". Andrey Illarionov

This is a significant quote because Illarionov was the senior economic adviser to Vladimir Putin. It was he who persuaded Putin to begin a flat tax in Russia that caused its economic boom. He also played a key role in eliminating Russia's foreign debt and in creating the fund that used oil revenues to boost foreign reserves and create a soverign wealth fund. He also obtained admittance for Russia into the G8 and was Putin's personal representative to that organization. The above quote was stated at the time of his resignation. He now lives in the West and works for the Cato Institute.

Here is an excellent article in which many Russian citizens who are striving for basic human rights in their country condemn Russia's invasion of Georgia. It is a factual, unbiased recitation of events thus far:

Human Right Defenders Condemn Russia's Operation in Georgia

Reasons Are Irrelevant!

Reasons are irrelevant. All that matters is that the market responds in the way that it does! Today, despite a Category 3 hurricane in the Gulf of Mexico, oil plunged more than $5/barrel. Does the correct answer to the "why" really matter? Nope!

We all tend to look for reasons that things happen so we can justify our responses. There is something in our psyche that looks for a reason. However, reasons are always given post-event anyway, so by the time we know what caused an event, those reasons are no longer relevant to future market movements anyway. Tomorrow's event will have a different -- and equally irrelevant -- cause!

When we were children, we would always ask our parents, "Why?" "Why this, Mom?" "Why that, Dad?" "Why, why, why?" Eventually, Mom and Dad would tire of our relentless asking and just reply "because". "Because" became the ultimate answer to perennial "why's".

Apparently, there is something in our human psyche that seeks to know the "why" despite the fact that the response to yesterday's "why" doesn't really matter when applied to future events. The reason for tomorrow's market event will be different than the response to today's "why". This is true both individually and collectively (collectively meaning the entire market). The answer is simply, "because". It just IS! The ultimate market answer, just like Mom and Dad's replies, is a vague, but true: "BECAUSE"! That's just the way the market responded! What else matters?!

Who cares whether the Dow drops 1000 points because Aunt Bodie had a hangover or because Goldman Sachs had a bad quarter? The result is the same -- a 1000 point drop on the Dow.

Do we really need a reason to trade? No! We just use it to justify what we did. "See, the market agrees with me!" But having that justification really doesn't make our trade any better -- or worse. It just helps us to justify taking it! But really, who cares what caused the market to go up or down? The fact is that it just went up or down! And that is all that truly matters!

Who cares WHY it happens? Maybe it happens just because most market participants EXPECT it to happen! That may seem like a dumb reason, but it's the BEST reason. It's the only REAL reason, and the only accurate one. "Because" that's the market sentiment! That's reason enough! More cause or reason beyond that -- is irrelevant!

No Suprise! Russia Annexes South Ossetia

Russia announced today that it will annex part of the territory of Georgia into its own borders. The monster reveals its nefarious motives more every day! Worse yet, Russia also announced that it will build a permanent military base within the conquered territories. It also indicated that it would soon do the same with other Georgian areas.

"The disclosure will expose Russia to accusations that it is annexing land regarded internationally as part of Georgia. Until now, the Kremlin has insisted that its troops intervened solely to protect South Ossetia and Abkhazia from Georgian “aggression”.

Needless to say, Russia's KGB Kings have repeatedly lied over the past month to the international community. This is only the latest revelation of Russia's dark heart that has emerged over the past few years. Tyranny has come once again to Russia, and now, it has begun to bludgeon its neighbors once again also. 1968 is here again. Here is the entire article:

Kremlin Announces that South Ossetia Will Join 'One United Russian State'

Russian Opposition Party Decries Recognition of Georgian Breakaway Regions

Now, human rights organizations are going into the region to catalog atrocities, and they are finding that despite widespread reports of such atrocities by the Georgians, there are no eyewitnesses. They are rumors, and nothing more, apparently planted to turn the hearts of the locals against their Georgian countrymen. One report by a human rights worker explains that while the rockets came from the direction of Georgia, what remains of the rockets themselves are Russian Grad rockets. This same reporter said the following:

For instance, all of a sudden, that maybe it was Russia that bombed everything to spite Georgia.

First a bombardment took place, then, after a massive shelling, the armored vehicles moved in.

And after the armor, the infantry forces walked in.

On the level of the shelling, and the armor, genuinely, the rights of the civilian population were violated.

Weapons were used which in no case can be used.

There were direct tank attacks on residential buildings, and on the building’s basements.

But from the point of view of the atrocities that, supposedly, were committed by individual Georgian soldiers, the infantry, we did not find any information from first-person sources.

It is possible that they were fed fables that the peaceful people had long since left.

This same human rights organization indicated that Russia has grossly overstated the number of civilian casualties in the area. Instead of the thousands that Russia claimed, the human rights workers were only able to document "tens of victims", not hundreds or thousands.

On the other hand, the same human rights worker said that there were decaying corpses of Georgian soldiers widespread throughout the area. These are a grave concern because they raise the likelihood of disease.

More Russian lies?

No Trading 'Til Next Week

Volume has been unusually low this week. I have decided not to trade until after the Holiday.

September is typically a very volatile month for the markets, and especially the stock markets. September and October are historically the worst months of the year for stocks.

Grain Analysts Surprised

Despite higher prices for crude oil, grain analysts have been surprised today to see the price of corn and soybeans plunge instead.

Russia's Medvedev: Itching for New Cold War!

While the West tries to downplay and ignore the idea that a new Cold War has begun between Russia and the West, Russia has embraced the idea. In fact, if Russia's President Medvedev has anything to say in the matter, Russia is eager for it. Russia's once fledgling democracy has now fully evolved into a elitist capitalist dictatorship controlled by a few militant oligarchs. “We are not afraid of anything, including the prospect of a Cold War," he boasted today. Russia troops continue to occupy tiny Georgia, including the port city of Poti, nearly two weeks after Russian leaders agreed to pull out of Russia. In fact, Medvedev said today that Russian forces are continuing to build, not withdraw.

This is important because as I continue to take the pulse of business leaders throughout the United States, we are only now beginning to price into the market the consequences and costs of this new Cold War (using Medvedev's terminology). Finally, we are beginning to wake up, sit up, and take notice that the past is still prologue in our relationship with Russia.

There is one significant difference this time, however. This time, Russia has a wealthy, capitalist economy awash with petrodollars and the confidence and willingness to pick a fight. They have no intention of backing down with the West.

Interestingly, the Founding Fathers of the United States, in their studies of human history, said that democracies have a tendency to do precisely that, evolving into tyrannical dictatorships controlled by a few wealthy elitists. They feared that such would also eventually be the fate of the United States, resulting in tyranny. That's why, when a woman asked what kind of government has been chosen following the Constitutional Convention, Ben Franklin replied, "a republic, if you can keep it". He knew that historically, democracies tend to degrade and destroy themselves, partly because where a majority rules, minorities rights are destroyed. Perhaps this is why Jesse Jackson pines for a day of "democracy of capital", in which the majority will take the property of a wealthy minority by force, if necessary.

On the other hand, a republic operates on the concept of the "rule of law", protecting minority rights and holding the tyranny of the majority at bay. This was also one of the reasons why they provided for United States Senators to be chosen by the states rather than by vote. This was changed, and the United States took a giant step toward democracy (and away from the republic they had given us), with passage of the Seventeenth Amendment. This amendment fundamentally changed the form of government in the United States away from that envisioned by the Founding Fathers.

We are now seeing this devolution of democracy occur in Russia, but also in the United States to a lesser degree. Lest anyone bristle at the suggestion that the United States is descending toward the tyranny of democracy, I would suggest that class warfare is one example of this. The idea that the majority can take the property of a wealthy minority by voting it away, is a form of tyranny that the Founders dreaded. A small, unpopular minority of wealthy people are preyed upon by the majority. Here is a link to a good explanation of the difference between a republic and a democracy:

'A republic, if you can keep it' ...or remember what it means

Gustav Takes Aim at Gulf Oil

Oil prices are jumping higher today as Hurricane Gustav takes aim at the prime Gulf of Mexico oil producing regions. Some computer models predict that Gustav will be a Category 4 or 5 storm by the time it hits the Texas-Louisiana coast. Click on the graphic to go to the latest update at accuweather.com.

Very Little Trading Today Due to Illness

I hope to be back tomorrow.

Grains Topple From Recent Highs

The Pro Farmer crop tour over the weekend suggested that crop yield expectations of the USDA are about 1% too high. The lower yield estimates were expected to buoy higher prices. However, prices have fallen significantly all morning so far. What gives? Good question! This is one more example why I follow the charts, regardless of what the fundamentals suggest. Falling yield should almost certainly provide ample impetus for higher prices, but we are seeing lower prices instead. Perhaps today's US Dollar strength is a large factor. A stronger Dollar increases the cost to foreign countries to purchase much-needed U.S. grain products. This might cause demand decay, but this is food they are buying, after all.

Bad News Bears In Charge Today

It never ceases to amaze me that on one day, we can see euphoric triple-digit stock market rallies, and the next day, the mood is so melancholy that prices plunge by the same amount. That's why I call these days of stocks "manic markets". Today is no exception. Compare today's charts (above) to those of last Friday. While Friday, it took the entire trading day for the Dow to climb 200 points, today, the plunge of more than 220 points have taken only half the day. It is also interesting to me today that each subsequent plunge today has been large than the prior one!

This Inflation Fudge Don't Taste So Good!

When the news media report US economic data, they typically only report the headlines. When was the last time we heard any of them spend more than a few cursory seconds (and usually no time at all) discussing how the government has fudged those statistics over the years? I have known for years that the government doctors the statistics, misleading the American people. I'm not suggesting that it is intentional, because I really don't know if it is. But whether it is intentional or not is really quite irrelevant. The fact is that it happens. As I have said several time in other posts: reasons are irrelevant. So are intentions.

I even knew how they do it, using hedonics, weightings, and substitutions. However, until now, I didn't know how much. I hadn't seen precise quantification of how much the government fudges the statistics. I ran across an interesting article that discusses the "how much". Here is an excerpt:

"...from 2007 to 2008, CPI showed a 4.1% rise in the price of food. But according to the Farm Bureau, that tracks the same basket (without using substitution, weighting or hedonics), food prices actually rose 11.3%!"

What this short quote is telling us is that while the official inflation statistics released by the Bureau of Labor Statistics reports inflation of only 4.1% (which is still twice the amount the Fed is comfortable with), the true, undoctored statistics, as collected by the Farm Bureau, using historical methods, is much higher -- 11.3%! Ouch!

Perhaps this is why universally around the globe, from the Arabian Peninsula to China, all the countries that have pegged their currencies to the US Dollar, are finding that inflation is out of control. Only the U.S. continues to claim that inflation is "contained" or soon to come down.

Here is the rest of the article:

Government Statistics: Perfecting the Art of Mass Deception

Obama -- Candidate of "Big Corn"

The title of "Big Corn" seems kind of silly, doesn't it? "Big Corn"! But it underscores how we have been brainwashed into thinking of only one industry as the big, evil boogeyman. Big Oil! Oooooh, scary! There is no "Big Software"! There is no "Big Computer Chip"! There is no "Big Healthcare" or "Big Pharma"! Just "Big Oil"! Brainwash complete!

We frequently hear Senator Barack Obama attack the oil companies, as if profitability is evil. Apparently, to him it is! What we never hear, however, is how frequently Senator Obama accepts donations and free airplane rides on the corporate jets of companies that make billions in taxpayer-funded corn subsidies. Companies like Archer Daniels Midland, a huge agriculture multinational that competes on the same level and size with the largest oil companies! And with better profit margins! So why no talk of Big Corn or Big Ag? Brainwash complete!

CFTC Disputes Washington Post Inaccuracies

"Contrary to what has been reported in The Washington Post, it is factually inaccurate, and the CFTC has never reported, that financial firms speculating for their clients or for themselves account for about 81 percent of the oil contracts traded on NYMEX," the CFTC said.

The commission argued that instead, noncommercial traders make up about 50% of both the long and short side open interest in West Texas Intermediate crude oil futures and options.

"The Post's 81% figure seems to assume that all swaps dealers are engaged in speculative trading," the CFTC said, noting that swap dealer activity often involves serving as a counterparty to commercial entities hedging price risk exposure.

It sure makes you wonder what the Washington Post's private agenda is, doesn't it. When one considers that the Posts doesn't have the data (only the CFTC and exchanges do), whey would the publish data to make a point based upon erroneous data? Here is the full article:

CFTC Disputes Washington Post

CME Locks Up Nymex

CME completed its acquisition of the Nymex over the weekend. It will be interesting to see how this impacts the futures markets. We should perhaps ask them to eliminate so many redundant fees. A single fee for users would be more appropriate in a competitive marketplace.

Is Coal King?

"...the U.S. Air Force, some months ago successfully tested coal-derived jet fuel in an in-flight B-52 bomber without altering the engines in any way. And diesel fuel so derived is actually cleaner than conventional petroleum-sourced feedstock."

--Dick Phelps