The Real Unemployment Data and the Millenium Wave

A few short excerpts from John Mauldin's latest newsletter:

"The economic news just continues to be bad. New unemployment claims were over 529,000 on a seasonally adjusted basis. The "real" number was 606,877 lost jobs. New home sales were off by another 5% and down 40% from a year ago, as builders slash inventories. The Chicago Purchasing Manager index came in at 33.8, the weakest number since the serious recession of 1982. The national number due next Monday will be just as ugly, as durable goods were down far more than expected, by a negative 6.2%."

"And while the stock market may enjoy a serious rally over the next few months, we are not out of the woods. The fire is still raging and we are witnessing ever-more aggressive attempts to get the fire of the credit and housing crisis under control."

"The Fed is going to have some room to pump up the money supply without seeing inflation rise precipitously. I think this is the first of what will be several large injections, as they will keep it up until the economy begins to recover..."

I'll let you read Mauldin's newletter for the really cool stuff about the Millenium Wave.
Click here to read the whole thing.

Happy Thanksgiving!

Fed Funds: The Surest Bet in Futures

Fed Funds futures are pricing in a nearly 100% chance of a Fed rate cut when the Fed meets mid-December. In the past two months, this was the surest bet in the futures industry.

Buying More Treasuries

After a two-day hiatus, I am buying treasury futures again. Fear still drives the markets. I personally an convinced that eventually, treasuries will be sold of in a panic as investors realize that the bubble of debt of the United States government will never be paid. However, my technical indicators will tell me when is the best time to sell. I will be one of the first ones to head for the exits! For now, however, like many others, I am buying treasuries!

The daily chart is shown below. Treasury prices are at the highest prices of the year, and the short-term treasuries are near negative yields!

New Home Sales Worst Since 1991

From Bloomberg:

"Purchases dropped 5.3 percent to an annual pace of 433,000, lower than forecast and the fewest since January 1991, the Commerce Department said today in Washington. The median sales price decreased to a four-year low. Other Commerce reports today showed consumer and business spending tumbled last month."

Here is the entire Bloomberg story.

October Durable Goods Plunges 6.2%

The drop in durable goods orders was twice the forecast amount, and is being blamed for sagging stock indexes today.

Click here for the Bloomberg story.

Volume Light On Pre-Holiday Trading

Volume for futures trading is light today in anticipation of the Thanksgiving Holiday. Liquidity is particularly poor for grains and eurodollar contracts today. Tomorrow, a few contracts will still be trading, notably currencies and energies. Due to poor volumes, trading can be particularly erratic on the days surrounding holidays.

Real Estate Contracts Have 47% Default Rate

Major homebuilders have indicated that 47% of all new real estate contracts don't reach completion of the transaction. This is the highest ever reported. It indicates that for every 2 contracts to purchase a new home, nearly 1 in 2 of those will never actually purchase the home.

Oppenheimer's Meredith Whitney: TARP Funds Used Up By Write-Downs

In a report released this morning, famed analyst Meredith Whitney is saying the the TARP funds injected into America's banks are likely to be used up in write-downs ($44 billion in the 4th Quarter alone) and reserve requirements rather than lending.

Here's the Bloomberg article.

More bad loans to come, apparently! Were the taxpayer bailouts premature? Does this mean all those funds injected into the banks were wasted, if all they did was provide the banks with funds to write off more bad debt? And does it mean the taxpayers will be on the hook to pay all those bad debts -- with interest -- now that that debt has been transferred to the Federal balance sheet? Sure looks that way!

Cisco Shutters Doors During Holiday to Cut Costs

Cisco Systems, the bellweather technology company that overwhelmingly dominates its sector, has announced that it will temporarily close its shop for a few days at the end of the year to save money. I suppose this means that all its employees will lose their salaries during that period of time also. Wow, now that's an innovative approach to cost-cutting!

Bailout Euphoria Proves Temporary, Stock Futures Turn Negative

Despite the latest bailouts announced today by the U.S. Government, stocks have now slid into negative territory for the day. Over the past year, I have noticed that when government bailouts are announced, strong rallies have occurred. However, within 1-2 days, the markets reverse once again and move lower. This phenomenon appears to be manifesting itself once again today.

Is the Dollar On the Cusp of the Next Leg Down?

With almost daily announcements of new Federal bailouts and new additions to the national debt, the global financial markets are showing increasing concerns for the value and safety of the U.S. dollar. This chart shows that the rise of the Dollar has ended, and extreme stress is showing that the greenback may be on the edge of a new leg down. This should worry all Americans, because if it occurs, the prices of commodities will begin a fresh trend to the upside at the worst possible time for the economy.

Russian Analyst Predicts Collapse of U.S. Economy, World Power

A political analyst from Russia says that "The dollar is not secured by anything. The country's foreign debt has grown like an avalanche, even though in the early 1980s there was no debt. By 1998, when I first made my prediction, it had exceeded $2 trillion. Now it is more than 11 trillion. This is a pyramid that can only collapse." Igor Panarin also added that the U.S. economy "is already collapsing. Due to the financial crisis, three of the largest and oldest five banks on Wall Street have already ceased to exist, and two are barely surviving. Their losses are the biggest in history. Now what we will see is a change in the regulatory system on a global financial scale." Panarin also predicts that the United States will break up into 6 smaller countries and that Russia and China will emerge as the world's great powers, both economically and militarily.

Good News! Consumer Confidence Rises!

Consumer confidence recovered somewhat for November, largely attributed to falling gasoline prices over the past few months. The index rose to 44.9 in November from 38.8 in October.

Only $20 Billion Left of Treasury's $700 Billion

After today's announcement of an additional $200 bailout by Treasury Secretary Paulson, only $20 billion remains of the $700 bailout that Congress provided to the Treasury Department in the September bailout package.

FDIC Loans Lose $7.6 Billion

The FDIC has announced that 171 banks are now on its watch list of troubled institutions. It also released figures that show a ten-fold increase for losses over the past year for bad loans.

Moody's Downgrades PRIME Mortgage Debt

As if the subprime mortgage market wasn't frightening enough, this morning Moody's has downgraded tranches of prime mortgage debt, based upon rising default rates. Prime mortgages are the ones that 90% of working Americans have securing their home loans. These are supposed to be the good loans! Moody's downgraded $10 trillion of prime mortgages from Aaa to Caa3 today because default rates have risen to 3%. This is surprising, especially in light of the fact that these tranches were created with the estimation that they would never rise to default rates above 1%.

Case-Shiller Declines 16.6%

Real estate prices declined during October by 16.6%, according to the latest figures from the Case-Shiller real estate index. Prices declined in all cities where prices were measured for the sixth consecutive month, and was a record decline for the history of the index. The picture above is worth a thousand words.

Federal Reserve Bailout Du Jour -- Another $800 Billion

The Fed has announced this morning that they will begin buying even more toxic debt, including student loans, auto loans, and credit card debt. The Federal Reserve has now committed $800 billion more to the credit markets.

This can not end well, in my opinion. We should all prepare for chaos, and the time is coming that it will no longer be contained to Wall Street and the financial markets. The Mother of all Bubbles is going to blow up, and I believe it is going to happen sooner rather than later. Market mayhem is coming!

Here is the Bloomberg story.

Commodities Showing New Signs of Life

Commodity prices are showing signs of price reinvigoration again in recent days. Yesterday's rapid rise in stock index futures has given a strong shot in the arm to commodity prices as well.

Jim Rogers Was Right In Predicting Temporary Dollar Rise

In April this year, famed investor/commodity guru Jim Rogers accurately predicted that the U.S. Dollar would rise temporarily. Now, however, he is predicting that the greenback will be devalued as policymakers seek to weaken it to artificially make the U.S. more competitive. He says that the Dollar is "going to lose its status as the world's reserve currency,'' he told Bloomberg yesterday. "It will be devalued and it will go down a lot. These guys in Washington, they want to debase the currency.'' Rogers has a good track record with his predictions, and he puts his money where his mouth is.

Here is the Bloomberg story.

3Q GDP Worsens, Revised Down to -0.5%

The U.S. economy shrank by more than originally expected during the 3rd Quarter. Estimates were revised downward from -.3% to -.5%. Some surprise!

Here is more info from Marketwatch.

Fed Paying Above Market Value for Toxic Debt

It now appears that in order to try to shore up the economy, the Federal government is now paying premium prices for toxic debt. Private investors that were willing to buy these troubled assets are withdrawing offers because the government is so willing to pay a higher-than-market price for the same debt in the hopes that they will increase in value sometime down the road. This is a fine prescription for saddling the American taxpayer with crushing debt and monstrous losses in the future as more and more of these instruments continue to lose value. The government is betting against private capital that they can make them increase in value despite the views to the contrary of the finest minds in private industry. This is risky at best because our government is betting that these bad loans have greater value than the price that private distressed debt experts believe they are worth. History suggests that the government will be wrong and that the American People will pay a much heavier price for the indulgent overconfidence of government beaurocrats. Not only is the government over-paying for this debt now, but the American People will pay for it again at some point in the future. So this is what the Plunge Protection Team really looks like?

$7.7 Trillion of U.S. Government Bailouts -- So Far!

From Bloomberg this evening:

"The U.S. government is prepared to provide more than $7.76 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. debt yesterday."

Here is the full Bloomberg story.

Dollar Get's Drilled!

Now this is looking ugly! Are the chickens now beginning home to roost for profligate spending and irresponsible fiscal and monetary policy? As the Dollar drops, commodity prices (ie., inflation) will start to pick up steam again.

President-Elect Obama's News Conference Calms Markets

The financial markets appear to have been reasonably pleased today with President-Elect Barack Obama's performance in a news conference announcing his plans for economic stimulus and appointing his economic advisory team. He has passed his most important test thus far.

The Mother of All Bubbles Is Building!

The Mother of all Bubbles is building. This bubble is the largest in human history, and when it pops, everyone will be affected. It will cause market mayhem and a run for the exists the likes of which has never been seen before. What is it?

"The American government bonds are the world’s last bubble and the price of commodities has to increase." Jim Rogers, famous investor and commodity guru

The Mother of All Bubbles is U.S. Government debt!

There is no such thing as bankruptcy for an entire country. There is no International Bankruptcy Court. Bankruptcy for a nation is done by monetizing the debt of that country. It is done by creating monstrous amounts of new money with the intent of inflating a nation's way out of a crisis. Sound familiar? It should! It has been done by other nations in the past, including the Roman Empire, the Weimar Republic, and in Zimbabwe today. We're in the early stages of that phenomenon now here in the United States. We have created the Mother of All Bubbles!

Dollar Down, Commodities Up!

Q4 GDP May Drop 8%

Whisper news for the 4th Quarter GDP is that the U.S. economy may contract as much as 8%! If so, stocks will probably drop even further. Hold onto your money folks!

Why Are Food Prices So High When Commodity Prices Are Falling?

Food commodity prices have plunged 45-60% in the past six months. So why are food prices at the grocery store substantially higher than one year ago? Grain, dairy, meat and soft commodity prices are the lowest we have seen in two years, so why are prices at the grocery store still higher than one year ago? Gas prices have plunged over the past six months due to the lower crude oil price, but food prices have remained stubbornly high. Either wholesale food distributors are hanging onto the higher prices while their own costs drop, or the grocery store chains are gouging consumers to pad their pockets. One of these two groups -- or a combination of both -- is keeping the excess profits and taking advantage of consumers by not passing on the lower commodity prices to the people who buy their products.

Gold's Message to Global Financial Markets

While commodity prices have collapsed worldwide due to the economic weakness, gold prices over recent days have surged higher instead. Why? As the ultimate barometer of both economic uncertainty and inflation fears, the price of gold futures has surged in the past few trading sessions. What conclusions are we to draw from this? That with the Fed having incresed the money supply by 39% in 2008 alone, the financial markets are anticipating higher inflation ahead. However, I suspect that this higher inflation will likely occur only if the economy begins to rebound.

Citigroup's $326 Billion Bailout Package

From Bloomberg:

"The U.S. government agreed to protect $306 billion of loans and securities on Citigroup Inc.‘s books against losses, as it seeks to shore up investor confidence in the bank."

(Citi was also given another $20 billion capital injection.)

Click here for the entire story.

Text from joint FDIC, Fed, Treasury statement.

Little Follow-Through After Friday's Rally

There appears to be little follow-through momentum on the stock rally from last Friday. The fear and sense of foreboding appears to have returned over the weekend. Even the Asian markets are mixed, but with a downward bias.

Futures Liquidity Drying Up

One of the reasons that I have been transitioning toward longer-term trades is that liquidity in the futures markets has decreased by about 50% over the past 3-6 months. The Open Interest for crude oil has decreased by more than 50% in the past 4 months. The decrease in Open Interest for grains has been about 45% in the same period. As liquidity decreases and spreads widen, the only way to compensate, I believe, is to increase the length of time that a trade is open, permitting price trends to compensate for the decreased liquidity and widening spreads. I have also begun to concentrate more and more on futures with smaller margins.

Nuclear Alarm

From the Wall Street Journal:

"Since the end of the Cold War, the U.S. nuclear weapons program has suffered from neglect. Warheads are old. There's been no new warhead design since the 1980s, and the last time one was tested was 1992, when the U.S. unilaterally stopped testing. Gen. Chilton, who heads U.S. Strategic Command, has been sounding the alarm, as has Defense Secretary Robert Gates. So far few seem to be listening."
"The U.S. is alone among the five declared nuclear nations in not modernizing its arsenal. The U.K. and France are both doing so. Ditto China and Russia. "We're the only ones who aren't," Gen. Chilton says. Congress has refused to fund the Department of Energy's Reliable Replacement Warhead program beyond the concept stage and this year it cut funding even for that."

With the Democrats in control of Congress and a President-elect that has indicated that he wants to cut funding for defense, including the U.S. missile defense shield, what are the odds that the nation's nuclear deterrent will be kept viable over the next four years?

Read the rest here.

Fed More Leveraged Than a Hedge Fund

From Barrons today:

"IF THE FEDERAL RESERVE BANK WERE A COMMERCIAL LENDER, it would be a candidate for receivership, based on its capital ratios. Bank examiners generally view any lender with a ratio below 2% to be dangerously undercapitalized. The Fed's current capital ratio, or capital as a percentage of assets, is 1.9%.
The Fed has provided so many loans and emergency credits -- to banks, brokers, money funds and foreign countries -- that its balance sheet, viewed one way, is as leveraged as any hedge fund's: Its consolidated assets amount to 53 times capital."

Here is the full story (requries membership)

Pure, Unbridled Panic!

Here are prominent headlines from today's business news:

Auto Industry Bailout Compromise Fails in Congress

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

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

Unemployment Claims Reach Historic Levels

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

Crude Drops Below $50 Per Barrel

Even Biggest Insurance Companies Line Up at the Bailout Trough

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

IAEA Announces Iran Now Has Enough Enriched Uranium for One Nuke

Treas. Secretary Paulson's Speech Fails to Reassure Markets

Dow Drops to Fresh Lows, Down 444 Points

Markets End in Tatters

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

Transitioning To Longer-Term Trades

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

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

Global Economics Headlines: Are We Headed for the Abyss?

Ken,

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

G20 Meeting Was a Disappointment to Markets

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

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

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

Hong Kong Data Shows Recession Now Official

Japan Government Announces Official Data Validates Recession

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

Citigroup to Lay Off up to 40,000!

Auto Parts Makers Now Want Piece of Bailout

Pres Elect Obama Wants Infrastructure Projects

$1 Trillion U.S. Deficit Possible in 2009

Toyota May Lose AAA Credit Rating

JP Morgan to Lay Off Early 2009

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

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

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

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

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

Steve

$451 Billion and Climbing

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

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

Welcome to the White House, President-elect Obama!

Are American Capitalism and the American Republic DEAD!?

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

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

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

No More Blogging

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

The New Reality -- Russia Is Back

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

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

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

Here is the entire article:

The Second Cold War and Corporate Security

Read in particular the section on the implications for business.

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

The Russian Resurgence and the New-Old Front

What's Happening Tonight to the Yen?

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

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

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

The Fed's Out of Money

Oil UP $11 in Two Days

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

That Wasn't Enough? $55 Billion More

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

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

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

Inflation must go higher. It's guaranteed!

Central Banks Inject $247 Billion More Into Global Financial System

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

Dow Drubbed 449 Points!

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

Mayhem in the Markets!

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

$230 Billion

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

Buuuuy Cooooooorn!

The pic says it all!

Dow Sets New Low for 2008, S&P Halts Decline at Yesterday's Support

The stock market indexes have been in near-freefall today, with the Dow reaching just under 400 points of decline, and setting a new low price for 2008. However, the indexes appear to be attempting to build a base, with the S&P 500 working to attempt a small rally off the same level as yesterday's low. What an exciting day, to say the least. It still doesn't look like panic, and I'm not sure if this would qualify as the capitulation that many traders believe marks the bottom, but the strong volume and volatility is fun to trade!

Grain Crops Behind In Development

Despite the bearish charts, more data from the USDA suggests possible downward revisions to crop forecasts in the future. This report today:

According to USDA meteorologist Brad Rippey the latest crop condition report released Monday shows crops running significantly behind the normal development pace in the Midwest and across the Plains. Southwestern Nebraska farmer Kurt Bernhardt agrees with USDA's assessment.

"That is way behind the five-year average of 44%," says Rippey. "In five states we see less than 10% of the corn mature at this point in mid-September."

Corn, wheat, and soybeans appear to be subject to the turmoil in the financial markets today, with erratic trading being the standard for today. Once some order comes back to the market, perhaps a pattern will develop. I'm watching the grains, but haven't seen good reason to trade today.

Gold Explodes $50

Gold must be recovering its safe haven status today, because while stock index futures are taking a beating, gold has exploded $50/ounce today. I think of gold as the ultimate barometer of fear, and if that's the case, fear has gripped the financial markets. The gold bear is over, and the gold bugs are having a picnic!

Fixed Income Funds Drop Like Stones in the Sea

I mentioned this last night on my other blog. For more information, readers can read about my first mention of this phenomenon there. Fixed income funds, among the most rock solid and largest in the world, are collapsing this week on the heels of the latest government bail-outs. These four charts are four different funds, but are representative of the entire sector.

I don't know if this is related, but last night, for the first time, some money market funds were forced to drop their redemption values below the $1 price per share threshold. I wonder if that same phenomenon is being manifested in these other funds.

Stock Traders Lose Enthusiasm for AIG Bail-Out

Overnight, it appears that stock index futures traders have lost their enthusiasm for the AIG bail-out, losing their nerve and selling of the stock index futures. As I have mentioned regarding past bail-outs, the excitement is usually only temporary. Eventually, within days or even a few hours (as in this case), investors begin to realize that the crisis continues and that this was not a genuine, lasting solution. Then, the sentiment quickly returns to where it had been previously. We should be prepared today for another volatile day trading stock market futures.

Also, yesterday, the Dow futures hit a new low for 2008. I had noticed it but failed to mention it until now because the Dow rallied off the new low so forcefully.

$216 Billion

That's the figure that global central banks injected into the world financial system in bail-outs yesterday. And that's just the figure for the last 24 hours!

Russia's Stock Market: Look Out Beloooooow!

Don't stand under Russia's stock market, or you'll get crushed on the way down, like a piano falling out of a high-rise window (see the daily chart above)! With the collapse of crude oil prices and the rush for the exits by global investors, Russia's stock market has plunged more than 53% in four months. Furthermore, Putin's animosity toward private property and private capital has created an environment in which investors are uncomfortable making capital investments. Tyranny and prosperity don't mix very well!

Russia's stock market, after plunging 17% in a single day, was shut down when it fell too far, too fast. A similar plunge in the Dow would amount to a plunge of nearly 1,900 points. I have never seen a drop in the Dow of more than 570 points in the time I've traded futures. That was in January over the Martin Luther King Holiday, and the Dow recovered and closed higher the next day. But the equivalent of 1,900 points? Now that's a big plunge!

Here is an article at the Financial Times with more details:
Russia Halts Trading After 17% Share Price Fall

More Big-Money Bailouts!

The Federal Reserve has just confirmed that the government has provided a "bridge loan with warrants" of between $85-$90 billion for ailing insurance mega-giant AIG! Details will be coming overnight. It is not being called a conservatorship, but looks very similar to the bailout of Fannie and Freddie last week.

The stock index futures were somewhat lower (Dow down about 40 points) this evening, but have rallied since, and the Dow is now more than 140 points higher. Wall Street always loves these bail-outs! After all, they are the beneficiaries!

Should Have Shorted Soybeans Today

This was a great trade that I missed today. I should have shorted soybeans, which broke through long-term support at $11.65 (established in January and tested again in May) on the Nov '08 contract, and reached their limit down price. I didn't check last night, but the weekly USDA crop report must have shown good fall growing conditions for beans. Also likely is the influence of the bearish crude oil outlook.

Despite the bearish trend in grains for the moment, I found this insightful by Vic Lespinasse, who suggests somewhat bullish fundamentals due to the cool, wet spring this year and resulting delayed crop development ever since. Since the corn and soybean plants are well behind normal in their crop development, just one significant freeze in the grain-growing regions of the United States could change the bearish forecast if crops experience any significant damage in the next few weeks before they can be harvested. Here is Vic's commentary:

The weekly crop ratings yesterday afternoon showed corn and beans both unchanged from the previous week in the good to excellent catagories, 61% and 57%, respectively. Development remains well behind normal with only 19% of the corn crop mature vs 44% average and just 21% of the beans dropping leaves, a sign of maturity, vs 41% average. Winter wheat planting is off to a slow start with 11% done against 16% average.

Vic is a long-time grains trader who is one of the most experienced in the business. He offers trading services for investors who wish to trade the grain markets, but who may not have the time or experience to do it themselves. Vic's website and complete commentary is here:
Grain Analyst
I really like the recent redesign of his website, too!

Where Is the Momentum? Where Is the Trend?

Note in this chart that momentum seems to favor the short side. This shows crude oil on the 3 minute and tick charts since 10:30 am EST. This also demonstrates why I only trade one direction. Right now, until the trend changes direction (crude is currently in a downtrend on the daily chart-- not shown), I will only trade crude oil on the short side.

This chart is a good example why. Since crude oil prices have been falling strongly for several weeks, it makes sense that the greatest profit opportunity is in selling black gold, not buying it. Note in this chart that the red candles pointing downward are much more forceful than the red/green mixed candles that moved prices higher. Prices on this chart move downward very rapidly and with several successive red candles without any green ones in between. However, when prices move higher, they do it with mostly green or doji candles, but with several red candles intermixed. Prices only move higher laboriously, like spoiled children that are forced to do something, but who only go kicking and screaming. Why swim upstream when the flow is downward? There is good reason for this, as we would be wise to learn this lesson:

Don't fight the trend!

Follow-Up Trade Also Picture Perfect

This follow-up long trade on the S&P 500 demonstrates most of the same methods and principles as the first one. In this trade, the prior test of the bottom of the previous trade can be seen. The green arrows indicate the points where fractals and EMA crosses show entry and add-on points. This trade ended just moments before this screen capture because another divergence of the Klinger volume indicator suggested that momentum was waning. Prices dipped quite rapidly following this trade. This trade allowed me to complete my trading goals for the day. Done deal!

Trading Dynamically Vs. Statically

This tick chart shows a short trade on the S&P 500 today. It is a perfect manifestation of my trading style. It shows a set of "parallels" as taught in Phillipe Cahen's book. It also shows entry and add-on points by using fractals (the red down-pointing arrows) as prices cross back below the Exponential Moving Average. It also shows how the Klinger volume indicator is used as a leading indicator, showing a divergence and bottom to the trade. I have noticed that with highly liquid trading instruments at the end of a strong move in the market, even after a top or bottom is formed, there is typically another test of that bottom that allows me to exit gracefully and very close to that bottom as it is tested. This was a good example of that as well, although the screen capture doesn't adequately show the test of the bottom that occurred following my copying the chart.

Not all trades are this perfect. The vast majority aren't. So why even show such perfect trades? Because we can still learn sound principles from them, if we approach them from that perspective. We are striving to learn trading principles, not just trading methodologies. We want to learn to feel and respond to the market's movements, not just learn a cookie-cutter technique. We want to trade dynamically, not statically.

This is why it is so critical for traders to learn to trade dynamically rather by the static text-book examples we see in books and trading courses. This is also the reason why most trading courses are only marginally useful. They only provide students with examples like this one -- that are perfect. The authors and teachers will scour the charts until they find just one chart that fits what they are teaching. Despite that fact that they have had to search far and wide to find that one picture-perfect example, they will lead the reader or student to believe that all they need to know is their one, simple trading technique or methodology.

Since most trades aren't perfect and don't fit the precise static picture of the trades in the books or training, most traders fail because they aren't trying to fit their square trading methods in the round hole of the financial markets. They are trying to take that one picture of the perfect trade and find the one very rare example of that trade in the markets.

Riding Roller Coaster Markets

The volatility on days like this provide excellent trading opportunities. I look at those charts like a roller coaster that must be ridden both up and down. What an exciting ride it is!

Grains Sell Off, Recover Also

The grains complex also has seen a sell-off and recovery. The fate of the Dollar appears to be a significant causational factor in this today, since the same pattern is also being demonstrated for the greenback.

Pushback and Recovery

What an amazing trading day. It seems almost miraculous that given the perfect storm of events in the financial world over the weekend, the stock market could battle back from a 344-point deficit for the Dow, but indeed it has. The charts don't lie!

Fear and Panic

The only thing that appears strong overnight are US Treasury futures, with money flowing without limit into US government debt like water through a damn. Investors only buy treasuries with this fervor for one reason -- pure fear!

September -- Living Up to Its Reputation!

CFTC Monitoring Markets

And now, the CFTC is monitoring the financial markets also, for the possibility of an intervention into the markets.

I have liquidated all futures. This is just too scary to remain in the markets for the time being. I'm sitting tight until a clearer picture develops!

Terrible Turmoil!

The Dow is now down by more than 300 points tonight, including loss of fair market value. We can not estimate the impact tomorrow of the weekend events in the financial markets.

Lehman Bros is filing bankruptcy tomorrow. This is a sad end to a company that has been in existence since the Civil War, survived two World Wars and the Great Depression.

The Federal Reserve has forced Merrill Lynch, the largest brokerage, to sell itself to Bank of America, one of the world's largest bank. WAMU and AIG are still in very troubled waters and may also face imminent collapse.

An emergency fund has been created by the Feds to finance losses due to the Lehman Bros. losses. The 10 largest banks in the United States has set up this new emergency fund to try to shore up the banking system, but no one understands right now what this is for. It simply creates a spirit of panic!

Things in the financial markets just went from very bad... to much, much worse! What a weekend!

I was chatting with a friend over the weekend, and we were both expressing considerable concern for the state of the U.S. economy. I asked him his thoughts, somewhat tongue-in-cheek, if we might be facing a national bankruptcy. He said something that I thought was insightful. He said that nations don't declare bankruptcy. Instead, they hyperinflate! I had never thought about this before, but I thought it was an interesting perspective on the state of affairs.

I think I just became a gold bug! Grains iare flat tonight. Crude oil is down. The Dollar is crumbling. But gold is substantially stronger.

Dollar, Dow Double Drubbing

Both the US Dollar and the Dow opened this evening substantially lower. The Dow dropped 300 points at the open of evening trading. Interestingly, crude oil is also trading lower, below $100/barrel for the first time in months. Gold jumped more than $16/ounce. What an omen for a volatile week!

Currency Trading: The Least Ugly Fiat Money

I thought today's reversal in the Dollar's prospects made this quote from Jack Crooks at Black Swan Capital particularly poignant, timely, and accurate:

Since the dumping of the gold standard, fiat currencies have been given about as much respect as a red‐headed step child. Since then, as many have pointed out, currency investing is like judging an ugly contest. Find the least ugly and buy it; find the most ugly and sell it.
Much of the dollar’s recent rally has stemmed from the idea that other countries’ economies and currencies are getting uglier while the US economy and dollar is remaining the same amount of ugly. This shift towards ugliness is sparking a shift in capital into the United States and the US dollar.

When I trade currencies, as I did today, this is precisely the attitude that I take. Which is the least ugly? Today, the Dollar was more ugly than all the others. Who knows what tomorrow will bring?

Jack Crooks is the head market strategist at Black Swan Capital, a currency trading consultant firm. I have been a subscriber to his daily currency trading newsletter for years.

The Dollar Get's Pummeled Today

The Dollar's reversal of fortunes is significant today because the Dollar's drop has wiped out an entire week's worth of Dollar gains. The perception that the Dollar would benefit from the weakness of the global economy has been a good trade over the past month, but that perception shows signs today of having run its course. All the major currencies are significantly higher against the Dollar today, including the Euro, the Australian Dollar, the British Pound, the Swiss Franc, and the Canadian Dollar. The Canadian Dollar especially has held its own against the US Dollar over the past few weeks.

Corn Limit Up on Revised Downward USDA Estimate

The grains have been mixed today, influenced by the price of crude oil, the reversal of the US Dollar's recent fortunes, and this morning's USDA downward revision. Corn has now reached its limit up price this morning, a sign that perhaps the downtrend for corn may be nearing its end. This revision is particularly noteworthy because for the past three years, the USDA has revised its estimates higher in September, only to revise them downward in future months. If the USDA revised its estimate downward today, what will happen next month?

Another Roller Coaster Day Trading Stock Futures

What an amazing day for trading stock futures. The Dow plunged at the opening bell by about 150 points, rallied all the way to positive territory, and now has fallen again into triple-digit loss territory once again. Ride the wave!

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.