"Presto!"

by Larry Levin


The Federal Reserve tried to pull a rabbit out of a hat today. By the looks of today's tape, however, the Fed's magic doesn't resemble the polished act one might see on a Las Vegas stage, but more closely resembles the foibles of Professor Hinkle in Frosty the Snowman. Poor Professor Hinkle, he couldn't do anything right. His magic act wasn't very good; in fact, it was "messy, messy, messy." And according to some, Professor Bernanke is cut from the same cloth.

We woke this morning to a mega-reversal in the indices because of further central bank intervention. But this time it was different, as the Fed asked its friends in other major central banks to join in the fun. The "Fed & friends" consortium will flood the financial system with as much as $64 billion in extra cash in the next few weeks in an effort to unblock the jammed credit markets.

It seems to me that the problem is not "liquidity," but the willingness to lend. In other words, the banking system has a crisis of confidence - not a lack of liquidity. "The Fed has not only opened its vault to the banking industry, [but] is now trucking it to their place of business," said Scott Anderson, chief economist at Wells Fargo. "If that doesn't get the banks excited about lending again, nothing will, and the battle to forestall recession is already lost." I agree with Mr. Anderson.

In Mr. Anderson's quote above, the key section is "if that doesn't get the banks excited" because after all, it may work. Even if it does, however, I have noticed a disturbing trend. Citigroup's stock had to be (temporarily) rescued by Saudi money. UBS needed a huge cash infusion from the government of Singapore and unnamed "middle East money." The FOMC was able to cajole the BOE, BOC, Swiss Bank and European Union to "injection liquidity" into the system, for the benefit US banks. And now the Bank of America has warned of larger fourth-quarter losses than previously projected. Who will come to its rescue? Communist China ? Unfortunately, it seems like investment banks (especially in the US ) and the Federal Reserve, are going out with their hat in hand asking, "Brother, can you spare a dime?"

Real Time Trading Signals*for

Trade Date: 12/12/07

E-Mini S&P Trades*
(before fees and commissions):

8:34 B/A Buy 12.75 = +.75, -.75, -.75

10:12 FT Sell 50.50 = -1.50 all

10:21 Ft Sell 50.50 = +.75, +1.00, +1.00

10:40 OTF Sell 02.50 = +.75, +3.75, +3.50

1:15 FT Sell 95.75 = +.75, +2.75, +2.75

2:10 VA Buy 75.50 = +.75, +1.25, b/e

2:22 VA Sell 6.25 = +.75, +.25, +.25

E-Mini Russell Trades*
(before fees and commissions):

1) Sell @ 9:13am at 782.0 = -.8 & -.8

2) Sell @ 9:43am at 782.4 = -1.0 & -1.0

3) Sell @ 10:04am at 780.8 = +.5 & -.8

4) Sell @ 10:22am at 780.3 = +1.0 & b/e

5) Sell @ 10:35am at 781.3 = +.4 (1 lot)

6) Sell @ 10:41am at 781.9 = +.8 (1 lot)

7) Sell @ 10:52am at 779.6 = +.6 (1 lot)

8) Sell @ 10:57am at 779.7 = +.6 & +2.4

9) Buy @ 12:33pm at 773.6 = +.5 & +3.0

10) Buy @ 12:45pm at 775.6 = +.5 & b/e

11) Buy @ 12:56pm at 775.5 = +1.0 (1 lot)

12) Sell @ 1:50pm at 775.0 = +1.7 (1 lot)

13) Sell @ 2:08pm at 769.5 = +.5 (1 lot)

14) Sell @ 2:09pm at 769.6 = +.5 & +3.5

15) Sell @ 2:12pm at 766.5 = +2.2 (1 lot)

16) Sell @ 2:18pm at 764.9 = -1.0 (1 lot)

17) Sell @ 2:34pm at 766.6 = +2.6 (1 lot)

18) Sell @ 2:38pm at 765.0 = -1.6 (1 lot)

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