Financial Alchemists Need Not Apply!

by Larry Levin

Why is the market going down? There are many reasons, but in a nutshell, Mr. Market has had enough of Wall Street alchemy. It is unwinding the whole process that drove the market up, which in essence was the belief that Wall Street could spin yarn into gold.

With the massive deleveraging of the financial markets brought on by the CDO debacle it is plain to see; the economic gods are angry with the reckless financial fornication up and down Wall Street and are bringing its wrath upon us.

The trend is your friend folks, even if the trend is down. It’s still legal to sell stock short, so I say follow the trend. Short selling everything in site is still a favorite pastime here in Chicago...at least until the whiney long-only simpletons outlaw it. Don,t laugh, I'll bet one of our brain-challenged Congressmen in D.C. are currently kicking around the idea - just "temporarily" of course.

Today's news was bad again. You shouldn't be surprised by now...it's a trend in itself. Crude closed north of $105-barrel. Gold is closing in on $1,000-ounce. Merrill Lynch is exiting the subprime market. The U.S. dollar is still getting crushed. And housing data is getting worse.

"The hits just keep on coming," said Robert Pavlik, chief investment officer at Oaktree Asset Management. "Trying to stay optimistic and long-term focused is extremely hard at this point. You don't know what's coming up."

The Federal Reserve reported Americans are now poorer at the end of 2007 than they were the previous year, with the net worth of U.S. households failing by $533 billion, or a 3.6% annual rate, in the fourth quarter. Even famous "rogue-traders" of the most colossal incompetence can't compete with a $1/2-trillion loss. Borrowing by households for mortgages slowed to a 5% annual rate, also the lowest in 10 years. Borrowing for consumer credit, mostly credit cards, slowed to a 4% growth rate.

Want an example of unwinding mentioned above? Shares of Thornburg Mortgage Asset Corp. plunged, losing 51%, with the main credit agencies downgrading its ratings. Thornburg disclosed in a regulatory filing that it failed to meet a margin call of about $28 million, triggering a string of cross-defaults.

Additionally, Carlyle Capital Corp., an affiliate of private-equity giant Carlyle Group that invests in mortgage-backed securities, said today that it failed to meet margin calls from four counterparties and had received one notice of default.

"What's happening now in the markets is a rolling de-leveraging where individual asset classes de-lever one at a time," said Andrew Chow, portfolio manager at SCM Advisers, a $14 billion San Francisco-based investment firm specializing in fixed-income and structured-finance markets. "They won't de-leverage at the same time, but they all will in the end. Investors in each of these asset classes want to think that their sector is unique, but slowly everyone is being disabused of that notion."

Washington Mutual (WaMu) plummeted 8.1% after Standard & Poor's Ratings Services downgraded its ratings, saying...get this..."our actions reflect our expectations for a more severe residential mortgage credit cycle than we had anticipated at the start of 2008."

Interesting! Ummm, so how does that not affect Ambac and MBIA? Oh yeah, they’re politically connected.

Will tomorrow's (un)employment numbers bring an end to the current trend? It's doubtful. Perhaps the economic gods will be appeased with a Dow at 10,700? Only time will tell.

Real Time Trading Signals*for

Trade Date: 3/6/08

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

1) VA sell @ 8:30am at 1328.75 = +1.50 & +3.75

2) Momo sell @ 8:45am at 1326.00 = +1.25 (1 lot)

3) FT sell @ 9:15am at 1321.00 = +1.50 & -1.25

4) FT sell @ 9:30am at 1324.25 = +5.00 (1 lot)

5) Momo sell @ 9:40am at 1321.25 = +1.75 (1 lot)

6) OTF sell @ 11:45am at 1318.75 = +1.00 & +4.00

7) Engf sell @ 12:05pm at 1317.00 = -1.00 (1 lot)

8) FT sell @ 12:30pm at 1314.50 = +.75 (1 lot)

9) OTF sell @ 1:05pm at 1318.00 = +1.00 & +1.00

10) FT sell @ 2:25pm at 1312.75 = -1.75 & -1.75...+16.75 points

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


1) Sell @ 8:44am at 681.0 = b/e (1 lot)

2) Sell @ 9:57am at 678.4 = +3.0 (1 lot)

3) Sell @ 11:19am at 670.9 = +.5 & -.7

4) Sell @ 1:05pm at 670.7 = +1.1 (1 lot)

5) Sell @ 1:36pm at 668.9 = -.2 & +.3

6) Sell @ 2:18pm at 668.0 = -.8 (1 lot)...+$320


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