New Avid Trader Home

All articles have been moved to www.avidtrader.com. We have a whole new look!  We hope you enjoy all the new infomation on Avid Trader!

Economy and Markets Resemble Witch’s Brew?

We work with several interns from local colleges and attempt to help them understand the financial services industry from a number of angles. The business itself, the variety of career opportunities, the economy, investments, politics, and the financial markets are a few of the topics we attempt to share real world information with them. Remembering my own transition from academia to a career and its challenges, we try to give them as much real world experience as we can. We remind them that this tough job market could last a few years and at this point there is probably no such thing as too much preparation.

When we talk about the economy we impress upon them the unprecedented events, factors, and strategies occurring right now. Bailouts, quantitative easing, negative real interest rates, sovereign insolvencies, and burgeoning deficits are some of the dynamics currently colliding. We explain to them that if they can understand how unusual these times are then it might be easier to grasp what a more typical economic/market environment would be like. We have found it can be simpler to understand the playing field by studying the exceptions rather than the rules as many times the exceptions define the rules.

The point of today’s missive is to depict how two important landscapes, our economy and financial markets, are experiencing numerous unprecedented situations and there is a possibility that no one truly knows what the potential outcomes are? We can understand preparing for one or two of them, but when you have several and some of them never unfolding before (QE2), it can shift how portfolios are managed. We have come to the conclusion flexibility and vigilance are the two key components in investing in these curious times.

Let’s start with the economy, just last week our policymakers played a card never dealt before. The International Energy Association (IEA) holds strategic petroleum reserves (SPR) to use in case a crisis unfolds. Only twice in the past have reserves been used, Katrina and the 1991 Persian Gulf War. It does not appear we are currently in crisis mode? With the price of gasoline above $4 earlier this year, it appears a concerted effort to bring the ppg down so consumers have more discretionary income. Another possible intent may have been to send a message to speculators who have been accused of propping energy prices for personal gain. Using energy reserves in this manner is unprecedented.

Most of the feedback on the controversial Fed strategy, Quantitative Easing 2, has been negative as the unemployment rate is stubbornly high and recent GDP numbers were anemic. What most don’t ask is where would we be if they did not do it? QE2 comes to an end this week and we imagine there will be some continuing “below the radar” stimulus from the likes of the Plunge Protection Team, after all the campaigning has clearly started and we are sensing this administration is starting to play economic catch up. Other strategies that we believe you will see in the coming weeks include raising the debt ceiling (pretty much a no brainer), waiving the taxes on funds stuck overseas of our multinationals (Bush did the same thing), possibly drilling in Alaska, and extending the payroll tax holiday. We have to admit that they may have a few more bullets left, too bad they are driven more by the election cycle than our needs.

Here’s a good one, in 2002 Goldman Sachs assisted Greek government officials in developing securities that would hide the true picture of their flailing balance sheet? This was to pass muster with the European Union so Greece could continue to receive loans. Apparently without this help Greece would have had to fess up earlier and bankers may have stopped throwing good money after bad sooner. GS purportedly made $300 million for that piece of advice. Ireland, Italy, Portugal, and Spain look on from a standpoint of where they may begin their negotiations with these European banks. John Stewart did a funny bit on this transaction and caution as usual with him bleeped profanity is involved.

Moving from the economic landscape to the financial markets brings about some similar dynamics. Here there are a few new marbles rolling around in the jar also. High Frequency Trading (HFT), computers trading for pennies and within seconds, supposedly accounts for 60-80% of the daily volume. Another couple of factors that have been around for a bit, but may be pushing their own envelope are naked short selling and the synthetic structure of many ETF’s. Click on the links and they will explain these topics more fully. The point is that these factors, among others, were looked at closely concerning previous market dislocations, especially last year’s Flash Crash. We are still concerned that the regulators have not fully safeguarded the markets against another potentially severe dislocation.

With both the economic backdrop and financial markets experiencing a variety of relatively new phenomena you probably can see the need for vigilance and flexibility. Up until a few years ago most investors owned “good” stocks and mutual funds for the long haul. Few financial advisors shared with them the no progress 1930’s and 1970’s. There are good arguments that we have seen the bottom and are now in a new Secular Bull Market and just as substantive data points that could lead to new lows.

Remember the purpose of this article is to help you make informed decisions, if you are not factoring these issues into your investing strategy you could be making a mistake.

Chart Spotlight

Well that was a little gloomy. As a matter of fact stocks appear to have put in a bottom last week! We avoid using too much jargon in this space, but this signal is so clear we are going to take a shot. Below is chart of the Dow Industrials and indicator we use regularly, the Moving Average Convergence Divergence (MACD don’t ask). As you can see the world’s most famous stock index made a low a couple of weeks ago, rallied for four days and then retested the previous low (green arc). The low last week was not confirmed by the MACD as it held steady (green arrow). This is known as a positive divergence and often depicts a point where the selling becomes exhausted. A rally often unfolds after a pattern like this. What encourages us is that several of the leading indices and sectors have similar patterns and makes for a stronger signal. We believe we rally into the middle of July when 2nd quarter earnings results and forward looking forecasts will dictate the next move. If they are constructive we believe we could go to new highs for the year. 

Did You Know

Women’s Dress Indicator - While watching CNBC last week Todd Schoenberger, Managing Director of Landcolt Trading was interviewed. He has come up with an interesting economic indicator, women’s dresses (and not their length). He claims for the last 25 years sales of women’s dresses has been an accurate economic barometer, when they are strong the economy is good, when they’re weak it is recessionary. His theory is that the mom’s of the household will buy the kids clothing first and only when she feels good about discretionary cash flow will she spend money on herself. He says women’s dress sales are currently strong.

Final Thought

“The only function of economic forecasting is to make astrology look respectable”

-John Maynard Keynes

Now We Test The Sincerity Of Our Austerity?

We began thinking of the outline for this letter Sunday morning. The plan was to explain the funky impact Quantitative Easing has had on interest rates and the Treasury bond market. We also planned to discuss the most crowded trade we have ever seen in my career. We were sidetracked and never got the outline on paper let alone finish the letter. Our procrastination worked out well as Standard & Poor’s dropped a tank of cold water on the elephant in the living room Monday morning.

They downgraded the outlook on US debt to negative, essentially saying our balance sheet was too imbalanced. The move left open the possibility that there is a one in three chance we could experience an actual downgrade from the Holy Grail AAA rating in the next couple of years if the current deficit trajectory did not change.  A downgrade would not be a good thing. We would have to pay higher interest rates on our already burgeoning debt. Other currencies might replace our dollar as the most important trading currency. The possibility of a default becomes more real (We personally doubt that since we have the most effective printing press). The markets were not thrilled about the release as the Dow dropped 240 points early in the session and bonds were off precipitously also. By the end of the day the Dow had gained back 100 points and the bond market had turned positive by mid-day. We believe the markets rebounded because the possibility that we have finally received a wakeup call that confirms the recent voter back lash regarding the deficits. Is it possible that some substantive and bipartisan action will emerge? If so it appears the sincerity of our austerity will soon be tested. Belt cinching has not been one of our culture’s strong suits.

Back to the original outline: As you recall the strategy of QE1&2 was for the Fed to buy Treasury securities and other assets to inject liquidity into stocks, commodities, and especially real estate. Well two out of three was not bad as the stock market doubled and commodities like oil, gold, silver and copper doubled or better. Our dollar did what most anticipated and dropped considerably, nearly 10% since last summer. The weaker dollar does help our multi-national corporations sell more products abroad. All these factors are often the seeds for inflation and inflation is kryptonite to Treasury bonds. The latest gov’t inflation data show modest increases. Trips to the grocery store and gas station show a more pronounced dent to the wallet. Some believe gov’t data is massaged a little bit.

The combination of inflation heating up, a weaker dollar, the Fed ending QE2 and their purchase of Treasury securities has a consensus convinced that interest rates are headed higher and the price of Treasury bonds falling, ending their long term bull market. We have been in the investment business for twenty five years and followed the market closely for fifteen and we have never seen a consensus so broad and deep. This is the most crowded trade we have ever seen! We guess we should say this is the most “least” crowded trade since no one wants to own Treasury bonds. The reason for their position does make sense and there are some smart players in the crowd. You cannot listen to CNBC for any extended period of time without a talking head declaring interest rates are headed higher with absolute certainty. Some of our worst trades have been those we’ve been most certain about.

What we found unusual about the QE strategy is the one asset the Feds were actually purchasing, Treasury securities, decreased in value. One of the biggest players in the world actually drove the price of the target asset down! QE1 initially saw a rise in Treasury prices only to fall significantly thereafter. QE2 brought a rout in Treasuries pretty much from the get go. First the rumor at the Fed’s Jackson Hole retreat last August and then the official announcement in November brought a steeper decline. What was even more of a head scratcher is that when the Fed stopped buying the bonds increased in price? Huh?

Apparently Treasury bondholders thought the Fed buying gobs of Treasury securities would lead to the inflation described above. So they gladly sold their holdings to the Fed. The chart to the left shows the 30 year Treasury bond on a weekly basis going back to September of 2008. QE began in late November of that year and ended in March 2009. Again QE2 was a rumor in August 2010 and became official in November. As you can see Treasury bonds dropped in price (interest rates rose) after the Fed began buying those very securities. When QE! Ended Treasuries rose and the stock market suffered a 10- 15% correction.

The end of QE 2 is now in sight, June 30th, and the consensus is saying get out or even short sell these Treasuries. I am climbing out on a limb and thinking this might be a decent time to own US Treasury bonds for the following reasons;

1. S&P downgrade will hopefully create substantive deficit measures in DC, bonds should like that

2. The consensus is often wrong especially when certainty is involved

3. If the consensus has sold their Treasuries over the last year, there is little selling pressure left

4. If the end of QE2 is similar to the end of QE1 we should see bonds rise and rates fall

5. When QE1 did end most commodities fell in price, dampening inflation fears

6. Wages are one of the biggest drivers of inflation and employment is still limping at best

7. The blue half moons in the chart below indicate a prelude to a rally in Treasuries. A few indicators we use (not shown) were flashing buy signals then. We currently have a similar set up as shown by the green half moon 

An interview last week on CNBC with Jeffrey Gundlach highlighted several of these points and if you are intrigued more with QE and how it has affected stocks and bonds you can watch it here. Mr. Gundlach was named Fixed Income Manager of the Decade (2000-2010) by Morningstar. Again we believe the more you understand these connections and relationships the better investment decisions you will make. 

Earlier we mentioned that Treasury bonds have been in a long term bull market.  The uptrend line is distinct and the consensus is saying that this about to be significantly pierced. We do believe eventually this generational bull market will come to an end; we just do not believe it will be this year. We are thinking sometime after the next Presidential election. In the meantime we believe that there might be some profits over the next few months in Treasuries. Coincidentally stocks appear ready for a short breather.

Did You Know

It All Adds Up - The US government had a $188 billion deficit in March 2011, extending its streak of consecutive monthly deficits to 30, an all-time record Net interest costs of the federal government (i.e., interest paid to holders of Treasury debt) are projected to be $225 billion during fiscal year 2011 (i.e., the 12 months ending 9/30/11), then rising to $792 billion during fiscal year 2021, a +252% increase over the decade The Fed announces its plan to raise, lower or maintain short-term interest rates at the end of every Fed meeting. This practice did not exist until 1994. On 3/24/11, the Fed announced plans to hold quarterly news conferences where the Fed chairman will answer questions about Fed policy decisions. The first ever quarterly news conference will take place on 4/27/11. The Fed was created in 1913. (source: Federal Reserve).

Final Thought

“In the field of political discourse if you find yourself discussing personalities, parties, and politics more than the specifics of issues you are probably more part of the problem than the solution” – We Thought It Up

FDIC Friday

by Larry Levin

In its own attempt to help rig the market, the FDIC holds back bank failures to Fridays; thus the name: FDIC Friday. This way, the FDIC keeps bank failures from occurring during regular market hours and therefore not adversely affecting the market. This past Friday was no exception: Colonial Bank of Alabama failed along with two others.

From Bloomberg we read - Colonial BancGroup Inc., the Alabama lender facing a criminal probe, had its banking operations closed by regulators and taken over by BB&T Corp. in the biggest bank failure since Washington Mutual Inc. collapsed last year.

Branches and deposits of Colonial, Alabama's second-largest bank, were turned over to Winston-Salem, North Carolina-based BB&T in a deal brokered by the Federal Deposit Insurance Corp., the regulator said today. The failure of Montgomery-based Colonial followed a Florida expansion that saddled the lender with more than $1.7 billion in soured real-estate loans.

Colonial's failure will deplete the FDIC's deposit insurance fund by $2.8 billion, the agency said. The fund, which the agency uses to pay customers of a failed bank for deposit losses up to a $250,000 limit and is generated by fees paid by banks, stood at $13 billion at the end of the first quarter, according to the FDIC. The agency has set aside an additional $25 billion for bank failures, agency spokesman David Barr said.

Maybe the next bailout from Congress will be the FDIC? It's almost tapped out. Good thing money grows on trees in Washington DC.

As you all know by now, I am not in favor of any bailouts; however, this one will get my reluctant approval. After all, the FDIC insures our deposits and you and I had nothing to do with the near total meltdown of the financial system.

The folks at Saxo Bank Research believe the FDIC is broke. Below are some of its findings. For the whole paper and the graphs, please see FDIC's Shrinking Deposit Insurance Fund - A Testimony of Current Accounting Standards.

http://www.tradingfloor.com/EN/Documents/Research%20Note/2009-08-12%20Saxo%20Bank%20Research%20Note%20-%20FDIC%20DIF.pdf

As late as in the end of April just before the release of the bank stress tests, Ms. Bair Chairman of the FDIC said they would not need any additional bailouts from the U.S Treasury within the immediate future according to The Bulletin. After three new bank failures last Friday, the FDIC's Deposit Insurance Fund (DIF) diminished by another $185 million for a total remaining balance of $648.1 million.

Below is a graph showing the DIF capital as a percentage of total bank deposits insured by the FDIC. Note that this graph is based on the old insurance limit with a maximum coverage of $100.000/account. This limit has been changed to cover up to $250.000/account until January 1st 2014. Estimates say that the change increases the deposits covered under FDIC insurance to approximately $6 trillion in total.

The current reserve ratio of 0.014% strongly indicates how bad this crisis has affected U.S financial institutions. However, this is not the entire story. If we take a closer look at non-current loans and charge-offs from banks one realizes that the FDIC still has a lot of work to be done. Combined non-current loans and charge-offs amounted to nearly $100 billion in Q109 compared to $15 billion/quarter pre-crisis. Moreover, according to analysts at the Royal Bank of Canada the U.S still has banking failures in the thousands to face before the crisis is over. In turn that should result in the FDIC requesting the pre-approved funding signed by the Congress in May 2009, including $100 billion from the U.S Treasury Department.



Previous Day's Trading Room Results:

Trade Date: 8/14/09

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

1) OTF sell @ 10:00am at 997.00 = +1.50 (1 lot)

2) Engf sell @ 11:30am at 994.25 = b/e (1 lot)

3) Algorithm positions (2)

4) "Reading the Tape" positions (10) ...combined Secret's, Algo, & "Reading the Tape" total...+10.25


Electronic (YM) Mini-Dow:

1) None today



Sign up as an AvidTrader Member to receive "The Technician" Value Area's each day. The market then has an 80% chance of filling the Value Area. Many traders familiar with the Value Area and the techniques that go along with it use it to help them decide what trades to do each day. Join and see how this technique can help you trade more successfully!

Evening Update

Bank Profits Outweigh Increasing Loan Losses

Building on the momentum in the financial services sector that began with Wells Fargo last week, JP Morgan Chase and Regions Financial both reported better-than-expected profits. JP Morgan Chase added to reserves for loan losses and said reserves will continue to rise, but reported profits from a range of businesses allowed the bank to beat estimates. Economic news was viewed positively, as jobless claims fell more than expected for a second week, the Philly Fed Manufacturing Index jumped much higher than anticipated and a fall in housing starts was seen as benefitting elevated inventories of homes for sale. In equity news, Illinois Tool Works, Harley Davidson and Sherwin-Williams all beat profit forecasts, while General Growth Properties filed for the largest real estate bankruptcy in U.S. history. Treasuries fell.

The Dow Jones Industrial Average rose 96 points (1.2%) to close at 8,125, the S&P 500 Index gained 13 points (1.6%) to 865, and the Nasdaq Composite advanced 44 points (2.7%) to 1,670. In moderate volume, 1.6 billion shares were traded on the NYSE, and 2.3 billion shares were traded on the Nasdaq. Crude oil gained $1.27 to $53.06 per barrel, wholesale gasoline rose $0.03 to $1.47 per gallon, and gold fell $16.70 to $874.35 per ounce.

Dow member JPMorgan Chase (JPM $33) reported 1Q EPS of $0.40, easily topping the Reuters estimate of $0.30, as revenues came in at $26.9 billion. CEO Jamie Dimon said the firm earned more than $2 billion this quarter, despite extremely high credit costs of $10 billion (including $4 billion added to reserves), largely in card services and retail financial services. He added that the firm achieved record revenue and profit in its investment banking unit, while it benefitted from underlying growth in its retail banking, which included higher mortgage refinancing volumes.

In terms of key financial strength ratios, JPM said its tier-1 capital ratio came in at 11.3%, or 9.2% excluding Troubled Asset Relief Program (TARP) capital—and its tangible common equity compared to risk-weighted assets was 7.2%. JPM's allowance for credit losses was $28 billion and its loan loss coverage ratio stood at 4.53%. Looking ahead, JPM said it is reasonable to expect additional increases to credit reserves if the economic environment worsens, but it is confident that even a highly adverse economic scenario would not compromise its overall strength and stability—or its ability to enhance its franchises.

JPM CEO Dimon said they don’t expect to participate, either as a buyer or a seller, in the Treasury’s Public-Private Investment Program, saying “we learned our lesson” about borrowing from the government, but said he expects the program to benefit the financial system. Dimon said that banks are lending, that “toxic assets aren’t the problem,” and CFO Cavanagh added that write-downs related to illiquid securities and loans were “getting to be much less noteworthy.”

Dimon called the $25 billion the bank received in the TARP a “scarlet letter” and said they could pay it back tomorrow, and that the bank didn’t need to raise capital to repay the capital. However, Dow Jones and CNBC are reporting the company is planning to sell $3 billion in 10-year notes not backed by the FDIC, and the company declined to comment on the deal. Shares were higher.

Adding to the bullish bank news, Regions Financial (RF $7) soared nearly 35% after the bank preannounced that they expect to report a profit for 1Q, significantly better than the Street’s estimate of a loss of $0.42 per share. The bank cited significant customer deposit growth and record mortgage application volume. Echoing other banks, they expressed a desire to repay $3.5 billion in government aid.

General Growth Properties (GGP $1), the second largest US mall owner, filed for the largest real estate bankruptcy in US history—according to Reuters. GGP said its decision to file for Chapter 11 bankruptcy protection came after extensive efforts to refinance or extend maturing debt outside of bankruptcy. The company said all of its day-to-day operations and business of all of its shopping centers and other properties will continue as usual.

The failed attempts and the need for GGP to refinance its debt, illustrates the severity of the credit crisis, which has been a major catalyst for the Federal Reserve to deploy aggressive unconventional methods to return normalcy to the credit markets. The Fed can theoretically lower rates for many different markets by purchasing Treasuries. However, there are consequences of this program, and "there's no such thing as a free lunch."

Illinois Tool Works (ITW $33) rose after announcing 1Q EPS ex-items of $0.17, four cents ahead of the Street's forecast, as revenues fell 24% to $2.9 billion. The company said the quarter represented historic challenges as its end markets continued to weaken, which led to the company taking aggressive restructuring actions to balance near-term conditions and invest in longer-term growth initiatives. The tool maker said it has limited visibility due to broad-based weakness in worldwide end markets and they are limiting their current guidance to 2Q, in which it sees revenues and the mid-point of its EPS range below analysts' estimates.

American International Group (AIG $2) announced an agreement to sell 21st Century, its U.S. auto insurance unit, to Zurich Financial Services (ZFSVY $18) for $1.9 billion, representing the largest divestiture since the company was bailed out by the U.S. government. AIG will receive $1.5 billion in cash and $400 million in face amount of subordinated, euro-denominated capital notes backed by Zurich Insurance Company, Zurich’s principal operating unit, which will also assume $100 million of 21st Century debt. Zurich’s Farmers Group Inc will operate the combined company. The transaction is in addition to the $2.4 billion AIG has raised to-date, according to Bloomberg. Shares of AIG were higher.

Harley-Davidson (HOG $18) was up after posting 1Q EPS ex-items of $0.69, beating the consensus estimate that called for $0.52, as revenues came in at $1.3 billion. Worldwide retail sales of motorcycles declined 12% and US sales fell by 9.7%, versus last year, and the company said it was mildly encouraged by the fact that its US retail sales rate declined less than the prior two quarters. However, HOG said it remains cautious and continue to expect 2009 to be an extremely challenging business environment.

Sherwin-Williams (SHW $57) rose over 10% even after the paint firm reported a 50% drop in 1Q EPS to $0.32 compared to last year, as the bottom line results were well ahead of the Street's forecast of $0.21. Revenues fell 13% to $1.6 billion, due to weak paint sales volume and unfavorable foreign currency translation, which was offset by the impact of five recent acquisitions. SHW issued 2Q guidance that missed expectations, and lowered its full-year revenue forecast, while reiterating its full-year EPS estimate.

Housing starts and building permits fall, jobless claims drop

Housing starts and building permits (chart) came in lower than expected. Starts in March fell 10.8% to an annual rate of 510,000, below the Bloomberg estimate of 540,000. Building permits also came in lighter than expected as the more forward-looking indicator of homebuilding declined 9% to an annual rate of 513,000, below the forecast of 549,000. Additionally, February's figure for starts was revised lower, while permits were revised higher. The series can be somewhat volatile on a month-to-month basis, as starts rose a revised 17% in February, and the numbers have been influenced by large swings in multi-family starts, which rose 62% in February and fell 29% in March. The more relevant single-family start number actually rose 0.6% in February and was flat in March. Stabilization in the housing market would be a welcome sign.

Declining starts have been necessary to aid in lowering the elevated inventory of homes available for sale. However, sales and traffic of potential home buyers have picked up, notably in areas where prior price declines have been most severe. While we expect prices to fall another 10-15% before finding stability, if inventories can decline, the light at the end of the tunnel can get brighter.

Weekly initial jobless claims (chart) fell by 53,000 to 610,000, versus last week's figure that was upwardly revised by 9,000 to 663,000. The drop was much lower than the Bloomberg consensus, which called for claims to come in at 660,000. The four-week moving average declined by 8,500 to 651,000, and continuing claims jumped to 6,022,000—above the 6 million mark for the first time since records began—versus the forecast of 5,893,000. Despite the much larger-than-expected drop in initial claims, the report marks the eleventh straight week of claims above 600,000.

The Philly Fed’s Business Activity Index (chart) improved in April from -35.0 in March to -24.4, and above the consensus of -32.0. A reading of zero suggests conditions are neither contracting nor expanding. New orders improved to -24.3 from -40.7—which was the lowest reading since 1980—and employment improved after posting the lowest level in the history of the survey in March. Prices received fell from -32.6 to -41.4 and prices paid came in nearly unchanged at -31.5. Expectations for the future jumped to 36.2 from 14.5. Although the gauge of mid-Atlantic manufacturing continued to contract in April, the much better-than-expected improvement mirrors yesterday's Empire Manufacturing Index, adding to the argument that the worst of the global recession may be behind us as both reports suggest that the rate of contraction in the manufacturing sector may be slowing. Treasuries were lower. The yield on the 2-year note gained 5 bps to 0.90%, the yield on the 10-year note rose 6 bps to 2.83%, and the yield on the 30-year bond rose 6 bps to 3.72%.

The economic calendar is light tomorrow, with University of Michigan consumer sentiment the sole US economic release scheduled.

Calm Before the Storm

by Larry Levin

Today was a real snoozer - the total range was just 13.80. Investors settled in for the day near Friday’s high, not wanting to drive stocks higher or lower, as they all wait on news from the Treasury as how it plans on wasting trillions more tax dollars on bank bailouts. When the details are released, we will not see this balancing action.

The following is a recent article from Bloomberg online which goes over not only the dollar amounts wasted by the government, but the deafening silence as to whom has actually received your money. You would like to know who is receiving this money, wouldn’t you? Well sir, the Fed & Treasury simply don’t give a damn. Even though the number is almost DOUBLE DIGITS of trillions of dollars - they’re telling you and your Congressman to go pound sand. In fact, after Geithner is through passing out bailouts and loan guarantees, the amount could surpass $15 TRILLION.

If this doesn’t sit right with you, I have a suggestion: call your Senators and demand them to threaten Bernanke with being dismissed/fired if he doesn’t release the information post haste.

U.S. Taxpayers Risk $9.7 Trillion on Bailout Programs

The stimulus package the U.S. Congress is completing would raise the government’s commitment to solving the financial crisis to $9.7 trillion, enough to pay off more than 90 percent of the nation’s home mortgages.

The Federal Reserve, Treasury Department and Federal Deposit Insurance Corporation have lent or spent almost $3 trillion over the past two years and pledged up to $5.7 trillion more. The Senate is to vote this week on an economic-stimulus measure of at least $780 billion. It would need to be reconciled with an $819 billion plan the House approved last month.

Only the stimulus bill to be approved this week, the $700 billion Troubled Asset Relief Program passed four months ago and $168 billion in tax cuts and rebates enacted in 2008 have been voted on by lawmakers. The remaining $8 trillion is in lending programs and guarantees, almost all under the Fed and FDIC. Recipients’ names have not been disclosed.

“We’ve seen money go out the back door of this government unlike any time in the history of our country,” Senator Byron Dorgan, a North Dakota Democrat, said on the Senate floor Feb. 3. “Nobody knows what went out of the Federal Reserve Board, to whom and for what purpose. How much from the FDIC? How much from TARP? When? Why?”

Financial Rescue

The pledges, amounting to almost two-thirds of the value of everything produced in the U.S. last year, are intended to rescue the financial system after the credit markets seized up about 18 months ago. The promises are composed of about $1 trillion in stimulus packages, around $3 trillion in lending and spending and $5.7 trillion in agreements to provide aid. The total already tapped has decreased about 1 percent since November, mostly because foreign central banks are using fewer dollars in currency-exchange agreements called swaps.

Federal Reserve lending to banks peaked at a record $2.3 trillion in December, dropping to $1.83 trillion by last week. The Fed balance sheet is still more than double the $880 billion it was in the week before Sept. 17 when it agreed to accept lower-quality collateral.

The worst financial crisis in two generations has erased $14.5 trillion, or 33 percent, of the value of the world’s companies since Sept. 15; brought down Bear Stearns Cos. and Lehman Brothers Holdings Inc.; and led to the takeover of Merrill Lynch & Co. by Bank of America Corp.

The $9.7 trillion in pledges would be enough to send a $1,430 check to every man, woman and child alive in the world. It’s 13 times what the U.S. has spent so far on wars in Iraq and Afghanistan, according to Congressional Budget Office data, and is almost enough to pay off every home mortgage loan in the U.S., calculated at $10.5 trillion by the Federal Reserve.

(Question: If bad mortgages are the main problem, wouldn’t ZERO mortgage debt solve the crisis? Wouldn’t all of the toxic securities become sterile at that point? If so, why is the government going through all of these hoops? Of course, pledges and real dollars spent are miles apart, but those questions will be asked if the loan pledges are drawn on - then default.)

Commitments may expand again soon. Treasury Secretary Timothy Geithner postponed until tomorrow an announcement that may invite private investment as a way to clear toxic debt from bank balance sheets. Measures that have been settled include a new round of injections of taxpayer funds into banks, targeted at those identified by regulators as most in need of additional capital, people briefed on the matter said.

Fed Sued

When Congress approved the TARP on Oct. 3, Fed Chairman Ben S. Bernanke and then Treasury Secretary Henry Paulson acknowledged the need for transparency and oversight. The Federal Reserve so far is refusing to disclose loan recipients or reveal the collateral they are taking in return. Collateral is an asset pledged by a borrower in the event a loan payment isn’t made.

Bloomberg requested details of Fed lending under the Freedom of Information Act and filed a federal lawsuit against the central bank Nov. 7 seeking to force disclosure of borrower banks and their collateral. Arguments in the suit may be heard as soon as this month, according to the court docket. Bloomberg asked the Treasury in an FOIA request Jan. 28 for a detailed list of the securities it planned to guarantee for Citigroup and Bank of America. Bloomberg hasn’t received a response to the request.

The Bloomberg lawsuit is Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, U.S. District Court, Southern District of New York (Manhattan).

GO GET ‘EM BOYS!


Previous Day's Trading Room Results:

Trade Date: 2/9/09

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


1) FT sell @ 9:10am at 861.50 = -.50 (1 lot)

2) OTF sell @ 10:30am at 868.00 = -2.00 (1 lot)

3) Algorithm positions (1)…combined SofT and Algo total…-1.00


Electronic (YM) Mini-Dow:


1) No trades today



Sign up as an AvidTrader Member to receive "The Technician" Value Area's each day. The market then has an 80% chance of filling the Value Area. Many traders familiar with the Value Area and the techniques that go along with it use it to help them decide what trades to do each day. Join and see how this technique can help you trade more successfully!

Letter to a fool....from a concerned American

Hey Bernanke,

You are a clueless wonder. You have NO idea what the normal citizen is going through. All of your moves you and Paulson are making will destroy this country. Try walking out of your ivory tower to view what the normal guy is going through. But because you are just a pawn for Wall Street you cannot even see the forest through the trees. How is it a common guy like me can see and predict your failures? Why?? Because I could give a crap about the greed of Wall Street. I live in reality not your make believe world of the slimy clowns of Wall Street.

Hey Bernanke....did Japan succeed when they lowered their interest rates to zero? Oh, that's right you and your cronies from Wall Street think you can actually change history!!..lol..lol

The entire world does not trust the US Government. Look at the lies that are told over and over again. Its all about the elite not the common citizen. Oh, by the way, you know why your plan won't work? We have NO money to spend!!! Its that simple. This country needs to save, but since you are so clueless you actually don't realize it will be many years before that may ever happen.

America with all of its resources should be a SURPLUS nation. Do you know what surplus means? We should not be a country of debtors but of surplus. But of course the greed of Wall Street sold the American public on how we are not good enough if we don't own more junk. So since we cannot buy anymore junk your Ponzi scheme has come to an end as you have already sucked us dry. Now you will see how true market forces will take over and even though you actually believe you are Hercules there is NO WAY you will ever be able to hold up the GLOBAL economy!!!

You and your cronies created this mess, so now you will be written in history as the biggest idiots to ever have held your positions. You should have let the markets take their normal course. We would have been able to build our way back by now but hey thanks....for inflicting this slowwwwww death that we are now experiencing.

One thing you should know...you cannot control the markets and you can't have it easy ALL the time. Go do your job and let Wall Street learn this reality. But we all know you do not contain the intestinal fortitude to do so as we also know you are only a pawn for Wall Street. Oh, btw, thanks for letting Wall Street screw too. Aren't you proud of the pain you and your cronies are inflicting? Maybe soon you'll achieve your goal by turning us into a Third World country on your watch!!

Sincerely,

An American Citizen

Topsy-Turvy Session Ends Higher on Late Rally

By Harry Boxer, The Technical Trader

The indices had a topsy-turvy volatile session day today, swinging back and forth 8 or 9 times just in the morning part of the session, finally surging higher mid-day and reaching the highs for the day, but reaching only overhead resistance and failing to the follow through. That resulted in a very sharp pullback, which was exacerbated by the sharp rise in the price of oil on comments from OPEC.

The indices then plunged mid-afternoon, reaching last Friday's and this Monday's lows around the 1805 area on the Nasdaq 100, and reaching today's morning lows, which were the multi-week pullback lows on the S&P around the 1237 area. But late in the session they did stage a very strong snapback, as the NDX rallied from 1805 to 1840 and the S&P 500 from 1237 to 1254 just in the last 45 minutes or so.

So, an impressive last rally closing at the highs for that rally going away, but underneath the session highs.

Net on the day it was a positive session, with the Dow up 81 1/2, the S&P 500 up 8.71 and the Nasdaq 100 up 20.39. The Philadelphia Semiconductor Index (SOXX) was up 4.68.

The technicals, which were negative for most of the session, edged to the plus side on New York and substantially so on Nasdaq. Advance-declines were ahead by just 113 issues on New York and by more than 300 issues on Nasdaq. Up/down volume was just slightly higher on New York on total volume of 1.5 billion. Nasdaq traded more than 2 1/4 billion, and had a better than 2 to 1 positive ratio on advancing volume over declining volume.

TheTechTrader.com board was also mixed but generally higher. Leading the way today was the USO, fed by a late surge in oil, closing at 114.30, up 4.65. As a result, junior oils also snapped today, with GeoResources (GEOI) up 1.82 , Pyramid Oil (PDO) up 2.20, and Brigham Exploration (BEXP) up 1.81, along with Northern Oil & Gas (NOG) up 78 cents.

Aluminum Corp. of China (ACH) had one of its best snapbacks of the last couple months, closing at 29.34, up 2.05 on 2 3/4 million shares.

Other than that there were only fractional gainers on our board, which included General Steel (GSI) up 61 cents, China Natural Resources (CHNR) up 40 cents, and portfolio position Acordia Pharmaceuticals (ACOR) up 45 cents. Advanced Battery (ABAT), also a portfolio position, was up 26 cents, and 3Par (PAR) gained 47 cents. Sequenom (SQNM) also advanced 32 cents and reached up near yesterday's new 6-year high, before backing off in the afternoon.

On the downside, Zoltek Companies (ZOLT), down 46, cents and JA Solar (JASO), down 62 cents, were the loss leaders, other than some of the short instruments, such as the short oil & gas ETFs. Those included the DUG, which lost 1.88 today, and the DGO, which lost 1.84.

Stepping back and reviewing the hourly chart patterns, despite the Nasdaq 100 making lower lows during the session, the S&P 500 failed to confirm that and ended up holding at key weekly lows. A sharp rally ensued at the end of the day that was impressive, but the key is going to be a follow through.

Good trading!

Harry

Free 15-Day Trial to Harry Boxer's Real-Time Technical Trading Diary

The Inflation Con-Job

by Larry Levin

Folks, if any of you thought that questioning the way the government calculates inflation data was odd, or just flat out silly, (after all, the government would never lie to us - right?) today's report should make you rethink that conclusion. It was so blatantly absurd that it calls into question the government's calculation of unemployment reports, GDP and everything else it reports.

The crux of the astonishment is that the CPI came in below the already anemic expectations for April, even as food prices skyrocket at the sharpest rate in 18-years! Moreover, after the government statisticians were done massaging the data, it reported that gasoline had...wait for it...wait for it...DROPPED 2.0% last month!

Excuse me...but who the *$#k do they think they are fooling? Does anyone still believe this nonsense? Oh sure they do...just turn on your television and you will be inundated with excuses. That huge, yet illusory, 2.0% drop in gasoline prices brought the overall inflation number to a negligible .2% for the month, and the "core" was just .1%. Yeah - right!

I'm happy to know I'm not alone..."If you believe that inflation is under control, I have a bridge that spans the East River that I can sell you for a really good price," said Joel Naroff, president of Naroff Economic Advisors Inc. He went on to say, "Watch out for the headline number in May as the full increase in gasoline will show up." Good point, but what other part of the CPI will magically go negative...apparel? Medical costs?

It doesn't matter which portion of the CPI is molested - it will happen. What's happening is sort of like the following: One of these egghead statisticians is standing next to me in the pit; he steals my winning trade so I break his nose while I shout derogatory remarks at him. As he is writhing on the floor in pain, blood is spewing from his nose at the same rate of his heartbeat - covering his nifty white jacket - I say, "What happened buddy?" Like the BLS pretending it didn't happen, so do I.

In order to explain themselves, the eggheads at the BLS released the report with the following sidebar: "Gasoline prices rose 5.6 percent in April. Compared to a year ago, these prices were up 20.9 percent. Gasoline prices increase seasonally during the first five months of the year, with the largest increases occurring in March and April and decline seasonally for the remainder of the year." Read that again!

So there is the truth: the actual cost of gasoline is skyrocketing. But when has that mattered to Poindexter at the BLS? He took a pencil from his pocket protector, one with a new eraser mind you and magically erased the increase by using a substantial "seasonal adjustment" of 7.6% because gas prices "might" go down next month...and poof...you have a negative reading that is lapped up by most of Wall Street. Why rock the boat - right?

When I read this I screamed "Hey MORON ...Look at a chart of oil for a change! It has been going straight up since 1998, which, as best as I can surmise, is a TEN YEAR ADVANCE...not seasonal!!!"

Here is more proof why you should be disgusted by the way the government lies to you about inflation and gas prices...

According to AAA (national average as of 05/14/08):
Gasoline:
Regular grade = 3.758, month ago = 3.373, year ago = 3.087.
Mid-grade = 3.990, month ago = 3.582, year ago = 3.277.
Premium = 4.134, month ago = 3.711, year ago = 3.396.
Diesel = 4.419, month ago = 4.108, year ago (wow...) = 2.902.

Why doesn't the government want to properly report inflation? To be sure there are many reasons; however, the main reason is COLA payments to senior citizens. According to a survey released Tuesday by the AARP, the economic downturn and higher prices are hitting roughly one in 10 middle-aged and older Americans especially hard, compelling them to borrow money for everyday living expenses and to seek help from family, friends or charities. In the telephone survey of 1,002 adults 45 and older, nearly four in 10 said they had helped a child pay bills or expenses. Among retirees, one-third said they'd helped their children pay bills. Eight percent said they'd helped a parent pay bills or expenses. The survey's margin of sampling error was plus or minus 3 percentage points.

Prices are rising so fast that many need help to pay the bills. Yeah, no inflation!

For more anecdotal proof I called a friend of mine this afternoon to ask him about his commercial roofing business costs, and this was what he said, "Commercial building products going way up. Material pricing that I work with normally has a 3-to-5% increase per quarter. Some products that we sell that have asphalt base products such as shingles...rolled roofing felts, cements and adhesives have only 30 day price protection to no price protection at all, due to the volatility in the markets. Straight asphalt products can now jump 5-to-10% in as little as 2 weeks. Insulation products that are more chemical based, Isocyanurate and such, had increases of 5-to-6% in June and another 5-to-6% in August. Metal products have jumped the most with increases as high as 20-to-22% and some metal manufacturers are now looking at allocation to distributors on specific product lines."

Yeah, no inflation there either!

With all this in mind, California economist John Williams argues that CPI is understating inflation by at least 3 percentage points and maybe as much as 7 percentage points. So instead of an annual inflation rate of 4%, the true number could be between 7% and 11%.

Bill Gross, the manager of the country's largest bond funds, refers to the CPI as a "con job" that deliberately understates the price pressures faced by Americans in order to keep Social Security payments and other government costs pegged to the index unduly low. Welcome aboard Bill!

In a report about the CPI, he noted that some of the adjustments don't accurately reflect how much consumers pay for goods. "Did your new model computer come with a 25% discount from last year's price?" Gross wrote to his clients. "Probably not. What is likely is that you paid about the same price for memory improvements you'll never use."

He is referring to another trick the BLS uses to lie to you about cost increases. If Poindexter says the computer has "improved" by 25% because of memory improvements, he once again grabs the pencil from his pocket protector and erases 25% off of the cost of the new computer. It doesn’t matter that it costs 25% more today than last year because it is better, and the government says that offsets the higher price. Voila - no inflation!

"The government can claim there's no inflation but all they're measuring is a reduced standard of living," argues Peter Schiff, president of Euro Pacific Capital.

During one of my trading breaks today I managed to catch my friend Rick Santelli on television discussing the CPI data. The usual suspects on TV were actually ridiculing Rick for not believing the government data. They tried to put words in his mouth that he didn't say, like there was a government conspiracy to lie about that data, etc - like he was a kook. There is no conspiracy; the obfuscation is done for the masses but the "hedonic adjustments, seasonal adjustments, etc" are out in the open. People are just tired of being told there nose isn't broken when blood is flying from it and your fist is still wrapped up in a ball.

The TV hosts were trying to explain the intricacies of the wonderful models the BLS uses and how it's all up-and-up...nay, it's the perfect mathematical model. To wit Rick responded to the government apologists by saying, "If mathematical models and algorithms are so perfect, then I guess Bear Sterns (bankruptcy) was a mirage." Clearly, Rick is the most level-headed person you will see on financial television.

Simply put... these government numbers are absurd. The headline CPI is absurd. The core CPI is especially absurd. The heuristic adjustments now applied make the numbers completely absurd. Unemployment reporting is absurd. What's that? I’m absurd...I'm out of order? No, you're out of order. This whole courtroom is out of order! Oops, flew off the reservation there for a minute.

And now from the absurd to "it's about time:" Merrill Lynch is changing the way it rates stocks. It sounds like, until now, Merrill Lynch analysts weren't allowed to rate many of its stocks a "sell." After all, that's bad for business and we already know Wall Street doesn't give a damn about the truth.

Currently Merrill Lynch rates only about 10% of stocks it covers now as "sell;" however, over the last decade about 40% of stocks in major global and U.S. indexes have declined. "We want to bring those two numbers closer together to drive better investment performance for our clients," said Candace Browning, president of Merrill Lynch Global Research. What a concept! MER will now allow its analysts to rate more than 10% of the stocks it covers as a "sell." Presumably this means...without getting fired this time.

It has taken many years, but finally...maybe...MER is getting truthful with its clients. In 2003, Merrill Lynch was one of 10 banks that settled with U.S. regulators over charges of biased research when it paid a $200 million fine.

And you wonder why I end every missive with..Trade well and follow the trend, not the so-called "experts."

PS - One of the ridiculous methods the government uses to lie about the true cost of inflation is "substitution." It goes like this - if steak goes up in price people will substitute steak with chicken because the latter is cheaper. Therefore the government counts the lower price of chicken instead of the steak. Even though the steak hasn't decreased, the government pretends it has by reporting cheaper chicken prices.

So by using this method, there is no inflation in Haiti. Last month the starving people of Haiti could not afford food, so they made dirt hamburgers/cookies out of dirt, a little salt and vegetable shortening. By the US standard of "substitution" the people of Haiti have substituted FREE DIRT for real food and therefore have solved their own inflation problem.

You get my point now, don't you!!???

Real Time Trading Signals*for

Trade Date: 5/14/08

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

1) Engf buy @ 9:20am at 1415.25 = b/e & b/e

2) Engf sell @ 10:50am at 1416.25 = -1.50 (1 lot)

3) OTF buy @ 11:30am at 1415.50 = +1.50 & +3.75

4) TP buy @ 1:25pm at 1419.25 = b/e & -1.50

5) *** Just missed the massive sell off - even with a "jumping" engf order.

6) Algorithm trades (2)...combined total...+2.25

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

1) Buy @ 8:48am at 738.2 = +1.1...+$110


Sign up as an AvidTrader Member to receive "The Technician" Value Area's each day. The market then has an 80% chance of filling the Value Area. Many traders familiar with the Value Area and the techniques that go along with it use it to help them decide what trades to do each day. Join and see how this technique can help you trade more successfully!

Bernanke's on Deck

by Larry Levin


Now that earnings have reached base via singles, errors and hit-by-pitch (financials), market participants will be focusing at the "on deck" batter: the FOMC. Helicopter-Ben & Company will be meeting this week to decide on the future of interest rates. It should be interesting.

Last week ended with a strong rally. Why there was such a one-sided surge in the afternoon is anyone's guess, but I doubt it was due to oil's most recent $3.00-barrel pop. Maybe it was due to Microsoft's less than perfect earnings and future outlook? Did it rally because American Express is concerned about its customers paying their bills? Or did it rally because the latest consumer sentiment report gave us its worst reading in 26-years?

Oh well, I guess it all could have been worse.

Real Time Trading Signals*for

Trade Date: 4/25/08

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


1) Engf sell @ 9:30am at 1980.50 = +2.00 (1 lot)

2) FT sell @ 10:50am at 1387.50 = +1.00 & +.50

3) OTF sell @ 11:15am at 1388.25 = b/e (1 lot)

4) Engf sell @ 12:15pm at 1386.75 = +1.75 & b/e

5) Algorithm trades (5)...combined total...+3.00

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


1) Sell @ 9:18am at 714.0 = -.8 (1 lot)

2) Sell @ 9:43am at 714.2 = +.3 & -1.3

3) Sell @ 10:30am at 711.4 = b/e (1 lot)

4) Buy @ 11:23am at 713.4 = +.5 & +.2 ...-$110


Sign up as an AvidTrader Member to receive "The Technician" Value Area's each day. The market then has an 80% chance of filling the Value Area. Many traders familiar with the Value Area and the techniques that go along with it use it to help them decide what trades to do each day. Join and see how this technique can help you trade more successfully!

Dollar Strength?

by Larry Levin


The US dollar was stronger today, especially against the Euro. The rallying US dollar is putting downward pressure on oil and gold, among other commodities. The rationale for dollar strength is that the Fed may be done cutting rates for this very reason: to put out the fire in the oil patch. And if the Fed cuts again, it will probably signal "one and done."

"A more significant force behind the movement in the dollar was the looming potential of a narrowing in gap between the monetary policy stance of the Fed and the ECB," wrote David Watt, senior currency strategist at RBC Capital Markets.

Commerce Department data showed U.S. home builders slashed their prices by a record amount, but sales still plummeted by 8.5% to a 17-year low in March. The decline in new-home sales to a seasonally adjusted annual rate of 526,000 was much weaker than the 577,000 pace expected by many economists.

"The housing crisis continues, with sales of single-family homes sliding for five straight months, at a quickening pace, and nearly as fast as starts. The massive overhang of homes on the market will keep prices on a downward slope, raising the downside risks for both the economy and financial markets." wrote Sal Guatieri, economist at BMO Capital Markets.

Durable goods orders fell 0.3% in March, the third decline in a row.

On a brighter note, however, first time filings for state unemployment benefits fell in the latest week. For the week ended April 19, initial claims fell 33,000 to 342,000. This is the lowest level since the week ended February 16. Claims have been above that level for the past five weeks, but have also been very volatile, most likely due to trouble adjusting for the early Easter holiday this year. So it is hard to draw firm conclusions.

Real Time Trading Signals*for

Trade Date: 4/24/08

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


1) PP buy @ 8:40am at 1380.00 = +1.00 & -1.75

2) OTF sell @ 9:50am at 1375.00 = -2.00 (1 lot)

3) PP sell @ 10:20pm at 1380.50 = -1.75 (1 lot)

4) OTF buy @ 12:25pm at 1391.00 = +.75 & b/e

5) Algorithm trades (7)...combined total...+12.75

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

1) Buy @ 9:23am at 700.4 = +.5 (1 lot)

2) Buy @ 10:56am at 712.7 = +2.0 & +3.1

3) Buy @ 11:11am at 714.5 = +.5 & +1.3

4) Buy @ 11:17am at 714.6 = +1.0 & +3.1

5) Buy @ 11:44am at 716.4 = -.6 (1 lot) ...+$1,090


Sign up as an AvidTrader Member to receive "The Technician" Value Area's each day. The market then has an 80% chance of filling the Value Area. Many traders familiar with the Value Area and the techniques that go along with it use it to help them decide what trades to do each day. Join and see how this technique can help you trade more successfully!

"China Rising"

by Larry Levin


Last week I wrote "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 "inject 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?'" What a prescient statement indeed! The communists have "come to the rescue" of a major US investment bank, but it wasn't Bank of America that needed the money, it was Morgan Stanley.

In the latest sign that the credit crunch is getting worse, Morgan Stanley admitted to an additional $5.7 billion of CDO-related assets, taking its total fourth-quarter loss to nearly $10 billion. I believe this will be the first quarter in Morgan Stanley's history that it will have a quarterly loss. WHAT? I thought this was an investment bank, ferchissakes, not a bond investor!

Morgan's CEO made the following statement this morning, "The results we announced today are embarrassing. This loss was the result of an error in judgment that occurred on one desk, in our Fixed Income area and also a failure to manage that risk appropriately." He also said he was turning down a bonus for 2007. How nice of him. After all, the entire CDO debacle, including the enormous risk undertaken, came straight from the CEO himself. The mere fact that he was even offered a bonus is offensive to shareholders.

What might also be offensive to current shareholders is the new investor mentioned earlier: the communist government of China . Today's $5-billion bail out, I'm sorry - investment, puts the communist control of Morgan Stanley at nearly 10.0%, which is the #2 investment bank in this country. The Chinese government will be paid a fixed annual rate of 9% and convert into Morgan Stanley common shares in 2010. The current shareholders, however, are only being paid 2%.

When I scanned the financial press after the pit closed, I couldn't find a single negative comment about the financial-love-coupling between the commies and Morgan Stanley. In fact, it was quite the opposite: most approve of the new arrangement. What do you think about this? Before you answer, think of it carefully.

My thoughts come down to this: How would these same supporters of this financial duo have reacted to the US government owning 10% of Morgan Stanley? The outcry from Wall Street would be deafening! So if you answered that it is "ok" like the so-called experts did, but US government ownership would be bad - why? Is it because the US government can't run much properly or profitably (think of the Post Office, IRS, FEMA, etc)? If that's true and you're for the CIC investment, then you must believe the Chinese government does things right. I suppose we shouldn't talk about Chinese communist sponsored slave labor or murder-for-medical-body-parts at its prison camps. Yeah, let's save that for a bed time story.

Apparently Warren Buffet was correct when he recently said in an interview, "Over time, if you keep shipping $2 billion a day out of the country, as we do, of assets, you put pressure on the dollar, and that's what's happening." He went on to say (loosely quoted), " America is for sale all across the globe."

We can hear it now, from the US to Europe to Japan, "Attention K-Mart shoppers, excuse me, foreign shoppers; we have a red tag sale on all mortgage insurance companies and a blue light special on all investment banks!" Boy, that mega-phone must be as big as the grand-canyon!

Real Time Trading Signals*for

Trade Date: 12/19/07

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


8:47 VA Sell 69.00 = -1.50 all

8:59 VA Buy 69.25 = +.75 all

9:15 FT Buy 71.50 = +.25, +.25, -.50

10:08 ENG Sell 73.50 = +.75, +2.25, +2.75

10:37 FT Sell 63.00 = -.50 all

11:14 OTF Sell 3.50 = +.75, +.50, +.50

12:51 ID VA Sell 58.00 = +.75, +1.00, +1.25

1:02 OTF Sell 60.75 = -1.50 all

1:31 VA Sell 68.75 = +.75, +1.25, +1.00

1:54 VA Buy 68.50 = -1.25 all

2:01 VA Sell 8.75 = b/e all

2:12 FT Sell 66.75 = -1.50 all

2:21 VA buy 68.50 = -1.50 all

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

1) Sell @ 8:45am at 756.6 = -1.4 & -1.4

2) Buy @ 9:13am at 759.2 = +.5 & b/e

3) Buy @ 9:41am at 759.6 = +.5 & +.7

4) Buy @ 10:15am at 758.7 = +.5 & b/e

5) Sell @ 10:40am at 757.6 = +.5 & +1.6

6) Sell @ 11:01am at 755.8 = -.9 & -.9

7) Sell @ 11:10am at 757.9 = b/e (1 lot)

8) Buy @ 11:31am at 756.2 = +.5 & b/e

9) Sell @ 12:55pm at 754.4 = +.5 & -.9

10) Sell @ 1:01pm at 755.8 = +.3 & b/e

11) Buy @ 1:17pm at 758.2 = b/e & +.5

12) Buy @ 2:04pm at 761.5 = -.2 (1 lot)

13) Buy @ 2:23pm at 760.9 = +.5, +.7, b/e

Sign up as an AvidTrader Member to receive "The Technician" Value Area's each day. The market then has an 80% chance of filling the Value Area. Many traders familiar with the Value Area and the techniques that go along with it use it to help them decide what trades to do each day. Join and see how this technique can help you trade more successfully!

Log in for Larry's Daily Trading Tip each day too!