The Green Slime or Subprime Slime?

Coming to a neighborhood near you. Of course, not unless George W Bush has something to say about it.

What a day, a Bernanke speech in WY, and George Bush stealing his thunder from the White House! We now have monetary AND fiscal policy attempting to cure all that ails the good ol U.S. of A. Again the question: On every intervention by outside forces, how much future stock price action gets immediately priced in today?

GOOD LUCK.

Breaking the Greenspan Mold

Greg Ip's influential WSJ column today compares and contrasts Bernanke to Greenspan. He recounts Bernanke's speech after being nominated to head the Fed, and a key promise was to "maintain continuity with the policies and policy strategies established during the Greenspan years." But in handling his first financial crisis, he is showing signs of a key break. The initial use of the discount window and lengthening the term of loans as opposed to cutting the fed funds rate is the primary break from the past. Alan Binder has a wonderful quote; "There's no doubt they were trying to draw a distinction between using the main tool of monetary policy, which is the fed funds rate, and aiming the discount rate at restoring the plumbing." However, as Ip notes, if/when Bernanke cuts the fed funds rate, as markets anticipate, the contrast to Greenspan will be less sharp.

All eyes on Jackson Hole. Investors should be asking this key question: HOW MUCH IS PRICED IN? Good luck.

Jackson Hole and the Bernanke Put

The stock market is cautiously waiting to hear from Ben Bernanke this weekend. What is at stake is the notion of the Fed coming to the "rescue" of Wall Street by beginning a series of fed funds rate cuts later this year. Late afternoon talk show icons James Cramer and Lawrence Kudlow have flip flopped so many times in the past 14 days...first pounding on the fed to reduce rates, then calling them magicians after the discount rate cut, only to recently lambaste them days later as if they are failing the U.S. of A. since they haven't cut the fed feds rates in the meantime and the Dow drops 280 points in one day. What is going on here!?

The Fed has a choice. Maybe a hard choice. Here's the question: If they do in fact announce rate cuts, are they imbedding the "Bernanke put" into the hard wiring of the capital markets? Would rate cuts validate the idea that the Fed will bail out any financial market participant when in trouble? Would this insure against losses and encourage risky behavior? I don't have the answers, do you?

PS--that picture is of a big bull elk from Yellowstone Natl Park!

Relief May be Short Lived article

Here's a link to a prescient article from All Star. Enjoy.

Marrs- Pump Up the Volume

Cmon Mr. Market - pump up the volume!!

When Light Volume Matters?

Greetings Edgies! Late summer / pre holiday action in the market these days, huh?? Time to spin some tunes, and coin some market tales?

What has me up in arms is all the talk yesterday and today regarding low trading volume, and how today's decline isn't important because so many people are away in the "Hamptons." Contrary to last week, where the bulls were cheering the uptick, although on low volume as well! Isn't it interesting those who are long suggest the market will be just fine next week when people return "from summer vacation" and how things will magically sort themselves out and we'll head towards 14,000 in a blink. I suspect things aren't as simple as that. It would be too easy & Mr. Market is never that easy! Therefore, my view is that we'll get significant selling pressure next week in complete opposition to what the consensus is advising right now. Just an early call as we look in the post Labor Day crystal ball. Of course I could be wrong.

The Gap Returns

FXI could have been bought for $112 on 8/16, which was 7 market days ago.
Closed at $153.07 today for an easy +36.7% return (annualize that!!).

It might take a mere 40% pullback to get back to March '07 levels, but "only" a 20% decline to get to last week! I guess the next edition of "Shanghai Surprise" wont be all that eventful, will it?

The Plot Thickens

Last Sunday, August 19, the Fed granted to Bank of America, the right to borrow $25 billion directly from the Fed to provide liquidity to its affiliates. I am reading these stories in WSJ and Bloomberg. They disclosed the exemption in a regulatory filing this week. On Monday, August 20th, the Fed extended the same exemption to Citibank "to extend credit to market participants in need of short-term liquidity to finance their holdings of certain mortgage loans.'' B of A spokesman Robert Stickler said, "We're not sure what's going to happen down the road, so we want to get ready for contingencies.'' Holy toledo...all this talk of stealth fed moves may not even be hitting the mark, it may even be more stealthy than originally thought!

Citi is pleased to inject liquidity....

We can thank Citigroup for saving America in its time of need. We are so lucky to have such a kind corporate neighbor watching over the financial condition of our country.

The statement from Citi after it joined three other banks calling at the Federal Reserve discount window Wednesday goes like this: "We are pleased to inject liquidity into the financial system during times of market stress and to support creditworthy clients." How touching.

The other newsworthy nugget was that Deutsche Bank actually tapped the discount window last Friday. Citi was joined yesterday by JPMorgan, Bank of America, and Wachovia. A Punk Zeigel analyst had some pointed comments about these actions: "It suggests the stress in the financial system is as great as feared."

Good luck.

Trading Places

Not Yet, Almost

I recall the final scene in a 1983 movie called Trading Places, featuring Dan Aykroyd and Eddie Murphy, where they had the Duke brothers (Randolph & Mortimer) on the run with an orange juice trade. As the market was climbing and the Duke's were buying hand over fist ahead of the crop report, Aykroyd turns to Murphy and says: "Not yet, almost." They finally look at each other with a gleam in their eye, and raise their arms and sell the futures contract into the furious rally...a few minutes later, they show the television and the speaker releasing the crop report saying something about not having a cold winter...and the contract immediately crashes. The Duke's were now on the wrong side of the trade. Moments later, we see Aykroyd and Murphy buying back their positions as fast and furiously as they had recently sold them, for a fraction of the price!

That's where we are with the market right now. There are dislocations all over the place. There will be a time to buy, but it isn't right now. The key is to maintain buying power and plan for the day when you can buy and take advantage of the opportunities.

The Leading Edge with the R2K!

The Russell 2000 provides some clues as to what to expect next week. She appears to be shrugging off the global subprime meltdown and credit freeze, and could be a harbinger for better days ahead for stock investors. While the headlines are bearish, there appears to be positive developments below the surface, as the R2K is showing signs of vibrancy after a bruising 10% pullback. The key point: the market leads the economy, and the market is the ultimate barometer of how things really are, not what some talking head or market pundit wants you to believe (or wants you to believe so that their positions move in their favor!)

On another note, IBD certainly changed their tune quickly. They are reporting a "rally under pressure," mere days after a follow through and a new bull market claim. Their take is that in 13 out of 14 times since 1982, when the market has flashed a distribution day within the first three sessions of a follow-through, the rally has gone on to fail. We'll see if they are right. Good luck out there!

Calm, Cool, & Collected

It may be too late to sell...the stock market is going to gap lower this morning, and those of you setting up sell orders may get taken out at the lows. The news of the morning for me is not that another hedge fund or two is blowing up due to the credit freeze out there, but the fact that the Fed Funds futures are pricing a 100% chance of a rate cut by September. In fact, I hearken back to the 90's when we had a surprise rate cut or two. The stock market zoomed higher after these events. We may be back in the zone where the Fed could come in with shock and awe and take the market by surprise with a rate cut. The bottom line is this: Surprise moves the market, not something that we have been facing down for months (ie SUBPRIME)...the market has been digesting and discounting the worst of the credit freeze, it's what is directly ahead of us that isn't yet priced into the market, and what is ahead could be negative OR positive news! So stay calm, cool, and collected.

IBD says Market in Confirmed Rally

Anyone catch the subtle shift? They've changed their tilt from "market in correction" to "confirmed rally." They seemed to like the big day we had this past Monday, coming on day 4 of the new rally and it was confirmation of a directional change in the market. Yesterday's Fed announcement continued with their focus & vigilance to inflationary threats, but they did acknowledge heightened credit risks to households, etc..and the market appears to have applauded this modest shift. Financial stocks and home builders had big positive moves yesterday, including the brokerage names too. Many will probably conclude the "all clear signal" isn't necessarily a given, but there is a breadth of fresh air and a collective sigh on Wall Street. Therefore, with plenty of concern and fear still evident, this market might begin to climb the proverbial wall of worry again.

Elimination of the Uptick Rule

Anyone think it's a coincidence that the market started to roll over soon after the uptick rule was eliminated? Check the chart of the Russell 2000, it declined almost 10% from its recent peak. Small cap stocks have been pummeled and some folks think the ability to short sell shares without waiting for an uptick is one of the reasons for the market swoon of late. I'd suggest it certainly exacerbated the decline, but it is not the sole reason. Nonetheless, it is important to understand the dynamics of what this means to the market. Click here for a solid blog posting about the elimination of the rule and what it might mean for the market. Good Luck!

Volatility = Decline!!!!

Quick note, as i chuckle day in and day out every time we go through a correction - at the mere mention of the word "VOLATILITY." Talking heads and beat writers drag this word out from under a rock and I hear it over and over and over again. Volatility is code word for decline! Why can't people understand there is such thing as upside volatility too? Ah ha, but "the establishment" doesn't want to tell it like it is, so they try to brainwash you into thinking LOSSES are just VOLATILITY! This is so much fun. The word comes up 23,600,00o times in a 0.05 second search on Google. Doesn't that picture of a roller coaster at Knott's Berry Farm look like a blast?

Any News will be Good News!

Key data in next 48 hours: Initial jobless claims tomorrow, and non farm payrolls/monthly unemployment report/hourly earnings Friday. Any news will be good news. Why? A weak employment number could draw comments from the Fed and the chit chat will feature well placed and timed notions of cutting rates. The comments may not emanate immediately, but within a few days or few weeks, we'll hear how they are concerned about the economy, and as employment craters, the consumer will be on the ropes with spending (as well as re-setting mortgages) and the financial markets will demand a bail out. Therefore, a seizure in the financial market will force the Feds hands. There is no doubt they are watching closely, and it wont even depend upon Ben Bernanke comments directly, it could be from any Fed Governor or hired gun at the Wall St Journal. The mere mention or discussion the Fed "might" cut rates will stem the correction and cause a turnaround.

A strong employment number could also stem the pessimistic tide. If the stock market is concerned about mortgages and spending...their concerns will be alleviated with a strong employment report. The pessimists wont be able to argue in the face of recent econ reports that include a 3.6% GDP growth rate, a 112.6 consumer confidence report, and low unemployment or high non farm payrolls.

Therefore, any news tomorrow and Friday could be good news! Good luck.