Held Hostage - Vice Chair Kohn Remarks

WOW....just catching up to the actual comments from Fed Vice Chairman Donald Kohn. Some very important statements here:

We should not hold the economy hostage to teach a small segment of the population a lesson

Central banks try to avoid the creation of a moral hazard...but to those who lend, borrow, or run money should bear the consequences of their decisions.

Key here is "However, in my view, when the decisions do go poorly, innocent bystanders should not have to bear the cost."

Since the moral hazard issue is now off the table, in this blogger's view, the Fed can use all the tools in their toolbox to prevent contagion, and to help those "innocent bystanders" as well as the broad economy. This is bullish for stocks. We'll see if Gentle Ben affirms these comments tonight.

Yowsa!

November Swoon Over? Time to Expect Santa Claus?

Today's gap lower of the Volatility Index and the spike in the equity averages might mean the correction is over. The market experienced a sharp 4 week decline of about 10% on many broad indices, and the strong move since yesterday certainly feels like it has legs. We are moving into that time of year where the market typically experiences a year end rally, plus the small cap or January effect has found its way into the month of December too. See below for the definition:

The January effect (sometimes called "year-end effect") is a calendar effect wherein stocks, especially small-cap stocks, have historically tended to rise markedly in price during the period starting on the last day of December and ending on the fifth trading day of January. This effect is owed to year-end selling to create tax losses, recognize capital gains, effect portfolio window dressing, or raise holiday cash. Because such selling depresses the stocks but has nothing to do with their fundamental worth, bargain hunters quickly buy in, causing the January rally. The strength of the effect varies depending on company size and other factors.In the last couple of years, after the January effect became widely known to the public, it has become less pronounced and has started shifting to December causing a rise in stock prices, known as a Santa Claus rally and the December Effect.

Beat the market, any market, any time!!

I think some of my colleagues place unusual things on my desk, secretly hoping I diligently read them through and through - all the while hoping I proceed to the blog, unleashing a spotlight of scorn and contempt on the ridiculousness and folly of what we receive as junk mail sometimes.

Yes, I have one that is a keeper today! The headline reads: BEAT THE MARKET, ANY MARKET, ANY TIME!

What I like most about this one...is that they devised approx 9 different investor types, placed them in bold headlines, and declared how a certain strategy will deliver out-sized gains no matter which one you follow.

Conservative Investors - safely enjoy annual returns of 88.45%
Long-Term Investors - profits of 173% are possible
Aggressive Investors - get in and out fast...key trades for profits of 200% or more in weeks
Speculative Investors - the risk is greater, but the return could be more than 760% in months
Short Sellers - discovering the secrets of 19 and 44% in as little as 2 months
ETF Investors - imagine seeing impressive 47% returns
Option Traders - enjoy returns of 100% or more in weeks
Natural Resource Investors & Retirement Investors round out the list....

Plus, this guy named Bart DiLiddo says, "Only with VectorVest OnLine market timing system can you make profits 99.46% of the time. It has never failed and never will!"

Gee whiz, ain't it cool that "conservative investors" can "safely" get 88% type returns, espcially in a day and age when CD's yield 5%, the 10-Year Treasury is 4%, and US Govt Money Market Funds pay 4.75%. If you're an aggressive or speculative investor, you stand to achieve returns even greater than the "conservative and safe" 88%...how bout that!!

CAUI.OB re-visited

My expose about this Las Vegas based uranium exploration company was dead on. Click here for the fine reporting about CanAm Uranium (CAUI.OB). I hope the 4.9mm investors who got the "mail piece" did not succumb to the sales pitch! Check out the chart above...holy toledo batman...she's going through the floor!!!!!

Seaweed?!

LULU got busted today by the NY Times for not having seaweed in their yoga clothes! Gasp!! The stock has been hammered of late, but it's not alone. The market meltdown that we've experienced since Oct 31st has been sudden and swift. The Nasdaq 100 declined over 10% in four days!! Many trading services and other info sources show a huge flight out of the market, or into defensive sectors. Of course, that is also evident in the VIX shooting back up towards levels hit this past summer. It'll be fun to see how the capital markets act as we run towards the holidays and the end of the year. Good luck.

Spilt Milk

From CNBC today: "It's kind of like spilling grape juice on the couch, and you'd rather tell mom and dad first before they find out, hoping the punishment is not as great." But the bad news keeps coming, with Wachovia on the tape today with write downs...apparently yesterday it was better than expected bad news, but today it is surprisingly worse since this is new "bad news." Follow that?? Good luck.

Fed in a Bind

Gentle Ben Bernanke was on the Hill today, testifying to the Joint Economic Committee. The text of the speech pointed to downside risks remain in the economic outlook, but upside risks to inflation given higher commodity prices and a weaker dollar. What this means is what traders fear the most, can the Fed lower rates to stimulate growth while not causing inflation to shoot higher? Today, the market is emphatically answering "NO," while the market sells off. The market now fears a Fed sandwiched between the rocks, with no where to go. They cant fight back against the slowing economy and fallout from the housing crisis with rate cuts, for fear of stoking higher prices and runaway inflation. Therefore, they are stuck in a bind, can't do a thing, and the result could be an economy that falls off a cliff. The stock market will take a hit if that is the end result. Good luck.

Jobs Report Friday: What is Good News or Bad?

Tomorrow brings the monthly jobs report. The expectation is 80,000 new jobs created. If the actual number is greater or less, I have no idea how the market will react. This is an instance where good or bad news can be translated just about any possible way. Yesterday's Fed Funds benchmark rate cut as well as corresponding discount rate cut were welcomed by Wall Street. Today, the spin is different. Traders are gaming the wording in the release where the Fed statement said; "the Fed judges that, after this action, the upside risks to inflation roughly balance the downside risks to growth." The take-away is no more rate cuts. My guess is that this is the Fed acting judiciously, with their moral suasion sword cutting a wide path today, talking the market down, attempting to put fear and concern into any speculative investment schemes. However, the bond market is rallying, and the futures market now places a 74% chance for a rate cut at the December meeting. So, I think the analysis here is: It's not what the fed says, it's what they do!

So, we'll see what tomorrow has to offer for the stock market. We have a heavy volume distribution day at hand, and bull markets can sustain periodic distribution days, but we don't want to see many distribution days racked up back to back. Good luck.