Cara's Commentary & Community Chat, Saturday, Aug. 15, 2009

I thought I would share this find from the attic of a house I am remodeling.

It's the front page of the Chicago Tribune from October, 1960.

Most history lessons are a given with the benefit of hindsight. Rarely do we get to revisit the perspective of history before it happened. It is also interesting to note that as much as things change, they also remain the same. Diffent names and places, similar stories. Enjoy.

I have a few more pages but only uploaded this one due to size constraints.

(via iPhone)

I had ignored the following chart for quite some time, since I believed in the accuracy of the Armstrong Business Confidence Cycle.

It's only accurate when hitting the broad side of a barn, so I returned to a chart posted some time ago, and found it still holds true. Gold and the dollar are underperforming the deepening fundamentals, while commodities have gone parabolic.

I believe that both gold and the dollar are to perfrorm together, since the safe haven of treasuries has thoroughly wrung out it's value as a low risk asset, to the very last drop.

The commodities do not perform as a low risk asset, so they will decline as demand for futures drops off.

This, DR. COSA, is the reason why Gold will not have the same steep decline before it as would other commodities.

http://stockcharts.com/h-sc/ui?s=$CCI:$DJCBTI&p=D&b=5&g=0&id=p30005592350&a=152763589&listNum=1

Hi Bill,

This should be a wake-up call for all investors who believe that bond and money market investments protect capital with underlying guarantees. The mantra for holding cash in money market funds ( in Canada, at least ) has always been "The unit value of the fund does not go up or down - the interest earned simply buys additional share units and the account balance will only rise". Last winter, the financial services organization I was associated with for the past 25 years prior to my recent retirement advised me, as their agent, that the Canadian and US Money Market funds ( among the biggest in Canada ) were experiencing such low yields on short-term investments that the management fee was resulting in encroachment on capital and consequently the company had sharply lowered their fee in order to maintain the asset value and avoid publishing a decline in net unit asset value of these funds. They are paying virtually no interest to the holder at this time.

This is a dam about to break because there is no sign of interest rates rising sufficiently in the near term for there to be a positive yield for true money market funds. Because I have shifted most of my retirement savings into MMFs over the past two years to avoid much of the market decline - I am now considering the switch to insured term certificates offered by banks in order to protect my capital.

One must wonder how many others who previously moved to MMFs are contemplating a move out of MMFs for the same reasons as mine. I seem to have two alternatives- go the insured deposit route and weather the storm, or look at solid dividend stocks and hope that selected companies stay above water to the point of continuing the payouts. I am looking at the idea of buying some of these higher yielding dividend stocks with the understanding that even if the dividend is cut in half or the share price declines severely - I can think of these as an annuity providing retirement income. A 50% cut in dividend will still provide adequate income to meet my needs. Of course, a stop to dividends and the concurrent decline in share value would be a disaster - but this would affect everyone, so the "same boat" addage applies.

Hi, chart should be here:

stockcharts.com $CCI:$DJCBTI

Placed in public list.

Volatility in the tropics, tropical storm Ana kicks off the season, followed by what forecasters predict as the first hurricane of the Atlantic basin and it will be called BILL!

Both are likely to impact the Bahamas, and landfall in Florida, with Ana as early as Wednesday-Thursday.

Next NWS update at 14:00 Eastern.

Be prepared, and look to oil/gas prices to rise.

Ciao, Zed

"In late April (Insiders Are Selling Into the Rally), insiders were selling at a rate of 8.3 times the amount that insiders were buying. When we revisited the issue about two months later in June (More Evidence of Skepticism from Insiders), insiders had become even more bearish as they were selling at a rate of 9 times for each insider buy.

Now, we are nearly two months later and the ratio of sellers to buyers continues to expand. In the last week, corporate insiders sold 13.6 times more than insiders bought according to information compiled by Finviz."

http://seekingalpha.com/article/156048-insiders-co...

Thanks, Bill, that's good to know. I'm 50% in USD and the other half is in US bond funds (mostly GNMA) with a hand on the exit door knob. Sold all equities over the past month with a slight gain.

I've just begun reading a book, "Tuxedo Park", about a US financier and scientific research financial supporter. His name is Alfred Loomis. He and his brother-in-law/partner put together big electrical utility combines in the 1920s. They began to see the huge risk building in Wall St. in 1928 and gradually went to Treasuries and cash in time to avoid the 1929 crash.

Some of his science interests and personal experiments led to development of the atom bomb, sonic inventions like the MRI and the microwave. His brilliance was coupled with a strong sense of ethics and duty.
So far a really good read.

What a wild time we live in as did he.

Because index funds calculate benchmark values at end-of-day prices, Pimco contends they are inclined to buy at whatever level is offered when the markets close, allowing other investors to push up prices ahead of time, sometimes as much as 1%.

Similarly, TIPS indexes change their composition in a predictable fashion, allowing other investors to anticipate index funds' moves, driving up costs for fund investors.

We wonder: How many hedge funds are already taking advantage of this strategy, picking off money from retail investors plowing into TIPS, who think they're getting an easy, low-cost way to get protected?

http://www.businessinsider.com/its-easy-to-front-r...

The company is public: CBLI. No recommendation.

IMF Governors Formally Approve US$250 Billion General SDR Allocation

Q; . Have SDR allocations happened before?
A. Yes. A cumulative total of SDR 21.4 billion (equivalent to about US$33 billion) has been allocated to members through the following two general allocations:
• SDR 9.3 billion was allocated in yearly installments in 1970–72.
• SDR 12.1 billion was allocated in yearly installments in 1979–81.

I think this might be construed as a slightly bigger commitment than ever before, eh?

If the (worldwide) recession is over, why then do we need all that money? And even though a gigantic expansion of liquidity has done little (but some, in truth, to be fair) here and abroad to stimulate economies (but not really demand - and that's the key, especially in the US isn't it?) what's going to happen when the velocity of all that dough DOES pick up?

It makes you think someone is VERY afraid of deflation, and doesn't care a whit about the possible follow-on effects of inflation....(At least that you can theoretically kill with high rates).

http://www.imf.org/external/np/sec/pr/2009/pr09283...

We live in interesting times.

http://www.youtube.com/watch?v=Ajw21sTt6Us

Chris Issak is a great concert, my wife and I had the opportunity to see him in 1993 at the Puyallup Fair and we had a blast.

Edit: I also love the Yardbirds version....

http://www.youtube.com/watch?v=WsCBgWAvWpU&feature...

for end of day charts Worden is really terrific. I never read the commentary, and find the "programming" very easy.

Also there are many sites where traders have also posted more complex formulas for our use.

I've used Worden for many years as my data vendor, and highly recommend their service. I do like to use Amibroker in conjunction with it for some specialized formulas (like DeMark Sequential) that I can't program.

It's not perfect, but very good.

Buying up dollars would provide a better return, I suppose.

In the commodities, there are metals which may come under demand because of their inherent properties.

wintsch:
Expand what you mean by stockfinder.

Freestockcharts I think are Worden based. If you are looking for U.S. stocks, Worden is very easy to use. I want Canadian stock data and other countries, so use Amibroker with free Yahoo data.

So it is public - cool. How's that for technology - stopping the body from self-destructing. These biotech long shots are an interesting area of speculation.

I've been watching those over-caffeinated 19 year olds (as opposed to this over-caffeinated 34 year old :) play with biotech this last month and a couple of names have come to my attention. ARNA and OREX are both racing to release anti-obesity medication onto the market:

http://seekingalpha.com/article/151303-arena-s-edg...

ARNA has the safest medication but not as efficace as OREX. A repeat stage 3 trial is likely to show that ARNA's compound has no side effects and will likely lead to ARNA's price popping as they seek FDA approval. FDA approval may not actually be given because it fails to deliver meaningful weight loss, but as the above asset management analysis suggests, hold ARNA for a merger possibility or take profits *before* FDA releases its approval findings. ARNA is sitting on the low end of range bound trading and with stage 3 findings to be released in September the stock is getting interesting. The analyst is long ARNA and looking to take profits in the $10 - 15 range.

OREX just impressed analysts and took the opportunity to raise further capital at an offering of 7.50, which insiders were reportedly snapping up. So significant support at the 7.50 range? Analyst looking for FDA approval in 2010 - which given its better efficacy than ARNA is likely to be the winner commercially - and a 50% increase in stock price.

http://seekingalpha.com/article/151608-orexigen-th...

Still learning to recognise break outs from John Lee and judging by his weekend alert to an imminent breakout in this stock:

http://chart.ly/q4z7c3

I'd say that OREX is about to move higher as well.

DYODD and JMTCW

ALOHA !!

You know this SDR game is laughable. If anyone bothered to look at the components of the IMF SDR they would find out that it is mostly weighted with US Dollars! To be exact 44%!! Surprise ... surprise! In fact only 11% of the SDR has any "real wealth" weighting. The Japan Yen only accounts for 11% while the rest of the SDR is made up of the USD, Euro and Pound, the THREE STOOGES of the FX!!

You can never really escape from a World Reserve Currency and with fiat you can never really escape from the unending counterparty liabilities to a World gone mad with DEBT and DEBT DERIVATIVES!

SDR LINK: http://en.wikipedia.org/wiki/Special_Drawing_Rights

ALOHA !!

Bill, thanks for the historical interest rate chart. BUYING TIME is all!!! This is from an FOMC meeting back in 1971 about how carefully crafted the US FED is when it comes to their "real powers"!

The following statement is taken from the October 19, 1971 FOMC meeting as part of the MEMORNDUM OF DISCUSSION which can be found HERE on the US FED website.

"Chairman Burns remarked that it might be better to say that the Committee sought to "promote" rather than to "achieve" the stated objectives. Use of the word "achieve" might imply that the Committee had more power to determine interest rate levels than it in fact had." END

Hummmmm???? Fast forward to today and trillions of interventions later!

ITS OUR CURRENCY ... BUTS ITS OUR PROBLEM!

This is now Nick Taleb made his big bucks. He just bought some deep OTM puts on SPX every few months and when the crash came of course it paid off like a slot machine. Heh, well probably better than a slot machine actually, but you know what I mean.

Of course if you wait until things start going down the premiums will be more expensive.

I have no knowledge of how to confirm this report.

http://dailyreckoning.com/what-chinese-depression/

It basically tries to say that the Chinese growth rates are more manipulated than any other countries numbers.

Interesting author Nick Taleb. I'm intrigued by the intro to his book. I'm hooked.

http://www.amazon.co.uk/gp/reader/0141034599/ref=s...

http://ronsen.blogspot.com/2009/08/sunday-morning-...

The "exchange" group, NYX, NDAQ, CME, ICE...

"By Prieur du Plessis - August 16th, 2009, 8:26AM
Words from the (investment) wise for the week that was (August 10 – 16, 2009)

During the week marking the second anniversary of the start of the credit crunch, stocks, copper, nickel, zinc and sugar recorded fresh 2009 highs. But the celebrations came to an abrupt end as caution crept back into investors’ vocabulary on Friday when it dawned upon pundits that markets were running away from economic reality. On top of that, Chinese equities - a leading stock market on the way up - saw a reversal of fortune and declined to a five-week low.

This is where the Ecclesiastes-based lyrics of the Byrds’s classic, Turn, Turn, Turn, started resounding in my head: “To everything (turn, turn, turn), There is a season (turn, turn, turn), And a time for every purpose, under heaven, A time to gain, a time to lose …”

Les- Sorry, man. It was late, and I didn't check my math. Each contract gives you the right to put 100 shares of SPY. 1000 contracts (or the option to 'put' the equivalent of 100,000 shares of SPY to the counterparty) would in fact be an $8000 bet, as you pointed out.

The payoff, should the price of a contract go to $20, would still be $2m, a 250-fold payoff from the original $0.08 buy-in.

So you would only need to fork out $800 (100 contracts) for a potential $200,000 payout.

duplicate

Given the time frame of which the 2000 bear rally came crashing down from peak to bottom, Dec. 50's look like a no-money lost proposition, assuming that there is a modicum of sense in the institutional investor community and they are not going to chase prices further. Blog commentary appears to support this idea. That be the case, then upside potential is well... potentially quite interesting.

$80 worth of puts for several thousand, up to possibly $20'000 in case of rapid loss of investor confidence. Doesn't sound like a bad deal at all.

nemo- Too funny.

So I'm thinking they probably won't go to $20. Hey Pat Veech, you have that database of historical options prices. If you have a moment, might you tell us how much the April SPY 66's were trading for on March 8th, I think the low was? And also the SPY Dec 75s on November 23rd.

Note it took 2 1/2 months for the prices to go from SPY 130 to SPY 75 in September 08, so you'd have to have bought the Nov or Dec puts to cash in on the big move.

Ron, by stockfinder I mean software that can be programmed to find stocks in accordance with specific parameters, MA RsI etc.

Thanks for your input.

John

David- Remember Melissa Leo in 'Frozen River?' She also heads the cast of another great indie, 'Lullaby,' where she plays an American Mom who flies to Johannesburg to try saving her son (who's being held for ransom). Hard to tell the difference between the mean streets of Jo'burg (maybe it's Soweto) and the mean streets of the Bronx.

Just happened to read her bio, where it notes Leo has a son with John Heard.

Just saw your post, glad to see things have changed in 24 hours, hopefully for the better: forecasters say Ana is staying well south of the Bahamas and Bill to the east/norteast. For now.

We had a lightning and thunder show as the un-named tropical low passed just offshore of us last night. The Tampa Bay area received gusts and a little rain, but watching that vortex on RADAR brought back that old anxious feeling.

Stocked up on beer, among other things....

Ciao, Z.

LOL! In a movie maybe. In terms of violence there are surely similarities, but the Bronx is wealthy in comparison to Soweto or certain parts of Johannisberg.
I don't recall people living in sheet metal and cardboard shacks in the Bronx for example (although I'm sure they may be some), and the I am pretty sure most parts of the Bronx have sewage plumbing, treatment and running water...although I see we're working on foam and tape structures judging by some contributions to this weeks discourse.
I am worried we're working in the wrong direction and we could see more similarities instead of less. Like ships in the night we might be heading toward Soweto while Soweto is heading for the Bronx.

In the meantime we have crooked fat cats making millions of dollars in this country while their workers go without basic needs. Something is broken.

How screwed up are we when Orin Hatch is on TV citing studies by a foundation owned by United Healthcare? I wonder how much they pay him? I'll bet it's more than the voters of Utah. Move over Soweto.

I use Telechart. Its a lot of money per month vs the free stuff unless you have a lot invested, in which case if it helps identify one better trade a year, its easily paid for. I've had it a long time and have chart templates that I really like/use, so I keep paying for the service.

I also have Tradestation which has good charting. I also have ThinkorSwim which has good charting. Both of those are free with the brokerage accounts. I also like stockcharts.com for their free charts.

Per Bloomberg, more than 150 publicly traded U.S. lenders own nonperforming loans that equal 5 percent or more of their holdings, a level that former regulators say can wipe out a bank’s equity and threaten its survival.

Excluding the stress-test list, banks with nonperformers above 5 percent had combined deposits of $193 billion, according to Bloomberg data. That’s almost 15 times the size of the FDIC’s deposit insurance fund at the end of the first quarter.

“These numbers are off the charts,” said Blake Howells, an analyst at Becker Capital Management in Portland, Oregon, referring to the nonperforming loan levels at companies he follows. Banks are losing the “ability to try and earn their way through the cycle,” said Howells, who previously spent 13 years at Minneapolis-based U.S. Bancorp.

http://bloomberg.com/apps/news?pid=20601109&sid=aT...

One begins to understand the black swan phenomena when you tally the possibilities of system wide failure in scenarios like this you have posted.

One can see the desperation with which the system attempts to control such scenarios and to the lengths that they will go to in order to avert such a scenario.

But they can't.

There's something satisfying in understanding this.

I've read of one black swan scenario during the Cold War. It does appear surprising that the great powers avoided annihilating themselves in a manner similar to the financial crash witnessed now. Understanding the differences and similarities of the two events and how black swan disaster was averted in the Cold War could make for interesting reading. One could apply the positive lessons to global warming as well.

http://chart.ly/gac9ba

could we be falling out of that triangle by Friday?

The unfortunate part, of course, is that we are playing with a full deck (of them).

Next bubble? I think many people think it will be owning treasuries, although it wouldn't surprise me if it takes more time than we might think.

Short interest is winding down. "The lack of meaningful short positions for the most economically sensitive sectors eliminates a source of market support that was significant during the most recent rally," said Hogan.

To take a contrarian view for a moment, isn't it entirely possible that the lack of short interest could means there is very little downside opportunity? Shorts only short when they see lots of downside potential. Remember the shorters are smarter than the longs from any of the people I've encountered with the exception of this group of very experienced traders. They have a lot to lose by being wrong so they tend to do more homework. Much better reserch. They are usually correct. And they are not to be found on the short side right now. Says lots about the upside potential they see Just some food for thought? Look at the VIX. The lack of option premium is showing very little fear. Time will tell who was right the bulls or the bears.........stay tuned :) (P.S. I read that only 2% of market participants actually sell stocks short) it pays to learn how to do both IMHO.

Re: VIX - "A once-reliable market signal may have gotten too popular" ?

From Michael Santoli - this week's Barrons:

"A LEATHERY OLD PIECE OF COWBOY WISDOM WITH relevance for investors instructs, "Always drink upstream from the herd."

Obviously, it's better to get to the flow of ideas before they reach the muddy snouts of the crowd. But unlike a cowboy, who can easily see where a hundred head of cattle are and which way the river runs, an investor can be hard- pressed to figure out just where the consensus is clustered.

Right now the crowd looks to be gathering around the idea that the stock market will turn decidedly more volatile and risky come September and October. But parsing that notion -- and the related guess that more volatility will mean a weaker market -- is no easy job. And it's made all the harder by the fact that the reliability of a key indicator has been called into question.

Beginning a few weeks ago, close observers of the derivatives markets began noting a large, persistent premium in prices of the September and October futures on the CBOE Volatility Index (VIX), which itself is a measure of current and expected stock-index volatility. Higher VIX futures in the out months point to rising jumpiness.

Over the not-very-long history of the VIX futures, whenever the more distant months' contracts got to such a premium, it was a warning sign for a market pullback and/or an uptick in choppiness. As described here in April, shortly ahead of a brief market retrenchment, this phenomenon suggests the pros who trade these futures represent, on balance, "smart money" that ought to be heeded.

The belief that things are about to get hairier also has some basis in history and seasonal tendencies.

If you haven't heard that September is the worst single month for stock returns in history, then welcome back from solitary confinement. And pre-Labor Day calm will typically give way to autumnal market drama.

But always remember that seasonality is climate, not weather. Volatility, even though it's now traded, isn't as constrained by supply as pork bellies, which frequently rally in late summer as tomatoes ripen during "BLT season."

Another reason for caution about the consensus: Since the steady premium in VIX futures and heavy demand for upside options bets on VIX have not yet been "obeyed" by the market in the form of a volatility spike, it has raised the possibility that these markets are now driven by "less-smart" money.

The number of outstanding contracts in VIX options has about doubled in the past year, with a heavy tilt toward bets on higher volatility. And an exchange-traded note, iPath S&P 500 VIX Short-Term Futures ETN (ticker: VXX), which allows for easy bets on a higher VIX, last month was flooded by new money. Its inflows as a percentage of assets were among the highest of all ETFs.

So maybe the popularity of speculating on future volatility has diluted the message of those once-reliable signals? This has been suggested by some of the more seasoned and thoughtful observers of this market, such as Bernie Schaeffer of Schaeffer's Investment Research, Larry McMillan of McMillan Analysis and Adam Warner of DailyOptionsReport.com.

In other words, maybe the crowd is collectively over-anticipating a rockier market, which perhaps means it's expecting a more punishing pullback than the market will soon deliver.

Just be alert for signs that the Schaeffer-McMillan-Warner take on the crowded consensus is itself becoming too popular -- or the subject of too many more market columns. It would mean the herd is walking upstream."

Yes, certainly US govt debt is the "next bubble", but as we have seen time and again, bubbles often go to wild extremes before they finally burst.

IMO, this one is different, in that the dollar itself is becoming the bubble, and the perpetrators of the debasement control the supply of cash and credit. Lastly, to make matters worse, it is hard to see what's real or not, because we measure everything in those same dollars.

The Fed showed us last year that they can just as easily temporarily raise the value of the dollar and create a tremendous short squeeze to crush any non-believers, or print them ad infinitum and temporarily lower their value, like has been done of late. We can only wonder if it was intentional or not, and whether the economic damage that resulted was anticipated, or to what degree. One person I know of anticipated all of this over 200 years ago. His warnings were not heeded.

"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

Thomas Jefferson, (Attributed)
3rd president of US (1743 - 1826)

Those words never rang more true than today...

Ron,

"Next bubble? I think many people think it will be owning treasuries, although it wouldn't surprise me if it takes more time than we might think."

I think it will take until banks feel comfortable lending and consumers feel confident enough to go back to borrowing.

I think any people borrowing now are those in the final stages of desperation — no job or low-pay job(s) and running short on everything. One step from the food pantry.

Grym - "I think it will take until banks feel comfortable lending and consumers feel confident enough to go back to borrowing. "

I believe it will happen when Bernanke raises rates, and that won't happen until 6 mos after employment shows back to back gains.

Can someone please explain the relationship as to which is the cause, and which is the effect, and who/how its being caused?

I hate seeing correlations like that and not understanding the WHY behind it...

I never said they were the prime cause, but they were front and center a part of the problem...and as politician's so adroitly do, casting responsibility away from themselves.

Hmm. Nemo. I have heard you mention this CRA issue several times, and from all I have read it is one of those things whose effects could easily be lost in the noise. Nobody I've read has any evidence it contributed anything but "rounding error" sort of effects to the whole crisis.

Why do you believe it to be "front and center" when there appear to be many other smoking guns?

teamonfuego - "If taxpayers have to pony up $100 Billion I have a feeling this could stir a lot of protesting..."

Good points - Yes, I believe another $100B should raise some eyebrows slightly higher, but more importantly will be how it's done and how it's explained (if at all). For instance, if $100B is "lent" to the big boys for acquisitions, it might not go over well or if the funds are made available directly to the mom and pop(M&PB) banks serving mom and pop. Then again, the funds might be made available (or special deals) on behalf of investors (FED/ GSE's?) to assume possession of the bad assets.

We'll have to monitor the chain of events and trade accordingly.

So Bill, I keep hearing from you references to the 1987 crash. Last September, we had a slow, day by day loss which got us down from 1300 to 750 over the course of two months. Yet rather than you suggesting a replay of that scenario, I hear from you that there is a chance of a one-day massive move down.

What tells you it could happen suddenly, instead of just re-executing the 2008 slow motion train wreck?

(I'm not debating with you at all - I'm honestly curious to what leads you to your conclusions; I could not pretend to guess which way we'll go down, only that "risk is high")

cheapy - "Can someone please explain the relationship as to which is the cause, and which is the effect, and who/how its being caused?"

You're absolutely correct, we need to better understand the Japanese economy and currency mechanisms. Perhaps a starting point would be to generate a list of specific questions...

BTW, I just received my first bar of bullion, here's a picture:

"FDIC is one thing most people are familiar with and the idea that an insurance fund for your deposits is getting bailed out is going to be unsettling."

Well we'll see, but I don't anticipate another $100B will be too difficult for the Treasury to pull out of a hat (assuming it's necessary).... especially if the subject happens to create an equities sell off in coordination with another immensely successful Treasury auction.

Mark - "Hey, your a smart cat. I'm still trying to figure out how a short bond trade can work in a falling market. What would the catalyst have to be for the two to diverge? 20 words or less please!"

An extremely unpopular $USD, such as a credit downgrade on the US government debt. The trade could go off in the blink of an eye, this is the event kaimu often references.

IMO, at any cost, they will print to keep the FDIC solvent. I would think that failure to do so would cause an immediate run on many or all banks. I would certainly move my money out immediately if I thought I was going to lose that coverage.

Realize of course, there's a warehouse the size of a football field that is stocked to the gills with a flood of paper currency ready for deployment at a moment's notice. I don't know how much physical gold and silver exist in the treasury vaults, maybe nobody's supposed to know...

TOF- Don't marginalize your thoughts. People don't understand CDS, MBS, CDO, etc., etc. EVERYONE understand FDIC. All though I'm sure they fail to realize they pay for it already under normal circumstances, and more so now via bank bail-outs, a direct tax payer infusion of cash into the FDIC could be a deal breaker. In fact, I bet we are at the point were the public has moved beyond the bank bail outs. It simply won't be tolerated again.

So the question is, how is the money, if needed, going to be funneled into the FDIC? I'm sure they will find a back door, but will we really know?

Anybody seen this chart yet? Hmm, an uncanny inverse correlation for study; more fuel for the fire!

CP- Not surprisingly, I don't get it. The chart assumes a huge spike on Opt. Arm's in 2011. I don't see that.

Re- Bonds/market. I get your point, and would also include a failed auction. Other than a "black chicken" event, I can't get my head around a shift without some dark flying creature hovering about.

Mark - The option adjustable rate spike begins sooner, take a closer look and notice the (what seems to me strong) negative correlation.

We've been waiting for the resets, this is the first data point I've seen and it comes complete with the S&P laid right on top to boot! Nothing's guaranteed, but at least we've got more info now than we did a moment ago....

Read all about it:

www.evilspeculator.com

CP- I see that. I guess my point is I can't believe the $ value of Opt. arm's will be that much higher than it was during the Halcion days of 06-08. Notice how high alt-A's were then in comparison? Why the assumption that they will suddenly be back in vague? Banks are closing CC's with balances of 1,000. I still don't buy it. If nothing was learned here, than, well, it really wont matter anyway will it?

Mark - I read somewhere this weekend where UBS I think it was has estimated that 48% of US household mortgages will be underwater next year. It's not a question of ARMS coming back in vogue, we're talking about the existing ones that are due for reset. Of course if someone comes along and offers a sweetheart deal on refinancing (as I'd expected Barney and his gang of thieves to have done by now), the magnitude of the problems might be mitigated.

I'm getting the impression your feeling is we're not likely to have another repeat of heavy selling, and I'm all for that but IF that is in fact what you're envisioning I hope you'd come out and say so....

Anyway, I'm keeping an eye on this chart for a while, there might be something to it...

The US index futures are falling over the cliff. If the market closes tomorrow as the futures are currently indicating (S&P futures are down 1.47% now), then it would be a clear indication of a *start* of the correction after the huge rally we've had. The professional traders will be *opening* short positions after such a clear indication. So I am thinking that I should not be very eager to sell my SKF now, even though my original intent was simply to make a lateral move from SKF into FAZ on Friday and hence sell all my SKF on Friday as soon as I bought FAZ for the same dollar amount. However, right after I bought FAZ, I got a feeling on Friday that I don't have to sell my SKF immediately and will probably be able to sell it higher next week than it was trading on Friday. I bought FAZ on Friday when SKF was $29, and now I am placing a sell limit order at $30 for 1/3 of my SKF, at $30.5 for another 1/3 and at $31 for the final 1/3. If these limits are hit, then I would essentially make a lateral move from SKF into FAZ with a "boost." :)

test

edit: problem fixed thanks Korvus, only issue of note is slow response time of your new server. 10 seconds + is going to have a lot of people doing repeat posting by mistake.

Hey I know as traders in a "must have now" electronic age that we should be rediscovering the virtue of patience, but 10 seconds is a long time...

for a server to respond :)

you know what they say about great minds thinking alike Davef? :p I was ready to post the same line of question but didn't wanna push the issue, given the so many "what if" issues involved.

But the Black Swan issue made me want to dig up Bill's experience or gut feelings on potential similarities with that crash.

Well, I've gone and seconded the question now.

The safe haven flight is on with the 10 year yield @ 3.49% - heading to 3.0 as the sell off intensifies. Good for option arm and regular arm holders to delay the pain and of course extend the mortgage crisis until some semblance of recovery firmly takes hold moving yields higher. Happy Trading

For some reason I woke up this morning at 2:30 am and couldn't sleep any more. I turned my computer on to see that the markets are finally coming undone. At the end of the day on Friday I put on a fairly large August $102 put trade that immediately went down 30% in about 10 minutes. Now it looks like this trade will be up big at open. What to do, what to do...

If you are still on the bullish side of things, these charts will challenge your beliefs:

http://economicedge.blogspot.com/2009/08/week-in-c...

Bloomberg reports Citi to pressure Hall to take stock instead of cash bonus. Does this mean he wouldn't sell a full measure of Citi stock/calls to hedge this fully? Unless he's restricted from doing so, you know anybody as smart as he is would.

Cheapy,

We, especially westerners, are conditioned to think in linear terms. We look for logic, cause and effect. Added to that is the media simplification down to two choices — black OR white, good OR bad, hot OR cold...

Life, as Kaimu points out, "is what it is."

While everything is interrelated, there are so many variables, physical and psychological that most predictions are futile guesses.

I always come back to an Albert Einstein quote, "In theory, theory and practice are the same. In practice they are different."

Something which I think Mr. Bernanke is about demonstrate for us.

It sounds as though you are well prepared for any eventuality — relax as much as possible in these most uncertain times.

CP,

If/when Bernanke raises rates to entice buying bonds, just think what that will do to the borrower. The decade of the 1930s was a time when people truly valued the dollar (even without a gold backing). People are already choosing not to borrow except when they have no other option.

Companies are run by people. Economists are notorious for ignoring the human element. It has been the downfall of many a theory.

Politicians have their figures testing the human response all the time. Even Obama is backing off now that the polls are reversing. The independent voters like me are just beginning to see what a total fake he is.

To kill a snake, go for the head.