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The question to be answered ahead of this light-volume holiday weekend is whether we setting up for a “bear” trap or a “bull” trap that is the question. I believe that this market is in the process of rolling over as it has started what I have forecasted "a market trading distribution event", As such please take on LONG positions very carefully as I do not see a positive bullish catalyst in the making other than a potential short squeeze, relief rally that could be sold into. The markets rose into the close, as the buying or should I say lack of selling, allowed the crawl higher, it appears what they hated yesterday they loved today as so many stocks that lost 5-7% yesterday reversed their losses today a wild 10-14% trip in less then 2-trading days. I think maybe the senior traders came back in from their vacations in an effort to try and save their deteriorating bonuses? A 2nd wave bounce, which this should be (or a “b-wave” correction) will convince many dip-buyers and giddy bulls that a bottom has been formed and that we're headed for new highs and pastures of succulent green grass. This bounce will undoubtedly pull many bulls back into the fray, please be cautious and do not get sucked into a long-position without hedging as I believe that we're due another leg down and this is just-the-setup for those wanting to reshort the indexes etc. Please, remember when in doubt CASH is king. This current distribution process once again is teasing the bulls with hope of a sustained breakouts (however the volume is way to light to support a true technical break-out) while de-clawing the bad-news-bear-cubs that are looking to short into every rally hoping for a significant retracement. Currently I have been trading lightly especially on the swing-trade side as this whipsawing volatility is making the risk-reward criteria that I employ unmanageable at times. We have several key-economic releases left this week upon which to trade as tomorrow we get data are due later this week. Tomorrow we get another look at the GDP-numbers 2nd revision; this could be a significant mover but I doubt it; unless the revisions are a shocker. , and we get the initial claims report as usual; Tomorrow is full of economic reports: · 8:30a.m. Initial Jobless Claims for last week expected: 2000 gain after last weeks drop of -2,000. · 8:30a.m. 2Q GDP, Preliminary revision expected numbers 4% vs the previous: reading of 3.4%. · 8:30a.m. 2Q Corporate Profits, Preliminary report previous: reading of 1.7%; this could be a market mover · 10:00a.m. July Help-Wanted Index previous reading of 26. · 11:00a.m. Kansas City Fed Mfg Index; the previous reading was 10; this could be a market mover Tomorrow, a revised estimate of second-quarter gross domestic product will be released. Though a backward-looking measure, but nevertheless it will give us a look at the strength of the economy as the credit-market problems started to erupt. Friday will be the biggie as we get the highly anticipated speech from the helicopter man as he is slated to deliver a potentially mega-market moving speech at the Fed's annual symposium at Jackson Hole, Wyo. Wall Street has been hitting their knees and praying, many are demanding and clamoring for fed-heads to cut their federal-funds rate, but policy makers have so far been quite reluctant to do so (and I believe they will remain so but we never know if in fact he will cower or not and give his wall-street buddies what they want) as they have instead elected to cut the discount rate and inject billions and billions of our-dollars in liquidity directly into the underlying foundations of the credit-financial markets instead. We need to we ever-watchful as Bernanke's remarks will be carefully parsed for any signs that the central bank has changed their bias and started to lean toward cutting the funds rate; if his remarks do not provide this necessary-insight toward a tonality-reversal the markets could start to slide down the slippery path to retest the relative lows! In his letter released today is without a doubt a reminder that Friday-speech is going to very-interesting and a possible market-mover than one might have previously thought; if the past-two-days volatility is any indication. Friday could be even more volatile as many traders will be taking an extended long-weekend and we will also be getting data pre-market at 0830 on personal income and personal spending and these reports included the fed-inflationary-indicator (PCE) personal consumption expenditure index, a closely watched measure of inflation for the Fed-heads….we will also get the Chicago PMI report at 10:00am and the Michigan Sentiment revision on consumer confidence a reading. A primary reason the Fed-heads haven't reduced rates is that they are/were concerned about inflationary pressures. Wall-Street is/has-been screaming & clamoring that a rate-cut would stave off a pending recession not-the-least make borrowing cheaper and possibly help equities and Americans refinance their ARM’s, but this action could also stoke-the-inflationary-fires. I believe that the Fed-heads will have to see multiple and concurrent signs that economic weakness is spreading beyond housing and the highly over-leveraged financial markets that are now paying the piper for their incessant greed-lecherous-behavior before the fed-heads can even consider reducing the fed-funds rate. That makes the upcoming reports CPI/PPI the upcoming jobs-report, retail-sales and consumer sentiment all the more important, as the Fed-heads will if they are inclined to cut use this data to support their decision, one-way-or-the-other! The street is overwhelmingly pricing in a guaranteed rate cut at the next fed-head meeting 9/18 or even sooner and they are waiting with baited breath for any hint at such a move this Friday, so remember any lack of a signal would be a market-negative!! This is worth your attention.....it got mine!!!! As many of you know I get a lot of information and technical data that crosses my desk, during the day, and I have a program that scans blogs and bulletin-boards for specific information of interest, that I sort-through at the end of the day…and I keep reading references to a mega-trade with a huge bearish-under-tone to it; so I have been doing my own research, and this is what I have discovered…. There is currently several billion dollars in option bets on a global basis with the speculative premise that we will see a major drop of 15-25% or greater in the next 21 days. These are not just your run of the mill speculative option-plays these are very specific bets of a magnitude never seen before (the only comparison is the huge bets taken prior to 911). And these types of what I call-mega-trades are escalating…for instance, just last week someone sold short “naked” 61,730 SPX 700 calls. Selling calls short and naked has the same result as buying puts but this is a tremendously dangerous play (and unlike buying puts will go basically undetected as this type of play will be often overlooked). Basically they are betting heavily that the market will tank and as such the call’s value will shrink and they can buy them back to cover at a significantly cheaper price. Now why is this so darn-dangerous, its simple if the SPX increase in value…the calls increase in value and who-ever took this trade would be significantly under-water on the play; whoever shorted these 61,730 deep in the money calls is taking a monstrous risk….but in the infamous words of Paul Harvey…now for the rest of the story. These bloody calls were trading at approximately $770 per share, $77,000 per contract; so you can see it’s out of the wheel-house of most hedge-funds and many large-trading-firms as shorting 61,730 contracts naked produced a whopping income of $4.75 billion in premium dollars; yes folks this one trade was almost a 5-billion-dollar single trade; not the type of chump change that I employ and I doubt this was not a very-calculated bet!! This transaction was coded as a spread trade so I went looking for the offsetting entry to determine what type of thought prompted this position; (Note: I find it extremely doubtful that anyone would want to go that deep in the money for any kind of spread trade.) I eventually did find the offsetting trade as it appeared at the SPX 1700 puts strike where 61,740 contracts were purchased long. If I have done the math right this trader/organization has roughly $3.7 billion in premiums sitting in their account and a massive short position worth a huge amount of money if the market tanks; now just ask your-self how many players are there that can risk and leverage this type of play (GS, BSC, LEH are a couple that come to mind)! I have been analyzing this for the past several days and it has made me nutty thinking about it. Now if this trade was only a blip, it could be easier to ignore or discount.... · But now this strategy gets even more complicated, as it is spreading. Another entity bought 245,000 September puts on the 2,800 strike on the DJ Eurostoxx 50 on 8/16; and they did so when the index was at/around 4,100 at the time; and as such this is a huge and large out of the money play and it would take mega negative event to drop that index down that much in the next couple of weeks. · Stranger yet; somebody else bought 10,250 puts on the Nikkei 225 Index at the 11,500 strike; while the Nikkei is currently trading around 16,000. Now those puts were a lot cheaper than the SPX put/call play but still a major bet that disaster will hit the index before their expiration on 9/14. · On Monday CNBC reported that investor or inventors had bought more than $500 million in out of the money put options on the S&P betting for a further decline of 5% to 10% before September expiration. · On Friday another trader sold 10,000 contracts on each of 12 strikes (120,000 contracts) of deep in the money SPY calls with an average price of $6500 each. That is $780 million in premium received and a huge risk if the market continues higher. The strikes were between $60-$95 when the SPY’s were trading between 146-147; these were very deep in the money calls…according to what I found open interest on the strikes before the trade averaged only 265 contracts each. This has left me scratching my head as I continue to ask myself why are there so many-mega trades going off so deep in the money unless someone knows something that I do not know, that would precipitate a very large move! Now of course there are multiple scenarios as to why such an investor/trader with such deep pockets would make such a monstrous directional bet. If it is directional and not a cash crunch spread due to margin calls or the need to raise quick cash they only a few scenarios make sense: · The most likely is that Israel with the assistance of Bush’s war-forces strikes Iran! The next scenario is that we get hit with a significant terror attack! · Some believe that Al Qaeda will take the seven-year anniversary of 9/11 to hit us again with another monster attack. 9/11 is on Tuesday again this year as it was in 2001; and many rumors have been circulating for months that Al Qaeda was targeting US cities for some sort of nuclear attack… · The last scenario has a major financial institution falling apart over the next two weeks. Just imagine if a Bear Stearns or Lehman Brothers were forced to file bankruptcy because of the subprime/slime contagion; the markets would react as if a bomb went off, especially in the financial sector; as who would trust any bank or brokerage firm there would be a mass exodus for the door. BSC and LEH both report earnings 9/13, and this could really make this scenario very interesting! There are other conjectures others but these are the biggies!!! Even the fed-heads announcing no-rate cutes could not impact the markets enough (at least I do not think so to drop them hard enough for this play to be very profitable). Just imagine the clout, and resources needed to execute such a position to be able to margin a $5 billion naked option trade the margin requirements would be extremely huge; I bet the market maker when s/he saw this order shit-themselves, as the leverage to delta-hedge-neutral the trade would be huge as well. Please consider and reflect upon the following as it relates to inflationary-pressures that are discounted and not officially counted….. PRICE Inflation (food) Joe F. Sanderson, Jr., chairman and CEO of Sanderson Farms, stated in their earnings report this past Tuesday that Market prices for all poultry products were higher during the quarter than the prices they experienced during the third quarter of last year, which allowed the Company offset the significantly higher feed grain prices were experienced during the quarter. According to Sanderson, as measured by a simple average of the Georgia dock price for whole chickens, prices were higher by approximately 16.9% in the Company's third fiscal quarter compared with the same period in 2006, and were higher by 8.6% for the first nine months of the fiscal year compared with the year-earlier period. Boneless breast meat prices during the quarter increased 24.0% than the prior-year period, and averaged 28.3% higher for the first nine months of the year compared with the prior year. Jumbo wing prices averaged $1.09 per pound through the first nine months of the fiscal year, up 41.6% from the average of $0.77 per pound for the first nine months of fiscal 2006. The average market price for bulk leg quarters increased approximately 49.5% for the quarter and 58.1% for the nine-month period in fiscal 2007 compared with the same periods last year. They saw that prices for corn and soybean meal, their primary feed ingredients, increased 68.4% and 12.7%, respectively, compared with the third quarter a year ago. From our recent PPI report: Our pro forma reporting government reported that the food and beverages index rose a mere 0.3% in July; the index for food (home consumption) which increased 0.6% in June, rose 0.1% in July. Another sharp increase in the index for dairy products was nearly offset by declines in the indexes for fruits and vegetables, for meats, poultry, fish, and eggs, and for nonalcoholic beverages (** this data is bogus in my opinion as all other anecdotal data shows price increases!). Nevertheless the index for dairy products increased 2.7%, following a 3.2% increase in June. Milk prices rose 6.4% and have risen 16.9% since the beginning of the year. The index for fruits and vegetables declined for the third consecutive month down 1.1% in July (I want to know where they shop!). The indexes for fresh fruits and for fresh vegetables declined 2.3% and 0.5%, respectively, while the index for processed fruits and vegetables rose 0.2%. The index for meats, poultry, fish, and eggs decreased 0.40%. The indexes for pork and for beef declined 0.9% and 0.7%, respectively, while poultry prices rose 0.3 percent. The index for nonalcoholic beverages fell 0.1 %. The indexes for cereal and bakery products and for other food at home increased 0.1 and 0.3%, respectively, while the other 2-components of the food and beverages index food away from home and alcoholic beverages increased 0.5 and 0.1%, respectively. At a minimum we have seen that retail food prices have increased by 4.9-5.5% since January, making 2007 the make this year the priciest year for food since 1990; not a very-pretty picture for consumers (despite the government pro forma reports). · According to figures from the US Department of Agriculture, the prices of foods containing high amounts of protein have increased the most. The cost of beef has increased by 6.4%; while poultry is up 7.8% but both are trumped by milk, which costs 9.5% more than it did at the beginning of the year; and this is the data being supplied by our government so who sees inflation here; of course food and energy do not count in the fed-heads equation as they do not have to worry about eating. Today……..Stocks rebounded sharply today, as traders/investors, grew very optimistic about the chances for a large 50-basis point rate cut by the fed-heads (They are recklessly hoping/praying for the fed-heads to cut rates in an environment that is wrought with inflation all around us, I believe they will be sorely disappointed) nevertheless the market participants today reversed their selling bias yesterday into one of a euphoric buying mode today as they sought bargains after the previous session's significant-selling-spree. It’s been a wild rollercoaster ride this week folks and this type of whipsawing action is very-unhealthy for the market in my opinion! Technology stocks led-the way higher today as investors sought what they believed to be a safe harbor (I believe they are mistaken) amid the credit-debt market tropical storm; they will only grow in my opinion until it reaches a mega-force-five hurricane. Also a positive catalysts was the release of a letter (he received it Monday) from Fed-head helicopter Bernanke to Senator Schumer, in which Bernanke reiterated that policy makers are "prepared to act as needed" if financial-market turmoil begins to harm the broader economy. I was asked today why are Technology stocks, many with bloated valuations; its simple as the highly touted premise making the rounds on bubblevision and the other-hyping environments is that technology stocks are the least vulnerable to the credit-market tightening; this in my opinion is a huge misnomer in my opinion, as some will be immune but most will not be! We all know that recently credit markets have tightened significantly during the past 6-8 weeks amid contagions/concerns in the subprime/Alt-A mortgage sector and a general reassessment of the overleveraged risk levels priced into these euphoric the markets, and as such investors have been seeking safe places, or so they hope to park their money. · The Dow dropped 280 points yesterday, and the bulls were crying and sulking, then just as the bears thought they were in control again the markets smacked them as well today as the Dow rallied up 247+ points today; this has been a wild darn ride to say the least as the Dow almost regained all of yesterdays mega losses today, for the week, after this volatile ride the Dow is down 89.58-points on the week and after 3-days of whipsaw trading the over all tonality of the market has left most befuddled! · The Nasdog dropped 61 points yesterday, and the bulls were running around like the sky was falling, while the bears were licking their chops , as they thought the bulls were hamburger then today we did a 180-degree turn as the bears were sent to their caves after being bloodied as the Nasdog took back all of yesterdays losses and a tad more a wild 125-point swing as it closed up 62.50+ points today; this has been a wild darn ride to say the least as the Nasdog has churned quite a bit of ground and after 2+ days of volatile trading the Nasdog is down 13.53-points on the week! · The SPX like the other major indexes has been on a wild ride as well as it dropped 34.43 points or 2.4% yesterday, and the bulls were shaking in their boots then just as the bears thought they were in complete control again the markets proved them wrong as well as today the SPX rallied up 31.40 points today regaining 95% of yesterdays losses, what a wild-whipsawing ride….the SPX like the other majors is still trading in the red for the week by 15.61-point and after 3-days of trading many-traders are plainly scratching their heads in disbelief!! Crude rose a whopping 2.5%, or $1.78, to close at $73.51 a barrel after reaching a high of $73.55; the October contract, which hasn't closed at a level this high since 8/3, found support from a bigger-than-expected decline in crude supplies, as well as a fourth-weekly drop in gasoline inventories; meanwhile natural gas fell 2.9% to end at $5.43 per million British thermal units…its worth noting that October natural gas became the lead-month at the close; and it finished 3.1% lower at $5.581….. Bonds ended mixed today, with prices coming down on the longer-dated instruments, while yields were sharply lower at the shorter end of the curve today. The 10-year Treasury note ended down 9/32 at 101 20/32, with a yield of 4.553%. The 30-year long bond was down 19/32 at 101 26/32 with a yield of 4.879%. Meanwhile, the yield on the 3-month bill dropped 34 basis points to a yield of 3.987%....... The Treasury Department awarded $18 billion of new two-year notes in its auction today at 4.115%. The auction results were very strong as the bid-to-cover which measures bids received to bids tendered of 3.97, nearly double the 2.59 level seen in July and 2.80 achieved in May this was the highest level on record going back to April 1991. The indirect bid, a carefully watched category that includes foreign buyers, was 32.5% versus 28.5% last month; slightly stronger. Rating agency Moody's said today that the leveraged loan commitments of the major US investment banks do not have negative rating implications at this time. "Firms have sufficient liquidity to fund their commitments, while continuing to maintain strong liquidity profiles and the earnings impact of marking down the commitments to reflect today's wider credit spreads should be manageable," the agency said in a report published today. They that the firms, GS, MS, MER, LEH, BSC have sufficient earnings strength and diversification to be able to absorb any necessary mark-downs on their loan pipelines while still generating positive, albeit depressed, earnings and a respectable level of profitability. I do not agree at all: A growing contagion…….top banks are on the hook for about $300-340 billion in bridge loans….is a very-disturbing situation as I see as many private equity firms (that have announced M&A and LBO’s) may start actually drawing down on these bridge loans to meet deal commitments. Of course, most never intended for bridge loans to be actually used; they were sort of an insurance policy; they were there as a last resort type of fall-back buffer. For banks, it was good customer service, a way to grease the wheels of future business; but for many they never wanted these loans on their books; and now they are being triggered to finance buyouts. Barron's recently indicated examples of how the banks made themselves putty in the hands of their sponsors. They stated that many banks agreed to provide equity on top of debt. Covenants called for fewer maintenance tests and allowed the company to pay dividends to shareholders. The issuer could raise new debt that ranked higher than the LBO debt. And long-term assets could be sold to buy short-term assets. As if in anticipation of the current crisis, some sponsors inserted language that allows banks to raise interest rates by just a quarter point in the face of market turbulence. The article also notes that banks might offer to pay break-up fees to exit their crappy and often mismanaged commitments; and of course I would expect the sponsor to balk, and here comes the trial lawyers. Not-a surprise; (at least it should not have been ) was that the weakening economic conditions and volatility in financial markets led to a sharp decline in consumer confidence in August, according to the release from the Conference Board yesterday. Their consumer confidence index fell to 105.0 in August from a revised 111.9 in July, which was a cyclical high; this was in line with expectations…. Ken Goldstein, the Conference Board analysts stated that this number is still above 100; as if we were about to go into recession, this number would be a good 30 to 40 points lower. It’s worth nothing that this is the lowest level of confidence since August of 2006 and the biggest drop since the aftermath of Hurricane Katrina in September of 2005. As I had said the decline in the number wasn't as large as expected; as economists were forecasting the index to decrease to 103-104 from the initial July reading of 112.6. The report did show that despite unfavorable stock market conditions and in spite of all the recent volatile turmoil, consumers still remain confident…the index (unlike what was regurgitated on CNBC), as those talking their book indicated that these were recessionary numbers; is nowhere close to a recession looming right around the corner from these numbers (hence not a fed-cut-friendly release). · In August, the present situation index fell to 130.3 from 138.3. This index has been generally a good barometer of near-term spending plans. · The number of consumers saying conditions are "good" dropped to 26.4% in August from 28.3% in July. Those claiming conditions are "bad" increased to 16.3% from 14.5%. · The assessment of the labor market was less favorable than last month. Those saying jobs are "hard to get" rose to 19.7% from 18.7% in July. · The expectations index fell to 88.2 in August from 94.4 in July. Mortgage Applications Fall The number of mortgage applications filed last week slipped 4.0% from the previous week, while the average interest rate on one-year adjustable-rate mortgages increased, according to the Mortgage Bankers Association. Also on a seasonally adjusted basis, applications for mortgages to purchase homes were down 4.0% on a week-to-week basis, according to the group's latest survey; as applications for loans to refinance existing mortgages were down 4.2% during the past week. Now for the good-news when compared with the same week in 2006, the volume of applications rose an unadjusted 10.6%, the MBA's data showed. Refinancing activity increased last week, accounting for 40.4% of all mortgage applications, compared with 39.9% the week before. While we saw that adjustable-rate mortgages decreased to 15.0% last week, down from 18.6%. While interest rates on fixed-rate loans in the survey decreased, the rate on one-year ARMs increased significantly, climbing to 6.51% from 5.84% the previous week. This is a major contagion for ARM-Loan holders A morally disturbing report, also a socioeconomic contagion was released yesterday: It indicated that fewer Americans were in poverty in 2006, but significantly more lacked health-insurance coverage, according to the pro forma reporting Census Bureau in their annual snapshot of American income trends (what they failed to state was that they once again changed the matrix for the calculation qualification for poverty!) Nevertheless the report-indicated that the poverty rate fell for the second year in a row to 12.3%, the lowest rate since 2002; as the number of Americans living under the poverty line fell by about half a million to just 36.5 million, including 12.8 million children…and the white-house applauded these accomplishments; personally I find them a total disgrace, for the most powerful and financial-rich country in the world to boast of such numbers. The number of Americans covered by private health insurance rose by about 500,000 to 201.8 million, but the number of Americans without any health insurance increased even more, climbing by a staggering 2.2 million to 47 million, or 15.8% of the total population, and this is a trend that need to be stopped and reversed very quickly as those with-out insurance will act as a huge drag on our economy. The numbers reported edged out the uninsured high-rate in the past 20 years; since our government started tracking health insurance coverage. I was extremely disheartened to learn that the number of uninsured children increased by a whopping 611,000 in 2006 to 8.7 million or 11.7% of the population under the age of 18. For those between 18 and 25, the uninsured rate was a staggering 26.9%. the data showed that children who are uninsured are more than three times less likely to have seen a doctor in the last year and have a higher incidence of preventable disease than insured children," said Georges Benjamin, executive director of the American Public Health Association. Yesterdays sobering data on the rising number of uninsured children should prompt this darn-responsive less bunch of political idiots especially the president to rethink their positions on children's health insurance; and get up off of their lazy asses and provide for these children (of course this is my opinion) sorry for the ranting. But it’s worth noting that President Bush has threatened to veto legislation that would extend the State Children's Health Insurance Program, and the administration has announced new rules that would tighten up eligibility for the current program participants. The report indicated that for blacks, the uninsured rate rose to a record 20.5%; and for Hispanics it increased to a record 34.1%. The percentage of Americans covered by private insurance - 67.9% was the lowest on record and this was also disturbing as according to the current administration we are living in the best-of-times! The percentage covered by government insurance, such as Medicare, Medicaid or military health care, fell also. With inflation increasing all-around us ….We saw that median household income showed minor gains for the second straight year, rising a mere 0.7% in 2006 to $48,200. However, real median household incomes are still 2.1% below the peak reached in 1999; something that most do not want the public to know, as the illusion that Americans are living in a great economic expansion needs to remain in tact as long as possible! A disturbing data point was that earnings from working full-time fell from the year before (not very-consumer-friendly now is it). The report indicated that real earnings of full-time working men fell 1.1% to $42,261, while the real earnings of full-time working women dropped 1.2% to $32,515. Worse yet inflation-adjusted earnings for men who work full-time have barely budged in the past 30 years; while women’s real earnings are up about 27% in the past 30 years a tightening of the wage gap, but a huge lag for men! Income inequality is still front and center as the top 18% of households (those with incomes over $133,000) captured 50.5% of all income, the highest level ever-recorded. The lowest 20% of households (those making less than $20,035) earned a mere 3.4% of all income. Now these are pro forma numbers as I believe the real numbers would paint an even more dismal picture, notwithstanding this these newly released government figures are the latest in a long string of anecdotal evidence that shows that the economic growth of the past few years has been extremely uneven, with the gains concentrated among the highest-income Americans…as the rich-get-richer and the poor-get-poorer. From my vantage point way too many low and middle-income American families are not sharing in the gains of this so-called great American-boom. And of course these figures are inconsistent with claims from the Bush administration that their policies have produced an outstanding economic environment for all Americans. The markets reacted very-negatively on Tuesday!!!!! The markets took no solace when they discovered from the minutes of the last meeting that Federal Reserve policymakers discussed the possible need for "a policy response" if financial market turmoil continued. The FOMC members agreed that a further deterioration in financial conditions "could not be ruled out and, to the extent such a development could have an adverse effect on growth prospects, might require a policy response." And as we are all aware the financial market conditions have in fact worsen, and they were distinctly different just 1 days later, when the FOMC issued another statement, saying that worsening financial conditions had increased the downside risks to growth "appreciably." At the same time, the Fed-heads cut their little-used discount rate by half a percentage point to 5.75%; see release. But prior to the melt-down so to speak, at 8/7 meeting, the fed-head members of the FOMC had only agreed to keep a close eye on financial market conditions. They said inflation still remained the most significant policy concern and unanimously voted to hold the federal funds rate target steady at 5.25% for the ninth straight meeting. "FOMC members expected a return to more normal market conditions, but recognized that the process likely would take some time, particularly in markets related to subprime mortgages," the minutes reflected. We also saw that during their meeting, the Fed-head discussed downside risks to the growth outlook from the recent market turmoil. They indicated that the adverse developments in the mortgage markets "suggested that the adjustment in the housing sector could well prove to be both deeper and more prolonged than had seemed likely earlier this year." And as we saw after two-recent negative housing reports that the markets took this as a huge negative signal, and began-to bleed-off after the release, and never-did regain any solid footing. The minutes were also market unfriendly as they depicted the fed-head-premise as there was no sign of disagreement among policymakers that inflation remained their number one threat (not conducive for a rate-cut, also why the markets were south, and soured quickly) . A lower dollar and poor productivity data also contributed to upside risks to inflation, the minutes reflected; as the…."data on core inflation received during the inter-meeting period were favorable, but FOMC members believed that the readings for the past few months likely had been damped by transitory factors and did not provide reliable evidence that the recent level would be sustained." Fed-heads said that the strong labor market, growth in income and the export sector would offset the weak housing market and lead to moderate growth in coming months (again not what the bulls wanted to hear!). Consumer and business spending were expected to continue at a moderate pace; although there was risk that business spending could be trimmed by the turmoil in the corporate credit markets. What was interesting and noteworthy was that the Fed-head-staff did trim their growth outlook for the second half of 2007 and 2008 as a result, in part, of the financial market turmoil. Please remember that these minutes did not include any discussion among Fed-heads prior to the 8/17 statement. By cutting the discount rate on 8/17 instead of the federal funds rate, the Fed-heads signaled that they believe problems are mainly confined to the financial system, and are not yet impacting the broader economy (this old paradigm may be quickly changing though). The cut in the discount rate provided funds to banks, but does little to change consumer and commercial interest rates, as a cut in the federal funds rate would stimulate hopefully. PLEASE TAKE-NOTE: The hair on the back-of my neck is standing up folks and I call it my Deja Vu indicator: and this type of situation/scenario that could play out could be very-dangerous for short-sellers, as I have seen/experienced a similar potential nasty trend before that could develop from this relief rally and I want to share it with you **HENCE my caution of not yet shorting with vigor** ….currently about 55% of the players are expecting a retest of the recent relative lows; to ensure a bottom is really in, hence we have about 30-35% of these fund managers hording some cash to put back to work on a retest! We have another 20-30% looking to short-into-the rallies to capture short-profits on the way back down. This type of market dynamic could easily in a light-volume environment (after a massive rocket ride relief-rally) be manipulated to screw both of these groups; as the other section of the fund-community those with deep pockets could continue their gap-crap-then paint the tape throughout the next several weeks thus forcing bears especially new-bear-cubs that shorted at each point of OHR get their claws clipped as the markets (despite negative contagions and deteriorating fundamentals and economic data) churn higher, they are partly responsible as each time they cover they provide additional market buying-fuel, those in the pact that were waiting for the pull-back to enter into long positions; start to panic as they see the markets leaving them behind (they are greedy remember their bonuses are at stake) then they start to chase the market higher, while so many others are left scratching heads! SO-PLEASE-Trade-Cautiously This stock market rally has really surprised me and not only because of its massive magnitude; but that it is also once again rewarding the riskier corners of the market, where you might imagine that traders and investors would have little attraction/ interest following the huge-sell-off during the past few weeks (the crap-high-beta-speculation stocks have pole-vaulted up significantly). Since last week, most indexes around the world have posted extremely strong relief rallies. This type of move in the not very-healthy at all as investors were scooping up the most speculative and hardest-hit ignored stocks, in effect rebuilding their portfolios to reflect a new investing environment. What is extremely amazing is that traders/investors appear to be running-head-long right smack-dab back into most of the same investments that were dumped heavily in the past several weeks. This is surprising, given that there is a widespread view among market watchers that the global credit crunch could have a profound impact on borrowing costs, leveraged buyouts and economic growth, all of which could make risky bets unrewarding for investors. In fact, the riskier the investment, the better it is performing. Now please, be very cautious as I am waving a major-red-warning flag as I have seen this type of behavior several times before the most notable was the initial sell-off during the technology meltdown in 2000; then the favorite bubble-tech stocks would plummet only to be lifted temporarily during brief rallies when investors saw them as proverbial discounted diamonds; it took them several times of getting their butts handed to them as they eventually lost their rose-colored glasses as saw that the diamonds were actually pieces of coal! During that period I witnessed many dead-cat bounces (kitties have nine lives), where rallies merely feed into smart-money players who would reduce holding significantly higher by selling-into-perceived strength (by the way these are the same turd-heads who were incessantly talking up their books on the various bubblevision media channels and in the press stating how these so called dips were buying opportunities of a like time, and they surely sucked mom & pop investors into believing the hype) as each sell-off was meet with giddy-euphoric dip buyers until they finally got the message; that the cycle and so-called internet-technology boom/bubble was over. This current relief rally (more likely a fed-head induced mega-short-squeeze then build rally) is being built in a house of cards-like-foundation; as so many hypsters are being pranced about guaranteeing all who will listen that the fed-heads will cut-rates by 25-50 basis points (most are professing a 50-basis point rate cut). It was just a little over a month ago when the Fed left rates at 5.25%, noting in their statement that the U.S. economy looked somewhat strong while inflation was still a significant risk. Now, so many so called market experts (those being pranced about on the various bubblevision channels) believe the Fed must reverse its views (with out any real supporting data other than a market-sell-off) to reflect the financial uncertainty swirling around the globe, which they believe should lead to rate cuts of as much as 75-100 basis points (0.75-1.00% points) within the next couple of months. This they tout will reduce borrowing costs and spur economic growth (In my opinion they are praying/hoping that that the fed-heads will bail out wall-street with these rates cuts as they are really intended to bail out all of those extremely overleveraged “hedge” funds that placed bets with huge leverage, that are now coming unraveled!). I am hoping and praying that the fed-heads get a dose of reality and a huge measure of common-sense as they need to realize that to do as the market wants will surely (due to excessive greed) drive investors and speculators back to the same risky-instruments that got them into this current contagionous predicament, where easy credit and free flowing money encouraged way too much risk taking and overleveraging. Now for the bad news that all my bullish friends need to come to grips with and heed….these highly hyped fed-head rate cuts are significantly baked into this ramp-o-rama relief-rally already (I believe overly priced in). If the Fed-heads cower and cut rates 25-basis points and merely meet the minimum expectations, investors will have very little to cheer about and the days of extreme volatility could rightly ensue; conversely if the Fed-heads do nothing and remain on the sidelines, stocks could plunge off of the silly-expectation “cliff” sharply. Worse yet in my opinion is that the FOMC gives the markets a 50-basis point cut…and we start to see the markets begin a long-ugly and often panic sell-off event….in any of these scenarios it’s bound to be a wild rollercoaster ride. Please note that these instruments provide some extra-leverage when trading the various sectors You could also look at utilizing the SHORT-2x-leveraged Pro-Shares
You could also look at utilizing the LONG-2x-leveraged Pro-Shares
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