September 2008


We have an interesting hi/lo divergence. As technical signals go, I happen to like divergences the most. I have never actually completed any statistical analysis of the robustness of a divergence signal, so it’s all a bit suck-it-and-see stuff.

Well democracy is alive and well. Certainly a wake-up call to Wall St. Congratulations again to “Mish” who amongst others can claim responsibility for the victory of the “little guy.”

The “market” on the other hand seemed a tad embarrassed.

Left-Right Combo By Opponents Put Plan on the Ropes.

The defeat in Congress of a proposed $700 billion economic-rescue package followed an intense outpouring of voter anger, fanned by politicians, interest groups and media on the left and right, that overwhelmed calls from the president and top lawmakers to pass the deal.

Voters opposed to the deal deluged Capitol Hill with letters, emails, phone calls and faxes over the past week. Some 23,000 signatures were collected over two days by Sen. Bernie Sanders, a Vermont Independent, calling for a five-year, 10% surtax on the wealthiest Americans to help fund the bailout. Some prominent conservatives and bloggers criticized the deal as an unwarranted intervention in the free market.

On his Web site in recent days, Rep. Issa has posted letters and emails from some of the more than 2,000 constituents he said had contacted him about the proposal, including one from “Greg” in Temecula, Calif., who called the proposal “poorly thought out and rushed to the floor.”

“I am 45 and a husband and father of 4. I am outraged and appalled at the arrogance of my President and the lack of regard for what is right,” the message said.

Among prominent conservatives who publicly assailed the administration’s proposal in recent days was former Republican House Speaker Newt Gingrich. But Mr. Gingrich said in a statement posted on his Web site Monday that he would “reluctantly and sadly” vote for the proposal if he were still in office.

“This bill is not the best proposal for solving the housing crisis. It is not even a good proposal for solving the crisis,” the statement said. “However, it is the only proposal Secretary [Henry] Paulson would support, and his support was essential in this setting.”

Mr. Gingrich then capped his tepid endorsement with a call for Mr. Paulson’s resignation, saying that “having a former chairman of Goldman Sachs preside over disbursing hundreds of billions of dollars to Wall Street is a terrible concept and inevitably will lead to crony capitalism and the appearance of — if not the actual existence of — corruption.”

The proposal’s defeat was also cheered on by a number of blogs that in recent days have posted links to lawmakers’ telephone and fax numbers and urged citizens to oppose the plan. They included stopthehousingbailout.com, a Web site organized by a 37-year-old Los Angeles attorney named Morgan Ward Doran, and globaleconomicanalysis.blogspot.com, run by Mike Shedlock, an investment adviser at SitkaPacific Capital Management. Mr. Shedlock said in an interview Monday that his site had received 1.7 million page hits this month, which he said was half a million more than normal.

On his Web site, Mr. Shedlock has derided the proposed rescue as “a rush to judgment” that would benefit “high-flying financiers who chased big profits through reckless investments,” and as “a complete waste of $700 billion.”

“A number of people emailed me to say this was the first time that they’ve written, faxed or phoned their member of Congress,” said Mr. Shedlock, a 55-year-old resident of Prairie Grove, Ill. “Were going to phone and fax every member of Congress who voted against this to thank them. … Everyone who voted to pass this bill, we’re going to actively organize to oust them.”

Well Congress threw cold water all over that. On, off, on again, now off. The MM in the Options have pulled all their Bids, most are coming back now, looks a little chaotic at the moment.

This will take some time to settle down, obviously the Banks are going to be back in play, at least for the moment.

From Bob Pisani,

“Not a great time to make an ideological point.”

Classic!

I showed the DJIA @ [-660 pts] just after 1.30pm
Looking a bit fragile, I guess the vote results are coming public or something.

Here we go…

1:45 pm : The House of Represenatives falied to pass the Emergency Economic Stabilization Act., getting 202 votes compared to the 218 needed. There are eight votes left to be counted.

The ploy of choosing a female running mate for the Vice-Presidency was somewhat transparent, however it may have worked to a degree to offset the potential “first black” President of the US. The novelty factor isn’t going to help, when you look for a candidate, it’s best to try and avoid the village idiot.

COURIC: Why isn’t it better, Governor Palin, to spend $700 billion helping middle-class families who are struggling with health care, housing, gas and groceries; allow them to spend more and put more money into the economy instead of helping these big financial institutions that played a role in creating this mess?

Governor SARAH PALIN (Republican, Vice Presidential Nominee): That’s why I say I, like every American I’m speaking with, were ill about this position that we have been put in where it is the taxpayers looking to bail out. But ultimately, what the bailout does is help those who are concerned about the health care reform that is needed to help shore up our economy, helping the–it’s got to be all about job creation, too, shoring up our economy and putting it back on the right track. So health care reform and reducing taxes and reining in spending has got to accompany tax reductions and tax relief for Americans. And trade, we’ve got to see trade as opportunity not as a competitive, scary thing. But one in five jobs being created in the trade sector today, we’ve got to look at that as more opportunity. All those things under the umbrella of job creation. This bailout is a part of that.

Lord have mercy!

Flip-Flop is running for cover in his comments section trying to bs his way out of a mini-trading debacle. He “claims” a 100,000 share position in Citi, but his Buy/Sell records do not confirm this claim. True, in initial comments made in a post, he did claim 100,000 shares, but not in his “official” portfoilio tracking. Why?

Thursday, September 18th, 2008
I bought 40,000 Citigroup Inc. (C: 20.77 +3.08%) @ $15.36.

I sold 75,000 Citigroup Inc. (C: 20.78 +3.13%) @ $21.25. And, I sold 50,000 Western Refining, Inc. (WNR: 10.50 -9.72%) @ $12.65.

You start to see the difficulty in tracking all of these fantasy transactions. Then you also need to keep track of modified claims and positions in the “comments section” where egregious confabulations take root like toxic mushrooms.

Motivation sir?

Indeed, he wants to sell you the “iBC PPT Stock Tool” whatever that actually is.

The Bond market, specifically the Treasury market hasn’t received much attention in the blogosphere to date. There are plenty of dangers lurking at the long end of the curve. Most of the attention has been focused at the short end, due to the abandonment of risk seeking currently.

We have in no particular order, the following risks;

*An expanding Treasury/Fed Balance Sheet.
*An increase in supply of US Treasury paper [any increase in demand?]
*Historically low Yields

Long-end Treasury yields are currently very low because they’ve gone from pricing in credit risk to pricing in liquidity risk and now to pricing in insolvency risk, all of which are likely to be cyclical, rather than secular, phenomena. And assuming the debate over inflation risks versus deflation will end in a draw, yields can rise by an unbounded amount but can only fall to 0%. The asymmetry of the situation is stunning.

The question therefore becomes, how likely inflation, or, how willing will the rest of the world be to finance the bailout of the US financial system and additional deficit spending? Japan, when faced with a similar requirement to bailout their Banks and economy, at least had the benefit of being a surplus nation, thus could self-finance. The US being the worlds largest debtor must attract foreign capital or print currency. Printing currency is highly inflationary.

The U.S. has a strong incentive to inflate its way out of its debt problems, and that is the primary reason fixed income assets could depreciate. We know that the US cannot pay their debtors back in current dollars, so they will likely attempt to pay them back in cheaper, or deeply discounted, dollars. While the government cannot lose because it can simply print more money to meet its obligations, the holders of the government’s debt can and will likely lose.

From the WSJ;

The U.S. is turning to foreign governments and other overseas investors to buy a good chunk of what could total $700 billion in Treasury debt expected to finance the bailout. Foreign investors also are needed to shore up the depleted capital of the nation’s financial institutions, seen in the plan by Japan’s Mitsubishi UFJ Financial Group to buy a large stake in Morgan Stanley, which is weighed down by bad debt and market distrust.

This is a bittersweet moment in U.S. economic history. In one sense, the growing importance of foreign cash represents the triumph of a half-century of U.S. proselytizing for a global financial system in which money flows from those who have it to those who need it. But it is also an unmistakable sign of U.S. economic decline. The global financial system the U.S. designed had anticipated that American banks and financial firms would be the world’s financial lifeguards; now those institutions are like exhausted swimmers a stroke or two away from drowning.

It is time to start planning for an inflationary environment. This means looking elsewhere for safety and potential returns. Time to get ahead of the curve.

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