Friday’s Trading?

I’m not bothering to do any analysis today because who knows what kind of market we will have tomorrow. Will the inverse ETF’s even be trading? How will put options behave if market makers can’t hedge their risk by shorting? Etcetera.

I am happy to report that I was all-in and leveraged short before the Crash of ’08, and I got out at an ideal time: Tuesday morning’s gap down. I had excellent profits, and got out before they changed the rules. Now let’s see if my profits evaporate out of the computers of the financial system.

Nice going Washington! Nice going New York! You crashed the whole thing!

Well, it could be worse. You could wake up with 10 Russian warships on your doorstep just like the Israelis.

I have noticed a lot talking heads in the media, including President Bush and Steve Leisman, using the phrases “free world” and “free capitalist world” recently. Have the geniuses in Washington who just wrecked our economy begun a subliminal program to brainwash us for a coming war with Russia?

Starting wars is a traditional method for the USA to end economic recessions and depressions after all.

I must say that this enthusiasm to fight nuclear-armed countries like Pakistan and Russia is a bit alarming.

So, lets hope that our fearless leaders have sated their appetites for destruction by destroying the economy.

Do you think Dick Fuld is deriving sick pleasure from taking the whole system down with him? There were actually fools in Korea who wanted to buy his sinking ship!

Jim Cramer Leads Short Attack on Stock Market

When Cramer Attacks
The futures have been slightly positive for eight hours after the close as I write this. So now the question is, will Jim Cramer once again lead the short attack as he did Wednesday morning? Here is what he wrote at 8:06am on Wednesday morning:

“The shorts must make a stand here and force down the futures to create a climate of fear. It must happen, this has been way too big a gravy train and the fear must be sewn. That’s what hedge funds do, for heaven’s sake. Europe’s market seems more realistic.”

If you look at a minute chart of the futures from Wednesday morning, you will see that the wave of selling began less than five minutes later. A lot of hedge funds follow Cramer…

Watch the comments for updates throughout the day.

Bill “Bailout” Gross

A New Economic Indicator

We have a new economic indicator. When you see Bill Gross on CNBC demanding this-or-that bailout to save his ass, go long. The indicator is 2-for-2 so far. The Treasury department bailed Gross out of his Fan-Fred exposure, and the Fed just bailed him out of his AIG CDS positions. Both bailouts came almost immediately after he appeared on CNBC with his suggestions – or instead of “suggestions” maybe I should say “announcements of new federal policy.”

Watch the comments for updates throughout the day.

TRIN Flashes Overbought

The TRIN-dicator
Believe it or not, my TRIN-dicator is still flashing an overbought condition. While the TRINQ over on the NASDAQ was solidly in selling-pressure country, the TRIN stayed under 1.0 for almost the entire day Monday. And that is very odd because breadth was very bad. I’m not sure what to make of it. Perhaps a lot of stocks were being sold on light-volume, and a small number of other stocks were being bought on very heavy volume.

If you have ideas, please post. It would be interesting to know which stocks were being bought on heavy volume, if that was in fact happening.

On CNBC Monday morning, Jim Cramer raved about the low TRIN, saying it was a fantastic buy signal. I must say that I am appalled by his ignorance. Every trader who uses the TRIN knows that single-day readings mean nothing and that you have to use a moving average. In fact, the guy who invented the TRIN writes for Cramer’s website! How can Cramer have traded for decades and not know how to read the TRIN?

The Never-Ending Market
This watching the futures and overseas markets all night is really wearing me out. So, I don’t have a good in-depth analysis for Tuesday, but I agree with David, we are hitting a lot of extreme readings and a selling climax may be near.

As I logoff at 1:00am EST, the futures are making a bounce, though you need a microscope to see it.

The Next Bear-Market Rally
The March-to-May bear-market rally was very long, impressive, and sucked a lot of people in. The July-to-August bear-market rally – not so much. Though some sectors were moonshots. If we do get a selling climax soon, I’m thinking that the next bear-market rally might be even less impressive than the last one…

XLF Options
Can somebody update us on that gigantic slug of XLF options that we were discussing a couple of weeks ago? Maybe it will help us see where the big options-trading hedge funds will attempt to pin the market this week. Not that a global financial meltdown is the ideal time to attempt to bend the market to your will…

Watch the comments for updates throughout the day.

Goodbye July

Here is the chart that I posted in Kiss July Goodbye on September 11th:

Here is what it looks like now:

Notice how SPY tagged my upper purple line on Friday, and then the lower one on Monday. Uncanny, no?

Keep an eye out for these “broadening” patterns. I haven’t noticed one on an intra-day chart yet, but they must be there. They signal wild stuff coming soon.

As Yerk correctly pointed out, Thursday’s candle (the long green one, third from the right on the lower chart) was indeed a bullish engulfing candle. And that was the hint that SPY would tag the upper purple line the next day. However, that bullish indicator then produced a bearish hanging man pattern. It’s not quite so apparent on the SPY chart that it was a hanging man, but if you looked at some other charts like the Dow and S&P futures, it was more clear.

So, that bullish engulfing candle fulfilled its destiny by setting up an overbought condition, and the plunge to the lower purple line.

The moral of the story is that once you have identified a short-term chart pattern, you have to immediately begin wondering what it will morph into next because it never stops morphing.

It’s very odd that the market follows simple geometric patterns so closely, but it has been doing so for hundreds of years. You would think that with all the artificial intelligence systems in there trading with us, that the patterns would be more weird. But so far the AI systems think a lot like we humans do.

Hurricane Fuld Lashes NYC

Hurricane Fuld, a.k.a Hurricane Dick, strengthened to category 5 and made landfall in New York City Saturday. Barclay’s is leading a European relief effort, but hopes of avoiding widespread damage are fading.

The scenario:

1) Bernanke and Paulson are up to their eyeballs in bad mortgage paper and don’t want any more. After the Bear Stearns and Fan-Fred deals, they are saying: “no mas.”

2) So, a Long Term Capital type of rescue is being attempted, but banks are balking at buying a slice each of Lehman’s toxic waste. The would-be rescuing banks are weak themselves, and adding to their toxic waste stockpiles would weaken them further.

3) There are banks that want to buy the good parts of Lehman, but the bids don’t seem to be high enough to keep the rest of Lehman from going down.

4) So, in addition to the rescue attempt, Lehman is preparing a bankruptcy filing, and CDS traders have been called into their offices to try and unwind their business with Lehman.

5) As the simultaneous plans of rescue, bankruptcy, and liquidation are advancing, everybody seems to be waiting for the Feds to blink and buy Lehman’s toxic waste.

Will Bernanke/Paulson blink? We will see, however the Fed has been discussing the topic of “liquidating a large i-bank” for several weeks now. And by “i-bank” we know that they meant “Lehman”. Maybe it has all been a bluff to force Wall Street to do the bailout itself. But as we are seeing, if Bernanke/Paulson don’t draw the bailout line somewhere, there will be no end to it.

I think that the Fed is prepared to liquidate Lehman.

Overbought Again

The market has hit an extreme overbought reading based on the 3-day moving average of the TRIN. To see a detailed discussion of this indicator, see “Like WAAAY Overbought.” I posted that on Friday, August 22nd. On the following Monday, SPY plunged from $129.65 to $127.02. Not a bad call, huh?

On the chart below, the red line at the top is the 3-day moving average of the TRIN. The blue arrow points to August 22nd when it hit 0.79. Directly below the blue arrow, you see the red arrow pointing to the peak on the SPY chart, and then the plunge the next day. (click chart to enlarge):

At the far right, the purple arrow points to the current position of the TRIN average, which is now at 0.67, indicating a much more overbought reading than at the blue arrow. So, a sharp drop for SPY can be expected any minute now.

In my first post on the topic on August 22nd (linked above), I wrote:

“it probably signals the end of this bear-market rally”

While that wasn’t correct, it was very close. Since then, SPY has only been able to close above the August 22nd close one time, on August 28th. So, these TRIN signals are very important.

Also on the chart above is a black arrow pointing to a peak on the TRIN average, which was a buy signal. I completely missed that because it occurred during the panic selling leading up to the last jobs report on Friday, September 5th. While the jobs report is a huge market-mover, we see here that it served to create a fantastic buying opportunity for a quick trade.

So, the moral of the story is not what the jobs report says, but what sort of short-term condition it creates in the market. The same will be true for the FOMC meeting this week. But this time around, instead of obsessing on what the FOMC does, I will be obsessing on how the TRIN average reacts to what the FOMC does.

Click here to download the TradeStation “workspace” document that contains my TRIN chart. You will need the TradeStation program to open it and use it. You don’t need TradeStation’s extra “radar screen” feature for this workspace.

Jim Cramer Predicts Depression

Cramerica on Brink of Depression

Now Cramer is calling a bottom and another depression:

“We are on the verge of a Great Depression.”

Did somebody spike the water supply of Cramerica?

Ah Hah! The Real Reason for the Fan-Fred Bailout

From Bloomberg:

“U.S. Senate Banking Committee members urged Fannie Mae and Freddie Mac, the mortgage companies placed under federal control this week, to freeze foreclosures on loans in their portfolios for at least 90 days.”

Talk about buying votes! Congress just bought half the houses in the country to keep the foreclosed-upon from seeking vengence in the voting both!

Make sure to study the “broadening” pattern on the post prior to this, and watch the comments for updates throughout the day.

Kiss July Goodbye?

The July low that is. This week’s wild volatility has just painted a dreaded “broadening” pattern onto the charts. Here’s the daily SPY chart (click to enlarge):

The purple lines on the last two candles that connect the highs and lows from Wednesday and Thursday define the broadening pattern where, you guessed it, the price range broadens in both directions.

This is a very unstable pattern. We saw it before the lows set in January, March, and July. I last wrote about it here. Each time it has happened this year, the lower purple line has gotten tagged in the future. The slope of the purple lines show how sharply prices will move.

This chart is hard to read because there are a lot of bars on it, so you should make up one of your own to study this pattern more closely:

The broadening pattern in early July did not lead to a new low, but the lower purple line did get tagged in a scary plunge on July 28th. I think that that pattern did not lead to a new low because we had just set a pretty good panic low shortly before and were at the beginning of a new bear-market rally.

This week’s broadening pattern is pretty scary-looking because the lower purple line has a very steep angle. I’m thinking that if news-flow permits, we could get some follow-through to Thursday’s rally and run up to tag the top purple line, just like on July 23rd. And then turn down and head for the lower purple line, which will be a pretty steep dive.

Note: QQQQ has the same pattern. IWM couldn’t quite manage to push up the top of its range, and only expanded its lower range.

King Dollar or King Shmollar?

When Larry Kudlow shrieks “KING DOLLAR!!!” on THE SHOUTING CHANNEL (CNBC), is he right? Or does he have it backwards? I can’t help noticing that the last recession didn’t end until Alan Greenspan shot down the dollar. Here is a chart of the US Dollar Index (DXY) from 2000-2002. (Click to enlarge):

For some reason, stupid TradeStation won’t let me put the S&P 500 or SPY onto the chart too. So, in case you don’t remember, the last bear market didn’t bottom until October 2002 – after the dollar was crushed.

Is Kudlow right? Is the soaring dollar a miracle cure? Or will it deepen the recession? Is Bernanke crushing the economy with a secret strong-dollar policy to kill inflation? Can housing and commodities deflate without stocks deflating too? Is it realistic to expect some things that are priced in dollars (commodities) to deflate while other things priced in dollars (stocks) to inflate?

(Note: I guess that I have translated Todd Harrison’s argument into English from that weird language that he speaks.)

Bears Crush Jim Cramer’s “Gospel” Bottom

Super Bears!
Anybody who was short and lived through the Fan-Fred bailout is feeling invincible now. In previous bailouts, the Dow ran 1,000 points. This time, it just fizzled. So shorts are very confident now and eager for more pops to puncture, which is exactly what they did on Wednesday. The morning gap-up was immediately sold, and an afternoon rally attempt was immediately sold.

So the bears are very confident and aggressive now. What about the bulls? The bulls are filled with dread. They had their hopes raised on Wednesday only to have them dashed. The market had solid gains during the day, but then gave most of it back.

Normally, the talking heads on CNBC are oblivious to the intra-day drama. But on Wednesday, Erin Burnett was skeptical of the day’s rally, saying that it was a 200-up/200-down market, so why get excited by just another routine 200-up day? The key was that she was taking the 200-up part for granted. That’s hope, complacency, and overconfidence – all sell-signals.

Maria Bartiromo also had her hopes dashed. In the afternoon as the bounce faded, she said that the Dow was “struggling” to hold onto its gains. Normally, she would just say it was “off of its highs”.

So, I read this body language to mean that the bulls were on pins-and-needles Wednesday hoping that a big bailout-rally was still in the cards. Then the Super Bears crushed their rally.

Now the Super Bears are ready to crush more rally attempts. But the market will likely thwart them by not giving them any. The market rarely replays the same theme two days in a row. So, with a neutral news-flow, I would expect the bulls to lay down and die, and the market to roll over leaving a lot of bears frustrated that they aren’t shorter.

I can’t predict the news flow for tomorrow, but as we are in a global recession, the news-flow odds don’t exactly favor the bulls. Judging by the futures and the Asian markets, we should open down on a gap and probably spend the day plunging.

We also seem to have a Long-Term-Capital style liquidity seize-up in the corporate bond market. That can’t be a good thing…

Cramer’s Gospel Gets Edited
Jim Cramer recently declared the bear-market to have officially ended on July 15th. He then later proclaimed that his bottom call was “gospel.” Now he is making a few edits to The Gospel According to Cramer before it is sent off to the publisher for inclusion in the next edition of the Bible.

The first edit was that only the retailers, homebuilders, and financials had bottomed. Then yesterday he modified that to exclude a few financial companies which he described as “classic outliers.” That presumably prevents them from ruining his gospel. Lehman plunges through its July low? No problem, its just a classic outlier.

More hope and denial from the bull camp.

Note: Watch the comments for updates throughout the day.

Fannie and Freddie Fizzle

June Times Five
In yesterday’s comments, I said that I thought that September would be like June, only more intense. Then Danny did some quick statistical work and posted this:

“In the FIRST 6 TRADING DAYS of Sept. we have already achieved 60% of the TOTAL sell volume we had in June.”

(See Danny’s comments at the end of Tuesday’s Trading for more details.)

So yes, I think we will break through the July low in more spectacular fashion than we broke through the March low back in July. So…

Be Careful Playing Bounces
I think that we are in a period where playing bounces, even off of oversold conditions, can be very risky. The reason is that the intermediate trend (down) is in sync with the long-term trend (down), so you get a sort of “harmonic convergence” effect. If you are long for a trade, and then the intra-day trend turns down, it adds a third wave to the harmonic convergence, and you can get ripped to shreds instantly. My technical-analysis textbook says that in bear markets, you should only play on the short side, and this is the reason why.

Fan-Fred Rally Lasts One Day
Did you like my “The Fan-Fred Rally – Day 1 of 1” post from Monday? I cracked myself up when I wrote the “Day 1 of 1” part because everybody was expecting a huge, long-lasting rally. And then to have the prediction come true with a bang on Tuesday! I enjoyed that very much.

How did my competition do? Not very well. Here’s what Cramer wrote after Monday’s rally:

“I don’t think this rally is over. I think it has legs.”

Take that Cramer!

Charlie’s Death Kiss
Did you see how effective that analysis was on Tuesday? If you are not already doing so, you should be drawing lots of Fibonacci retracement lines on your charts. It will give you a quick idea where support and resistance levels may be.

The Russians Are Coming
Russian war ships and bombers will now be stationed in Venezuela and conducting war games in the Caribbean. George Bush, master of diplomacy! What’s next from President Einstein, a US invasion of Canada?

Today’s Strategy
The market is a bit oversold, but I won’t be tempted by any long-side trades. Rather, I will take a nap during any retracements, and then short them when I wake up. I had to fight with my LAN for two hours, so I don’t have a more detailed plan.

Watch the comments section for updates throughout the day.

Bears Beware – Tech Gets Slaughtered (QQQ)

Yesterday on CNBC, I heard a few times that bears should beware because we have a crazy government that is capable of even the most insane actions to keep the market propped up into the close. Buy every fraudulent mortgage in America? No problem. Buy every house in America? No problem. Cut rates and repeat the Greenspan blunder of the last recession? Right around the corner.

I was starting to get the impression that Hank Paulson was on his way to my place with tire iron to break my kneecaps.

A very interesting meme being propagated by CNBC, no?

Well, to whatever long-side hedge fund that thought that up, I say: nice try, but I ain’t a-feared.

The economy is CONTRACTING. And when the economy contracts, multiples contract. The market never knows how deep the recession will be, so it will continue to contract multiples until it sees a light at the end of the tunnel. The market wants to see earnings GROWTH. And in case you didn’t notice, the market is in the process of SLAUGHTERING growth companies (QQQQ) – even on a day when the Dow is up 290 points!

It’s the bulls that need to live in fear. The market beast is liable to jump out of the shadows and pounce on them at any moment – kind of like the beast did Monday morning after the big gap-up opening. How many bulls saw that coming?

Note: Make sure to see the post before this one. The title looks similar to the one that I wrote on Saturday, but it is a new post.

Watch the comments for updates throughout the day.

The Fan-Fred Rally – Day 1 of 1

You might think that I am being stingy by giving this government-sponsored rally only one day. But in fact, I am being generous. After all, is it really a rally when the QQQQ finishes down 0.37%?

Traders seem to be unanimous in their view that the rally was disappointing, especially when compared to previous Sunday-Surprise rallies, and I agree. So, I will not discuss the rally’s defects except for one aspect.

Everybody was expecting there to be panic buying at the open, but that didn’t happen. I think that the gap-up was so huge that many traders who were prepared to barf up short positions just sat there staring in awe at the huge gap – frozen like a deer in the headlights. And since the selling started only 4 minutes after the open, they just sat back with relief and watched the amazing plunge.

But of course, there is an army of traders which focuses on gaps. So as the market plunged toward the opening gap (SPY at $125.10), the gap-traders went long to play a gap-bounce. In the comments yesterday, I wrote that I thought the gap-bounce would be weak. And it was, but it frightened the frozen shorts who were suddenly in a panic that they missed a good exit point to buy-to-cover and minimize the haircut.

So, when that first gap-bounce rolled over, the frozen shorts rushed in to buy, and that triggered a sharp short-squeeze rally into the close.

Now maybe I am just rationalizing the action since I am short. However, we have some proof that the above theory may be true: the futures dropped a few points after hours, and then Asian markets opened badly. So, it looks like the afternoon rally was a retracement, and since it was sharp, it was probably mostly panicky short-covering. And as Charlie pointed out in the comments yesterday, it topped out at exactly the 61.8% Fibonacci level of the retracement of the drop from the peak on September 2 to the low on September 5.

Everybody was expecting a massive rally today and this week, but so far, the market looks like it intends to do the opposite. If so, September could be a replay of June. So, I think I will deploy some more of my cash short at the open, just in case.

The market is still clinging to a bear-market rally (not counting tech!) as the economy continues to contract. So, I think taking short positions here is very low risk assuming a holding period of a few weeks or so.

I am short via S&P futures, SPY puts, SDS, and QQQQ puts, and I think I will buy some QID in the morning.

The Fan-Fred Short-Squeeze Rally

Now that Fan-Fred has been put to sleep, we must now assess the impact upon the stock market. Futures begin trading at 6pm eastern time, but until then lets looks for clues in recent action:

Last week, there was a “flight to quality” as money fled stocks and poured into treasuries. That ended at 11:30am Friday. If you look at an intra-day chart of the 10-year treasury note, you will see a dramatic reversal. And that was the same moment that the stock market reversed. So, it looks like somebody big new something about the Fan-Fred deal at that time.

So, Phase 1 of the Fan-Fred short-squeeze rally began at 11:30am on Friday, and then accelerated during Phase 2 in the after-market when the Wall Street Journal broke the news. Of course, many traders didn’t realize what was happening during the day Friday, and weren’t paying attention after the close, so it stands to reason that there should be more short-squeezing to come.

In fact, on “Fast Money” after the close Friday, Karen Finerman, who is short banks, looked like she wanted to vomit. All the other traders who are short banks and homebuilders probably feel the same way. I would expect many traders to take long positions in the futures today to try and hedge their positions. So that would be Phase 3 of the squeeze, and Phase 4 would be after the open Monday morning when the short positions get barfed up.

How long will the rally last? The short answer is: not long. We are in a vicious global recession that is still intensifying. Many big funds are breathing a sigh of relief right now that they will be able to unload a lot of stock into this rally. Do you think that they are buying Paulson’s new catch phrase: “turning the corner on housing?” I don’t.

The end of the July-August bear-market rally had nothing to do with housing. It was Dell saying that global IT spending was grinding to halt that broke the rally. In case you don’t know, IT spending is a crucial economic category that was able to cause the 2000-2002 recession all by itself. Now, this new disaster is being added to the current real-estate disaster. And it ain’t going away just because some deck chairs were rearranged in Washington.

The big crack came on the first trading day of September. Once the big funds finished their month-end window dressing, they pulled their bids and the market went into free fall. At the same time that was happening, the price of oil was actually plunging as Hurricane Gustav approached the Gulf of Mexico.

As the energy sector was blowing up, other stocks fell also proving to traders that falling oil prices would no longer be a support for the stock market.

As the rush for the exits intensified, energy hedge funds saw the jobs report looming ahead on Friday. They knew they needed to be out before it hit, so the big crash occurred on Thursday.

This perfect storm of textbook bear-market action induced the flight to quality and money rushed into treasuries. That made it look like there was a financial panic going on, when in reality it was just a rush for the exits before the jobs report hit.

The surface-appearance of a financial panic caused Bill Gross to wet his pants, announce a buyer’s strike of Fan-Fred paper, and triggered the big bailout today.

In “Ho Hum, Another Bad Jobs Report,” Jim Cramer pooh-poohed the jobs report, and even tried to paint it as a postive because he thinks it gives the Fed cover to cut rates! Crazy!

Cramer also thinks that the hedge funds are done selling. That they had to get it all done before the fifth business day of the month to meet redemptions. So, his position is that it was just a little selling squall in hedge-fund land. That is simply denial.

When the first jobs-bomb blew up the March-to-May bear-market rally on June 6th, it took almost a month for the market to fall to the March low. This time, the drop from the rally highs around 1300 to the July low only took four days! This bear-market rally has been much weaker than the last one, and I don’t think that this Fan-Fred deal can revive it.

As the global economy continues to slow, the news flow will continue to be bad – even in housing and banking. Credit will remain tight, house prices will continue to fall, foreclosures will continue to increase, jobs will continue to be lost, etc. As hard as bulls-in-denial like Jim Cramer look for “the turn,” it will not be found.

The market hit a deep oversold level Friday morning, so a relief rally was likely in the cards anyway. However, I don’t believe that the market will rally as hard as it did off of the July low, the last time Hank Paulson saved the world. The crack came so quick last week that there wasn’t enough time for excessive short interest to build up. So, there is less fuel for this rally.

The financials and homebuilders may rally hard since the Fan-Fred deal affects them directly, but tech and energy? I don’t think so.

SPY closed Friday in the after-market session at $125.85, so we should expect the market to gap up to the bear-market rally breakdown level of 1265. Such a back-test of the breakdown level is not unusual. However, after the gap-up, additional short-covering should begin.

Could the market reach 1300? Perhaps, however by time it gets there it would be very overbought and due for a correction. In the mean time, more bad news is likely to hit, and I would look at such an event as a marvelous short-side entry point to ride down the rest of this bear.

While I believe that the big funds will sell this rally, they are smart traders, and I expect that they would hold back until the short-covering panic reached full-flower before leaning into it. They will likely use recent support areas to scale-in their selling: 1260, 1280, 1300.

And it’s not like the rally won’t have any headwinds. The euro (FXE) rallied after hours on Friday, and the dollar (UUP) fell. Now that the Treasury will be buying up huge amounts of bad paper, just like the Fed, overseas money may want to think twice about remaining in the USA. Also, a cessation of dividend payments on Fan-Fred preferred shares might trigger a wave of bank failures since many banks hold huge mounds of them and rely upon the dividends for a large chunk of income. Things could get exciting for the FDIC.

I have some QQQQ October puts. I will not be barfing them up. I have lots of cash, and I consider myself lucky to have another chance to deploy it short.

Note: For in-depth coverage of the Fan-Fred deal, Barry Ritholtz is on the case.

Note: If oil falls again as Hurricane Ike enters the Gulf of Mexico, be alert for another round of bloodletting in the energy sector.

The Fan-Fred Thread

So far, all we know is that there were some meetings, and a change made to Freddie’s bylaws. Everybody in Washington “knows” that there will be a deal, but nobody knows, or is revealing, any actual details, including Barney Frank.

Here are some reasons why the deal may be dragged out:
1) It has to be pulled-off without giving the Democrats too much “bailing out the rich fat-cats” ammo.
2) So, the CEO’s can’t stay and keep their massive salaries.
3) But Mudd showed up to the meeting with his lawyer, so he doesn’t appear to be going without a fight.
4) The government can’t just club Fan-Fred over the head. The shareholders, bondholders, boards of directors, and CEO’s still have legal rights and powers controlling what happens.
5) Obama and McCain are being consulted, which might mean too many cooks in the kitchen.
6) If an army of reporters working around the clock can’t turn up any “details of the plan” then there probably are no details yet.

Another scenario is that there is a weak deal. That is, the administration does the absolute minimum amount necessary to keep the house of cards from collapsing. Maybe Paulson will pledge to show up at the Fan-Fred bond auctions and buy whatever new paper is left over by other bidders.

See how that works? The administration would be attempting to dodge criticism from the Democrats, while trying to keep bond investors feeding the monster until the election is over. Then the real deal could be done when there are no political consequences. Could they keep the balls in the air for another two months?

Maybe. Fan-Fred hasn’t actually defaulted on anything yet. Perhaps Paulson could fend off Bill Gross’s threatened bond-buyers strike until November.

Another strategy would be to distract attention from the problem by sending Dick Cheney to Asia to threaten the Russians, which is exactly what just happened. And…

“The USS Mount Whitney, the flagship of the Sixth Fleet, anchored off the Black Sea port of Poti yesterday, about 10 kilometers (6.2 miles) from a post manned by Russian troops.”

So, as the cold war rhetoric heats up, only 10 kilometers separates American and Russian forces.

Could be lots of things blowing up this weekend…

The Russians are not happy with the NATO naval invasion of the Black Sea. A couple of weeks ago, a Russian admiral bragged that the Moskva missile cruiser could sink the entire NATO fleet with one volley, though he did pledge not to shoot first.

Russia Thwarts Israeli Attack on Iran

Now we know why Israel was so involved with equipping and training the Georgian military: it was a deal in exchange for the use of air bases in Georgia from which an attack on Iran would be launched.

Georgia is closer to Iran than Israel, so the Israeli air force’s flying time would have been reduced to 3.5 hours and would not have required US permission to fly over Iraq.

But now the Russians have raided those air bases in Georgia, and captured Israeli spy drones. Once Russian engineers dissect the drones, they will share the intel with Iran, possibly giving the Iranians an edge.

The Russians are also dredging a port in Syria to make it large enough to accommodate Russian naval vessels. And they have gone back to work on Iran’s nuclear reactor at Bushehr. So, the Russians are right in Israel’s face.

If Israel wants to continue with its attack plans, it may have to move much more quickly than envisioned before the Russians make it impossible. The commonly accepted “after the US election, but before the inauguration” time-frame may be too long to wait because the Russians are coming on strong.

Bill Gross Begs for Bailout

Bill Gross was criticizing a lot of people yesterday, but maybe he needs to look in the mirror because now we know why he is so adamant that the government bail out Fannie and Freddia. From a Bloomberg story:

“About 61 percent of Gross’s holdings were mortgage-backed securities as of June 30, mostly debt guaranteed by Fannie, Freddie or Ginnie Mae, according to data on Pimco’s Web site.”

If Gross is so smart, why is he begging for the US taxpayers to bail him out? If I had any money in Pimco, it would be bailing the hell out.

We’re into the third year of the mortgage crisis, and this guy still owns hundreds of billions of mortgage-backed securities??? Pimco sponsors CNBC, and the Pimco guys are treated like gods there, but if these guys aren’t morons, who is?

Pimco? How about KaboomCo?

If we taxpayers bail out Gross, there should at least be some sort of hazing involved.

Shortly after I wrote the above, the Wall Street Journal reported that Pimco’s CEO had resigned:

“Bill Thompson, 63, a 15-year Pimco veteran, will retire from his co-CEO post at the end of this year. He says one reason is because he wanted to leave at the top.”

“At the top” indeed! Talk about a Freudian slip!

Doug “Kaboom” Kass
At 7:57am Thursday morning, Doug “Kaboom” Kass called the bottom in this bear market:

“This is what market bottoms look like.”

Then the Dow plunged 345 points.

Make sure to take a look at Danny’s study of “all sectors red” days like we had yesterday.

Watch the comments section for updates throughout the day.

July Low Cracked

As we contemplate the S&P 500 cracking the July low, a rather large index, the NYSE, has already done so. Here is the chart that I posted in “Crack Number 1” on August 16th (click to enlarge):

Here is what it looks like after Thursday’s trading:

Also, here is my “Vix Falling-Wedge Pattern” that I posted on August 20th:

And here is what it looks like now. Notice that the breakout of the pattern signaled the end of this bear-market rally:

Pretty snazzy analysis, huh?