Friday, August 10, 2007

I've Been Away

I've taken a break for the last few days.

First, the issue of Fed injecting liquidity. We covered that here months ago, I think if you use the search term 'window' you'll find the places to look for not only Fed Repo activity, but also the activity of the Treasury department. Fed injections are only about two-thirds of the story. The bigger point that is lost on most folks is that the Fed has been injecting huge gobs of liqudity into the markets every trading day for better than six months, though the activity this morning is about 3x larger than usual. The bigger point, especially demonstrated by the ECB, is that central banks at all costs will try to do everything possible to stave off a seizure of the markets. Consider the size of the BNP Paribas situation vs what the ECB has poured into the markets. You can read between the lines and guess that it's more than BNP that's in trouble. The liquidity injections also have very bearish overtones for the dollar and bullish overtones for gold.

The stock market has been very volatile (understatement of the year) but still resilient as we remain stuck in last spring's range. Last Friday's lows need to be retested, at least. Many are hoping for a double bottom and maybe it will come to pass, but 1375, the 80 week moving average, remains an area of interest to me since it has withstood several tests over the span on the bull market. Let's face it - no one knows where the bottom and the best thing you can do is shut-off anyone who spends too much time talking about whether a bottom is about to set... they're dolts. The housing phenomenon was set up over a period of years and won't be quickly worked out to the satisfaction of the "short attention span people" who are champing at the bit for their "market bottom"

By the way... can we get an apology from folks who poo pooed subprime as a non-factor... an apology that they dared blog about what to do with your money with such ignorance? Can we get an apology from these folks who failed to understand Bond Market 101 that simply states an implosion in one area of the bond market would set off a chain reaction? What will it take for them to realize that contagion has set in? Let's see... secondary mortgage market is dead to the point that Countrywide and Washington Mutual are at their knees, just like so many of their defaulted customers. Let's see... LBOs are a gonner for the time being. Let's see... a variety of quant hedge funds (the smartest guys in the room, supposedly) are down 20, 30% in a few weeks, Let's see, an AXA money market fund in Europe is down 26%... but the biggest factor goes back to the central banks injecting liquidity. Contagion has set in with subprime being the foundation of sand.

That leads me to one other lie that's being spread - that the stock market is the victim. Yes, I've heard this preposterous theory this morning. Sorry, wrong - totally wrong. Nothing in this market is isolated. When the brothel is raided, both the most attractive and most ugly are thrown into the squad car. Specs are risk averse to pretty much anything that has risk tied to it in the U.S., and the U.S. stock market is a risky place... beware the folks who want you to believe stocks are a sure thing and safe bet.

By the way, it may be summer - but it's anything but a 'thinly' traded market. This isn't the 1930s, this is the 21st century, when you can fire up the Bloomberg, or whatever trading platform you use whether you're in the Hamptons or in Europe. Anyone who's anyone of Wall Street can and is participating in this market.

A note on crude. Likely to slide to the mid 60's before we see $80. Selling in outer months vs front month was interesting... fund liquidation.

Don't rule out anything today. Test of last Friday's lows? Maybe, but then a short covering rally? That could be too, Have fun. I will be back to regular postings sometime soon. Some terrible things have happened in my family which will take all of what I'm made of to fix.

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