Markets 2008

This will be the last post of 2008 for BaseOp2 as the year of every possible directional swing comes to a close. While the individual and institutional investors struggle to comprehend the magnitude of hurt put on the money pile worldwide, the deep bid/offer index markets of the US continue to provide the mechanics for sorting out value. Legging into recovery will occur as professional trading strategies along with the support of governmental intervention discover what value combinations will be the underpinnings for market recovery. New rules will be part of the 2009 trading environment with less leverage, but just as much opportunity for those able to decipher risk points to buy and sell in building winning performances.

It is tough to be courageous in these markets, and is made harder when relying on those elements of the market to recover, banks and brokerage, which failed us so. They survived in large part putting transactional deals together which had no value other than passing paper. It is easy to build daily routines in business and in life which offer no challenge, create nothing of value, and ultimately fail to build wealth to power good works.

Dull Again

Not much to say today. Like yesterday, today's volume was diminished as zero rates collided with zero interest in equities. Maybe these are bargains of a lifetime but investors have little taste to partake when every five days some new disaster story hits the wires. Managers to manufactures, technology to banks, they all seem to flinch every time the morning trading bell rings.

Avoiding Road To Empty

The Fed had run out of room on interest rates so they basically told the world they would do whatever it takes to manage the current economic disaster. Gee, I hope that is enough because if it is not, we are all in for a long road to empty. Technical programs run here are happy with the rally but a couple of indicators still say not so fast.

Talent

Fed meeting today and tomorrow as they will obviously continue to provide the easing and other additional actions for a hopeful upturn from current dismal economic scene. Between revelations of money manager disasters such as Madoff's or the suspension of redemptions by Citidel, the world is still working through the unwinding of real positions initiated on perceptions of trading talent. Cheap money with lots of lending created transactional nirvana for the trading industry and now cheap money with little lending is helping drive the value of all assets lower. Real talent tells you where to buy it and where to sell it over and over again as it nets postive returns. It never works only from the buy side.

You Are Fired

Well the next phase of 'save us from ourselves' has started as banks such a BAC announce huge layoffs now that they have more than enough cash stuffed into the vaults. Rates are at zero and there is plenty of cash to go around, but like the Japan model, no lending. Well, no lending unless there are guarantees that is.

The great business class, preaching the merits of Republicanism and now once again needing to get bailed out. Not an idea what to do because the only real talent they have includes devising ways to make pigs look good.

As stated in previous post, some technical elements run at this location have rollover characteristics. The sound of the floor cracking is being heard tonight as markets sell off into Friday's session. A hard down day on big volume after repeated modest gains on light volume would not be what this market needs. These markets need to have hard upside reversals to remain base builders.

Rolling Over?

Little accomplished in today's action in either the indexes or economic events. Big 3 are going to get a small stipend and hope the rest will come later. Treasuries in the three month variety still a virtual zero and stocks slept on low volume.

Market timers will be looking for big volatility next week as the cycles start setting up for end of year marks along with the normal end of quarter positioning.

One of the indicators looked at here is starting to roll over but has not made new lows as of yet.

Negative Rates

Three month notes traded at a negative rate today as money continues to pour into Treasuries and away from just about everything else. Should those rates submerge more this week, it is likely to bring a serious attack on the legs of the current index support levels. Though there are compelling reasons to nimble on stocks with healthy cash positions relative to all obligations, that may be the basic necessity for any investments now that credit has all but been eliminated as a market driver. Generational ideas about low PE ratios now have their chance to prove they are valid entry indicators.

Obama Infrastructure

Early strength on Monday attributed to Obama's infrastructure pledge but markets are just simply finding lack of sellers as oversold conditions persist. The bottom formation of the DJIA, SP500, and NQ100 look solid enough to build on but needs a couple of stretches from powerful rallies to confirm the worst is over.

Stranger Than Fiction

The jobs number was bad but the reaction by the market to this point has continued to be one of dull interest in selling the lower end of the ranges. Big 3 pleadings on Capital Hill along with Fed cries for mortgage intervention form a backdrop to a stranger than fiction world of economic conditions being met with creative trading strategies based on building spread legs where any new positions are backed by government guarantees. Except for the limited uses of high frequency trading operations to generate income, the macro moves are being plotted to take advantage of the opportunities available over the next three years. Banks will be flush and even the worst the recession will be long passed. What is left standing besides the banks however will be of great interest.

Jobs Number Tomorrow

All hands waiting for tomorrow's jobs data with some interest in what the Big 3 folks will say today in front of Congress. So, best link today is this article about how bad the hedge folks are getting kicked in the ass. Story.

Scenarios

The DJIA, SP500 and NQ100 have settled into a pre-Friday unemployment data ranges. Bears look to assault the lows of the 24th before the jobs number and then crash into new lows to end the week's trading. Bulls hope to reject the lower ranges and climb above last week's highs to put an end to this bear market. With the volatility of these past few month, the indexes may make each scenario look believable at some point interday before they reverse.

Surplus Population

The strategy to stabilize the US financial system is based on the theme of providing enough liquidity in the market until the banks and brokerage firms can develop plans utilizing all the features of the loans and guarantees implemented by the Fed/Treasury. These plans will contain two overall principals; raise enormous amounts of cash; and change the risk profiles for conducting future business. The first principle allows the banks to survive a severe downturn without lending money. The second principle will be their excuse. Goldman and Morgan have started to implement the sale of 3 year notes denominated in Euros to add to their own bulging money piles supplied by the US. These notes are guaranteed by the FDIC and pay about 1 to 1.5 over comparable market instruments.

The new administration will have to endure the criticism of a general recovery strategy which has the Fed/Treasury saving their own at the expense of the economies of families across the country. What Bernanke and Paulson have delivered thus far is radical intervention only when viewed against how the notion of free markets have come to rely so heavily on social coffers to save a select group of private investors. If the banks are still not lending or qualifying loan profiles drastically restrict growth, the real meltdown will be the burden of the 'surplus population', as Dickens would say.

Valuations Adjust

The revalue tumbler keeps on rolling through the various financial products. The valuations created primarily by major brokerage and banks in pricing debt and a sundry of derivative paper by literally marking prices to stoke performance data, keeps trying to find buyers. Along with trying to sharply reduce holdings is private equity firms, major institutions are trying to cash up by selling billion dollar positions in the secondary market. Hedge funds are seeing continued withdrawals and many have now temporarily halted redemptions. All this plays into the credit squeeze as bridge funding competes with everyday transactions and a general unwillingness to lend to even the best of names.