DOES THIS ARTICLE SAY THAT?

Please click on the link here for a MarketWatch article.  I think this guy is more bold in preaching his message than I am even though we are in total agreement.  (Perhaps I have a softer way of speaking?)  It's interesting to read from my perspective because I'm sitting here nodding my head as I review it, but at the same time I am shaking my head saying to myself...."this guy sounds like a whack job!" 

I guess now I know how many people feel when they read this blog.  I do try to balance the information with a good dose of bearishness sprinkled in with a picture of what could be different if I'm wrong.  I also try to highlight trend changes and things that demonstrate that improvements could be coming.

So, this guy doesn't mess around, just drops it in our laps and says get ready.  Personally, I think we have about 10 to 15 days to prepare (meaning market advance higher) and then it begins to crumble in earnest.  This is about the amount of time we've had between flash breakouts of new credit concerns in the Eurozone.  10-15 days is enough to lull one to sleep to get your portfolio blasted..  Don't say we (or the credit markets) didn't warn you.

MARKET CRASH

Oh yes, and if you are thinking that the new "Son of Stimulus" that is being thrown about by the Obama Administration is going to help us, you can think again.  $200 Billion in newly printed, errrr... wasted dollars won't do anything but give some government worker a job for a month or two.

GOATMUG

THIS CORROSION - LIBOR MELTS UP

I found an interesting chart to examine.  This is the 1 week-Libor rate (or the rate in which banks lend to each other overnight or in this case a 1 week rate).

Basically this is the level of trust between banks as each needs different levels of cash to support operations on a daily basis.  If they have money left over, they will lend it to others at the specific Libor rate for that time period.

As you look at this rate you must discern what the "normal interest rates" are for the current period, meaning that comparing today's Libor rates against that of 2007 will show that Libor rates are much lower now, but remember the economic climate back then was that we were coming out of a recession in 2002 and 2003 and the Fed had raised interest rates and their really was a global bull market in place in all assets - stocks, bonds, real estate markets and everything else were roaring.  What is interesting though is to examine the rate conditions on a very short time frame to see what is happening to examine stress in the market.

Currently the 1 week Libor rate is at .32% or 32 basis points (1/3 of 1 %).  Doesn't sound like much does it?  Well, it isn't as it is a direct result of the low overnight funding rates provided courtesy of central bankers that want to pump liquidity into the banking market.  Central bankers manipulate overnight lending rates in an effort to drive down borrowing costs in the front end of the curve and stimulate economic activity.  What is interesting though is that we examine the movement of the 1 week Libor over the last couple of months.  Despite promises of a trillion euros of liquidity and support for country debt, we see an escalation of prices or a corrosion of confidence between banks. 

While these rates are NOTHING like we saw in October of 2008 in the Lehman and Bear Stearns crisis, they are elevated and signaling trouble.  THESE NEED TO BE ON OUR RADAR as this was one of the key metrics that allowed me to pull all of my money out of the market in December of 2007.  Note also that this is the highest rate for 1 Wk Libor in more than 1 year.  If this rate begins to recede, great, but if it doesn't it will be cause for further concern regarding a credit meltdown.  And it is the fixed income market that pre-warns of stock market weakness.

If I have time I'll create some of my own charts and compare these rates to FF rates.  In the mean time, this is a 12 year chart of 1 week Libor that shows that despite the big % move up in the last 3 months, we are still at historic lows.  You might say, "Well look, we are so low what's the worry?"  The answer is the change in rates on a % amount is signaling that there is a risk in the market.  We need to understand that risk and identify it.

Oh, and by the way, Spanish sovereign debt had a little trouble this morning and they last issued debt at 73bps, guess what - this week they funded debt at 126 bps.  This means there was greater than a 50% increase in the cost of running and funding their government.  Try to do that with your bills at home and see how long that is sustainable.  Just another warning sign.  Spain is next up,  Portugal next, Italy, etc with Japan as the next debt crisis within 3 years.  This is ugly and about to get uglier no matter what the stock markets do over the next week or month.  I would sell all rallies especially if we climb 10% or so, in fact I'm praying for that kind of rally. 

GOATMUG

WHO OWES WHAT?

This is pretty good.  I first saw it on K.D's site - http://www.market-ticker.org/

There is no way to embed the link so click here and you can watch it - about 2 minutes of your life for a chuckle - if it were funny.

http://www.abc.net.au/news/video/2010/05/20/2905304.htm

Have a great weekend.  Nice rally at the end of the day - who would have seen that coming?

GOATMUG

TO EVERYTHING TURN, TURN, TURN

More info to substantiate that we should look for a move higher.  The number of stocks trading above their 40 day moving average has dropped significantly and since this is a contrarian indicator we should take notice and look for a rebound.

As usual I've documented the source of this chart and am posting with permission.  I don't use the premium version of the site personally, but if someone does, shoot me a comment and let me know how it works.  In particular we are looking at the chart at the bottom in green that is showing a move that would indicate this is overdone.

Growthstock Advantage Newsletter

GOATMUG

TURN COMING? IT STILL MAY BE A FEW DAYS OFF -- DOUBLE DIP?

We are getting awfully close to the bottoms endured during the "flash crash" of last week on May 6th.  I am anticipating a turn soon as the fear is so thick that it is palatable.  We have not seen the last of our friends at the FED and there should be an end to the unsettled issues of financial reform being thrown about in CONgress.

Did you catch that all of this weakness in the market occurred immediately after Goldman Sachs was hit with an SEC inquiry and that it has accelerated as talk of bank reform has gotten serious?  The banks are stilling leading the direction of the market and while they have shaken the market it will rise again like some phoenix from the flames.

I have a mixture of things I want to post so that you have a mid-month update of things to watch.  Clearly things look weak and shaken here, but I am anticipating a bounce here that will take us back to the 1160 to 1175 area.  Once that area is attained it is imperative that we clear the decks as the true wash out will have begun. 

I've been kicking myself because I have been identifying the end of April as my time frame for a significant drop.  When that drop didn't come in my time frame I questioned it and actually pressed more into what was continuing to work and extended my time frame for an end of May drop.  Within a week or so later, the first market drop occurred validating everything I've been writing for some time.  Well, here we are facing an almost 10% drop in the DOW and I'm suggesting that a turn could be coming with a decent sized rally only to be followed by a sobering drop in early to mid July.  

What I'm stating is that we are probably due to a reversal because that just what happens in markets.  A true market is not one-sided like the market we experienced over the last 14 months.  It waxes and wanes.  It oscillates.  Like a tidal wave of fear and complacency we have ups and downs.  Many have forgotten that and now the fear is here we must remember that we need to buy when we don't feel like it and sell when we are most jubilant.  In fact, I was selling my options today that were going higher as the market dropped.  (I won't mention the name of what I was buying because I firmly believe that that trade will reverse and if you bought it, it would be like playing with a loaded revolver).  I didn't want to sell at the close today because the greed within me was telling me that it just might go lower tomorrow, but the conservative manager within me was planning on scaling out so I could reverse when the market started showing a trend to go higher.  If we have continued weakness --- I'll probably be shorting, but I'll be closing out all trades by the end of each day.

Don't get me wrong --- nothing has fundamentally gotten better over the last two weeks that are not subject to reversing for a double dip recession, but price action should slow and reverse.  I mentioned earlier today or yesterday that the CPI data (as the government reports it) came in weak showing the absence of inflation.  This will allow the FED all it needs in terms of a go ahead to print more and inflate every asset class (even though it is working less effectively than before).

Ok, here are a few charts I'm looking at....

VIX - (fear index) is off the chart.  If you bought the VXX I recommended a while back and held it WAAAY past the stops I suggested you are in the money big time.  Again, I often see the trends but am looking at so many things that I'll identify it and move on.  It was pretty obvious that the VIX was too low as it dropped into the 16 level - so good for you if you make money here.  I of course suggest you sell the increased volatility now and be a disciplined trader.  VXX is now trading at $34.  Even my early identification of that trade was at $25, but you would have had to tolerate some pain to get to see the money!

Financial Conditions Index - Update

Didn't we just state the other day how this thing was showing that we were out of recession?  May's update said NOT SO FAST!  Today's print is not healthy.  There is a true collapse of liquidity going on and this thing is looking sick.  There had better be some quick intervention soon or we're going to begin seeing some stories about increased inter bank lending rates and distrust in the banking rates for overnight lending ---- ala Part II of the Lehman and Bear Stearn collapse.

My friend Guy Lerner at http://www.thetechnicaltake.com/ is still suggesting that there is time to go on this decline.  I would not bet against him, but I certainly am cautious especially since I've done pretty well on this decline.

Be safe and conservative here, no reason to blow your foot off.  If you have questions, let's discuss it, leave a comment!

GOATMUG