Some time ago, Bill, you wrote about the hard corner the Fed is in. Specifically, there is the choice between staving off a recession (thereby reducing rates) or saving the USD.

I have a much better appreciation of these issues now than I did then, this site certainly being central to nurturing that understanding.

As I think about it, it seems that our problems have literally brought on a world of woe--meaning there's alot of pain no matter which road is taken.

The markets are so tied to the yen/USD. I've watched it closely (through FXY) and the market ebbs and flows perfectly inverse to the direction of that ETF.

Leisa, quite right...

Correlation Coefficients for FXY vs S&P 100 12 Months 0.5453, 6 Months 0.3892, 3 Months -0.2034, 1 Month -0.8992, 2 Weeks -0.7455, 1 Week -1.0000

...david...

oops....

Those figures are for the S&P 500 vs. FXY.

...david...

David, that is interesting, thank you. It would seem then, that the soft-pedaling of the carry trade (I forget where I noted it) over the last couple of weeks in the media is disingenuous. I cannot believe that it is a coincidence that these correlations have tightened, simply meaning, somebody (traders?) care about the carry trade and are watching these telling dynamics closely.

China announces 0.27 pct. rate hike / stocks almost up 3%!

just a fews points from a new all time high. wasn´t there a crash just afews weeks ago...?

plus

ubs is backing out of the "lbo madmness"

http://immobilienblasen.blogspot.com/

How much pain can one bear? That's the single question before the Fed saves the economy with increased inflation. J. Cramer is betting on it for May. The Fed has to look professional, so they wait to analyze the data - last I checked even the pro-violence Soviets couldn't control the market. All I'm trying to do is predict where the extra dollars will go beforehand. Gold, real estates, stocks, foreign stocks, etc?

Can they keep the markets green into the close today? How long will this "bounce" last? My opinion is the bounces are a good thing - they give us short-term bears better entries :)

I've been itching to take a position in DBA since it opened. Seems like a natural way to get a pure play in agricultural commodities. Maybe as good as gold? That might be a stretch here, but would be interested in the thoughts of others.

lauriston,

I'm with you. Monday morning bounces are usually good for a short->adding to SDS at the open.

David -

FXY has only been trading for a little over a month so the correlation over any longer timeframe is not valid IMO.

http://www.bloomberg.com/apps/news?pid=20601087&sid=akQpaTarrbj4&refer=home

There seems to be little media focus on credit spreads. The link above is worth a look.

Next month, April, starts the 3 year ARM interest rate adjustments. Apparently, many homeowners' interest rates will be increasing about 100% if rates don't move over the next few weeks.

This summer, the 5 year ARM adjustment fiasco begins.

How this won't filter down to the money center banks and the broad stock market is beyond me.

Got gold?

Oh, of course you do...I thought I was on some Yahoo board - Yikes!

Also, I have been watching INFY (mentioned by Bill, this WIR) struggle with overcoming it's downtrend line this morning. Broke through it though.

Just a quick TA question: to generate the monthly, weekly, and daily RSI values, I use RSI(21), RSI(14), and RSI(7) respectively?

schnauser:

Bill's suggestion is to look at the RSI(7) of the Monthly, Weekly, and Daily plots. So you need a plotting application / website that allows you to divide up data into Monthly, Weekly, and Daily units, and then perform an RSI(7) calculation on those. Bill uses Investertech a lot, so try that out. RSI(14) and (21) use a larger number of sample points in the RSI calculation, and can be performed on Monthly, Weekly, and Daily data as well. They'd give you smoother and less responsive results.

ALOHA !!

Fannie Mae and Freddie Mac ... two taxpayer bailouts waiting to happen! YOUR TAX DOLLARS AT WORK! As a kid I used to see those signs on "productive" endevours like building roads and bridges ... things that build infrastructure and economic development. Now those tax dollars are more likely earmarked for "pork" and such unproductive projects like "free market manipulations", corporate "welfare" and Middle East military adventures. Third World here we come!

"Fannie and Freddie enjoy an implicit guarantee of a bailout by the federal government if their loans default, and thus are insulated from market forces. This insulation spurred investors to make funds available to Fannie and Freddie that otherwise would have been invested in other securities or more productive endeavors, thereby fueling the housing boom." Ron Paul Presidential Candidate for 2008.

Link: http://www.house.gov:80/paul/tst/tst2007/tst031907.htm

Is this the only guy in Congress that gets it? I will vote for anyone who wants to dismantle the Federeal Reserve Bank!

I would love for Ron Paul to get the exposure that he deserves!

The last guy with the nerve to do the right thing was Voelker.

Schnauser:

A simple search of Bill's site turned up this tidbit:

http://www.billcara.com/archives/2006/01/the_use_of_rela.html

Leisa...new to bonds, but would like to learn more. If bond yields are going to increase, then do you have a sense of entry and what kind of bond? I've been looking at mutual funds global bonds and some cef's.thx.

Jasper, I wished I could tell you, but I really don't know. You probably know as much about bond investing as I do!

Jasper

Goggle, investing in bond funds, might be a good place to start: example below

http://www.usatoday.com/money/perfi/columnist/waggon/2005-05-12-bond-fund_x.htm

I would never buy an open ended bond fund. There is no maturity date. If foreign hands decide to sell bonds, rates could rise for years with your open ended bond portfolio losing money every year.

Just buy some bonds, simple at discount brokerage houses. Bond ladder maybe?

RonK and Leisa,
Problem is, I can't stand bonds. I do feel guilty for not having them. I will probably stare at them until it's "the thing" to have. Then i'll say, "too late." My bad. Ron's article does help remind me to clarify my main purpose: income or investment. thx.

I agree with go34 and would only buy individual bonds. At least this way you have control over taking a loss if rates rise. However, bond prices are generally opaque to the average investor.

The really hard part is how much savings it takes today to obtain any real income stream to fund retirement. As American’s grow older it is going to be difficult to maintain their current standard of living with today’s yield and the majority’s lack of savings.

I think bonds rates are likely to rise and I’m waiting, but if wrong I’ll pay the price in less income and risk the disaster of a Japanese style reduction of rates in the US.

I wish I had better answers to these vexing problems.

Here's your answer; own stocks, bonds, gold and money market. Overweight when oversold, go to underweight when overbought. Buy weakness, sell strength. You may even outperform the stock market most years ;-)

Off topic -

Pet food recall, animals dying, take action now.

http://www.msnbc.msn.com/id/17650075/

Moab,

You are correct. FXY has not been trading for long enough to generate reliable numbers for correlation.

I do not know why my correlation program is bringing up a year's worth of data. Hmmmm....

However, if you use yahoo to generate a USD-Yen chart and compare it to the S&P 500, you can see what appears to be a fairly strong correlation, or so it seems.

...david...

Look out below...

We are beginning to exceed the year 2000 highs of the NYSE Member Firms Debit Balances in Margin Accounts.

Take a look at this chart....

http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/2007/03/19/nyse_member_firm_margin.png

kaimu,

Just got around to reading your story about Menlo College. The "change orders" comment is hilarious! Must have been a killer business in 2000.

ALOHA !!
2nd_ave:
To be honest during that time we attended a few bid openings where we were the only bidders. You think there is a rule for government/district entities to rebid, not when they stand to lose funding. Many, many times we would only be bidding against two or three max other contractors and we all knew enough to raise our bids. I imagine times are totally the opposite now.

When I left in 2002 I started feeling desperation filtering into the business and the last bid opening I attended at the Mt. Diablo Unified School District there were 17 bidders! Even small projects started attracting large electrical contractors like Del Monte and even larger generals like Swinerton Walberg who I had never seen bidding school projects EVER! Here in Hilo, Hawaii the biggest project going now is a new "Judicial Bldg." and Swinerton Walberg is the general contractor(more corporate welfare).

One of my talents was working the angles on "change orders". In those instances the more "black box" factor the better! Thats why working with Cisco Systems was so lucrative and back then Cisco was a very, very "sexy beast"(baby)for all the IT guys playing Star Trek with school budgets ... As Bill puts it "OPM" ... That about defines public works projects in California in terms of accountability. The taxpayer is the wounded seal pup in a frenzy of great white contractors smelling free money! Public works in the USA is financial disaster for taxpayers! I was a very "inside" insider on that game for over 20 years! Although "public works" can't even hold a candle to the Wall Street "sharks"! Talk about Three Card Monty! More and more I see the only way to get off this merry-go-round of public debt is to get rid of the one common denominator ... BIG GOVERNMENT and all the "sellouts" that sit on both sides of the isle ...

g032:
I noticed Buster, my Yorky, was depositing a red looking 'poop' after buying Food Lion's new improved formula dog food and asked the store manager this weekend, while grocery shopping, was there any other complaints. His reply was: "we've had a recall but it isn't harmful to the dog."

Just proves deception is not only found in the financial world.

The brand in question was listed in the article you linked .. thanks.

NYUgrad, SBUX put in a nice dbl bottom last wk; very good price action last Fri, so as
bearish as it has been even before Feb 27, it could be in the midst of turning up again.
I don't really do much fundamentals analysis.
On the intuitive side, your point about it being a consumer discretionary
is well taken, but as stktrader pointed out, they deal with (legal) addictive substances.
btw, this is the kind of price action I'd like to see with gold shares in general (and not seeing
a lot of that yet).

Leisa / david -- I suspect the Yen carry trade is truly enormous and we that we may not have
seen the end of the unwind by any means. The world mkts are moving in unison like one
big school of fish. Recent Yen gains are small compared to what happened
last May -- sure, some govt manipulation perhaps, but in the huge currency mkts, more likely
large traders playing off each other and the long side got too crowded. If a higher low forms
(say around 83-84 in XJY index), then we could have an inv H&S (ie, bottom) in the weekly
that could launch the Yen past 87, breaking a long-term downtrend (maybe several weeks from
now). Of course, until proven otherwise, the Yen trends further lower and the carry trade lives on.
But this is the kind of "risk" I'm considering with respect to PM's -- if the bulk of the unwind
is yet to happen, there is no safe haven. It would be safer to enter larger positions after another
washout that sets up a better base. After that, as kaimu notes, you can bet the Fed and
CB's around the world will pump a lot more money in the years to come. I'd just like to see
more foreclosures on the "weak" over-leveraged carry-trade specs to stronger hands that
don't need to borrow and want to diversify out of their $ holdings.

Just my two (canadian) cents...

..meant to say, specs selling to stronger hands..

market devoid of fundy's here with futures driving action on low volume; carry trade still on noting even the swiss franc got hit hard today. agree bill the time bomb is ticking!

Clearest yet explanation of the impact of sub-prime mortgages on the US poor in today's FT, p. 11. (I only get the paper version,and can't post it.)

Inadequate disclosure of risk to borrowers; Wall St. and mortgage brokers act like "Fees-R-Us" with every refinancing, default, and foreclosure.

Martin Eakes of Self-help estimates 2.2M families could lose their homes in "the largest loss of Afro-american wealth in American history".

Way to go, Wall Street !

What I don't hear enough people talking about is the trickle down effect from all the layoffs in the lending and building industries. It is a similar state of denial as the internet bubble. I remember analysts saying "oh, sure, some flight companies will fail, but the good ones like Sun will stick around, the hemhorraging will be confined to the fly by night firms that didnt have a product to sell". I remember looking around the software company I was working for at the time, one of the darlings of the B2B software stock craze. We were buying $10000 Sun SPARC 10's like they were candy. At one point so much new hardware was flying in the door an IT guy I knew took a brand new server home with him and no one even noticed. What will happen, I wondered, when people realize my company makes so much vaporware, and we go down? A year later the bubble had burst, and since everyone and their brother in silicon valley had a job in some way connected with the internet boom, everyone was laid off. I was desperately clinging to my job in an office that had shrunk from 300 to about 40 people, but the market was so flooded with resumes it was nearly impossible. The atmosphere at the time was downright depressing. Finally an opportunity landed me here in San Diego, just in time to witness the perfect analogue: the housing bubble. Everyone and their sister around here works in the real estate industry. Just like Silicon Valley was hardest hit by the tech bubble, Southern CA will be one of the hardest hit by the housing bubble bursting. What will happen when all those people working in the mortgage industry hit the streets? Analysts are taking into account the demand falloff from subprime - but what about all the people working in the industry that have done so much to help the prices blow up? When all those mortgage agents who were making big bucks stop being able to afford their prime mortgages or afford to move up, the downward spiral should continue. The Fed cant lower rates without killing the value of the dollar - so there will be no one there to staunch the flow of blood this time. I agree with whoever the previous poster was that said "blood in the streets". it is only just starting here.

Here is an appropriate counterpoint from Norm Conley of TSC.

Norm Conley
Subprime: today's monster in the closet
3/19/2007 3:00 PM EDT
For those of you who think that the market is headed to hell in a handbasket because of subprime loan problems, rest assured that lots of very smart people share your point of view. Over the past month, thanks to our handy site archive tool, I see that there have been over 400 articles referencing "subprime" on Street.com sites over the past month. Type in "subprime problems" on Google, and you get more than 1.3 million results, which is slightly more than the 1.1 million hits you get when Google "Anna Nicole funeral." Just about everyone knows that there are big problems in subprime.

Could subprime be a catalyst for a disaster that unravels the entire stock market? Sure it could. Anything can happen. But the likelihood of a market event occurring is inversely-related to the number of people who are predicting such an event. Since lots and lots of people think that subprime problems are very worthy of our rapt attention, I deduce that a subprime-led market crash is a very remote possibility. Investors should plan for it like they plan for other remote possible occurrences like natural disasters, terror acts, pandemics, etc. Which is to say, if you are spending way too much time thinking or worrying about subprime because the internet and CNBC tell you that you should worry about it, you should probably grab a cup of tea and chill out.

Good counterpoint. I agree that the issues in subprime do not necessarily signal a huge market downturn. I realize that the micro-economy of San Diego is much different from the rest of the US as a whole. however, just like sentiment played the biggest role in the final runup of the internet boom, and sentiment played the biggest role to a overdone downside correction, so too does sentiment appear to be playing such a major role here. Even if the most severe consequences of the downturn are restricted to California and Florida, let's say, you're talking about two of the most populous states. No way you can put all those contractors, real estate agents, mortgage writers, home improvement materials peddlers, etc out of business without a big blow being delivered. Too many people down here made too much money on the boom. Now the money spigot has run dry, where will they find the money to keep consuming?

ALOHA !!

Two charts to show you historical real estate bubbles compared to the one we are now in that I will call the "Al Bubble"! How is that the US Federal Reserve Bank has been a benefit to the average US citizen? Have you heard this expression? The Golden Rule: Who ever has the gold makes the rule! How about this one? In Rodney Dangerfield lingo ... My wife and I had a gold mine I tell you ... A GOLD MINE !!! But after the divorce she got the GOLD and I got the SHAFT!

This first chart shows San Diego,CA ...
Link: http://www.nowandfutures.com/download/san_diego_housing_showing_cycle1977-2005.jpg

The history of housing prices shows a total historical imbalance. Can you spot the bubble we are currently in and compare it to past "bubbles"?

Link: http://www.nowandfutures.com/download/history_home_house_prices1890-2006.gif

Bubble Bubble Toil And Trouble ... here is the key factor in this bubble were in now ... one word ... E-Q-U-I-T-Y !!!

Link: http://www.nowandfutures.com/download/owners_equity_in_homes1945-2006(ci).png

Who says banks don't depend on mortgages? Bank assets have grown as fond of real estate as the rest of us. Or is it their fees they are fond of? What the heck they can always call Ben to print some more IOUS !!!

Link: http://www.nowandfutures.com/download/home_mortages-banks_percent_of_assets1952-2005.bmp

I have no doubts the downside is more down than we care to imagine. I mean get serious here ... Where is our savings we can fall back on? Where is our home equity? Where is our manufacturing? Where is our export market? Where is our bank reserves? Where is our dollar? Where is our safety net?

Well damn I was right about someone rescuing LEND and providing a short term trading opp. Too bad I chickened out on that one - could've made a quick triple.

Yeah thanks for those charts. I remember a couple years ago seeing similar charts and wondering how it could not be obvious to anyone with half a brain and a smattering of economic knowledge this thing had to pop sometime. I still cannot believe everyone is expressing such shock and surprise at the speed with which the market has imploded. Ummm, hello, that's what happens when bubbles pop, they deflate quickly.

I don't buy any of the wholesale doom and gloom scenarios either though. Too many rich people with too much lobbying power have too much riding on this. It'll be like the stock market crash. We should have seen Dow 5000 when the internet bubble burst. INstead we didnt quite get down to Dow 7000 before Greenspan hit the nitrous button to build a fresh house of cards. Ever since then, I've been under the firm believe that macroeconomically, things did not regress to the mean, and we'd be paying for it again soon. That soon would appear to be this year. Then they'll do something to prop it up artificially once again, whether it's persuading China and Korea to keep buying our bonds even if we lower rates, or whatever.