If there was ever a nervous market it is now. If someone says "boo" the market sells, if someone says "don’t worry" everyone buys. You have to realize that the market right now is as nervous and jittery as ever. Jobless claims increased, inflation is increasing, losses grow, and the fear of the bond insurers is giving the market severe panic attacks.

We opened the day lower and sold down significantly after the start. As the day progressed the conference call by MBIA was getting underway. MBIA executives tried to paint a rosy picture on the health of their company. This smooth and reassuring talk by MBIA was the xanax for the market and it went into happy mode. But at the end of the day there was a fast sell as many people don’t want to be holding money in the market with the official unemployment report coming in tomorrow.

I was thinking back to the recession and tech bubble bust of 2000 / 2001 and the bear market which followed. That bear market was much more ‘calm’ than the turmoil we are experiencing currently. Back then it was a recession that was brought on by corporate earnings and over valuations. And then the many dot com companies that failed which took unemployment up and recession followed. Today the market is more nervous as the risks of what ‘could‘ happen are much higher. At risk is our financial system and our livelihood. Thoughts of a ‘run on the bank’ and the loss of savings accounts if a bank becomes insolvent are at risk if there is a collapse of the financial system. Now I understand that the risk of such an event happening is generally low, but the fact that it is there at all is enough to create extreme anxiety in the markets.

At the center of all of this right now is the bond insurer mess. And it is a mess. The credit rating agencies are at the cusp of lowering their ratings and stripping them of their AAA status. So much money is tied up with these bond insurers that the removal of that rating would trickle down into so many places that it is almost too scary to picture. At risk is pension funds, CDO’s, SIV’s, municipal bonds, and commercial real estate. A worst case scenario would be the seizure of bank operations as losses escalate to proportions that force them to shut their doors to control the flow of money until the situation gets controlled, pension funds for government and private sector employers could be wiped out to near nothing in an instant, and municipal bonds and the projects funded by them would be put at risk of being halted, and that in turn would lead to more people out of a job. The image is a scary one, but real. This is why there is so much attention being placed on the bond insurers and what will happen next.

Before the market opened there was thoughts that one of the ratings agencies would issue a downgrade as soon as today, especially after MBIA (MBI) released their earnings and reported a record loss of $3.2 Billion dollars. A loss of $3.2 Billion dollars in only three months! That kind of loss was thought to make the rating agencies move in and make their rating cut. But it did not happen (yet). Instead MBIA conducted a 4 hour long conference call with slides and much discussion. MBIA executives attempted to describe their health as good and well capitalized to withstand the worst conditions. Lisa was kind enough to sit through the entire 4 hour long conference to learn first hand what it was they had to say. After going over the details and seeing the slides from the conference she sent to me I have to say that it was a gallant effort on MBIA’s part to plead with the rating agencies to let them keep their AAA rating. And pleading it was, but will it work? There are many forces at work behind the scenes to prevent this from happening. The credit rating agencies are under scrutiny for why they have maintained the AAA ratings this long, why were they not on top of this problem sooner as the credit crisis was unfolding. Then there are the politicians, the NY insurance commissioner, and many others trying to keep the bond insurers propped up. And an outright ‘bail out’ by the US Government is not out of the question either. It is a very fluid situation and we are sure that every effort is being made to keep the bond insurers from becoming insolvent. But the market knows there is a chance that these gallant efforts might fail. And if it does then at risk is $673 Billion at MBIA and $556 Billion at Ambac (per recent estimates). That is a lot of money that is at stake should these companies lose their ratings.

Swing trading is tough in this anxiety ridden market. Holding anything overnight at this juncture leaves us at risk of a substantial loss should the market gap lower (or higher if we are short) the next day. At the time I am writing this commentary the S&P futures are once again down and at this time would indicate a gap down open tomorrow. Presently the futures for the S&P are down 0.45%.

A question was asked today about the financial sector (XLF). The trend line on the chart shown below has been "punctured" but has yet to close above the trend line. Old school technical analysis teachings say that for a trend line break to be considered valid it must trade above (or below) that trend line for 3 trading sessions. So if we are looking at a daily chart we would want to see three back to back days where the price remained on the other side of the trend line for it to be considered support and no longer resistance. While not all technical traders adhere to that rule by the book, they do view it as a higher level of confirmation when it happens. The XLF has yet to close above the trend line even once yet. We will likely be taking on some swing trades on very select financial stocks once we feel the time is right. But we have to tell you that we are still VERY concerned about the bond insurer situation and the markets will drop substantially if the ratings are cut.

Hours after MBIA concluded their presentation and conference call Standard and Poors put MBIA on notice of a possible ratings cut. I guess they were not impressed with the presentation!

Quite the rally today, huh?  If you weren’t in it don’t be upset.  We’ll have a full summary tonight of where we are and what happened today.  I know I’ll sound like a bear, but I’m just not excited about this rally.  If it is to continue, we’ll participate, but we will let you know.

I listened to the MBIA (MBI) conference call today.  4, count ‘em 4 (four) hours!!  There will be a lot of talk about what they said, but here’s a little something I took away from the call:   Bore everybody to death with a bunch of cheerleading and repetition, occasionally answering a pertinent question with an honest answer, refuse to answer other pertinent questions, and by the time it’s over maybe everyone will just remember the cheerleading.  Now aren’t you glad you weren’t dumb enough to listen for four freaking hours?!  The NY Fed is said to be ‘in close touch’ with NY Insurance commish Dinallo, but only to advise.  Didn’t we just hear these bond insurers needed a bailout?  Now everything appears to be hunky-dory, as NY Governor Spitzer says he feels they are making good progress with bond insurer stabilization plan.  Well, ’scuse me, Gov, but according to MBIA’s conference call, they don’t need any stabilizing help from anybody.

Yesterday Fitch downgraded FGIC, and today S&P removed AAA rating from 29 FGIC issues.  S&P put MBIA and XLCA on negative watch.

Google (GOOG) missed on their earnings numbers:  Q4 $4.43 v $4.44est., Revenues $3.39B v $3.45B est.  Shares are trading down after hours by 31.00, conference call later.

I’ve got to run, but there will be more posts later.  A lot of information to go over and digest.

Sorry, will have later update.  I’m listening to MBIA conference call.

Chicago Purchasing Manager’s Index:  51.5 vs 52 est.

- Prices Paid: 81.7 v 63.8 last
- New Orders: 44.7 v 58.4 last
- Employment: 47.0 v 49.0 last
- Inventories:  51.1 v  44.0 last
- Supplier Deliveries: 61.7 v 47.9 last
- Production:  51.3 v 55.4 last
- Order Backlogs: 48.0 v 60.7 last

No slowdown, no inflation?  Not according to these numbers.

Our markets are in for yet another volatile day and currently futures are down significantly. In the overnight hours futures recovered somewhat but this mornings data on unemployment have sent recession fears to fever pitch once again.

The weekly jobless claims have risen significantly…

INITIAL JOBLESS CLAIMS: 375K V 319KE; CONTINUING CLAIMS: 2.716M V 2.685ME
- Prior Jobless Claims revised from 301K to 306K
- Prior Continuing Claims revised from 2.672M to 2.669M

Key numbers there is the continuing claims continues to rise. And the weekly jump continues to raise the moving average as unemployment is showing signs of getting worse. This data had a significant impact on the futures this morning.

Additionally, personal income is NOT keeping pace with inflation and personal spending remains very weak.

MBIA (MBI) will hold their conference call this morning at 11am. However, they are not going to take any live calls for questions. They will respond to email questions only and the questions will be pre screened. This is highly unusual. MBIA is a public company, and for them to handle their conference call in this manner is concerning. The bond insurer issue is a serious problem and we can’t stress enough how bad the problems are with these companies.

Something to think about if you are in the market for a home.  See the article:  What Median Home Prices Would Look Like If the Bubble Never Happened.

 http://homeguide123.com/article_directory/Housing_Market_Watch.html

Before today’s announcement from the Feds at 2:15 pm there were people saying that another big rate cut will be just what the market needs to rally the bulls. Well, the Feds did cut again and they went with a 50 point cut and the rally lasted all of 45 minutes before it died. Even before the rally ended we could see that it was not going to hold. Watching the tape right after the announcement we saw that the buying was weaker than one would expect following a rate cut. But today’s rate cut in my view is just adding to the fears that our economy is very ill and the credit crisis is just getting worse.

When I look at the intraday charts from today I see that the rally was losing steam almost as soon as it left the gate. And then once it failed the selling volume picked up in intensity. On the Financial ETF (XLF) the down trend line held tightly and we failed to break resistance. There is still lots of economic news to be issued but today’s action tells me that we are still very likely to see further deterioration in the markets, perhaps even very significant deterioration.

Right now there are more concerns (again) over the bond insurers. Ambac (ABK) and MBIA (MBI) are scrambling to save their credit ratings and the companies themselves. Should either of these two companies lose their credit rating the implications will indeed be far reaching. As we have spoken of this many times before, these two companies are in danger of collapse. Today we learned that Moody’s or Standard and Poors "may" be very close to a decision on what they will do with the ratings of these companies and an announcement may be very close. Tonight, at 12:06am here in the United States MBIA released their earnings for the 4th quarter. Their 4th quarter results was a record loss of $2.3 Billion. EPS was -$3.30. In a desperate attempt by the company to draw attention away from their substantial losses the CEO made a long statement about how they feel they are well positioned now to maintain their credit rating with an added capital investment of $500 million from Warburg. We should note that $500 million is in our view like pissing on a 5 alarm fire, it would take hundreds of billions to shore up the bond insurer crisis. The CEO is desperately trying to make his company appear sound and well funded in order to maintain it’s ratings. This story has many chapters to go, but we hope the last chapter is not the story of a total collapse of our financial system.

Some charts from today. The financial sector (XLF) was unable to break resistance today, the trend line remains in tact at this time. The second chart is an intraday chart of the S&P (SPY).

Chuck has been detained, so I’ll make a few notes here.  We all know he gives much more colorful wrap-ups and I’m sure he will post regarding today’s action as soon as possible.

The market reaction today was a continuing vote of no-confidence.  The XLF (financials) rose to the trendline and pulled back hard.  The futures overnight are dropping and the dollar is up a little at 75.26.  S&P has stated that they expect more losses from some large European banks.  According to a report by Bloomberg, S&P has lowered or may cut ratings on $534 Billion of residential mortgage securities and collateralized debt obligations.

I’m a little more worried about our own financial institutions.  Here’s a link you may find interesting, and I’m still researching the full implications of this:  http://www.federalreserve.gov/releases/h3/Current/  and this: http://www.fdic.gov/news/news/financial/2008/fil08002.html

According to ICI (Investment Company Institute) US Muni Bond funds saw December net outflows of $3.48 Billion compared to November outflow of $1.12 Billion.

I know some of you hold this stock, so I’m posting their earnings.  Altria Group (MO) reported earnings for Q4 of $1.00/share vs $0.97 est., revenues were $9.3B vs $9.19B est.  They announced they will spin-off an international unit by  3/28/08, and there will be a $7.5B post-spin off buyback program over the next two years.  The post spin-off dividend is to be $1.16/share annually.

More later.

Amazon (AMZN) reported Q4 earnings of $0.48/share in line with consensus and revenues of $5.7B vs $5.37B estimates.  They guided Q1 and FY08 higher than estimates and they are still trading down after hours.   Starbucks (SBUX) suffering the same fate.  After the rate cut announcement, the indices jumped, with the Dow up almost to 12700, but it was turned away and closed down 37 points at 12442.  What?  You expected some kind of sanity today?  Volume to the upside was not impressive, but volume to the downside was high.  There’s a rumor that a ratings agency may downgrade a bond insurer today.  The only thing we know right now is that S&P has taken action on 6,389 US subprime RMBS and 1,953 CDO ratings.  We don’t know exactly what the action is yet.

We think today’s action shows that recession fears and financial institution’s losses are stifling any enthusiasm over Fed rate cuts.  There are still too many unknowns going on with those financial institutions and the bond insurers.

Press Release

Release Date: January 30, 2008

For immediate release

The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 3 percent.

Financial markets remain under considerable stress, and credit has tightened further for some businesses and households.  Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.

The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.

Today’s policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity.  However, downside risks to growth remain.  The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh.  Voting against was Richard W. Fisher, who preferred no change in the target for the federal funds rate at this meeting.

In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 3-1/2 percent.  In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, Kansas City, and San Francisco.

Note they are not saying "appreciable" downside risk.

The Fed’s cut rates by  50bps, and discount rates by  50, as well .  The market’s reaction until the close may give an indication of tomorrow’s action, but we’ll have to see how the rest of the globe views this move.  We’ll be watching currencies and foreign markets tonight.

Q4 ADVANCED GDP ANNUALIZED: 0.6% V 1.2%E; PERSONAL CONSUMPTION: 2.0% V 2.6%E

Last quarter our GDP was 4.9%. And now the United States GDP has dropped to 0.6% in the span of 3 months. A drop of that magnitude does not go away overnight and the health of the US economy is very much in trouble. Inflation continues to be high and this concerns us just as much as the receding economy. Personal spending also has fallen officially.

Recession is here. We can argue about the number has to be officially negative or not. But recession is here and cuts by the Feds are not going to rescue the economy, at least not in the near term. We strongly believe that the housing crisis and credit crisis has indeed spread to the rest of the economy even with some talking heads saying that it is contained. If the Feds cut interest rates too much we risk sending inflation further skyward and this will actually make the economy contract further as consumer spending will drop even more. About the only thing the FOMC rate cuts can do at this point is place a few speed bumps on the road to recession, but the bus is still traveling down the road and not stopping.

Three months ago I estimated that the GDP will come in at 1.0 to 1.5. This new data this morning of a 0.6 actually has the slowing economy accelerating at a frightening pace. The markets today will be wild, should the Feds cut rates of at least 50 basis points we will likely see a surge in the markets. But, with this new GDP data we feel there will be more selling on any pops in the market. We will not be taking any positions today, even if the market appears to be running up on rate cut news. For we see another down leg even more likely now.

Not Economic Data

This morning we received the December Durable Goods data. It was an upside surprise. If you were watching the financial news stations or read in the press later you would have believed that the durable goods data this morning essentially eliminated any recession fears.

But it was a "snapshot" of data in time. As we have stated over and over here, it is not the snapshot that matters… it is the trend. The chart below shows the durable goods data up to the most recent December data we received this morning. Even with the upside surprise in the data, we are still in a down trend. The time to get excited about the data is when the trend lines change direction. Not on a snapshot in time. And as the data shows, we must see the trend change over at least two reporting months for there can always be large swings from one month to the next as was the case in April 2000. And even with that large spike the trend still remained down and we went into a recession and the tech bubble burst which brought the markets down substantially.

So I say to the news media, look at the trends, not the snap shots.

Sphere: Related Content

People talk about Mr. Bernanke catering to Wall Street, instead of worrying about Main Street, but they are forgetting an important point.  We don’t need falling housing prices and a falling stock market.  People know they are losing some value in their homes, and then they get their 401(k) statement, only to see more losses.  So you end up with headlines like this:  Weekly ABC Consumer Confidence for the week ending Jan. 27 is -27 versus -23 prior.  That’s the lowest reading since December 1993.  Predictions of what the Fed will do range from no cut to 75bp cut.  Some feel they’ve cut enough for now, others feel we need more so just cut as much as possible in one fell swoop.  I think they will cut 50, Chuck is pulling for none to 25.  Many are also wondering when the ECB will cut, but they are dragging their feet, concerned about inflation.  Our Fed should be concerned about that, too, but I’m not a voting member so what I think doesn’t matter to them.

This has been and continues to be an unpredictable week.  There has been little reaction in the markets to the abysmal housing numbers or the fact that bond insurers are in major trouble.  The strange and convoluted remedies being proposed to fix that mess are hopeless.  The fallout remains to be seen.  And it will be seen.  In regards to the bond insurers, Connecticut’s Attorney General has subpoenaed the ratings agencies and bond insurers in a subprime probe, and NY state regulators are rethinking a loophole that allowed bond insurers to issue credit default swaps on asset-backed securities by using shell companies.  For a little more explanation (hopefully) on that, read  William Ackman’s letter to the rating agencies regarding bond insurers.  This whole thing is an incestuous mess.

Lehman’s (LEH) is increasing their annual dividend to $0.68 from $0.60 and continuing a $100 million share buyback.  PFF Bancorp (PFF), unfortunately, is suspending their quarterly dividend, after reporting Q3 earnings of -$0.65 and net interest income decreased $4.9 million.  I’m sure the banks in the UK are just fine, but just in case, the UK government will propose a new law that would increase the power of authorities to intervene if a bank should fail.

Our stock market is just fine, too, but just in case, the SEC is expected to enable Chinese banks to set up mutual funds targeting US stocks (WSJ report).  Maybe they’ll buy Yahoo (YHOO), which lost a couple of bucks after hours.  They reported Q4 $0.15 v $0.11 estimate, revenue of $1.40B v $1.41B.  Guiding Q1 revenues $1.28B-$1.38B v $1.36B estimates.  Yahoo is cutting 7% of their workforce (1,000 jobs) and may cut more.  They report they are expanding a "strategic alliance on wirelesss and PC screens with AT&T, but there aren’t any details on financial terms.

After the big meeting in Davos, everyone seems to have a positive outlook on the future.  CEO’s are no longer talking recession, growth looks good and ‘overseas’ growth is wonderful.  I’m thinking they all got the memo that told them to knock off all that negative talk, it’s just adding to the worry and panic.  I can just hear them now: "repeat after me:  We will not have a recession (but if we do it won’t last long or be bad, so let’s cut rates) and China/India are experiencing explosive growth (ignore anything you hear to the contrary, even if it is from their own governments)."  Whatever remedies the governments have up their sleeves, we still have to wonder whether it will be enough to keep the stock market from heading into deep bear territory.  The political maneuverings are swift and the propaganda machine is working overtime.   We will watch the charts and the trendlines.  It’s all we can do.

On a happy note, Tupperware (TUP) reported Q4 $0.93 v $0.80 estimate, revenues of $577M v $532M estimates.  That’s more than they guided last quarter.  I guess we’re all saving more leftovers.

We’ll see you tomorrow for what I’m sure will be another strange day on Wall Street.  Stay tuned.

Volume started to really dry up going into the afternoon session. People are putting up the storm shutters and pulling in the lawn furniture for tomorrows Fed announcement.

The major indices all advanced today but again it was on light volume. I get this feeling the market is building up for a letdown. But we shall see tomorrow at 2:15pm. Even with another large rate cut it still may not be enough to stop the direction the market has signaled it wants to go. And that is further down ward.

The day was very uneventful once we got past the first 2 hours of trading. Then it moved in slow motion. Tomorrow is when the real fun begins, how it will go only Uncle Ben knows! Seeing the averages move up on low volume and up to resistance just has the makings of a sell off in the works. We have to wait and see.

Markets are trading in a narrow channel again today.  Everyone is talking about the rate cuts, do they or don’t they and how much.  Former high flying VM Ware (VMW) has been cut down hard in trading today.  We are certainly living in interesting times.  News is fairly slow today, but I’ll update the more interesting items in the wrap-up tonight.  Feds are in their meeting now digesting all the new economic numbers.  Durable goods orders were up, but housing continues it’s abysmal downward pace.  I’m not expecting much from the markets today other than the scalping opportunities for the nimble trader.  See you later.

Durable Goods data for December came in higher than expected. Later I will do a chart on this data. But durable goods is a volatile indicator and it’s impact on the market is not as strong as talking heads will make you believe. Additionally the larger durable goods data for December is not all that surprising when we go back to our analysis of consumer spending during the holiday spending period. More on this later.

Home prices have dropped again, S&P / Case Shiller index now negative 7.7%. Will do a chart on this as well tonight.

US Steel (X) reported earnings and were a significant miss. Manufacturing in this country is still a very big concern for us and the miss from US Steel is somewhat concerning for this industry in the United States. Many other companies reporting and we are still looking at each of them, but headlines have not been overly impressive.

The volatility in the markets will increase this week and is why we have stayed in cash (not taking on new positions). Smart traders realize that trying to trade within a market full of major news is too risky. The volatility and gaps up and down can take out a position in a heartbeat. We are day trading and doing some good trades. But swing trades is on hold during this weeks volatile conditions as our experience tells us this is the prudent position to have. I am hearing of other traders trying to swing trade in this mess this week and are taking on losses and getting angry that the market is not co-operating with them. There are times to be swing trading and times to not be. This is why we are remaining in cash this week as far as the swing trade are concerned. Day trading is another story as we have greater control over our positions.

Soon you will be able to participate in our day trades as well.

I have not yet watched the President’s State of the Union address so I can’t comment on any of the economic issues he may have discussed. I recorded it so hopefully I can view it after my writing this commentary tonight.

As we said on Sunday night we were going to be in for a wild week. And today lived up to that expectation. Futures were down substantially in the pre market hours today and slowly recovered off their lows. After the market opened we very quickly sold down 100 points on the DOW and then recovered to the upside 176 points. Makes taking on a swing trades in this environment so difficult. That is why we said to preserve capital this week, for it will be whipsaw central until the major economic news this week is cleared out of the way.

Discussion of what the FOMC will do on Wednesday remains central to most every talking head in the markets. 25?, 50?, or even nothing is being bantered about. For the long term health of the economy I hope they don’t cut 50 basis points. For that will surely kick the dollar into a nose dive I feel. Gold is already setting new records as the anticipation of a weaker dollar and a weaker economy continues to play out throughout the world. Gold is becoming the new world currency for traders as it is being viewed as one of the few assets that remains somewhat safe in the eyes of traders and investors. But even Gold comes with a certain amount of risk, it is just that Gold is viewed as the least risky at the moment. Ever since last August when we recommend buying Gold it has increased nearly 45%. I still maintain a substantial position in GLD but I keep a tight grip on it and any substantial pullback due to economic events I will take my profits.

We had a slew of earnings today and for the most part they were on the weak side. There were many that reported in line or better than expected for the quarter. But when it came to revenues and guidance we saw many that were lower than hoped for.

On the charts of the major indices today it was another case where the upside volume was lower than on selling days. Confidence is still lacking and it shows in the charts. Price action today was bullish, but other signs remain bearish. There is so much information being whirled around by politicians and analysts that we feel many in the investment community are just over whelmed with conflicting information. We remain true to our views that the economy is still deteriorating and will remain so until we see real evidence to the contrary. So far that evidence has not appeared. It has been truly difficult to separate fact from fiction these days. And as our long term readers here already know, we remain focused on the facts and evidence before us.

There has been a big controversy brewing at CNBC these past few days with a recent argument recently between Jim Cramer and Rick Santelli, both CNBC reporters/commentators. Last year when the credit crisis began to unfold in earnest Jim Cramer continued his very bullish outlook for the markets. Even having going as far to say one day on his show in August that people should not pay any attention to people who say the market will go down. And he went on to say that those people who say the value of the dollar will go lower don’t know what they are talking about. Well, Mr. Cramer got it wrong big time. And last week Rick Santelli of CNBC put Jim Cramer on the spot by denouncing his bull mantra all while the signs of danger were all around. And of course we know what happened, those danger signs came true. If Mr. Cramer was still running his hedge fund he would most likely gone under from all the losses he took on because he ignored the facts. When it comes to money management Lisa and I have been more on the mark with predicting what was unfolding in the markets then a lot of people. Hey CNBC… Lisa and I are open to hearing from you for our own show.. we will call it "Smart Money". We got it right, and the famous Mr. Cramer got it so wrong. He ran a hedge fund? I’m glad he does not run any funds anymore but his damage to the average investor is just as bad.

A thank you to the mysterious Don Harrold who put this video together.

American Express (AXP) reports Q4 earnings of 71 cents/share, inline with estimates.  Revenues were $7.36 Billion versus estimates of $7.85 Billion.  The conference call starts around 5pm ET.  Trading down about $2 after hours.