RebelTraders

A Senator has asked Bernanke about the poor savings rate in the US.  He asked Bernanke how people were going to pay for their needs, and save money at the same time, if wages didn’t increase.  Bernanke’s response went something like this:    People need higher paying jobs, which requires more education and they need to be (almost) forced to contribute to 401(k).

Ok.  More education?  The government has done an outstanding job of lowering the standards in public education for decades.  I also know plenty of people with advanced degrees, who are unemployed or under-employed.  Strike one.

Contribute to a 401(k).  Who gets to manage that money that is contributed?  That’s right, the same people who are causing most of the losses right now in the market.  Strike two.

Higher paying jobs.  Educators should be the highest paid professionals, for starters.  Our economy is overwhelmingly a service economy, and you aren’t going to find the "higher paying jobs" in that sector. Strike three.  

*DOE CRUDE: +3M V -2ME;  GASOLINE:  +2.4M V -100KE;  DISTILLATES: +3.2M V +1.8ME;  UTILIZATION:  89.5% V 89.3%E
*API Inventory:
- Crude Inventories: +5M
- Gasoline:  +1.6M
- Distillate: +5.4M
*DOE:
- Distillate Demand -146K bpd to 4.12M bpd
- Gasoline Demand -3K bpd to 9.34M bpd

The build in crude is leading to a drop in the oil price.  It’s trying to put some steam into the rally, but I would still be cautious of the initial reaction.

We are seeing some wild movements in the S&P futures this morning. Very difficult to gauge where the market is going today. The headline news of the morning was the large increase in the Consumer Price Index (CPI). We had been saying for months that the Government data was incorrectly reflecting ‘real world’ economic factors for the average person. Today’s increase in the consumer inflation data is the beginning of Government data catching up to actual impact of the economy on you and I.

Today is part 2 of the Ben Bernanke show. Today he speaks to the House of Representatives beginning at 10:00am EST.

Earnings today:

Before the Open: ABT, AMB, ASML, DAL, DSL, GCI, HST, NITE, LSTR, LUFK, MI, MTOX, VIVO, MERX, NTRS, ORCT, PJC, STJ, WFC.

During Trading Hours: AMR, CBSH.

After the Close: ADS, CAVM, CCK, DTLK, EBAY, HOKU, KMP, KFN, LHO, PLCM, RECN, SSW, TER, TBI, UFPI, XLNX, YUM.

Occasionally I make the request that more of our readers chime in and let us know you are out there. If you are a reader of our site please say hello to us, let us know you are out there and share with us your thoughts.

Ugly, just ugly. 

JUN CONSUMER PRICE INDEX M/M: 1.1% V 0.7%E; CPI EX FOOD_ENERGY M/M: 0.3% V 0.2%E; CPI NSA:  218.815 V 217.903E
- CPI y/y:   5.0% v 4.5%e,  Highest since April 1991
- Core CPI y/y:  2.4% v 2.3%e

June CPI  Table

                            June 08     May 08     Year/Year
CPI All Items             1.1%        0.6%       5.0%
CPI, Ex Food,
Energy                         0.3%        0.2%       2.4%

  Food & Beverages       0.7%        0.3%       5.2%
   Housing                        0.5%        0.5%       3.5%
   Apparel                         0.1%       -0.3%      -0.2%
   Transportation            3.8%        2.0%      12.0%
   Medical                         0.2%        0.2%       4.0%
   Recreation                  0.1%        0.1%       1.3%
   Education &
    Communication         0.5%        0.4%       3.4%
   Energy                        6.6%        4.4%       24.7%

The first thing I want to address tonight is the statement made today by Christopher Cox, Chairman of the Securities and Exchange Commission (SEC) at the Senate hearing. Mr. Cox stated that he will issue an emergency order to "Protect Investors" from what is called "naked short selling".

SEC Enhances Investor Protections Against Naked Short Selling

FOR IMMEDIATE RELEASE
2008-143

Washington, D.C., July 15, 2008 - The Securities and Exchange Commission today issued an emergency order to enhance investor protections against "naked" short selling in the securities of Fannie Mae, Freddie Mac, and primary dealers at commercial and investment banks.

The SEC’s order will require that anyone effecting a short sale in these securities arrange beforehand to borrow the securities and deliver them at settlement. The order will take effect at 12:01 a.m. ET on Monday, July 21. In addition to this emergency order, the SEC will undertake a rulemaking to address these issues across the entire market.

"The SEC’s mission to protect investors, maintain orderly markets, and promote capital formation is more important now than it has ever been," said SEC Chairman Christopher Cox. "Today’s Commission action aims to stop unlawful manipulation through ‘naked’ short selling that threatens the stability of financial institutions. We will continue our vigorous commitment to investors by working within the SEC and in close cooperation with our regulatory counterparts to promote the continued health and vibrancy of our markets."

The Commission’s emergency order, pursuant to its authority under Section 12(k)(2) of the Securities Exchange Act of 1934, will be effective at 12:01 a.m. ET on July 21, 2008 and will terminate at 11:59 p.m. ET on July 29, 2008. The Commission may extend the order to continue it in effect thereafter if the Commission determines that the continuation of the order is necessary in the public interest and for the protection of investors, but for no more than 30 calendar days in total duration.

# # #

The securities identified in the Commission’s order:

Company                                                Ticker Symbol(s)

BNP Paribas Securities Corp.         BNPQF or BNPQY

Bank of America Corporation          BAC

Barclays PLC                                      BCS

Citigroup Inc.                                      C

Credit Suisse Group                         CS

Daiwa Securities Group Inc.           DSECY

Deutsche Bank Group AG               DB

Allianz SE                                           AZ

Goldman, Sachs Group Inc             GS

Royal Bank ADS                               RBS

HSBC Holdings PLC ADS               HBC and HSI

J. P. Morgan Chase & Co.               JPM

Lehman Brothers Holdings Inc.     LEH

Merrill Lynch & Co., Inc.                   MER

Mizuho Financial Group, Inc.         MFG

Morgan Stanley                                 MS

UBS AG                                              UBS

Freddie Mac                                      FRE

Fannie Mae                                      FNM

http://www.sec.gov/news/press/2008/2008-143.htm

Ok, so what is going on here and why the emergency order? We feel that this action is nothing more than a diversion by Ben Bernanke and Hank Paulson, and they have roped in Chairman Cox to play along. There are already rules and regulations on the books with regard to naked short selling. Today’s emergency order in my view was nothing more than an attempt to make the public think that the problems with the banks are a result of ‘market speculators’. Similar to the recent talk that oil prices were all a result of speculators, this order is nothing more than an attempt to make the average person think that the losses in their 401K’s and IRA accounts is a result of market speculators and people who short stocks.

Ben Bernanke and Hank Paulson know the real story. They know that the losses that banks and financial institutions have been suffering are very real and very likely to be much worse than what has been reported so far. Stock prices have been declining because of a lack of confidence in the companies and their ability to continue to making profits. Bernanke and Paulson are attempting anything and everything they can to save the financial system from complete failure and they are now attempting scare tactics and a public relations campaign to shift the blame of bank failures to ‘market speculators’.

This is complete nonsense in my view. I wonder how long it will be before Ben and Hank enlist the military to fly blackhawk helicopters over anyone who speaks the truth about the economy, housing implosion, and the credit implosion. Because the SEC already has rules and regulations to restrict naked short selling there is no need for an emergency order. So it is obvious that this is clearly a public relations campaign to shift the blame to the stock market participants for all the problems. Perhaps Bernanke and Paulson hope that this order will scare people holding shorts in the market to cover, irrespective of whether they are naked shorts or not.  But the main purpose of this order in my opinion is to make the American public "think" that the problems with the banks are all due to actions within the stock market alone. They are attempting to re-direct the anger of the general public who have lost lots of money in their investment accounts from Washington to Wall Street. And that is simply wrong!

The general media does not understand what naked short selling is. So their coverage of this will be distorted and confusing. And the result will be exactly what Bernanke and Paulson want… make Wall Street "speculators" appear as the bad guys for everything wrong in the banks. Even those in the media who should know better are getting it wrong. In a Bloomberg article they say:

July 15 (Bloomberg) — The U.S. Securities and Exchange Commission will limit the ability of traders to bet on a drop in shares of brokerage firms, Freddie Mac and Fannie Mae as part of a crackdown on stock manipulation, the agency’s chairman said. […]

(full article here)

Notice how their opening paragraph is misleading. It says the SEC will limit the ability of traders to bet on share prices dropping. This is NOT what the emergency order is about. The SEC can’t stop people from shorting stocks, it is a perfectly LEGAL and normal part of how Wall Street has worked since the beginning. But the media is distorting the facts so the general public who does not understand the facts will put the blame of their hardships on hedge funds, traders, and anyone else who is shorting stocks in the normal fashion. Naked short selling is NOT allowed, but it still occurs. But naked short selling is not the problem nor is it the reason for the banking troubles. Washington just wants YOU to think it is.

For a complete description of naked short selling see this explanation on Wikipedia.

Now on to the market technical’s. Pick a chart, any chart. And it will most likely look as if has been through a war. The market has continued to decline even with technical indicators screaming that a bounce is due. Many technical indicators are at a point where a bounce in the market can be expected however the confidence in the economy continues to weaken further and has kept any bounce at bay. The long term outlook for the market continues to be bearish. The short term is very difficult to predict here. It is at these kinds of extremes in the technical indicators that a rapid and strong bounce can take place at any moment,  and it can also be a pre cursor to a violent and sharp sell off.

Our recommendation at this juncture is to stay on the side lines. Unless you are an experienced day trader it is safer to not try and swing trade the market at this time. Preserve your capital. We anticipate a large move coming in the broad markets soon, we just can’t say which direction it will be yet.

Technical’s and fundamentals are at war right now. 

One Senator was willing to stand up for the American people today at the hearing with Ben Bernanke, Secretary Hank Paulson, and SEC Chairman Christopher Cox.  Irrespective of the political party that Senator Jim Bunning of Kentucky belongs to, Washington needs more people like him.

Secretary Hank Paulson in my view will go down as one of the worst Treasury Secretaries in US history.

Click on image to be taken to video.

Last Friday the new Operating Officer of IndyMac Bank (who was appointed by the FDIC) said the FDIC takeover would be a "non event". He also stated that come Monday morning it would be ‘business as usual’.

In California where IndyMac Bank has their retail banking offices it has been anything but business as usual. Reports of police having to be called in, fights breaking out in lines, and people being turned away unable to get their money.

If this is a sign of what is to come as more banks fail then I don’t hold out much hope for the FDIC to manage anything.

This was too good not to post, for those of you who didn’t see the hearings today.  I don’t know this Senator Jim Bunning from the lovely state of Kentucky, but today he did Kentucky proud.  At least someone said it, even if it’s too little, too late.  Here it is:

Intel reports Q2 of $0.28 vs $0.25e, Revenue $9.5B vs $9.32B expected.  Looks like they beat.  Here’s the other tidbits of their earnings:

REPORTS Q2 $0.28 V $0.25E, R$9.50B V $9.32BE
- Guides Q3 Rev $10B-$10.6B v $10.1Be
- Guides Q3 GMs 58% (+/- a couple of points)
- Sees 2008 Capex at $ 5.2B (+/-$200M)
- Q2 GM’s 55.4%

Just for comparison, this was the Q1 report: 

Intel reported Q1 $0.25 with Rev. of $9.67B, which was basically in line with expectations.  Here’s the rest of last quarter’s tidbits:

- Guides Q2 Revenues $9.0B-$9.6B v $9.23Be
- Guides Q2 GMs 56% +/- "a couple points"
- Sees 2008 Capex at $5.2B plus or minus $200M (unchanged from prior guidance)
- Q1 GM 53.8% v 54% +/- 1%e
- Guides FY08 GM’s 57% +/- "a few points"

Intel Corp CEO: PC market is "strong," continuing to grow, companies’ spending on productivity in "downturn" - shareholder meeting comments

What does this tell us?

MARKET INTERNALS UPDATE AT 3:30PMET
-  NYSE volume 1.49B shares, about 25% above its six-month average; decliners and advancers are about even.
- NASDAQ volume 2.35B shares, about 35% above its six-month average; decliners and advancers are about even.

It tells us the market was a bloody battlefield today.  That was quite the sell off into the close, with the Dow swinging a good 200 points today, I believe, to end down by 93 points.  The dollar is still losing ground and oil is budging below $138.

I’ll have Intel earnings as soon as they come out.  Stay tuned.

In essence, Paulson and Bernanke have asked for a blank check to use as they see fit for Fannie and Freddie.  I’m speechless, for now.  And this garbage about an "Emergency Order" to curb short selling in Fannie and Freddie, to make short sellers meet conditions (whatever that may be) is the biggest load of **** I’ve ever heard.  Apparently, everything happening in the financial stocks is because of short sellers, not a fundamental crisis.  More details on this later.  "Wow", is about all I can tell you right now.  I wish I could be more analytical and eloquent at this point, but I’m just as susceptible to being blown over as the next guy.

The bulls and bears are battling it out today.  The testimony before the Banking Committee is really nothing new, but the market is jumping around faster than a long-tailed cat in a room full of rocking chairs.  Oil prices dropped, but I expect that to be short-lived.  Don’t forget that the market AND oil prices can drop at the same time, there isn’t a sure-fire inverse relationship there.  Stay safe everybody.

This is what SEC Chair Cox said:

SEC’S COX SAYS WILL ISSUE AN ORDER LIMITING NAKED SHORT SELLING OF FANNIE AND FREDDIE

Pardon me, but isn’t naked shorting already against the rules?  And he says he wants to "limit" naked shorting?  I’m listening to the hearings and these guys are not making any sense at all.  AT ALL.  I’m thoroughly disappointed in everyone involved in this hearing today.  Sad, so very sad.

Do we bounce from here or fall into the abyss?  Wish I knew.  That’s why I’m on the sidelines today.  Here’s more from Bernanke and Bush:

FED’S BERNANKE: HOUSING MARKET IS THE CENTRAL ISSUE FOR THE US ECONOMY, US BANKING SYSTEM IS WELL CAPITALIZED - Q&A
- Must be careful when changing margin requirements.
- US banks are deleveraging, banks are challenged by current credit conditions.
- Less concerned about solvency than banks’ ability to extend credit.
- IndyMac failure was inevitable, given its bad asset quality.
- Emphasizes the need for a bank-like regulator for the GSEs.

PRESIDENT BUSH: REITERATES CALL FOR CONGRESS TO REMOVE BAN ON OFFSHORE DRILLING, MUST ENSURE GSES CAN CONTINUE PROVIDING MORTGAGE CREDIT
- says the GSEs should remain shareholder-owned companies. GSE rescue plan should be part of the housing bill, and FNM and FRE plan is ‘not a bailout’, but provides temporary assistance
- notes US economy shows remarkable resilience, US banking system is basically sound.
- says no immediate fix for energy costs.

Bernanke says upside risks to inflation has intensified, but downside risk to growth is significant.  He sees consumer spending restrained.  Here’s some more: 

- Financial markets and institutions remain under considerable stress, inflation will more higher "temporarily" over the near term.
- Worried commodity prices may continue rising, as this would pose a key risk to current inflation forecast. Inflation outlook is unusually uncertain.
- Decline in USD value has contributed somewhat to oil prices. However, surge in oil prices have been mainly driven by strong demand and tight supply.

The US Dollar is tumbling.  Business inventories are at 0.3% vs 0.5% prior.  The Fed’s $75B TAF results: 

FED SELL $75B IN TAF AUCTTION,  STOP OUT RATE 2.30%, BID TO COVER 1.24X

They also conducted 28 day repo of $20 Billion.

Global markets sold off overnight on continued concern that the United States banking system in in dire trouble. S&P futures took an elevator ride down to the basement overnight before bouncing a bit at 7am EST but are still down significantly. Financial stocks are once again taking hits in the pre market as additional warnings are being circulated about various banks from analysts.

Financial analyst Meredith Whitney of Oppenheimer who has been ’spot on’ with her analysis of the banks made this call this morning on Wachovia Bank (WB)

OPPENHEIMER CUTS WB TO UNDERPERFORM FROM MARKET PERFORM
- Opco’s Whitney says outlook for shareholders is ‘bleak’

Lack of confidence continues to build worldwide in the ability of the United States Government to handle the banking crisis. IndyMac Banks’ collapse is most likely just the beginning of bank failures in the months ahead in our view. If things are allowed to continue as they have been, and if the Government attempts to artificially inflate housing prices this problem WILL fester and explode into a much larger problem. The housing market must be allowed to correct normally through the simple supply and demand process with the resulting normal price discovery process.

Only in this manner can the problems equalize and a balance be achieved. Banks and financial institutions caught in the middle by having leveraged themselves way too high is simply just too bad, they must fail. No bail outs, no tax payer rescue plans. Bad companies fail all the time and these institutions should NOT be given any special rights. Good companies are rewarded, bad companies are punished and go out of business.

Producer Price Index (PPI) data:

*JUN PRODUCER PRICE INDEX M/M: 1.8% V 1.4%E; PPI EX FOOD_ENERGY M/M: 0.2% V 0.3%E
- PPI YoY:   9.2% v 8.7%e
- PPI Ex Food_Energy YoY:  3.0% v 3.2%e

TABLE: JUNE PRODUCER PRICE INDEX DATA
                                                       JUNE      MAY      APRIL

PPI, Finished Goods                  1.8      1.4       0.2
PPI, Ex. Food, Energy                0.2      0.2       0.4
Energy                                          6.0      4.9      -0.2
Foods                                            1.5      0.8       0.0
Consumer Goods                       2.3      1.8       0.1
Residential Electricity               0.8      0.6       1.2
Residential Gas                         6.6      3.8       5.4
Gasoline                                     9.0      9.3      -4.6
Home Heating Oil                    12.4      8.0       2.2
Drugs                                         -0.1      0.2       0.7
Autos                                          2.2     -1.0       0.4
Tobacco                                    0.0      2.2       0.1
Capital Equipment                   0.3      0.1       0.4
Intermediate Goods                2.1      2.9       0.9
Ex, Food, Energy                   1.3      2.0       1.2
Crude Goods                           3.7      6.7       3.2
Ex. Food, Energy                  -0.2      5.0       7.9

General Motors (GM) announces the elimination of their dividend, cuts in bonuses for executives, the raising $15 Billion of capital by selling certain assets, and job cuts. All in the attempt to stem further losses at the big auto giant. Pre market action on GM stock has been mixed. At this moment it does not look like GM went far enough to make investors comfortable.

At 10:00am US EST Ben Bernanke, Secretary Hank Paulson, and SEC Chairman Cox will be speaking before the US Senate to discuss the economy and the markets. Also, President Bush is scheduled to hold a press conference at 10:20am to discuss the economy.

Be prepared for any ’stick save’ which might turn the market around in the short term. When there is this much political gabbing at the same time then it means they may be prepared to offer the market a piece of candy to calm it down. But, unless the Government stops trying to artificially inflate housing prices then we are in for even worse conditions ahead.

Watch the XLF, is near a strong support region which could provide a technical bounce. However we need to remind you that in this environment where fear is very high and confidence in waning it is very possible that support regions are of no substance to the market. Today remains as either a severe sell off or a wild bounce.

Where is the confidence in our US dollar; in Bernanke’s ability to stem a financial crisis; or in the earnings statements of any financial institution?  Missing in action, that’s where.

Hank Paulson, the US Treasury Secretary, says they will buy equity in Fannie and Freddie, if needed.  Credit lines are available to the GSE’s, even though they don’t need to use them, according to all involved. The government spokespeople have said that the "proposals" for the GSE’s were, in large part, to simply calm the markets. These proposals didn’t seem to have a very calming effect on the markets today. The section about asking Congress to raise the national debt limit was a big mistake on their part.  The big joke is that Fannie Mae and Freddie Mac are publicly traded companies, at all.  They are, and always have been (in my opinion) backed by the US government.  Problems inside the GSE’s are nothing new (see 2006 story here) and that’s no secret.  But, whatever the "official" status of these companies, it still comes down to the Fed’s having to back them up.  How many more institutions can the government afford to "backstop?"  Regardless what some people may say, the US does not have an unlimited money supply to bailout everyone.  There are always consequences for every action taken, and some of those consequences can be devastating.

The Wall Street Journal is reporting the following:

FINANCIALS: MORE THAN 50 HEDGE FUNDS HAVE BEEN SUBPOENAED BY THE SEC REGARDING THE AGENCYS PROBE OF FALSE RUMORS - WSJ

False rumors?  Most of the rumors I’ve heard are about the terrible financial shape of the investment banks and other financial institutions.  These rumors are turning out to be true!  Is the SEC going to go after the banks themselves for issuing those now infamous "we are well-capitalized" statements, just before running out to beg for capital?  Do you believe the following statement from Washington Mutual?  Personally, I don’t.  Does my stating that opinion constitute a false rumor?  No.

 Washington Mutual (WM) has stated the following concerning their capital standing and liquidity position:
- The company recently raised $7.2B in capital and its tangible equity to total tangible assets ratio was 7.8% as of June 30.
-  The company significantly exceeds all regulatory "well-capitalized" minimums for depository institutions.
- In addition, WaMu has current excess liquidity of more than $40B and a national franchise with approximately $150B in retail deposits.

What I see is panic, not by traders/investors, but by those at the highest levels of government and in the financial institutions themselves.  And yet, the whole time they are pleading for calm from the rest of us, while they try and figure out how to extricate themselves from the disgusting mess they made. 

Where do we go from here?  We are in a wait-and-see mode right here.  This chart is for the last three months on the Dow Jones Industrials, and I hope it shows why it makes it hard to short an index OR go long.  Just as in a bull market, where overbought conditions can last a long time,  a bear market’s oversold conditions can stay that way for a long time, too.  An outright crash is still on the table.

 

 

 

 

 

 

 

ACCORDING TO EXPERIAN, UK BUSINESS FAILURES ROSE BY CLOSE TO 20% IN H1 OF 2008 - TELEGRAPH
- The failure were concentrated in the real estate, financial services and telecom areas.
- The report adds that more firms failed between April and June than in Q1.

That’s not good news.  Here’s what’s on tap for tomorrow.  Have a great night!

Earnings before the bell:  SCHW (Charles Schwab), ETN, JNJ, STT, USB   

Earnings after the bell:  CSX, INTC (Intel)

Tomorrow’s economic news includes the following: 

8:30amET:  June PPI;  June Advanced Retail Sales;  July Empire Manufacturing

10:00amET:  July IBD/TIPP Economic Optimism;  May Business Inventories

Market Close:  Quite the quick little dump there into the close.  The financials took a beating today and some other stocks are looking weaker now.  The Dow managed to to close above 11,000, but only by 51 points.  All in all a tame sell off.  The Banking Index ($BKX) and XLF are going into the toilet.  There’s talk that Lehman’s (LEH) is thinking of going private.  Yep, we have confidence.  I’ll have a fuller market wrap up a little later, need to look at some charts to post for you.  Hope everyone had a profitable day!

Update:  It’s a good thing the Fed’s injected confidence into the market today, otherwise who knows what it would have looked like.  Washington Mutual (WM) is getting crushed today.  It does surprise me (Ok, just a little) that the TRIN and VIX are not higher.  Oil is hanging out in the $145 area, no let up in sight.

Update:  All I can say here is that a lack of confidence in our government’s handling of this latest situation is evident in the markets today.  When you lose the trust in a relationship, any relationship, it takes a long time to get it back.  Bernanke, Paulson, et al, have screwed up.  All we can do is see how this plays out.  It ain’t lookin’ pretty so far.

Update:  White House says FNM/FRE have not used new government credit lines, and that the GSE proposals were made simply to calm a nervous market.  (Strike one, it’s not working very well)

FRE COMPLETES $3B BILL AUCTION RESULTS; $2B OF 3-MONTH SOLD AT 2.309%, AND $1B OF 6-MONTH AT 2.496%
- 3 month Spread over Treasury 69bps v 51bps average spread
- 6 month Spread over Treasury 43bps v 42bps average spread
- 3 month bid to cover ratio 4.16x v 2.98 prior
- 6 month bid to cover ratio 3.73x v 2.74 prior

Currency pairs are lower after these results, showing risk aversion coming back into the market.  It’s going to be a wild ride today, people.  Bernanke is said to putting together more new rules concerning mortgage lending, and President Bush is pushing for off-shore drilling.  Oil futures above $145 right now.

July 14th - The day that the French people stormed the Bastille Fortress and marked the beginning of the French Revolution.

Will today be the stock market’s own Bastille Day? A battle is a definite, but the outcome remains unknown in the short term. Futures up significantly, bond market remains ‘uncertain’ about the future, crude oil is spiking again, and gold is holding steady.

Our recommendation is to be in cash. If (and I emphasize the ‘if’) this is the catalyst for the next bear market rally there will be time to take a position to take some profits from it. There is no need to be a bottom fisher. Our view of today’s action is that it will be filled with much uncertainty and is likely to be a wild ride. My long term positions remains firmly bearish, short term I’ll be in cash to ‘wait and see’ what happens next. Lisa and I will not be taking any new trades today.

Earnings season kicks off this week and Bernanke speaks to the Senate tomorrow. The long term reality of the market remains focused on the economy, short term excitement is likely to be heavily shorted on any spikes.

Unless you have a suit of armor, a sword, and a strong shield I would stay out of today’s Bastille Day battle in the market. Let us wait to count the bodies that remain on the floor of the NYSE to determine who won today’s battle.

In a move that was clearly aimed at preventing a market crash on Monday (or at least hoping it would prevent one), the Treasury Department issued their plan for Fannie and Freddie just moments before US futures trading began. In a rare Sunday announcement, the Treasury and the Federal Reserve issued a statement about how they will provide capital to Fannie Mae and Freddie Mac (see previous article for details).

It reminds us of the Sunday evening back in March, when the deal was announced on the Bear Stearns implosion. They issued their statement before trading began in the Asian markets, hoping to stem the bloodshed in the global markets. Tonight’s announcement clearly tells us that the conditions with Fannie and Freddie are much worse than they have admitted publicly. We have been writing about the dire situation with these companies, even though the official stance by the US Government has been ‘all is well’. The point is, if all is well, then why such drastic action this evening to provide these companies with a channel for funds? Hank Paulson says this move is to ‘restore confidence’ and the funds would be available should they need it. It is our view that they do need these funds. Otherwise, there would not have been high level Government meetings all weekend long devising a plan to provide a direct channel between Fannie and Freddie and our wallets.

How will this plan be perceived by the markets? Will it be successful? Is this only the first step to a full nationalization of Fannie and Freddie? If the plan backfires, then nationalization will be next. And what would make it backfire? If the housing market continues to decline (which we believe it will) and Fannie and Freddie have to continue rolling over the ‘loans’ they get from the Fed, then the issues facing Fannie and Freddie will be nothing compared to what could come next.

Initial market reaction to the news was a rise in S&P futures from 1240 to 1252. The US dollar index rose slightly and gold has held relatively stable. It is the price of gold that has me most concerned, for if confidence was truly felt to be ‘restored,‘ I would have expected to see some selling in gold. However, this has not happened yet. The rise in the S&P futures has a long way to go before the US markets open tomorrow and a lot can happen between now and then. Traders need time to digest and analyze this information. At this time the market is set to open higher tomorrow, but it is very important to mention that this news is being interpreted differently by many people. Some think it is a short term fix, some think it will lead to further erosion of the entire housing market, and many just don’t know what to make of this action yet. So the market may very well open higher tomorrow and then quickly sell back down. The scenarios for the market tomorrow are many.

Hank Paulson said that any credit line or stock investment ‘would carry terms and conditions to protect the taxpayer’. Until we know what those terms are, the risk to the economy is not fully known. Going back to the Bear Stearns bail out:  the Government took possession of $29 Billion in collateral from the now extinct Bear Stearns company.  We don’t know the risk to the US taxpayers, because the portfolio of that collateral is ‘classified information’. So no one, except for the Federal Reserve, Hank Paulson, a few members of Congress, and the President know what the taxpayers have paid for. You and I are left in the dark intentionally. Will the terms and conditions for this new bail out be kept ‘classified’ or will those of us paying for this get to know what it is?

It is ironic that the Government has been calling "shame on you" to lenders that have been providing mortgages without properly checking the facts. They have also been saying that the American people need to fully understand loan documents before they sign them (referring to how some people feel they were duped into mortgages they couldn’t afford).Yet, here we are being forced into paying for something that the US Government won’t even divulge the details of, and we are being forced to "sign the check" blindly, on the faith that the US Government is doing the right thing.

I don’t know about you, but I want to call my bank and issue a "stop payment" on that check.