Freedom : The Path To Happiness.

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China Must Stimulate Economy Or Risk Political Unrest.

The Financial Times last week reads: “The benchmark one-year lending rate was cut by 27 basis points to 5.31 per cent, while the one-year deposit rate was lowered by the same amount to 2.25 per cent.”

That’s not surprising news, plus it shows some originality - China doesn’t want to end up like the US. So it cut interest rates in a multiple of 27 basis points, not in boring multiples of 25 basis points.

“The government estimates more than 10m migrant workers have lost their jobs so far, while 6.5m university students will enter the workforce next year.”

China is unlikely to escape the fate of developing countries, and facing higher unemployment, a question is raised: Will this lead to political unrest? High unemployment in China is very different than high unemployment in the US or Europe. Unlike in the developed world, there isn't much of a social net in China.

If you lose your job in the U.S, you may be forced to shop at Wal-Mart (WMT) instead of Target (TGT) and downgrade to basic cable (only 50 channels, sorry). Of course I'm oversimplifying, but the point is in the U.S, they have unemployment benefits and many other government programs aimed at keeping the Yanks from starving. This isn't the case in China.

As China's social net is in its infancy, high unemployment in many cases may mean hunger and, ultimately, political unrest. The Chinese government knows this well. Unless it comes up with social net very quickly, it will need to stimulate the hell out of its economy - far beyond the stimulus announced to date. This means more government spending. But the next bit of news I read revealed that doing so would be difficult:

“China's foreign exchange reserves, the largest in the world, apparently fell in October for the first time in five years, according to an official from the State Administration of Foreign Exchange.”

Published economic numbers are likely not describing the true economic reality in China, as -- despite economic growth for the first time in a long time -- the country feels the need to dip into its piggy bank. But here’s the scary part: That piggy bank is filled with US dollars! The U.S. government is printing a lot of money at the moment to deal with its own problems. It may or may not be inflationary in the short term (although definitely in the long term), as the velocity of money seems to be declining at a fast rate. Banks are barely lending and consumers are deleveraging and are reluctant to borrow.

But if the Chinese economy continues to deteriorate -- a likely scenario as the deterioration just started -- the Chinese government will need to start digging into its US reserves. And since there are no other natural buyers (in size) of the US debt, U.S. interest rates may actually shoot up while the US dollar crashes.

This creates a twofold problem for China: High interest rates mean even lower economic growth in the US, and even less consumption of Chinese-made goods. China can't afford a weak US dollar; that would mean its US dollar reserves will be worth even less while its products become move expensive for US consumers.

Here’s one last thought: All this is taking place while 30-year government bonds are at one of their lowest rates ever. US government bonds are likely the most overpriced asset in the world, period!

Stevie Ray Vaughan - Rivera Paradise.

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Pat Metheny & Anna Maria Jopek - Are you going with me?

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Ave Maria.

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USD Underwater.

Last Tuesday, the Federal Reserve signalled they were hell-bent on pursuing an “inflate or die” approach to rescuing the ailing US economy and fending off the forces of deflation. The Fed is now inflating at a level possibly not seen by a developed nation since Weimar Germany.

Since the credit crisis started intensifying in July, the dollar benefited from a global flight to safety in US Treasuries and a scramble for dollars to repay dollar-denominated debt. The deleveraging process effectively created a huge short position in the greenback.

But more recently, US-specific worries concerned with public debt expansion and the potential inflationary implications of quantitative easing dawned upon battle-weary investors, causing the dollar to reverse the uptrend that had commenced in July.

The US Dollar Index (i.e. a trade-weighted basket) has not only breached its 50-day moving average convincingly, but seems to be forming a top of at least medium-term significance. The fall from grace was brutal with the Index recording its largest six-day decline (from December 10th to 17th) ever, setting up an assault on the key 200-day line (often seen as a crude indicator of the primary trend).

The US currency also suffered its biggest one-day slide against the euro on Tuesday, and plunged to a 13-year low against the Japanese yen.

The devaluation of the US dollar (de facto exports deflation and depression) raises the question of how long it will take before other countries retaliate and embark on a “beggar thy neighbor” currency debasement.

China is already in the process of “managing” the renminbi lower, Russia’s central bank has signaled it would step up devaluation, and the Bank of Japan and others might also consider intervention.

Either the U.S. is going to pay for their policy sins via higher interest rates or via a weaker dollar. And for an economy as levered as the one in the US, the former choice is not an option. So a weaker dollar is the natural valve.

US creditors -- such as China -- with large hoards of dollars are growing increasingly nervous, and the dollar is likely to come under additional pressure if foreigners stop finding dollar assets an attractive proposition. The only way the US can attract foreign capital is by offering a higher interest rate or making its assets cheaper through a weaker currency.

Jim Rogers commented:

“The dollar is a terribly flawed currency... I don't like to do it, but I'm going to sell all the rest of my dollars sometime in the next few days, weeks, or months… "Again, I don't like saying it, but I'm afraid the dollar is going to go the way the pound sterling went."

The speed of the dollar's decline has been such that it's quite likely to see a relief rally before the downtrend resumes.

Arguing for a temporary hiatus from a fundamental viewpoint, right now, real competition in this ugly contest [is coming] from the currencies of the European Union and the United Kingdom, and that will probably persist for a while... But they're in pretty bad shape, and they're a little bit behind the curve relative to the U.S.

Lastly, a sustained break in the uptrends of the US dollar and the Japanese yen -- low-yielding currencies previously used for funding risky investments -- should indicate that forced selling due to deleveraging is starting to subside. As this situation plays itself out, we should see a return of confidence and a calmer period for stock markets in general, and also some support for precious metals and commodities.

The dollar may be down for the count, but could herald a sense of normalcy in broader markets.

Rome Wasn't Burned In One Day!

Uncle Sam’s “investment ” in the nation’s banks is shaping up to be a really terrible move, at least in the short-term.

An analysis by the Associated Press finds the government’s purchase of stock in large and small banks has lost about $9 billion, or a third of its value, in just a month.

Shares of virtually all the banks that have received bailout bucks are below the prices negotiated by the government. The Treasury says it’s no day trader, and is instead taking the long view.

That view includes the continuing health of the nation’s banking system. Major banks haven’t collapsed, and the Federal Deposit Insurance Corporation has lined up buyers for those local or regional banks it closed, averting Depression-era runs on financial institutions.

No one would want Uncle Sam as a portfolio manager, but a 1929-style catastrophe appears to have been avoided this time by pumping massive amounts of cash into the system. If so, it’s money well spent - regardless of the one-month negative return.

But there may be more trouble ahead. Citigroup has been pounded, JPMorgan is beleaguered, and the housing market looks like it’s years away from shaking off the shenanigans of Fannie Mae and Freddie Mac.

Federal intervention is risky - but they can hope a few hardy souls at the Treasury Department know what’s going on. However, the Treasury’s $700 billion rescue package is only part of what could become the taxpayers’ future liability.

So far, the FDIC has guaranteed about $1.4 trillion in debt issued by banks. Some estimate that the cost for the government’s effort to ease the pain in the credit crunch could go as high as $7 trillion, including guarantees of certain debts.

The danger: Uncle Sam ends up artificially propping up banks in the long-term. In short, Federal guarantees could become a crutch for poor management. Somewhere along the line, someone needs to say that weaker financial institutions need to fail to assure the overall strength of the nation’s banking system.

It remains to be seen if Uncle Sam has made the right decisions. An exit strategy would be helpful - but so far, no one in Congress has presented a detailed plan for getting government out of the financial sector.

Anyone?

O Fortuna.

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The Matthias' Prophecy.

This is probably the most gutsiest prediction on the Malaysia economy by the former aid to Tun Dr Mahathir, Matthias Chang.

Matthias Chang,18 November 2008

"Let´s put some money in our mouths. In the past I have challenged those who disagreed with me, that if they can prove me wrong, I would> gladly pay them a RM5,000 cash reward. There were no takers. None could prove me wrong!

In the past few days, the mass media have gone out of the way to interview politicians and the Governor of Bank Negara to project a rosy picture that somehow our economy will overcome the severe pain and disruption from the on-going global financial tsunami.

I am willing to take on anyone from the Badawi regime and Bank Negara that by H1 of 2009, the KLCI will drop below 700. If I am wrong in my analysis, I will pay the first five individuals from the said Badawi regime and or Bank Negara the sum of RM5,000. These five individuals must within a week register at my website that they are willing to take me on in this challenge.

They have to provide their full name and address in accordance with their NRIC/MyKad and their designation.

If they lose to me, they must pay me the same amount!

Fellow citizens, don´t listen to the Badawi regime´s fairy tales. Prepare for the worst and the worst is yet to come. You owe it to your family. The best way to save our family and our country is to be prepared for all eventualities. We must tighten our belts, save for the stormy days that will surely come and not spend, spend as advocated by the Badawi regime´s ministers.

Use common sense. What do you tell your children as responsible parents when the family is going through hard times - spend, spend, spend or be thrifty, thrifty, thrifty?

Remember the flight safety rules when flying - when the oxygen mask falls from the overhead compartment, you are to wear the mask first before attending to your children. If you cannot save yourself, you are not in a position to save anyone. This is a fundamental principle of survival for everyone when a plane is about to crash!

Apply the same principle to economic woes and we will all be saved.

Here are my warnings for 2009:

By 2nd Half of next year, the automobile industry will go into a tailspin and suffer massive losses.

By 2nd Half of next year, credit card debts will soar, credit limits will be drastically reduced (worse than 1997/1998) and interest rates> on outstanding will increase sharply. It is already happening!

By 2nd Half of next year, shipping rates will drop drastically and this is also happening. Our ports and shipping companies will suffer.

By 2nd Half of next year, our housing market bubble will burst notwithstanding all the stimulus and pump-priming. Arab investors will not be coming. Dubai and Abu Dhabi is already in a financial / property gridlock! Why would they come here when they have to save their own asses?

By 2nd Half of next year, our exporters will be in tears, when Letters of Credit (L/Cs) will not be honoured and inventory stacks up at ports and in factory premises. Chinese exporters are already stipulating what LCs from which global banks will only be accepted.

By 2nd Half of next year, FELDA settlers will also be in tears. Having spent their windfall early this year (because of Badawi regime´s false optimism), their savings will be down and they will bleed.

By the 3rd Quarter of next year, corporate NPLs will shoot up! Relaxing mark-to-market rules will not help.

Malaysia will have a huge immigration problem when these hardworking people are thrown out of work and have to compete with the swelling ranks of Malaysian unemployed..

In the meantime capital outflows will continue.

Let´s see whether the statement that Malaysia has more than enough reserves (since according to Bank Negara, we need only have US$30 to US$40 billion reserves) will provide sufficient confidence to foreign investors to continue to invest in Malaysia ..

You can call the above observations - rubbish, pessimism, gloom and doom etc. but that won´t change reality.

Pause and think. In my previous warnings and alerts, I have stated that by the latest - the 1st quarter of 2009, things will get ugly and scary!

If I am not right, why did the leaders of the just concluded G-20 summit in Washington , in their so-called "Action Plan" stipulated that their policies, remedies etc. must be implemented by the end of the 1st Quarter 2009?

My articles were all written BEFORE THE SUMMIT and obviously I have no control over the leaders of G-20.

So ask yourself -"Why Oh Why Must the First Action Plan Be Implemented by the First Quarter of 2009?

This is only the first tentative steps by the G-20 leaders and there is no guarantee that the measures will work. The original Bretton Woods initiatives took almost two years to be formalised and put to work. There is no magic wand to be wielded by the leaders for instant cure. It will be a long hard grind. In the meantime, more shits will hit the ceiling fan. That is a given!

I hope the Badawi Regime and Bank Negara are not accusing the G- 20 leaders and Obama´s financial and economic advisers as being pessimists!

You be the judge!"

A Poignant Tribute To All Comrades Who Have Fallen..

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Ignore All Rallies For Now.

As fear stalked global equity markets over the past few days, volatility continued unabated and the CBOE Volatility Index (VIX) again scaled the panic levels of October 10th.

For some perspective on the current stock market
correction, all major stock market corrections (15% loss or greater) of the Dow Jones Industrial Index over the last 108 years.

The bear market that began in 1973 lasted 481 trading days and ended after the Dow declined by 45%.

Since 1900, the Dow has undergone a major correction 26 times or one major correction every 4.2 years. As it stands right now, the current stock market correction (October 2007 peak to most recent low which occurred yesterday) would measure slightly below average in duration but above average in magnitude.

In fact, of the 26 major stock market correction since 1900, the current stock market correction currently ranks as the fourth largest in magnitude (only the corrections beginning in 1906, 1929, and 1937 were greater) and is the most severe stock market correction of the post-World War II era.

Investor sentiment seems to be in panic-crash stage, and the market appears severely oversold with only 1.6% of the S&P 500 stocks trading above their 200-day moving averages. (The 200-day moving average is often viewed as a crude measure of the primary trend.)

It can't get much worse than this! But oversold conditions have so far not produced more than a temporary reprieve, and rallies (which are bound to happen from time to time) are therefore not to be trusted.

I am closely monitoring the surges in the US dollar and Japanese yen - low-yielding currencies previously used for funding risky investments - as a break of the uptrends in these two currencies will be a good indicator of the forced deleveraging selling starting to subside. Once this situation has played itself out, we should see a return to lower volatility levels and a return of confidence.

For a more lasting turnaround to happen, I would like to see more evidence of base formations, a 90% up-day, and relative outperformance by the financial sector.

In The Grip Of The Bear.

Yesterday was another ugly day for stocks, with bourses around the globe falling victim to strong selling pressure. Fueling the sell-off were concerns that the economic recession could not only be deeper and longer than previously feared, but could also fall into a corrosive deflationary phase.


The MSCI World Index and the MSCI Emerging Markets Index fell by 4.6% and 2.2% respectively, tallying declines of 51.2% and 63.4% since the peaks of these indices in October 2007. Only the Chinese Shanghai Composite Index (+6.0%) and the Russian Trading System Index (+0.7%) bucked yesterday's declines.


As far as the US markets are concerned, the Dow Jones Industrial Index (-5.1%) plunged below the roundophobia 8000 level, resulting in all the major indices now trading below the recent lows of October 10th and 27th. This brings the lows of 2003 (Dow 7,524; S&P 500 801) and 2002 (Dow 7,286; S&P 500 777) into sight. A breach of these levels -- frightfully close to the current levels of the Dow (7,997) and S&P 500 (807) -- will wipe out the entire 5-year bull market from 2002 to 2007.


Interestingly, only 2.4% of the 500 S&P 500 stocks now trade above their 200-day moving averages. This line is often used as a crude indicator of the primary trend of a market or individual stocks. This often undeniably shows an extremely oversold situation, but bear markets have been known to stay oversold much longer than usual.


One can argue long and hard about valuation levels and earnings forecasts, but the extent to which stocks become undervalued in the grip of this bear is squarely due to the severity of the economic meltdown.


This is clearly shown by the relationship between the Dow Jones World Index and the Baltic Dry Index (graph above) – an assessment of the price of moving the major raw materials, including coal, iron ore and grain, by sea and generally an excellent barometer of economic activity.

The worrisome prospects for economic and earnings growth, together with the threat of deflation, are spooking the financial markets. The extreme level of risk aversion is illustrated by the US 3-month Treasury Bill rate falling to a minuscule 0.065% -- a clear sign of distress and fear -- and the yields on long-dated government bonds falling significantly in most parts of the world.


Next year there'll be a huge problem of unemployment, job openings will have disappeared, and every business will be going over its personal thinking in terms of who the business can do without.


Oversold conditions have so far not produced more than a temporary reprieve, and nobody knows how far down this bear market will fall. Until we see more signs of base formations being developed, one should tread very cautiously.


And remember the old Boy Scout adage: “Be prepared.”

Short Term Tradable Rallies Could Be Around The Corner.

Sometimes having the facts about the market environment in which investors operate can be very beneficial. Looking back at history, here are some findings from Sam Stovall, Chief Investment Strategist at Standard and Poor's Equity Research, there were more than a few pertinent items that investors should consider.

Since 1945:
-Fourth quarter of a US presidential year +3.5%
-First year of new Democratic administration +14.2%
-One-party rule +10.4%

-Nov through April apprx +7%

While history offers no guarantees on future results, the above data, along with my technical analysis work (recent across the board non-confirmation lows), suggest a good tradable rally is the higher probability for stocks over the near term -for S&P.

Moreover, the high degree of investor pessimism and fear, along with the mountain of cash sitting on the sidelines ($3.3 trillion, approx. 40% of the S&P 500), is also supportive of higher equity prices. Lastly, there’s the valuation argument led by none other than Warren Buffett. All together, it’s hard to be overly bearish at current market levels.

Now, some actionable ideas: Because global growth in emerging economies will withstand (within reason) the significant slowdown in developed economies, I believe most emerging markets’ prices look especially attractive at current levels. They're among the very best babies thrown out with the bathwater, courtesy of mutual and hedge funds’ indiscriminate selling induced by forced liquidations last month.

Indons Moving Forward With Time.

This is an inspiring news that I picked up in The Jakarta Post, a progressive example of nation building. Indonesia, an nation which has always been perceived as "backward" when comparing to Malaysia has just last week passed a groundbreaking law to legislate against racial discrimination.

The Jakarta Post Wed, 10/29/2008 10:55 AM

The House of Representatives has unanimously passed a bill that terms ethnic and racial discrimination as serious crimes.

Deputy Speaker Muhaimin Iskandar, who presided over the House's plenary session to approve the draft law, said Indonesia no longer had any room for any form of racial or ethnic discrimination.

Chairman of the House's special committee deliberating the bill, Murdaya Poo, said the endorsement of the bill should put an end to the long-standing dichotomy between indigenous and non-indigenous people in the country.

"A man cannot choose to be born as part of a certain race or ethnic group, and therefore discrimination must cease to exist," said Murdaya, who is Indonesian-Chinese.

He said the House proposed the bill as part of its effort to ratify the International Convention on the Elimination of All Forms of Discrimination, which has been enacted since 1999.

Under the new law, leaders of public institutions found guilty of adopting discriminatory policies would face jail terms one-third more severe than those stipulated in the Criminal Code.
Citing an example, Murdaya said the governor or government of Aceh could not ban a gathering held by Javanese ethnics in the province.

He said the deliberation process had been delayed by a disagreement on whether imprisonment should be made the minimum punishment.

Jail as a minimum sentence is typically sought for serious crimes, such as corruption, terrorism, money laundering or drug abuse.

"We decided to set prison as the minimum sentence to deter people from committing racial or ethnic discrimination," said Murdaya, a member of the Indonesian Democratic Party of Struggle (PDI-P).

The bill was passed on the same day Indonesia celebrated the 100th anniversary of Youth Pledge, which Murdaya said should encourage Indonesians to uphold the diverse nature of the nation. -- JP

Misleading ValueCAP.

This is an article lifted from DAP MP Tony Pua's blog:

The New Finance Minister Should Stop Misleading Malaysians with Half-Truths.

Two days ago, in a shocking expose by TheMalaysianInsider.com, it appears that the RM5 billion injection into ValueCap Sdn Bhd was not intended as “additional” investment to support the flailing stock market as suggested by the new Finance Minister – but instead it's a rescue package designed for ValueCap Sdn Bhd to repay its RM5.1 billion debt which is due in a few months.

We are now in possession of documents which are publicly available from the Securities Commission website, which include the Term Sheet as well as the Principal Terms & Conditions of the RM5.1 billion bond issued by ValueCap Sdn Bhd on 28 February 2003.

The Malaysian Insider : http://www.themalaysianinsider.com/index.php/malaysia/11694-question-marks-over-valuecap-debt

S & P Crash Count.

Dive.., Dive.., Dive... !

This was an interestng read from Bloomberg:

GLG's Roman, NYU's Roubini Predict Hedge Fund Failures, Panic. -By Tom Cahill and Alexis Xydias. 23 Oct, 2008.

Hedge funds closures will eliminate about 30 percent of the industry, and policy makers may need to shut markets for a week or more to stem panic, according to presentations at an investor conference today in London.

"In a fairly Darwinian manner, many hedge funds will simply disappear,'' Emmanuel Roman, co-chief executive officer at GLG Partners Inc., told the Hedge 2008 conference in London. U.S. regulators will "find a way to force regulation,'' said Roman, 45, who runs New York-based GLG with Noam Gottesman, 47. The firm was founded 13 years ago as a unit of Lehman Brothers Holdings Inc. and now manages about $24 billion in assets.

Nouriel Roubini, the New York University Professor who spoke at the same conference, said hundreds of hedge funds will fail as the crisis forces investors to dump assets. "We've reached a situation of sheer panic,'' said Roubini, who predicted the financial crisis in 2006. "Don't be surprised if policy makers need to close down markets for a week or two in coming days.''

Many hedge funds have resisted oversight by the U.S.Securities and Exchange Commission, even as policy makers coordinated global interest-rate cuts and bailed out banks to try and stem the crisis. The hedge fund industry is stumbling through its worst year in two decades and posted its biggest monthly drop for a decade in September.

"There needs to be some scapegoats, and they are going to go hunt people,'' said Roman, who didn't indicate when new U.S.regulation may take effect. Regulation is "overdue,'' he said. In the U.S., "someone can graduate from college on a Friday and start a hedge fund on a Monday.''

Increased regulation and higher borrowing costs will make the hedge-fund business more difficult, Roman said. Still, financial markets have "overshot,'' he said.

In some areas of financial markets, including loans, there are "once-in-a-lifetime opportunities,'' he said. "At somepoint, people will say this isn't 1929 to the power of 10.''

Roubini, a former senior adviser to the U.S. TreasuryDepartment, forecast this Feburary a "catastrophic" financial meltdown that central bankers would fail to prevent and that would lead to the bankruptcy of large banks exposed to mortgages and a"sharp drop'' in equities.

The comments preceded the collapse of Bear Stearns & Cos.and Lehman Brothers Holdings Inc. as well as the government seizure of Freddie Mac and Fannie Mae. The Dow Jones Industrial Average, a benchmark for American equities, has lost 37 percent this year, including its biggest daily drop in more than twenty years on Oct. 15.

He predicted earlier this month that the world's biggest economy will suffer its worst recession in 40 years.

"This is the worst financial crisis in the U.S., Europe and now emerging markets that we've seen in a long time,'' Roubini said. "Things will get much worse before they get better. I fear the worst is ahead of us.''

Developing nations' borrowing costs jumped to the highest in six years today as Belarus joined Hungary, Ukraine and Pakistan in seeking a bailout from the International Monetary Fund to help weather frozen money markets and a slump in commodities. Argentina risks defaulting for the second time this decade.

"There are about a dozen emerging markets that are now insevere financial trouble,'' Roubini said. "Even a small country can have a systemic effect on the global economy,'' he added. "There is not going to be enough IMF money to support them.''

Italian Prime Minister Silvio Berlusconi roiled international markets on Oct. 10, first saying world leaders were discussing shutting down global financial exchanges, and then saying he didn't mean it.

Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.

Trimming The Hedge Funds.

The Silver Surfer : "Surfing in a declining market, I am looking for high rates of attrition."

Before the market downdraft, there were about 10,000 hedge funds with an estimated value of $1 trillion.

Look for about half of them to disappear - but don't worry. It's healthy.

This is a cleansing process. There's a lot of leverage that's being unwound. A lot of funds are liquidating winners to finance sinners.

Investors pulled about $43 billion out of hedge funds in September. Money under management will continue to decline and funds will continue to take hits in a declining market.

Hedge funds appear to be an acceptable casualty in the eyes of government, as well as those of many small investors. But Main Street won't escape the fallout as the sector contracts.

Hedge funds are a mystery to many individual investors, and are often regarded as being volatile and leveraged to the hilt. The reality is more complex. A hedge fund can take both long and short positions, use arbitrage, buy and sell undervalued securities, trade options or bonds, and take a position in just about any opportunity in any market.

While strategies vary greatly, many funds hedge against market downturns. The goal: Use a range of techniques to reduce risk, boost returns and limit the correlation with equity and bond markets. In short, the means may be buccaneering but the goal is conservative.

Many fretted that risk-happy hedge funds someday would crash the world's financial markets. Instead, it was thumb-sucking mortgage lenders and established investment banks that gave the world a glimpse of Armageddon.

But that doesn't mean hedge funds are in the clear. In fact, hedge funds may be the next sector to fall.

So far, major funds have taken a hit, but haven't been shattered. One reason: The funds were conservatively managed, contrary to their gunslinging image in the general press. Paradoxically, it looks like most hedge funds took fewer risks than some investment banks.

Here's why: Hedge funds, unlike many mortgage lenders, were playing with their own money and were directly accountable to investors. Any misstep by a hedge-fund manager instantly set off howls, while his investment- and mortgage-bank brethren could make bad decisions until they built to tsunami proportions.

But that's changing. The value of publicly traded hedge funds has taken a hit. Man Group, the world's biggest publicly traded hedge fund, has lost about 41% of its value since July.

And things are likely to get worse. Look for hedge funds to take a hit, because the credit crunch means they can no longer leverage investments. The reason: Credit won't be widely available.

Hedge funds had little to do with the underlying conditions that led to the mortgage crash, but nevertheless will face increased restrictions as part of politicians' need to regulate the markets and do something -- anything -- to address the recent turmoil.

The immediate result of new regulation will be less wiggle room for fund managers. This will almost certainly erode returns, and make hedge funds less attractive to investors.

Big Ben and the central bankers will do their best to prevent future bubbles from building in various markets. This may be good news for the economy - but it will take a bite out of hedge funds, because deft managers were adept at chasing inflated asset classes and knowing when to get out, thereby pocketing a nifty profit.

Buyout funds routinely tapped the debt markets to finance the next acquisition. Such businesses can't thrive if debt markets seize up. What's next? Anyone interested in buying some used office furniture from a hedge fund?

The worldwide economic slowdown will hurt major industries, including those buyout funds routinely trolled, such as retailing and manufacturing. That means there will be few, if any, new deals ahead and existing deals may go bad.

The once saucy financial markets will become increasingly dowdy. That means innovative hedge-fund managers will have few chips to play in a game that has largely disappeared.

There will be rough times ahead, but the sun will continue to rise in the east.

Tom Demarks's- Sequential. Tracking "The Red October".

Let's cut the chase.., skip to the end.., get to the nut of it: have we seen the low in the stock market for the year or not? Even if you are not a technician, using Tom Demark's TD-Sequential could help giving you an idea where we are at now.

First, let's go over very quickly the numbers you will see on the chart. These numbers are patterned expressions of selling (or, on the upside, buying) exhaustion that were identified by Tom DeMark more than 30 years ago.

This particular pattern we are discussing is an expression called TD-Sequential, and it consists of two components, a setup and a countdown period. Numerically, the setup is complete at 9, the countdown at 13. These patterns help identify potential selling or buying exhaustion points. They are probabilistic and dynamic, because markets themselves are probabilistic and dynamic.

Now, what do these 9s and 13s really mean? Because we are looking for a market low, let's focus on TD-Sequential Buy Setup and TD-Sequential Buy Countdown.

The TD-Sequential Buy Setup consists of 9 consecutive closes that are lower than the close four price bars earlier. The criteria for "perfecting" the sell setup is that the LOW of price bar 8 OR 9 be below the low of BOTH bars 6 AND 7.

Once a Buy Setup is in place, the TD-Sequential Buy Countdown can then begin. The difference between Buy Setup and Buy Countdown is that Buy Setup compares the current bar's close with the close of the bar four bars earlier, while Buy Countdown compares the current bar's close with the LOW two price bars earlier. Also, unlike Buy Setup, Buy Countdown need not occur on CONSECUTIVE bars.

That is the quick and dirty overview of TD-Sequential. 9s are completed Buy Setups and 13s are completed Buy Countdowns.

The question is, Have we seen the low for the year? I think there is a fairly significant probability that we have not.

Above is the weekly chart of the S&P 500 at its current juncture. Here is my concern. So far, we have not yet recorded a Buy Setup, and are currently on bar 7 of potentially 9. Moreover, in order to "perfect" this Buy Setup (remember, bar 8 OR 9 must have a low that EXCEEDS the low of both bars 6 AND 7), a new low must be made by one of the bars in the next two weeks (next week would potentially be bar 8 and the following potentially bar 9).

What If I'm Wrong?

This view is complicated by numerous buy signals on many of the daily charts of the major indices. But markets, the battles between buyer are seller, are about continually competing timeframes. I believe, looking at these significant market lows, longer-term timeframes tend to have the upper hand at significant market turns. Therefore, my conclusion is we have a high probability of making a new low within the next two weeks.

But I may be wrong. If so, then I do not mind buying the stocks at levels higher than today because if I am wrong about the market's present state, then I will at least be entering the market at a point where risk is lower than I believe it is currently- just a wild idea!

If you would like to learn more about DeMark price exhaustion techniques, I recommend a new book that was recently published by Jason Perl, appropriately titled, "Demark Indicators."

History Will Not Reflect Kindly On Recent Economic Decisions.

“He who learns but does not think is lost. He who thinks but does not learn is in great danger.”--Confucius


A Chinese philosopher said that when it’s obvious goals cannot be reached, don’t adjust the goals—adjust the action steps. Global central banks have taken those lessons to heart.

The construct of capitalism has forever changed and investors are spinning from the insane volatility gripping financial markets. 20% moves in major market averages—session over session—are tough to stomach regardless of your directional bias.

One year ago, when the writing was on the wall as the Dow Jones Industrial Average probed all-time highs, pundits confidently proclaimed there was clear sailing ahead.

Last week, as perception caught up with the daunting reality of debt and derivatives that we’ve been warned of for years, depression was debated across mainstream America.

You can’t blame folks for being confused. We’re past the point where bulls and bears profit or lose. We’ve entered a new world order, a scary stretch where politicians rewrite history on a daily basis in an attempt to escape the devil of deflation.

There are certain things we know for sure. Universal truths, if you will, that can provide clarity amid the confusion. We’ll tackle five themes today with hopes that we’ll shed some light as we together find our way.

Two trading dynamics considered gospel for many years have effectively been debunked. The first was that lower crude would serve as a positive equity catalyst and the second was that a higher dollar would bode well for stocks.

We live in a Wishbone World with dollar-denominated assets on one side and the greenback on the other. One of two things must occur: either the world reserve currency will debase, paving the way towards hyperinflation, or the dollar will strengthen as debt destruction continues it’s natural course.

The U.S. government is attempting to buy the cancer and sell the car crash. The mere perception of “success”—a whiff, if you will—should be enough to shift psychology to the other side of the ride, damaging the dollar and propping stocks higher for a trade.

The hedge fund bubble popped this year and the carnage has been pervasive. On top of regulatory scrutiny and operational restrictions, the correlation of strategies has buried the best in breed well below their high water mark.

An obvious concern is the potential for continued redemptions and forced selling. Many macro portfolios are laced with derivatives and won’t be bailed out by the U.S. government umbrella, introducing the specter of further systemic risk.

Nobody is smarter than the market and I’ve long ago learned that if you don’t stay humble, the market will do it for you. What I’ll say with confidence is that the market tends to follow the path of maximum frustration and rarely rewards herds running aimlessly towards a cliff.

While the process of price discovery is fluid—dependent on a multitude of variables including credit, the dollar and geopolitical strife—it’s my opinion that we’ll look back at last week as the 2008 trading low (not to be confused with a market bottom) before a harsher downside comeuppance arrives next year.

There are two natural paths for financial markets—time and price—and an unenviable destination, that of debt destruction. The sooner we’re allowed to take our medicine rather than being given drugs to mask the disease, the quicker we’ll arrive at a stable foundation for legitimate economic expansion.

We will cycle through this period and arrive at better days and easier trades, although it will take some time. Just as the Internet prophecy proved true—albeit not before the tech crash—so too will the golden age of globalization once debt destruction fully manifests.

The recovery will be led by China, India and other emerging markets and profoundly reward those proactively positioned. Our goal—as investors and as a human race—is to get there in one piece while being kind to each other during the journey.

New Bull Market Defination.

Someone sent me this interesting defination:-


BULL MARKET– A random market movement causing an investor to mistake himself for a financial genius.

New Gold Dream.

Spot gold rose $5.63 to $913.25 Thursday - a new closing high for the move since the September low.

For those keeping score at home, that means the gold price is now above the price of the SPX (909.92) for the first time since having fallen below it in the summer of 1990.

The last time we saw the dollar price of gold rise above the SPX after a long period of being below it was in summer of 1973, after which the price of gold more than tripled over the next year. The gold price would then remain above the SPX price for 17 years, ending in the summer of 1990.

Will we see something similar this time around? (i.e. Will gold tend to outperform stocks for the next decade or so, as it did after the summer of 1973?)

I suspect that’s going to be the case, given the long-term nature of the big secular bear market in stocks that began back in 2000 in “real” terms, and the big secular bull market in gold that began in 1999.

The CNBC folks may tell you that gold is rallying simply because of “panic,” but this would be far from the truth. The market isn’t that stupid. It doesn’t buy gold to hold it close and sleep with it at night because it’s “scared.” The market buys gold to hedge against debasement of fiat currencies and as a store of value.

In this case, we’re seeing gold sniff out what the result of all the Federal money-printing and backstopping in response to the current collapse will eventually result in: An “inflationary holocaust,” as Jim Rogers put it.

There are consequences for every action taken by governments and central banks when they meddle in the markets; in this case, the consequence will be massive inflation going forward.

It may sound a little counterintuitive, since the Fed is responding to “deflationary” forces resulting from the housing bust and the ensuing credit crunch. But at the end of the day, money printing always results in inflation, just as it did following Greenspan’s printathon in response to the stock bubble bursting back in 2000 (which was also “deflationary” at the time, but didn’t turn out that way due to the Fed’s printing).

Let’s not forget that crude oil was $20 back in 2000 and would rally fourfold (to $80) over the next 7 years, before Gentle Ben began running his presses back in 2007. That set crude on another run to $140 in under a year. If that sounds like a parabola, that’s because it is one.

It took the Fed from its inception in 1913 until 1997 to grow its balance sheet the first $500 billion. It then took another 10 years to grow it an additional $500 billion. In the past 3 weeks, the Fed has now grown its balance sheet another $700 billion in an attempt to force the credit markets to unfreeze by the brute force of massive inflation.

This is a classic description of a parabolic money printing, and it sets the stage for an inflationary tsunami going forward.

Buckle up. It’s going to be a wild ride. We always knew how the Fed would respond to this crisis, because it’s how the Fed always responds to financial problems: More money printing.

And it’s going to have a very predictable result too.

It's Not A Bargain, Yet.

It's a Bear Market. Understand It, Embrace It.

The first thing all investors must understand and accept is that the market is in a longer term downtrend. It will end at some point, and along the way there will be strong countertrend moves, but ultimately the wind is blowing south. Accepting it is half the battle.


Fire The Optimistic Advisor.

I have always considered myself to be an optimist, but, at the end of the day, I fall firmly into the realist camp when it comes to trading and investing. This is your future, not a lottery ticket. Maybe the tough decision is in taking action to can not just a few lagging stocks, but your lagging advisor as well.

This Will End In Hindsight.

Seasoned investors have no desire to catch bottoms; most will choose to miss the beginning of a new trend higher. They chose this path for its safety and certainty. It's much better to be late than wrong, and opportunity costs are made up much easier than losses. Stop being concerned with catching a turn, averaging in, or buying low. That's a fool's game, and should be avoided at all costs. Rather than trying to pick a bottom, take the time to study what bottoms look like. Formulate a game plan based on historical data, so that you know how to proceed when the rough times are over.

No, It's Not a Bargain.

Investors are learning, and will continue to learn, that trends can last much longer than seems reasonable and stocks can fall much farther than one would expect. Many may be tempted to pick up Maybank at lows or a Lion Diversified under 3xPE, but in reality, these stocks are trading at these levels for a reason. Rarely, if ever, will you outsmart the market. Just when you think a stock can't fall any further, you wake up to see a solid blue chip like Tenaga dropping another Ringgit. Avoid the siren call of bargain stocks. When the market regains its health, there will be ample opportunity.

Panics Tend To Play Out Over A Certain Periodicity Of 49 To 55 Days.

The purpose of showing the charts of the 1929 and 1987 crashes is not to alarm you. I am quite certain you are already alarmed, as I am. It is one thing to be bearish and anticipate a crisis, it is another to see it spiral out of control.

There are a few important messages in the charts from those two fateful years: The economic outcome and fallout after each was worlds apart. The '29 and '87 template were similar in as much each saw a crash following a blow off top after a long run. That is not the current pattern in as much as the current waterfall decline the market is trapped in began from a much lower high.

Be that as it may the pivot for the break in 1987 was the end of August. The pivot for the 1929 break was September 3rd. Both panics played out over 7 squared days (49 to 55 days) of 7 plus weeks.

The last pivot high for this market occurred on September 2nd. An eerie analogue. I think it is wise to respect the message of history and the notion that panics tend to play out over a certain periodicity of 49 to 55 days before being tempted to jump in because stocksl ook like the are down too far, because stocks look cheap. There is no such thing as fair value when someone big is trapped and forced to sell and they cannot wait. There is no such thing as fair value when hysteria is running rampant. No one knew how high, high was on the fertilizer stocks. They burned many shorts who thought they were fundamentally a good short. They singed so many, that I suspect that many if not most of those same traders put them on their 'restricted list' as to shorting. They had just been burned one too many times. Such is the emotional nature of the beast.

While on the surface there may be differences between the '29, '87 experiences and the current crash if one looks at the daily charts. The notion occurs to me that looking at the monthly or weekly chart of the S&P or DJIA that it may be a fractal of the daily charts from the prior two instances. The monthly chart shows the persistent run up and just as persistent a tumble off the top. The message of that notion is two fold: we need to carefully watch the period of 49 to 55 weeks from the October 2007 high. Of course 49 weeks from the October 2007 high was mid September when this snowball from hell accelerated. The 55th week will be the end of October early November. An interesting time to focus on indeed as it obviously coincides with the daily 49 to 55 day panic zone on the daily counting from the September 2nd pivot.


It is important to remember that the largest gainer in the market to that time occurred in the fist week of October 1987 prior to the crash. It is important to observe that in he middle of the 1929 experience that there was an hellacious rally of a few days.

Conclusion: I suspect that after the House approves a bailout bill that there may be a coordinated effort by central banks to inject rocket fuel (as one trading bro calls it) into the market. It's the last exit to Brooklyn---can they afford to let the market sag on the passage? I may be wrong of course but the point is if it happens I warn against buying into any carrot that they try to stick into this snowball and pass off a a friendly Frosty the Snowman. It is not. The daisy chain of systemic issues are vast. I for one don't believe that the markets are always a great forecaster of the economy. What did the markets know in October 2007 or was that that years version of a 'rescue plan' to prop up the market so that insiders could take capital gains right into the beginning of the new year, not to mention bonuses? What did the market know in August of 1929 as opposed to August 1987? It is entirely possible that the Great Depression was an effect of the way the aftermath of the crash was handled---the snowball was bobbled.

The dollar was not the whipping boy in the 1920's it has been this decade. Real estate was not crashing prior to 1929. There was leverage in stocks, but there were not the derivative dominoes that are plaguing us now. The global counter-party and systemic complexities that exist today dwarf those of the prior two experiences. There are many land mines to tiptoe around today and unfortunately the dog and pony pork show put on by Congress is not the kind of deft action that inspires confidence in leadership. We can only hope they get it before we get it.

Strategy: 1080 S&P is .618 of the 2002 to 2007 range. A tag of that level will carve out a three point trendline from the 2002 lows. Of course we may have already come close enough for government work, pun intended. We are NEAR the ideal place for a bounce. The US markets may gap up Monday--next week being the anniversary of many historical turns such as the Oct. 2002 low, the Oct. 1990 low, the Oct 2007 high and the Oct 4th 1987 fake out blastoff.

Damn Right, We ARE FUCKED!

As the equity markets set up for what I believe will be a short-term non-confirmation, it's advisable not to lose sight of the fact that the longer-term technical picture is decidedly less positive. To help understand how to view the longer-term market picture, a technical analysis tool that I have found to be most helpful is the Mega-Trend.

The Mega-Trend (as I define it) is a multi-year stock price trend analysis where price and two moving averages (50 day and 200 day) are measured. In well-established Mega-Trends, three conditions exist:

1) Price is above (or below) its moving averages.
2) The shorter term (50 day) Moving Average is above (or below) the longer term 200 day.
3) Both moving averages are pointing in the same direction, either up or down.Using the S&P 500 (SPX) as an example, for most of the past 5 years price has been above both of its moving averages and the 50 day was above the 200 day and both moving averages have been headed in the same direction (which is this case is up).

Then, around the end of last year, the circumstances changed and a Mega-Trend reversal occurred. Price went below its moving averages, the 50 day crossed the 200 day and both moving averages turned down.

What is important to remember is that all three conditions must exist for the tool to work effectively. A closer examination will reveal frequent crossovers by price, to its moving averages: As an example, investors often hear comments regarding price in relation to its 200 day moving average. In my experience, I have found no consistent predictive value in this frequently occurring fact.

But such events have no longer-term significance and little predictive value.

Another point to keep in mind is that this tool is less effective when applied to individual stocks. Perhaps it's due to the fact that they are subject to more frequent violent moves whereas whole markets and sectors and styles are less so.

Investment Strategy Implications

The Mega-Trend tool is a simple, elegant, yet highly effective tool for investors (and traders) as it keeps the longer-term picture firmly into view and helps place in context the shorter term wiggles and squiggles.

That said, the expected rally that my shorter-term technical tools (momentum, MACD, and Slow Stochastics – all part of the Divergences group) are forecasting will take place within an overall bear market trend.

Only when the Mega-Trend reverses itself will rallies and corrections be treated differently.

Herd Defying.

People are social animals, and have powerful instincts urging them to “get along” and “go with the flow". People think inductively, as almost all people do. They assume that the people ahead of them know what they're doing, and thus rely on them to do the “thinking” for them.” This is how compression (outsizing risk) and major market tops/bottoms are formed: The last buyers/sellers -- the most buyers/sellers -- are buying/selling just because everyone else is.


We must think deductively. There is nothing to lose by going to the opposite. This is how some investors avoid major losses, by eventually going against the crowd and reducing risk despite the masses.

By definition, major social change is driven by individuals who go against the crowd. Cows are like us sometimes, like what we have been "conditioned" to think for more than 50 years in the dear land of ours. Everyone is depending on others to think for them and only few dares to break away from the mundane.

So the next time you feel that irresistible urge to get into something because everyone else is, please just stop and think for yourself. Be mindful - like what the Buddhists been practising all along. Think deductively: Put the facts together, as best you can, and draw some conclusions. Question every moves and be inqusitive.

It very well may be that everyone else is right (inductive thinking and empirical evidence certainly have validity), but there are times when making inductive assumptions can be disastrous.

How Long Will This Last ?

As hedge fund redemptions pile up, there is every sort of debt instrument for sale, particularly hybrids (fixed to floating preferreds) and preferred shares.

There are a bunch of funds that used the securities as a funding vehicle. Now they are funding out what happens to perpetual securities when spreads blow out.

The real problem, though, is that selling begets selling. Individuals, jammed full of this stuff, will panic and sell for a tax loss.

Then there are four more problems:

1. Quarter end balance sheet pressures on 9/30.
2. Mutual fund fiscal year ends 10/31.
3. Brokerage firms fiscal year 11/30.
4. Year end 12/31.

I don't see this market rallying until we get past these dates and it will make it awfully tough on those that need capital, which is nearly everyone.

The Weak Survive At The Expense Of The Strong.

A week ago, the United States had the most efficient capital allocation system in the world.

A free-market economy enabled money, credit and resources to be sent to the economic players who needed it. Entrepreneurs could raise money to start new, innovative businesses; researchers could seek out cures for diseases that touch millions of lives, as well as those that afflict just thousands; firms that made enough bad decisions went bankrupt.

The job of regulators were to ensure the system functioned and to set up rules by which honest business could be conducted. It wasn't a perfect system, but it was better than the alternative.

This is the alternative.

When government invades free markets to the extent it has -- specifically in the last 24 hours -- the system ensuring capital gets where it needs to be breaks down. Money is instead doled out to the firms well connected enough in Washington to lobby for handouts.

Beltway bureaucrats have been trying to rewrite this country's economic rules and protect Wall Street from its own mistakes for over a year. Still, the free market prevailed, punishing the firms that made the most egregious bets during the housing boom: Countrywide, Bear Stearns, IndyMac, Merrill Lynch, AIG, Lehman Brothers, National City, Washington Mutual and Wachovia.


According to the once-free market, these firms needed to be wiped out, gobbled up and liquidated, so real economic growth could take hold from a stronger foundation.

Last week, we heard many claim the government's actions -- temporarily banning short selling, the creation of a Treasury Department distressed-asset hedge fund, the establishment of a federal backstop for money markets, to name but a few -- were necessary to prevent a wider financial and economic crisis. The shortsightedness of this argument is astounding.

A couple hundred years ago, Charles Darwin opined that nature has long been engaged in weeding out the weak, protecting the strong. This natural ebb and flow of dominance according to a given species' inherent characteristics has governed the world's socioeconomic landscape for more than 4 billion years.

The actions taken overnight seem to refute Darwin's claim that Mother Nature can manage her own backyard. Adam Smith's invisible hand is capitalist Darwinism, moving the weak aside so the strong can survive.

To take that power away from the market is tantamount to shoving God aside and rewriting the evolutionary playbook.

The effects of these actions, this fundamental ideological shift from capitalism towards socialism, represents a seismic shift in the history of America. The events of the past week -- and what it says about our collective ability to take our lumps, drink our medicine and recognize that the path to the ultimate goal is one littered with hairpin turns and drop away cliffs -- will not be lost on future generations. Gomen of Malaysia ! Hear that 'locheng' ringing in your confused head?! http://www.youtube.com/watch?v=_7XCRpRwz1s

The events of the upcoming months and years, whether we're content to continue to hand over more and more power to the few, elected and non-elected alike, will show the true mettle of the American spirit.

Chasing The Bulls From Here.

“An optimist sees an opportunity in every calamity; a pessimist sees a calamity in every opportunity.” - Winston Churchill.

In my humble opinion, the 1,150 to 1,160 area for the S&P 500 was so crucial for any bullish stance.

If the economy was to go into a further downturn -- where the market might go and the time frame in which it would get there? The important thing to glean is that, of the last 10 recessions, the average downturn in the market was 26%, and the average time frame in which this occurred was 11 months.

From this, I previously concluded that, if the July 2007 top of 1,555 was the peak, it would drop the market to 1,150 by at least June of 2008. Well, as you all know, that didn’t happen. I guess the crystal was cracked.

Then again, on October 11th, 2007, the S&P 500 retested the peak of 1,555 and surpassed it intraday by a measly 21 points (1,576). Consequently, it marked the top by closing the day out at 1,547 in a Bearish Engulfing Key Reversal Day on what counts as high volume for all intents and purposes (1,550) - close enough.

Anyhow, by extrapolating the same numbers from the original “recession” theory, I added 11-months to the peak of October 11th and dropped the market 26% from 1,550. This puts the S&P 500 at 1,147 by September 11th, 2008. (Missed it by ONE week!)

“To miss or not to miss,” my technical scrutiny doesn’t stop there. My real conviction about the infamous 1,150 number stems from 10 years of data.

If on a closing basis the market fails at this level in the coming sessions, for whatever reason and God forbid, we'll have a clear shot below. The next level of support in the S&P 500 is 1,045. That being said, the 1,150 level should more than likely be retested over the next sessions - or days, considering the current volatility. "It ain't over, till it's over !"

As always… Stay tuned, chilled & good luck!

The Seismic Shifts In The Markets.

A new world order is upon us. A seismic shift. An inside out process that is redefining the brokerage intermediary.

There are two ways we can react to this--run from it or embrace it. It's happening either way and the onus is on us to adapt.

The greatest opportunities are bred from the biggest obstacles. The world will look vastly different when we pass through this period but that's the way the world works. From pain will come pleasure, not for all but most certainly for some.


If you look back at the Great Depression, a multitude of multi-billion dollar corporations found their footing.- eg . Disney, Fannie Mae, HP etc..

I'm not a bandwagon guy and I'm won't pile on to the doom and gloom at these levels. Our foresight was well documented and there are no "victory laps" in this market.

And I won't presume that something "entirely more depressing than a recession" is a foregone conclusion, although social mood is seemingly shifting in that direction.

Remember, the stock market crash didn't cause the Great Depression--the Great Depression caused the stock market crash. I offer this as a reminder rather than a prediction and with the best interest of ye faithful in mind.

Lets all see what is happening and prepare for it in kind.

When we discuss societal acrimony, we often say that if you're not part of the solution, you're part of the problem.

When it comes to the future face of finance, the same dynamic will again prove true.

May the force be with you!

More Collateral Damage.

Only so many angels can dance on the head of pin, but in the end you can only use so much leverage until it bites back. You can only deleverage so much without enough capital in the system before you get the kind of collateral damage we are getting this morning.

Just like the heaviness in the market prior to September 7 years ago, it seems as if the persistent selling and hitting of bids every time an upspike showed up this September was telegraphing this morning's turmoil.

Somehow, somebody somewhere wasn't minding the store as the ground has shifted in the last year, culminating in a fall event once again. It is an historic day and one can only wonder how the "culture" will change going forward, as institution after institution and industry after industry is caught in the grip of a 100-year flood and an echo of The Rich Man's Panic in 1907.

That financial crisis and panic played out over one year, from peak to trough.

Technically the market appears to be headed for a date with destiny, toward 50% of the 2002/2007 range near 1170ish S&P. However, a measured move counts to 1155ish and potential lower Head & Shoulder targets loom dependent on what happens in this very important time frame between now and the end of November.

The Street is shell-shocked as the audio and speed is picked up on this slow motion car crash we've called the equity market over the last year. Of course, Rome wasn't burnt in a day.

It's been like a swarm of locusts of speculators and vultures attacking the investment banks today. You've gotta wonder about the dovetailing of the removal of the uptick rule and the implosion of the financial weapons of mass destruction. You've gotta wonder why more deleveraging did not occur in 2008. You've gotta wonder about Wall Street executives telling us everything is ok. Is it a wonder we have a crisis of confidence? You've gotta wonder about the masters of the universe doing everything wrong.

Conclusion: The old adage "Surprises happen in the direction of the trend" is more than a cliché, as difficult as it is often to position as a for the payday. From the last pivot hight at 1255 S&P, 90 degrees down is 1220. 180 degrees down is 1185. 270 degrees down is 1150 while 360 degrees down is 1120.

I guess if you live long enough you see everything. Laissez- faire is not always fair. A blind man's alchemy of financial engineering and deregulation caused the dislocation.

It's hard to know where the damage is when leverage is involved. That was the lesson of my father's generation. The newspaper headlines are black with "Crisis On Wall Street."

Although it may speak to an interim low, there is no telling how things will play out when panic is in the air.

Translation: let the dust settle. Contrary for the sake of being contrary can mean getting into the tub with a toaster.

Mid-Autumn Festival (中秋節, zhōng qiū jié).

The Mid-Autumn Festival falls on the 15th day of the 8th lunar month (tomorrow will be it, the 14th of Septembar'08) of the Chinese calendar (usually around mid- or late-September in the Gregorian calendar), a date that parallels the Autumn Equinox of the solar calendar. The traditional food of this festival is the mooncake, of which there are many different varieties.

There are so many variations and adaptations of the Mid-Autumn Festival.

One of them, according to a widespread folk tale (not necessarily supported by historical records), the Mid-Autumn Festival commemorates an uprising in China against the Mongol rulers- Khubai Khan of the Yuan Dynasty (1280–1368) in the 14th century. As group gatherings were banned, it was impossible to make plans for a rebellion. Noting that the Mongols did not eat mooncakes, Liu Bowen (劉伯溫) of Zhejiang Province, advisor to the Chinese rebel leader Zhu Yuanzhang, came up with the idea of timing the rebellion to coincide with the Mid-Autumn Festival. He sought permission to distribute thousands of moon cakes to the Chinese residents in the city to : "bless the longevity of the Mongol emperor". Inside each cake, however, was inserted a piece of paper with the message: "Kill the Mongols on the 15th day of the 8th Moon" (八月十五殺韃子). On the night of the Moon Festival, the rebels successfully attacked and overthrew the government. What followed was the establishment of the Ming Dynasty (1368-1644), under Zhu. Henceforth, the Mid-Autumn Festival was celebrated with moon cakes on a national level.

I wonder what would this mean for all the Malaysian celebrating the mooncake festival this year !