Tuesday, September 30, 2008

Big Bounce in Stock Markets today--Warning from TED Spread

Huge rebound in $INDU today.
The TED spread is the difference between the interest rates on inter-bank loans and short-term U.S. government debt ("T-bills").
Initially, the TED spread was the difference between the interest rates for three-month U.S. Treasuries contracts and the three month Eurodollars contract as represented by the London Inter Bank Offered Rate (LIBOR). However, since the Chicago Mercantile Exchange dropped T-bill futures, the TED spread is now calculated as the difference between the three-month T-bill interest rate and three-month LIBOR. The TED spread is a measure of liquidity and shows the degree to which banks are willing to lend money to one another.
The TED spread is an indicator of perceived credit risk in the general economy. This is because T-bills are considered risk-free while LIBOR reflects the credit risk of lending to commercial banks. When the TED spread increases, that is a sign that lenders believe the risk of default on inter-bank loans (also known as counterparty risk) is increasing. Inter-bank lenders therefore demand a higher rate of interest, or accept lower returns on safe investments such as T-bills. When the risk of default is considered to be decreasing, the TED spread decreases.[1]
TED is an acronym formed from T-Bill and ED, the ticker symbol for the Eurodollar futures contract. The size of the spread is usually denominated in basis points (bps). For example, if the T-Bill rate is 5.10% and ED trades at 5.50%, the TED spread is 40bps. The TED spread fluctuates over time but is often between 10 and 50 basis points (0.1% and 0.5%). A rising TED spread often foretells a downturn in the U.S. stock market as liquidity is withdrawn.
During 2007, the Subprime mortgage crisis ballooned the TED spread to a region of 150-200bps. On September 17, 2008, the record set after the Black Monday crash of 1987 was broken as the TED spread exceeded 300bps.[2] Some higher readings for the spread were due to inability to obtain accurate LIBOR rates in the absence of a liquid unsecured lending market.[3]
On September 29, 2008, after the bailout bill was unexpectedly voted down, the TED spread achieved a new high of just over 350bps.
But liquidity crisis remains.
Follow the link for the "Ted Spread":

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As regular readers of this blog know I time the gold and broad financial market with very accurate and timely information. I am not a registered investment advisor--see my disclaimer on this site.

Monday, September 29, 2008

The House Votes and then the Market Votes

Panic struck investors around the world today. Congress failed to pass the much-hyped financial bailout plan. Despite all the rumors of cheery bi-partisan support, it was just business as usual on Capital Hill. I didn’t think they had it in ‘em.
But considering Congress’ recent history… I don’t know why I expected anything different.
And so the Dow fell 748 points, the biggest one-day point drop ever. That’s over 6%. The S&P 500 fell 8.6%, its worst single day since “Black Monday” in 1987.The NASDAQ fell a stunning 9%. Gold held up nicely. It rose around $20 to around $915. All other commodities were slammed. Oil fell $10 for instance, and most oil and energy stocks plummeted in tandem. World wide ETF's were creamed. Brazil etf's down 15%.
Today I exercised a very successful put option on a brazilian bank stock UBB returning 400% in 10 days. Yes the sun will come up tomorrow.
Personally I think we need to have a year of Jubilee and foregive all debtors their home mortgage balance up to $250,00. At the same time credit the mortgage holder bank or other financial debt holder the same sum of $250,00 and then let the markets determine the rapidly rising price of gold. A simple solution to a complex problem. Hummm--send this post on to your congressman and senator--I think they are in great need of some fresh ideas and help in these days of financial meltdown.
I am reading "A Demon of Our Own Design" by Richard Bookstabber--he correctly predicted this current crisis in this book published in 2007. I have recently reread "When Genius Failed" the rise and fall of Long-Term Capital Management by Roger Lowenstein. It is a shame that most members of congress spend their time getting reelected instead of reading these two books.

Do the opposite of clicker sense blogger sentiment!!!
Please review my previous posts--In Novemeber 21, 2007 I correctly identified the current bear market.
I look for the $INDU to drop as low as 7500 before this current bear market is over. I will not buy any gold mining stocks until the current liqudity crisis is resolved because investors are dumping everything in their rush to cash. Oil could drop severely to as low as $25 to $30 if deflation continues. No wonder the Fed quit releasing M3 money supply numbers. If shadow statistics are correct this financial metdown can be traced to the fed worrying too much about inflation instead of minding their own store.
One of my close childhood friends used to fight with his older brother at the dinner table--whenever this occurred the father would admonish them--"boys mind your own plate." I personally do not think a government bailout will save our financial system until we return to a gold standard and start minding our own plate.

Fear in Eyes--Waiting for Blood in the Street

When I see Hank Paulson and Ben Bernanke on TV, I see fear in their eyes. Like on a battlefield when people are shooting at you. I think they are afraid to say how serious the problem is for fear of making it worse," said Bruce Bartlett, an economist who was a Treasury official under the first President Bush.

Tuesday, September 23, 2008

Government Bailout is only Short Term Fix

The government banned short selling once before back in 1932 – in the wake of the 1929 stock market crash. Stocks popped a little bit higher on the news. But then the market rolled over and fell to new lows. I have been away from work and blogging for several days at my national meeting.

Wednesday, September 17, 2008


The Dow Jones industrial average (INDU) lost 449 points, or 4% and fell to the lowest level since November 2005. The Standard & Poor's 500 (SPX) index lost 4.7% and fell to its lowest point since April 2005. The Nasdaq composite (COMP) lost 4.9% and ended at its lowest point since August 2006.

I remain 95% in Treasuries--5% in gold stocks. Tomorrow I will add another 5% in gold to include Royal gold and AUY. I look for a final washout for the broad market over the next 2 days and then a dead cat bounce before we go even lower--see previous posts for fibonacci retracement projections for the $INDU.
This is the most dangerous market of my lifetime.

Saturday, September 13, 2008

Thursday, September 11, 2008


Sometimes it's the little things that count. I found the "Zone" on my beloved Hardscrabble golf course today--Life is just more fun when the bets are pressed and you win big on the 18th hole. I remain flat the markets and nervous.

Friday, September 5, 2008

Bill Gross Warns--We should Listen


Thursday, September 4, 2008

With stocks falling sharply, money moved into bonds in a flight to safety

Investor Business Daily signals correction. Precious metal stocks continue market in correction. Except for a handful of junior gold stocks I am 95% treasury bills. This could really get ugly if the market doesn't rally soon. Review our previous blog posts--bear market rally for broad market and gold correcting to $750.