U.S. Risks A Downgrade on It’s Credit Rating

Do Hank and Ben think they can pull this off without our debt rating getting downgraded?

Just asking…..

What a day!

I was stopped out, with profits today, in [[SKF]] , [[FXP]] , [[SRS]] , [[EEV]] , and [[SDS]] . The only remaining inverse ETFs I hold are small positions in [[RXD]] and [[SDP]] , so I’m now 98.3% long in the equity allocation.

Cash 31.4%

Bonds 14.7%

Equity 53.9% (net)

Apple Inc. [[AAPL]] is and has been on the Costanza Watchlist. Assuming it doesn’t go below it’s intraday low of 120.68 earlier today, I’m looking to buy it on a breakout above 126—-today only, mind you. For the uninitiated, this is known as waiting for demand to come back into this stock, instead of rolling the dice on a hunch.

However, in keeping consistent with the way the market is working lately, this could all change tomorrow, just like Hank Paulson’s agenda.

For those of you position sizing (aka “being smart”), every 100 shares is a potential $600 loss using a $120 stop, so take that into account.   

Happy trading, oh gunslinging cadre!

Disclaimer: Trading in this environment is for people who love to stand in a kiddie pool of gasoline and toss cookie sheets of dynamite into an Easy-Bake-Oven. You should be positioning sizing and limiting your risk, as always.

Traders should be ready to have their heads handed to them if they want to play in this market shell game. There is really no telling what will happen the rest of the week. This is all a classic backyard experiment that changes every hour as the “scientists” get new ideas. Good luck.

As for me, I’ve been sitting on cash, short term treasuries via [[SHY]] , and net short 10% via inverse ETFs.

On a Costanza note, the ratio of new 52-week highs to new highs + new lows has now dropped to just over 10%, on a 10-day MA.

The last time it got this low was July of this year. It also got this low in August of last year. The only other times it was this low in the last ten years was September 1998, September 1999, and July 2002.

Needless to say, we have seen a historic-type sell-off again. In fact, according to Dorsey Wright research, this ratio has reached 10% or lower, a total of only 16 times since March of 1980. “The average number of days for this indicator to reverse back up after hitting the 10% level is 22 days with a range from 5 days to 37 days”, says Dorsey.

Have a good day, be safe, and don’t stick your neck out too far.

When will it end?

1. When more banks fail

2. When Goldman Sachs Group, Inc. [[GS]] and Morgan Stanley [[MS]] get swallowed up by global commercial banks

3. When the bailout money runs out

4. When the real estate market stabilizes

5. When no more banks fail

6. When they reinstate the uptick rule

7. When they change FASB rules on mark-to-market.

8. When we get real leadership from Washington

Take your pick. We’re just getting started.

(Feel free to add any others that come to mind)

Well, I’m back. I leave for a few days and it’s financial mayhem again. Granted, I had a great time getting high on mountain air, ignoring the market and the asshats on CNBC, but now it’s back to bidness.

I’m way too busy playing catch up, so I’ll make this brief.

This financial shitstorm will not get better anytime soon, so you can forget about a market recovery for Christmas. 

“The Three Amigos”: asset price deflation, credit contraction and a weak economy are playing havoc with our financial system all across our formerly great land and the world collective. Until the three get waylaid at the cantina or lynched, we are in for more of the same trouble.

One key to keep an eye on is a stabilization of the real estate values that are backing commercial and residential loans. Until we see this, the end is not near. I expect that we might see well over 150 bank failures before Rosie O’Donnell starts singing. There is also talk of the FDIC running out of money, ever since Hank and Ben took pity on Bear Sterns, Countrywide, Fannie Mae [[FNM]] , Freddie Mac [[FRE]] , and now American International Group, Inc. [[AIG]] .

Add to all this, the fact that we haven’t even begun to deal with the mess in the credit card, auto loan, student loan and commercial loan areas, and you can see that we’ve got lots of doo-doo to clean up still.

This crisis will try the patience of even the most optimistic investors, for a long time. Sure, there will be periods of hope and calmness, which will then be followed by more blow ups and implosions. In the meantime, play strong defense—cash, high quality bonds and inverse ETFs to hedge any equity positions.

I have been long [[FXP]] , [[EEV]] , [[SKF]] , and [[SRS]] in sufficient size since the beginning of this month. Get yours.

Buenos dias!