VIX is Settling Down

VIX is settling down. This fear/greed indicator was at all time highs this past few weeks, as the majority of the market players exited positions and ran for cover. At 7700 as a test, and repeated tests at 8000 we believe the market may be beginning to show some signs of health. Buffet wrote an article in the New York Times just last Friday discussing his readiness to begin buying stocks, as we now have values. We agree. The market is slowly taking in the outright fraud perpetrated on this country and the world, and beginning to open the credit markets.

Things are not better, there is still a 10 billion "build democracy in Iraq" war, a massively high unemployment rate, and issues that will take years to fix. But, the market may be ready for relief.

The DJI made its biggest one week gain measured from close to close since March 21, 2003 after a week of erratic trading which saw the VIX reach its highest level ever on Friday. For the S&P 500 it was the best week since February and for the NASDAQ the best since August 8. The performance could have been better were it not for a late sell-off on Friday driven either by traders closing positions before the weekend, mutual fund redemptions or the settling of options contracts.

Friday also saw the TED Spead ease the most for the week as it fell by 11%. But as the following chart of the TED spread over the last year shows, it has a long way to fall before inter-bank lending will revert to its more normal level. We can think of the TED spread as an index of fear - a measure of the extent to which banks distrust one another and fear they will not be repaid for any loans they make. Until this fear index comes down volatility will continue.

Floydian tirades last week on question authority have prompted some great emails from subscribers, as we discuss what I mean by "do not trust the rule makers." Here's an example, and HOW it affects the market:

1. When 9/11 occurred we rushed to be safe. The TSA was born for air traffic "Terror" , and never have a more ridiculous set of rules ever been put in place to take away our human rights, and do little to help us with terrorism.

I travel regularly and am amazed how easily people in this country have simply accepted being treated like criminals as we move through these lines, even though statistically safety checks prove so much is never caught.

My favorite is that we must turn our cellphones off as the boarding door closes, and for the flight, because "cell phones can interfere with airplane radio reception." And most passengers dutifully follow the rules.

Not Floyd. I refuse. This is a joke rule, and is not true. If you believe that the voluntary asking of 200 people on an airplane to "turn off the phones," without enforcement (meaning, how many like me won't or don't turn off the phone), truly could impede the safety of the airplane, you are naive and believe still there are WMD in Iraq:) Imagine the ridiculousness here....an airplane worth millions, constantly upgraded, allowing cell phones to interfere with reception.

I studied it when it came out, and can find NO proof and NO fact that this is true. I refuse to do it. I've flown 100's of times since this rule was put in place, and not one of the planes have crashed. Either I personally have endangered the lives of all the other passengers on my flights, or the rule is bogus. And trust me, I'm probably 50% of the plane that ignores, or forgets these rules. So why are they rules?

Do not argue now and tell me "why not just do it"...as this is the same argument as "why don't you let the police look at something of yours if they stop you if you're not guilty", as the logic becomes that you do not have rights.

My daughter was stopped by the police several years ago while I was her passenger and the officer, who saw her with a faulty back light, asked to look in her trunk. I told him to pound sand. He said "if you weren't guilty of something you would have no problem with this." I told him to pound sand and go visit the Constitution, as we had done nothing wrong, and felt violated that my child was being even "accused" of anything. He gave her a ticket for the faulty tail light, which she deserved, and told me "people like you make it difficult for law enforcement".

Read this sentence above twice. If you don't get the issue, you're part of the problem. I was simply an old white guy in a nice car, wearing a suit, with a bad tail light. This "officer" of the "law" felt that we may have been complicit in some other crime, for whatever reason, and suggested we "show him" so he could be certain. I got his badge number and wrote to the city to file a complaint, which of course, was never even answered.

1 in 3 new Atlanta police officers are hired when they have criminal records.

Do not let America become Amerika. It is these "little things" that we miss. When Greenspan told us for years that lowering interest rates was good, I called him Bubbles Greenspan, and was not a popular "host" at OEX.

When I tell us now that deficit spending created this aura of illusion I've been argued with for several years, and suddenly all my "false facts" arguments are become sadly true....the facts were false.

This is how the cellphone on the plane is like the stock market. Some things you are told are simply NOT true. Question authority, respectfully. When the airlines find a way to make wireless profitable for them, suddenly it will be "safe" to allow cellphone usage. Just wait.

There are no WMD in Iraq.

From subscriber YH:

"I am somewhat nervous that many people are talking about a possible market crash next week or a week later. I am interested to know your opinion?

Your Dow projections say that deepest bottom is 7700, what time frame are you indicating?"

As you study our Dow projections today, make note that we continue to see a potential bottom test, as low as 7700 on the Theoretical Dow, within the next 7 to 10 days. This is now only a 50% likelihood, however, with more credit markets potentially freeing up and comments like Buffet made (buy American stocks now) beginning to free the market. We believe the market is close to, or has, tested its bottoms.

I Hope You Watched the Debates

What a difference a day makes. We started the day with a tight upsurge, allowing puts to be bought, promptly the market began crashing on fear, allowing puts to be sold profitably, and the market then moved directionally. Highs of 9012 on the theoretical Dow, to lows of 8157. Read our Dow projections carefully to see how we caught this run, now still holding calls that we think could now be profitable by day end today.

I hope you watched the debates and have a clear idea of who and how you would vote. Get the "newsbites" out of your minds, and do not trust all the "mudslinging and false facts" that both candidates are now resorting to.

Vote for who you think can change the situation that our country has gotten in to, the economic disaster that leads us, and with analysis of who and why we got in this mess. Question authority. Less than 2% of the boxes that are put on a commercial airliner are checked for explosives, for example, but I am required to take my shoes off to go through security. This is an invasion of my personal rights IF security is lax in so many other areas.

For the past year the President of our country has told us we did not even have a recession. Our Federal Reserve chairman insisted we were in "good shape" and moving forward. Hold them people accountable for their lies and inaction. Have a sense of disrespect for how you as citizens have been treated.

This is the proper questioning of authority.

We Need More Irreverance

The market moved beyond our lower Dow projections yesterday, once again trying to test bottoms, based on horrifying retail sales, and ongoing FEAR in the market. We saw bottom moves to 8538, and will now reproject potential downturn. It appears nothing is working to stop this.

We made a second buy to our November call, and missed entry on this massive downswing. The bloodbath appears far from over. Manufacturing came in soft, retail came in soft, and now that oil is dropping.

We've hit 9 of 10 of our last trades profitably, through this shocking disaster, and may now have our second potential loss. Every time we miss an opportunity for profit, such as a 700 point swing day, it's because we are incapable of charting irrationality and FEAR as we are seeing it. As I told subscribers today, I never worry about what I didn't buy, I worry about what I did buy:)

Last week in a meeting I said "we need more sacrilege in the world". Several people "raised their eyebrows" and asked me to explain, and another person in the room said it more "softly" than old Floyd, using the word irreverence.

Using irreverence settled the room down, but it got me thinking.

1. We MUST question authority. (What authority got us in the mess we are in?)

2. WE MUST have more cynicism, and less "belief". (The economy is sound, and there is no recession-Bernanke 90 days ago)

3. We MUST distrust more, not trust.

4. We MUST have more disrespect of "rules", until they are proven to us to be valid.

Part of our issue as a country is that we believe "newsbites". We believe "doctrines" or our religion, and don't see that others may see things differently.

In other words, we judge, or try to influence others.

This is much like "bringing democracy" to the Middle East, a brazen, rude and utterly ridiculous thing to even consider, and NOT in our rights. We were not asked to do this.

This is much like trying to legislate abortion, when it is a personal and religious decision, and has NOTHING to do with our courts or law.

And, this is much like our current babbles on economics, where we are led by "soundbites" of what each candidate will do. What is sad is that the soundbites have become the medium, and now many people actually believe that Obama worked with a terrorist, or will raise taxes.

It is the same "reverse logic" that Karl Rove won the second term presidency for Bush on, the "bad blood" and "who do you trust to help us with terrorists" angle.

It holds true for the stock market. Having a bit less "trust" and a bit more cynicism is what you pay me to teach you. Question authority.

Be more irreverent. Trust fewer facts. Believe less, question authority. This is what is necessary to have a thinking society.

Dramatic Opening, But Then...

Years ago Warren Buffet explained it all, and of course, we were searching for WMD in Iraq, bringing democracy to the world (they didn't ask), and didn't listen.

http://www.marketwatch.com/news/story/derivatives-new-ticking-time-bomb/story.aspx?guid=%7BB9E54A5D%2D4796%2D4D0D%2DAC9E%2DD9124B59D436%7D&dist=TNMostRead

For years Floyd has ranted on his soapbox on:

1. Deficit spending creates an aura of debt is okay. We did this to ourselves.

2. It appeared to Floyd in the past 8 years that the multinational corporations, banks, oil industry, and Wall Street all seemed to be massively benefiting, even while unemployment was increasing, as the only jobs being found were in housing. Floyd believes our unemployment rate is almost DOUBLE what our government facts say. My rants have been around "the hat trick" that has occurred, no bid contracts, privatizing of social security (can you imagine?), and borrowing money from Communist China,now up to a trillion dollars.

3. Keynesian, or trickle down economics, began with Reagan (actually Coolidge) and makes Americans believe that tax cuts are the answer, when the real tax increases take place around the tax decreases, and America foolishly believes they are "saving money" from the Government. We need more irreverence.

Cash derivatives, without regulation, BEGAN in the U.S. and we are 80% of the market worldwide. WE created this financial crisis. I continue to predict our end cost to buying out this debacle will end at over 2 trillion.

Do NOT believe a single number the government is giving you. It will change by the hour, and all the whoopla on what the "house voted" through will be irrelevant, as we find more ways to now nationalize and internationalize money, because of our own stupidity.

The market yesterday moved up at opening dramatically, in a bit more euphoria, allowing put buyers to take entry, and to profit on the initial downturn after the opening gap. Our traders made entry to the November550C at below prior day close, and could have sold for up to 1.00 per contract profits, twice. We continue to hold this issue.

As you compare "Mavericks John and Sarah" and Obama, ask yourself who is running the most organized and effective campaign, as these are indicators of how they will run the country. Vote smartly.

Don't repeat the same mistakes we've made for 8 years. Bush and neocons destroyed this nation's wealth. Don't live in FEAR again. Certainly citizenry are guilty here, we all are, but is from the top that we are led. Place blame fairly.

The market went to highs Tuesday of 9834, above our first Dow projected top, but quickly retreated to 9045 before closing just slightly down.

FEAR and GREED in Action

Friday's market looked like capitulation selling, the type of panic that often marks an important bottom. Monday's turnaround was waited for all weekend, as the world leaders met to "become one giant bailout", and resurge the market. It appears, for the short term, that world government intervention and guarantee may have stemmed the tide, just as the capitulation selling at 7700 Friday may have "slowed the fear".

It is important to understand that first GREED developed this market situation, begun in the U.S., and developed with supply side deficit build trickle down economics led by a liberal Republican administration. We took away all regulations, and allowed Wall Street to lead their greed, and our own. Insurance on subprime mortgages became a bad bet, and by the time Bernanke and Paulson brought it to the world, it was too late.

That same GREED led the world to follow us, with the same false books, and the same lack of attention to details.

And we followed it with FEAR. As the market began panicking, the news took over the events, and we saw a world lead to FEAR and panic selling. It is that easy to ignore all reason, and we saw a perfect example of FEAR and GREED in action.

This past weekend was, in theory, the "answer". The world waited for a solution, and the solution was "intervention". Without any sense of logic as to how and what this does the world reaction was one of relief, of being quick for "solution", and only later will we all begin to consider who and how we pay for the nationalization of our banking, worldwide.

Of course, both Presidential candidates now have economic plans:) Hopefully, we as an American people will this time study what supply side Keynesian economics does NOT do.

And soon, we will figure out what this "bailout" will cost.

The market hit massive new highs of 9468 on a almost 1000 point gain.

Many traders wrote us Monday asking when we would buy puts.......and smartly, we did not during the day on Monday. We have a new signal to a November call today, noting to buy at "best buy", on what may be an opening downturn.

Downside will occur, the "happiness" may not last, but let's watch for a bit more euphoria.

There will be more euphoria, highly likely. If the continued plunge protection team action shows magic and euphoria, watch futures, and buy our recommended calls at up to 20% above prior day close, watching our Dow projection tops carefully.
Two way trades are still likely, and we're watching.

WASHINGTON (MarketWatch) -- Global efforts to rescue the international banking system gathered force Monday, with Europe leading the way to provide money to shore up its financial sector and calm the nerves of consumers and investors, and the U.S. hinting it's on board with its own package.
U.S. officials were putting finishing on Washington's version of a rescue package and announced they would unveil it before the U.S. markets opened Tuesday.
Treasury Secretary Henry Paulson and Federal Reserve Board Chairman Ben Bernanke met with top chief executives of the largest banks and Wall Street firms, and after the meeting details of the package began to leak out.

The Market Needs a Psychiatrist

In 1979 Chrysler got bailed out, with 1.5 billion dollars. Friday GM hit lows of 1950 prices. Friday McCain told us he would balance the budget within his term, enough to make even a true Rebublican shake their head, as it's not even thinkable. It's also obvious McCain has hired Karl Rove and friends, and the mud slinging beautifully twists things to help the not so smart Americans to believe that Obama worked with a domestic terrorist, or is a liar. It's so sad that we could lose 40% of our market capitalization and find a Presidential candidate not able to explain why he voted 90% of the time with Bush.

There is no doubt that this situation was excaberated by Bushian free enterprise, no regulation, and massive debt building. This is supply side economics, that began with Reagen (actually Coolidge) and has been bailed out in the past by the following administration. This time it is too late. They got caught before it was over, and what we did led the world to a credit crisis, as we are still the super power.

The market needs a psychiatrist, as do all the traders that have dealt with it. Watching the market manipulation that took place Friday was exhausting, and the Plunge Protection Team that Bushy has led may now be up to the entire G8 over the weekend.

Here's the facts:

7842 as a low and 8942 as a high. 1000 points. The October 360P was available as low as 3.00, and could have sold to highs of 11.50. Many traders reported buys on this position two to four times during the trading day, with profits of 2.00 to 4.00 per contract.

We predicted the last bottom at 7700. Some chartists believe this may be the bottom. Much we think will depend upon G8 commentary, and if the credit markets can begin to open up this coming week. The time the bailout bill wasted away in the House should make you angry, and this led to the meltdown, but your larger anger should be why we only found about this, how it could have been so well hidden from the American public, a few short weeks ago.

Those of us that know what has been done, and know the "false facts" and have been preaching them knew the house of cards could unravel anytime, as supply side liberal Republican economics does not work. This is the issue.



From subscriber DY:


Hey Floyd!

Pretty wild market action. I am staying on the side.

I think our economy along with the world economy is broken. What started with subprime type bad loans mushroomed with CDO and other Derivatives that has/will overwhelm the financial system. Confidence has eroded and Government(s) have done things that create variables that have no historical comparisons thereby increasing uncertainty.
Subprime and Fannie were only the trigger. It was the trickle down deficit spending that the U.S. led the world to. The blame lies in how we handled this situation, and that we ignored what we knew.


The Great Depression market lost 89% and took 2-3 years. Because of technology (internet, media, computers etc), if we plunged 90%, would we er expect it to be faster than 2-3 years?
Yes, I'd suggest 18 months as a minimum


If so, how much faster? In this scenario, how fast do things adjust? Things like wages, prices, production levels, inventories, real estate prices, defaults, foreclosures, (un)employment etc (I know this seems rather random but I am just writing what comes to mind).
Much depends on the credit markets and what G8 does. Effectively, the world governments will have to bail out the markets. There is no longer a free market enterprise, but a government guaranteed market.

The "new world order" Bush has wanted may well be in process



Will everything adjust at the same time or will we have rolling recession/depression where different sectors of the economy will adjust differently?
Too early to tell,but likely financial stocks could gain the most short term. Right now, it's all conjecture.


Thanks again for your guidance. Because of you, i place all 401K (about 250K+) into interest bearing account (3%) in late Jun, dow at 11,300 or so. Really takes the pressure off.
Glad you did this.


And lastly, commentary from Mike Gibbons that has merit:

"As the markets closed on Friday we were cautiously optimistic that Friday's trading may have set a floor under the markets and that we may even have seen the bottom, at least for a few months. That optimism was tempered following a promising but disappointing news conference by Treasurer Paulson.

First the good news:
The four indexes we track all closed substantially higher after testing double and triple bottoms. The support level for the DJI was at around 8000, for the S&P 500 at around 850, for the NASDAQ Composite at 1550 and for the Russell 2000 at 470. Although the DJI and S&P 500 closed down it has to be considered that they recovered from very deep declines as did the NASDAQ and Russell 2000 which closed in positive territory and posted their first accumulation day in 15 sessions. The DJI and possibly the S&P 500 would have closed positive were they not weighed down by a fall in energy stocks as crude oil for November delivery fell 10%.

The Lehman Brothers CDS auction was concluded at around 3pm without the dire consequences for financial stocks that had been feared. This sparked an immediate recovery as it appears no one firm would fail. (A contrarian view is that the rally was due to short covering as the shorts did not want to be exposed to unpredictable Government intervention over the weekend).

Treasurer Paulson announced "We are developing strategies to use the authority to purchase and insure mortgage assets and to purchase equity in financial institutions, as deemed necessary to promote financial market stability,". This was a welcome about-face from two weeks ago when the emphasis was on buying derivatives (toxic assets) only and he refused to consider purchasing mortgages directly and injecting liquidity into banks.

Now the bad:
Paulson did not go as far as he should have done. In addition to taking equity positions in banks, he should also guarantee inter-bank loans, as the British have done. This seems essential if banking institutions are to have the confidence to start lending to one-another again.

The G7 statement on Friday was weak. It contained the usual trite catchphrases - take decisive action, all necessary steps, take action where appropriate, etc. but lacked any specificity. We will hopefully get a more substantive final communique over the weekend."

8 of 9 in a Row for Great Profits

Another happy day in the stock market, with massive two way turns. This allowed our traders, on the morning run up, to buy the Oct420P as low as 3.40, and sell to highs of 16.00, for another profitable day.

A number of subscribers also reported day trades on the put, as the market moved around support lines, locking in quick $1.00 per contract profits.

Puts are obviously overextended, and all market makers are hoping for an "up" day. If world governments cannot stem this tide, 7700 is still highly likely. We saw it yesterday in the last hour, with a 600 point downturn as the market moved under 8555

"I tried to step out and catch a call, stop loss out at -20% in 3 minutes. I have not lost a trade for a couple of weeks. Man I have made bank more then I have ever for a long run. Are you thinking of any calls or is 8700 just a stopping point to lower bottom? Thanks for everything you are a good pilot."TP

"Sweet Floyd. Paid 3.70 for the put, and closed my eyes, and sold it for 15.00. 8 of 9 in a row for great profits" BJ

False facts have led us down. Not having all the facts could lead us down again:

Todd Palin Was Registered Member of Alaska Independence Party Until 2002

"The McCain camp today disputed rumors that presumptive vice presidential nominee Sarah Palin was ever registered with the secessionist Alaska Independence Party by releasing years of voter registration history . . . but it looks like that doesn't apply to her husband.

This afternoon, the director of Division of Elections in Alaska, Gail Fenumiai, told TPMmuckraker that Todd Palin registered in October 1995 to the Alaska Independence Party, a radical group that advocates for Alaskan secession from the United States. (Just what we need, a "first dude" that wants to secede Alaska from the U.S...and his wife could be President)

Besides a short period of a few months in 2000 when he changed his registration to undeclared, Todd Palin remained a registered member of AIP until July 2002 when he registered again as an undeclared voter."

Also:

Cheney said "deficits don't matter".-9 months ago

Bush said " the economy is fundamentally strong and recession signs are weak"-90 days ago

McCain said "I need to do a bit more studying on the economy. It's not my strong suit" -5 months ago