Flush...

In case you missed it...markets down 18% - in ONE week. Down 30% in a month, etc. etc. Oh and by the way, happy one year aniversary of the all-time high in the markets - kind of eerie - to the day.

Can't really tell you much you haven't heard already - this is kind of what we've been building towards the past year+. The news is only about to get worse, but technically analysisly speaking, it appears to be bouncy time (but don't try to catch the falling knives...with your tongue - courtesy of Chris). Some of the smart ones are calling for a multi-monther.

Yes, it seems nuts, but nothing goes in a straight line. Still, it's hard to see anything that sustained in this environment - so just be safe. But when we do get that rally sometime soon, my advice is to A) get out of anything that was still long (your choice as to when), and B) realize that this is nowhere near done. Congrats if you haven't had your butt handed to you this year, been a rough ride for the masses. Sidelines are MUCH safer.

But now we know what 3 of 3 feels like. I've been talking about it, but never explained it well. Here you go, with charts - gives you a general idea of what to expect. I say general because preditcing the future is not easy, and tools like this are not exact - especially in real time. Unfortunately it's after the fact that it becomes really clear. Cool stuff though.
http://tinyurl.com/4f39kz


But do not forget that the downward action is NOT over. That was not meant as an endorsement to try to go long into this debacle. Do not go on margin, do not go all-in. If we get the sustained bounce, it's just an opportunity to get people out of the stuff that is probably making them very unhappy right now.

Expect the unexpected, it is not crazy to think that we will be getting a "bank holiday", and the market could be closed for days on end with you stuck in a position (which could turn out great or horrid). You will not be quick enough to get out if you are wrong, because the market will be closed - or the Dow will move up (or down) 900 points in about 30 minutes like it did Friday afternoon! 900 HUNDRED points. Anything can happen. Literally.

VIX at 75?! Shatters previous records. Basically saying that the Dow will finish 400 points away from it's previous close - that's nuts.

More to that point, courtesy of Nathan - The intra-day movement (high v low) in the S&P has been over 5% just 41 times in the last 45 years (over 11775 trading days). It happened every day this week. It was over 10% today and yesterday. That has only happened two other times.



But back to the bullish case I mentioned above. 10 of the things that point to rally (wave 4 of 3 from the Mish article you just read - maybe).
http://tinyurl.com/4yqstd


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But I'm not about to get all bullish that easy - no matter what the market does....

1 in 6 mortgages in this country are now underwater - WOW. Up from 4% in 2006, and 6% in 2007. Oh, and here come the option ARM's. Oh, and all the "experts" say we will be making money on the MBS's the government is going to buy with our bailout money. Yes, that's why everyone else on the planet was lined up to buy them - but our government said no, our taxpayers get first dibs, the rest of you can go away.
http://tinyurl.com/3opsmv

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Some of these are pretty funny. Pictures of "sad guys on trading floors".
http://tinyurl.com/4tzrov

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Oh goodie – the clock runs out of digits, but now they are preparing for it to go to a quadrillion! Did Dr. Evil just walk by?
http://tinyurl.com/49bkur

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Where will the money come from? From the USA Today:

“Unemployment insurance trust funds are being depleted in many economically hard-hit states, setting the stage for a federal bailout to keep them solvent, USA Today reported Tuesday. As the number of U.S. jobless hit 9.5 million in August, pushing the unemployment rate to a five-year high of 6.1%, states such as California, New York, Ohio and Michigan are projected to run out of unemployment insurance funds either this year or in 2009. About one-third of the jobless receive unemployment insurance from state governments. The federal government is required to loan states money when their funds run dry. "People will get their benefits. It's just a matter of where the money will come from," a spokeswoman at the California Employment Development Department said.”

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Items of "lessor" importance:



Carlin telling it like it is:
http://tinyurl.com/2y867d


Adler - generally considered one of the smartest guys in the room...

(Posted in its entirety on www.wallstreetexaminer.com)

"The Long March toward the destruction of the creditworthiness of the United States of America took a Great Leap Forward today, or perhaps we should say “one small step for Paulson, one flying leap for mankind.” The Treasury announced and carried out 2 same-day surprise auctions of medium term notes totaling $20 billion. They announced 2 more auctions of similar paper for another $20 billion tomorrow. The market choked on its vomit. 5 year yields rose 22 bp on the day, and at one point were up 50 bp from the low of the day, which came right after the open when the market was digesting the meaningless worldwide central bank coordinated rate cut.

The Fed action in cutting the Fed Funds target to 1.5% was merely rubberstamping the action it had already taken a couple of weeks ago when it first flooded the system with cash and drove Fed Funds rates into the ground. Today they just made it official that they intend to pursue aggressively reflationary policies of monetizing virtually anything. What next after commercial paper? Baseball cards? Monopoly money?

Ironically, today they had to pump in $20 billion via OMO as Fed Funds soared on Tuesday to nearly 3%. I suspect that they will have ongoing difficulty trying to peg actual Fed Funds trading to anywhere near the target rate.

The Treasury market’s problem is not theoretical. It’s not about the threat of investors discounting future inflation. It’s much simpler than that. It’s about simply choking on a barrage of new Treasury supply that’s running between $100 and $200 billion every week! There is no way that stocks, or corporate bonds, or GSE paper, or munis can compete with this supply. Today we saw first signs that the market can’t even absorb just the Treasury supply. As the interest rates rise on Treasuries as a result, we will be facing an unimaginable economic environment, one in which the world rightly questions the ability of the US Government to service its obligations.

The Fed is converting these Treasury funds into loans on, and purchases of, securities and loans, at least some of which are certain not to be repaid. We are now backing our money with assets that may never be able to be liquidated. A time is now virtually certain that there will be no realistic way to pay off the debts the Treasury is now incurring.

As the market begins to realize this, we may face the ultimate collapse, the collapse of US Government finance. Ultimately the world as we know it will be changed in ways that we cannot imagine. Even if the US Government were to reverse course now and say, flat out, no more bailouts, no more Treasury borrowing to finance bailouts, it’s probably already too late.

It’s one thing to allow private capital markets to fail. It’s another thing entirely to foster, foment, and cause the failure of government. A loss of confidence in financial markets is one thing. A breakdown of confidence in government would mean societal changes that we never dreamed of."