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Why have we witnessed four up days of trading that rocketed from the lows of 741 to nearly 890 on the S&P 500? Is it the start of a new bull market? This would be a very pleasant scenario, but bear market rallies can last days or sometimes even weeks and months. The most violent rallies, like those as of late, are generally short lived. The last time the market was up four days in a row was April, 2008.

How are bear market rallies possible?

Lately we’ve seen anything from government appointments to bail outs of multinational banks significantly lend to positive momentum. This is quite a contrast from the traditional inspiration of good earnings or economic data.

Bear market rallies are not created by investors buying to commit capital in to a stock for the long term, but instead by short covering and trading. The short term horizon of the participants and the lack of fundamental positive catalysts usually lends to these rallies collapsing to worse levels than they had climbed from, rather than a constructive bottom forming process.

When will we see the bottom?

A) The worst must be over: House prices are still dropping, unemployment is rising, consumer sentiment pushing all time lows and credit availability is tight. There is likely another leg down coming in both commercial mortgage backed securities and consumer credit card defaults.

B) There must be a positive catalyst within sight: Green energy has been promised to be the next bull market. Is there demand for these measures when oil is at $50 a barrel? The other question is, after committing half of last year’s GDP to financial bail out programs, how will the Federal Reserve and US Government continue to finance their spending? More importantly, will foreigners continue to lend to a less credit worthy nation?

C) The Federal Reserve must complete lowering rates and change to a neutral or tightening bias: The next Fed move will likely be another rate cut. To Bernanke’s Fed, deflation is still a bigger threat and he has the helo running full time dropping cash. Until this reactionary behavior is over, there is no sign that we are out of the woods.

D) Businesses must begin buying back shares: Many buyback programs have been halted, not accelerated. We have not seen corporations step back in and buy back their own shares. We also haven’t seen many insiders provide substantial equity commitments in their companies as of late. This is an important component of building a sustainable bottom.

E) Risk indicators must begin to show signs of significantly decreased aversion: The Japanese Yen, crude oil, one and three month T-bills (and lately even the long bonds) have all shown us that the flight to quality and away from risk (or growth) remains. The VIX is still above 50 and has major support at 45. Even gold prices are back above $800. Fear still seems to be a greater motivation than greed.

What are the charts saying?

The above S&P 500 chart is not confidence inspiring. The trend lines illustrate the wedge patterns and the horizontal lines show major resistance areas.  Currently the stock market is bumping in to major resistance. My indicators confirm this rally is overbought and due for a correction soon. 

Where are we heading next?

Based off the above analysis, I don’t feel this rally will get much above 900. Instead, we need to retest the intraday low of 741 on the S&P in the next few weeks.  There will probably be support areas on the way down at 875, 850, 830, 800 and 776. If the 741 low doesn’t hold, 600 is the next level of major chart support.

If you’ve made some money on the rally, don’t fall in love with the upside.  Remember that we still have a lot of problems to work through.  Folks with investments should use this as an opportunity to raise cash. If you’re looking to trade this rally, you may want to begin adding to short positions.  FinViz.com has some great tools for screening stocks if you use technical analysis to find your trades.  Good luck and stay safe!

Once again we find ourselves in the midst of a panic. After a long series of financial firms getting bailed out because of poor risk management and greed, now Citigroup prepares to receive tax payer funds in the amount of $100B or more. Pandit, Citigroup’s CEO, has been unable to restore confidence or restructure the international banking giant’s numerous units to restore stability, let alone profitability.

Even after numerous capital injections, receiving TARP funds and having access to all of the Federal Reserve programs, Citigroup is unable to stay afloat on its own.

There is a problem, though. Citigroup is incredibly interconnected. More than Lehman, AIG, Washington Mutual, Bear Stearns, etc. If they fail it could have a cataclysmic effect on the world financial system.

With Citigroup’s shares trading below $4 on Friday, the company is in dire trouble. Down over 90% from its high a year ago with no way to restore confidence. The stock plunge has created enough of a panic to break the 2002-2003 technical support level of 776 on the S&P 500.

Bailing out Citigroup will likely be more expensive than all the other bail outs combined. It is the fifth largest US bank and has over a trillion dollars in assets, many of which are defunct. Other firms have offered to step in, but only if the US government buys all the bad debt.

What’s next? Expect more business failures and the S&P to trade down to 600 and possibly 450. Those are the next major levels of chart support. This will be the worst recession the US has seen in at least 50 years.

Always be careful of how you invest during a bear market.  Rallies happen, but rarely are they a sign of a meaningful bottom, especially if there is no end in sight to the economic problems.  Sometimes the rallies look promising and powerful and the pundits come out of the woodwork to “call the bottom”, in retrospect, of course.  But markets don’t bottom overnight.  It is a constructive process that can take days, weeks or even months and years.

Don’t rush to invest large sums of money you can’t afford to lose in a bear market.  Remember that most money managers lose money in bear markets and they are professionals.  Unless you have a lot of experience and a lot of spare cash burning a hole in your bank account, don’t speculate too much.   A prudent approach would be to invest 5-10% of your income per month in a value-based diversified international mutual fund or ETF.  That way you aren’t attempting to call a bottom and contribute regularly when the market is in the process of revaluation.  This approach works with one necessary future component.  Growth.

Don’t get caught up in the emotion and get stuck on the wrong side of the rally’s collapse.  Technicals help, but are not perfect in this kind of market.  Remember that there are plenty of charts on the bottom of the sea, right along with the ships whose navigators trusted them.  Always watch your positions and use stops.  I don’t feel we are at a bottom yet as the economy stands to deteriorate significantly.

Everyone wants to have their confidence restored in financial institutions, but when I read headlines like, “SEC Loosens Accounting Rule Banks Blame For Crisis“, I have to start seriously questioning the oversight role the SEC has lackadaisically administrated and the devious flexibility that very lack of supervision gives banks.  What the above headline and the linked article illustrate to me is that the SEC had no handle over what the assets these banks held on their balance sheets may have been worth and now that they’ve taken a peak apparently they are not pleased with what they saw.

Hiding the assets from markets is only going to further ruin confidence.  Now we can no longer trust any earnings from any institution that has exposure to troubled assets.  Not only that, but we can expect them to artificially value the assets higher than their worth and foist them on the Treasury when the TARP (Troubled Asset Relief Program) begins their auctions or direct purchases.

This is a major breach in transparency and a move in the opposite direction from finding a conservative and clear accounting standard that institutions should be held to.  The opacity of today’s bank balance sheets combined with the new ability granted by the SEC to mark assets as banks see fit make this investor lose all confidence in America’s banks.  The situation here is too reminiscent of Japan’s “solution” to their own real estate bubble meltdown.  We all know that Japan’s recovery, if one can even call it that, took decades and is still underway.

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From bad to worse we go as the global equity markets continue to set records in their downward spiral.  Every trader is screaming for rate cuts and only some central banks have heard the call and responded.  The situation will continue to deteriorate until confidence that the banking system is solvent is restored.

As mentioned in a previous post, the specter of global rate cuts is manifesting itself.  Australia’s central bank cut 100bp and other central banks in Europe and North America are expected to follow.  Other central banks may cut as well.

Inflation is now a secondary concern as this massive deflationary credit crisis emerges as a threat to global growth.   IMF economists predict that global growth will slow to recessionary levels.  This coordinated rate cutting is the formula central banks use to create the next bubble.  We’ll see if it works.

Is America awake?  Is the whole world awake?  Are we all standing at attention watching our collective net worth plummet?

Has anyone realized that the corporate socialism is not fixing anything?  We’ve been using these liquidity bail outs since last August of 2007, and all it has done is added more volatility to the markets downward slide.

When you pop a balloon, can you fix it?  The simple answer is no.  But the Fed would have us believe we can somehow mend the pieces and reinflate some kind of Frankenballoon monster in its wake.

This is nonsense.  We have gone off the great cliff that markets tumble off of when the boom cycle busts.  This time it was real estate and the bottom for house prices is not even close to here.  That means the markets won’t stop selling until house prices level out.  Why?  There just aren’t any buyers.  There’s no confidence.  Sure we may have a snapback rally, but we lost 10,000 on the Dow, we’re close to losing 1000 on the S&P, the VIX (the fear index) is at all time highs.  Does that mean today was the capitulation everyone was watching and waiting for?  If it is, it’s only a short term bounce to another lower high.

America you needed to wake up when Ron Paul screamed from the mountain tops about inflation, but you did not.  You needed to wake up when the subprime mess started and realize it was from your own excess, but you did not.  Now there is very little opportunity left.  You have but one chance to realize the err of your ways.  You have to pay off your debts, start living within your means and stop letting someone else worry about your financial future.

It’s time to learn about the monetary system, macroeconomics and how to deal with this new global market landscape.  You don’t have long to do it, either.

We have to all start appreciating just how good we had it to understand how bad it can get.  California needs $7B just to be able to continue paying its government workers.  That’s right, government workers– even emergency service workers, could face the daunting possibility of a bouncing check.  Other states are following suit with their own inability to raise short term capital.

The Treasury is poised to take over 90% of American’s mortgages, and even debt from other countries.  That would put them in the position to have to enforce foreclosures and manage foreclosed properties.  Can you even imagine how the enforcement and management would be undertaken?  Are we talking about the Secret Service or ATF kicking Americans out of their homes?   Are they going to mow the lawns and keep the places clean, too?  This whole plan is completely absurd.  You need not look further than under its gold-plated surface to see just how bad it is.

And now as we approach a national debt that is larger than our GDP, we must start to realize that America itself has become leveraged. As we increase the bail outs, continue our military incursions and open up more socialist programs, the debt will skyrocket.  Eventually inflation will kill the dollar.  Right now, though, deflationary forces are very strong.  That is to say, because money is debt, and debt is being destroyed on an unprecedented scale, there is some destruction of currency, leaving less supply and increasing prices for the remaining US currency (which is mostly credit).

The US Congress is now out of session until next year and we will very unlikely see any more stimulus or bailouts from them until the next president is decided.  This is going to be an incredibly rough patch over the Christmas season for retailers.  Some say the worst in three decades.   We are predicting that consumers are going to be very frugal in the face of both their home values and retirements receding, job availability contracting and the economy slowing.

The path of least resistance for all major global equity indexes remains downward.  Bonds still are seeing a tremendous flight to quality as traders price in likely Fed cuts of up to 75bp to 1.25.  The Yen is seeing massive strength as risk aversion is increasing.  Gold is up as well, but other European pairs are weaker against the greenback today.

Be very careful trading!

World markets are selling off.  US equity index futures are down over 2%.  Dow Jones is poised to give up 10k.  The Paulson plan is not working as promised.  Welcome to reality.

Apparently now it’s OK to lie about asset values.  I’m pretty amazed.  We’re going backwards, AWAY from any sane resolution or progress towards transparency.  This must be another piece of the Paulson puzzle. The firms with these assets can claim they’re of a higher value, sell them to the Treasury and make out like bandits.  So much for the government profiting, let alone breaking even.

http://www.reuters.com/article/businessNews/idUSWAT01020020081001

This package of lies and deception to float Wall Street and foreign central banks at the expense of US tax payers will ultimately result in the demise of American financial superiority.  Really a shame…

Stop allowing banks to borrow and mark their balance sheets to numbers they make up by forcing total transparency.  We also need to have all of these over the counter derivatives traded on open exchanges with significantly less leverage. This was never a problem with free markets, it’s a problem with gray markets with assets that no one knows the value of.  It’s a problem of unregulated insurance for bonds that devious parties can use to force companies out of business AND profit from their demise, with NO legal repercussions.

BBT, one of the most conservative banks with a very safe balance sheet, has come out in favor of a different kind of bank bail out.  They allege the bill only helps Wall Street and already insolvent banks and doesn’t make sense for sustainability or correcting the problem:

http://media.gatewaync.com/wsj/pdfs/2008/09/allison.pdf

As predicted, Wachovia has failed to stay solvent.  FDIC to absorb half the losses with Citi.  Depositors will continue to bank through Citi, who may choose to keep some Wachovia branches open.  Wachovia stock trading at pennies today in the premarket.

Karl Denninger is leading the charge to expose the risks of this bill to the American tax payer.  See his opinion here:

http://market-ticker.denninger.net/archives/594-MAKE-THIS-VIRAL-STOP-THE-BAILOUT!-SAVE-AMERICA!.html

As Washington Mutual’s collapse remains fresh on the minds of Federal regulators, pressure is increasing for Wachovia to strike a deal with its two bidders.  Wells Fargo and Citigroup have offered to buy the troubled bank.  I believe Wells Fargo will ultimately prevail as Citigroup has a myriad of its own troubled assets.

Asian and European equity markets sell off as traders speculate the US bailout plan is not big enough and won’t address the liquidity freeze up in credit markets.  This is an interesting turn of events and certainly not expected.   If US markets lose the 1200 S&P support level, we could see a retest of the September lows around 1150.  The path of least resistance remains downward.  Be careful trading!

The now familiar weekend bailout is once again underway. The Congress is approaching an agreement, which is ultimately less awful than Paulson’s completely ambiguous blank check, but still not ideal.  If passed, the temporary boost of confidence could cause global equity markets to rally in the short term, but reality will catch up as the global recession looms.  I don’t think we’ll see anything but lower highs in the S&P, but we could see a 200DMA retracement.  Watch key resistance levels around 1250, 1275 & 1300 on the S&P.  If 1300 is broken, watch the 200DMA as resistance and look to build short positions if it is unsuccessfully tested.

 Speculation is growing that the Fed may be losing its grip on the crisis and on its own balance sheet:

“In the last two weeks — if I am reading the Federal Reserves’ balance sheet data correctly — the Fed has:

Increased “other loans” to the financial system by around $230 billion (from $23.56b to $262.34b);

Increased its “other assets” by about $80b (from $98.67b to $183.89b);

Increased the securities it lends out to dealers by $60b (from $117.3b to $190.5b);

That works out to the provision of something like $370b of credit to the financial system in a two week period. And that is just what I saw on a cursory glance.

The most that the IMF ever lent out to cash strapped emerging economies in a year?

$30b, in the four quarters through September 1998 (i.e. the peak of the 97-98 crisis).

The most the IMF ever lend out over two years?

$40b, in the eight quarters through June 2003 (this covered crises in Argentina, Brazil, Uruguay and Turkey)

This is a very real crisis. The Fed’s balance tells a story of extraordinary stress. I never would have expected to see the Fed lent out these kinds of sums over such a short-period.”

http://blogs.cfr.org/setser/2008/09/26/extraordinary-times/

WASHINGTON (Reuters) - The U.S. Securities and Exchange Commission is ending its program to supervise large independent investment banks now that the five participants have collapsed or reorganized.

Obviously the program was a success.  Great job!

Washington Mutual is gone.  National City Corp is next.  Wachovia is hanging in the balance.

Pretty broad weakness right now across financials and the VIX is up nearly 10% to 35.96.  At the same time, money is flowing out of 13wk bonds, where the yield has increased 19.72% to 0.85%.   On the long end of the curve, 10 year bonds are down 1.63% to 3.79%.  We’re seeing the yield curve flatten a bit on those moves.

In foreign exchange markets the dollar has lost its luster and is now losing ground against the GBP and JPY.  Both seem to be trading in a limited channel.

In metals, gold prices are up 1% touching $890.  We’re definitely seeing $900 act as a key level of resistance.

In energy, oil has slid to $104, but seems to be finding support at that level.  Natural gas is down to $7.6, but may see some seasonal strength as we enter the Winter months.

The falling dominoes of the credit market are leading to credible potential for a global equity market disruption regardless of whether the bail out is passed.  The only thing the bill would do is delay the market capitulation.  The question is do we have some more inflation or do we experience the asset deflation crisis immediately…

As I mentioned in yesterday’s post “Corporate Welfare Wins”, Washington Mutual was struggling to survive.  The battle has ended in WaMu’s demise and much of their assets are being transferred to JP Morgan in a US Gov’t brokered deal.   This is the biggest bank failure in US history, but I doubt it will hold that title for too long.  Wachovia is at great risk if the bail out is not passed.  Money is continuing to flow from weak hands to stronger hands.  Overall there will be less market participants with less liquidity from more stringent leverage requirements.  This will likely cause wider swings from greater volatility given the reduced volume.   The outlook continues to remain bleak for the global equity markets.

When I read this quote, I thought I should pass it on to everyone who might be interested.  If it is true it has sweeping implications:

“The Federal reserve is not renewing loans it has made to banks.

They have repeatedly taken the stance that this is a crisis of liquidity
and have injected hundreds of billions into the financial system and
they are asking for another $700 billion to do the same.

However in the last several days they have removed over $110 billion
dollars; or approximately 1/3rd of all the money they have lent out
short term.

This is extremely unstable for our financial system and if allowed to
continue will result in more failures.

Many people that we’ve talked to are starting to wonder if it’s
intentional to create a crisis to get their bill passed.”

http://www.fedupusa.org/

We will probably see the bill pass by the weekend and with it will come a short term renewal of confidence that may boost equity indexes back to important levels of resistance at the 50, 100 and 200 day moving averages.  Overall, this is very bad news for the average citizen and their children who will foot the bill of the worthless paper that’s traded for cash.  US debt may face a downgrade as a result, causing further disruptions in credit markets and weakness in the dollar as foreign investors seek to diversify their money in safer investments.

Wall Street would have us believe that the rally is going to last, the bottom is in and today’s action with the Dow up at the high around 300 points shows us that certainly there is some positivity around the notion that the government will be the universal backstop to bad debt and other associated instruments.  Meanwhile, Washington Mutual’s stock is plummeting 30% at the lows of the day as the company struggles to survive.   If no one buys them, they will surely fail and cause another massive disruption.  Isn’t Washington Mutual the last savings and loan bank that has public stock?

We see equity indexes behaving as though the carry trade is back in full effect now.  As the Yen weakens against the  US dollar, we see funds pouring in to the S&P futures.  It’s a simple way for the Japanese central bank to support American market stability, while at the same time positioning their exports to be more attractive to American consumers.  Everyone wins, right?  Not if the rally is predicated on the notion that relief is within reach, which as of now it seems to be.

Remember that the SEC’s short selling ban expires October 2st and nearly 1000 companies will be open game for short sellers again unless the SEC creates new policy to address short selling.   October also brings the height of the ARM option loan resets to higher interest rates.  We could see a large spike in foreclosures and further deterioration of mortgage backed securities. There’s also the fundamental question of where valuations should be if we do return to a stable market.  Most traders would probably agree that given the deleveraging necessary to return to sustainable balance sheets, asset values are poised for further deflation.

We’ve seen bonds outperform nearly every other asset class, as the flight to safety has been fast and furious.  The short end of the yield curve is yielding 0.335%, which is actually up from the lows of the year.  The TED Spread is at record high levels, showing the stress in the credit markets is exacerbated by the uncertainty surrounding the corporate welfare bill for financial companies.  The current trend in equity indexes is lower with no sign of abatement.  Most emerging markets have been deeply affected, with China down 60% from the peak of last year to the trough of this year’s lows.  Russia’s financial crisis worsened to the point where the markets were shut down for days and in India and Brazil we’re seeing inflation continue to plague the central bank policy, causing an abrupt departure away from steady growth.

The world is in limbo right now.  Are we going to let institutions fail as capitalism would demand or will we socialize the entire free market in favor of stablizing a fearful world in the aftermath of the biggest asset inflation bubble in world history?  While the US Congress debates these issues the markets are deteriorating, as they should, given the uncertainty that forward-looking traders and investors have to factor in every day.

Right now we are on the precipice of the greatest global financial crisis the world has ever seen.  Most people are beginning to wake up to that.  We’ve seen some liquidation of mutual funds in retirement accounts, money markets become unstable because of Lehman’s collapse and AIG, the world’s largest insurer, have to be taken over by the US Federal Reserve Bank, because of balance sheet insolvency from “mark to make believe” accounting practices.  While legislators debate what implications this bill may have and how to oversee it prudently, I fear that this is by far the worst approach to solving a problem that stemmed from bad risk management and greed.  You cannot bail out the biggest banks with debt that is created out of borrowing at interest from the Federal Reserve and expect the problem to be eased.

Every government and Fed bail out so far and in the foreseeable future relies off of using public funds to bail out private sector mismanagement of capital.  Suddenly the entire financial sector’s balance sheets are reminiscent of Enron and we’re celebrating this by rewarding their worthless paper with billions of dollars from an already heavily debt-burdened Treasury balance sheet. We can’t expect this one to be any different.  Sure it may address short term credit market confidence issues for just enough to get us through another quarter, and to a new elected government in 2008, but it is not a solution.  It is a bandage on a gaping axe wound.  Eventually limbs will have to be lopped off because the infection wasn’t handled by Dr. Ben.  This is what I fear is next.

Instead of stemming the risk taking, the policies suggested and enacted thus far have actually created the opposite effect.  We give banks easy access to cheap capital as the Fed cuts rates, the dollar weakens and all of these banks target commodities as an investment, instead of putting the money to work back in the US economy.  Of course their argument is that they have a fiduciary responsibility to generate capital for their investors, and that allows them to operate in a completely apathetic manner towards the overall wealth of America.  Instead, they invest in metals, energy, grains, etc and the rally is the biggest and boldest in decades.  It was no coincidence that when credit became harder to access, hedge funds started imploding and the banks that benefited from the rally on the way up started taking profit or reversing positions while the economy slowed down, that the rally completely ceased and reversed.  The correction, like the rally, was the unprecedented in its scale and veracity.

In the midst of incredibly expensive short term capital, market participants that relied off leverage to create profits are imploding left and right.  Many models, like the ones employed by Bear Stearns, Lehman Brothers, AIG, Washington Mutual, Wachovia, etc. will not function in a world where confidence has eroded because of excessive greed and terrible risk management.  Many smaller boutique firms that receive less media coverage have also been facing redemptions, funds have been closing down at an alarming rate.   At the end of the day, there are less market participants and those remaining have less capital to employ strategies.

Many elements of the market system are changing very fast.  Be careful trading.  The risk hasn’t been higher for a long time.  Short term strategies seem to be the most feasible, but keep your eyes glued to your terminal!  I’m keeping my portfolio in cash with occasional conservative short term trades when the opportunity presents itself.  Good luck!

The world’s biggest insurer, AIG, is going under… if they can’t get some big loans they will surely implode.

This will continue to feed the downward spiral of financial markets and put pressure on every other institution, raise interest rate spreads and continue to force the market in to a state of illiquid volatility.

If you or anyone you know has policies with AIG, you may want to cancel them and move them elsewhere.
Again, I’m afraid this is only the beginning.  Washington Mutual will fail and Wachovia will fail or be bought out by a bigger bank by end of the month.

Merrill Lynch’s deal to be purchased by Bank of America is in FLUX.  It may not happen.  Anyone doing business with Merrill should closely examine how this may impact their accounts.  Especially if the deal falls through and Merrill fails.

What happens next is systemic credit risk spreads throughout the system, forcing debt to be much more expensive.  All these financials count on cheap money to leverage their operations.  This will cause the remaining independent brokers (Goldman Sachs and Morgan Stanley) to have to partner or merge with money center banks.  It will consolidate money and power to a few hands. There are about 2000 banks now.  At the end of this, there may be less than 1000.

I’m very concerned about the ever increasingly blurred line between the private and public sector. The bail out of Fannie and Freddie will serve to boost confidence in the short term, but I feel it is probably going to cost the tax payers trillions in the long run.

The FDIC is now running out of money to pay out depositors.  They will have to borrow from the Treasury.  This is going to be another financial event where the tax payers will shoulder the burden for bad banking practices.

I feel that once this crisis comes to an end, the financial landscape will be extremely consolidated and muddled.  The government will be in a position with incredible moral hazard with so many private sector investments.

The leadership that was from the strength in commodities has vanished.  Financials have bounced back but are still down on average over 30% YTD.  They are by no means leading us higher. 

As for the next bull market, I can not find a catalyst that will be suitable to stimulate a resurgence of equity values.  Financials will be strangled with regulation and unable to create structured investment vehicles with the flexibility they previously enjoyed.  Fees will be compressed and many brokers will have to find new lines of profit or fail completely.  Green energy isn’t going to find a catalyst without energy prices continuing their parabolic run.  The consumer is spent and the technology sector is going to suffer from that next.

My outlook may seem bearish now, but I feel that it is actually the most bullish outlook I can muster given the global and domestic economic conditions that are giving way to an unprecedented slowdown that is only in the first stages of affecting us.

The Fed has no room to move in either direction; inflation is high and growth is slow.  Unemployment remains stubbornly high while at the same time, despite the correction in commodities, inflation is also a great concern.  The amount of money (debt) creation the Federal Reserve and Treasury must engage in to prevent the credit bubble from catastrophically failing will have deleterious effects on the US dollar and put increasing pressure on the consumer to remain afloat.

Home foreclosures are bound to continue increasing as home prices continue lower amidst tighter credit standards for mortgages restricting potential buyers and up ticks in adjustable rate mortgages increasing monthly payments to unaffordable levels.  In addition, the price increases for agriculture and energy have yet to hit the consumer fully.  Some increases are still being passed on and will be for some time.

The credit bubble, which started as a subprime crisis, has spread to affect assets of all classes and created great uncertainty in the fixed income markets.  Many question the fundamental underpinnings of the debt driven US economy given that the consumer is under the aforementioned pressures, the Fed is tied down and the dollar, while strong lately, has still weakened nearly 40% in the last six years.

In my estimate, we are about one third of the way through navigating this crisis, and thus far too much ammunition from the Fed and Treasury has been expended.  I am looking for the S&P in the triple digits by years’ end and home prices down another 15-20%.