The Politics of Financial Chicken ~ The Risk Averse Alert

Thursday, November 20, 2008

The Politics of Financial Chicken

Just so you know ... this is where the rubber meets the road, because bottom appears at hand.

Does your 401(k) have a fund tracking the S&P 500? Then, get ready to close your eyes and allocate 25-50% of your investment capital to it. You'll thank me later, I think. I'll write more this weekend. There's no hurry to do this, really. But if we're days away from a stock market melt-up, you'll not want to wait long either.

You have heard what you should do when there's blood in the streets, haven't you? Because it is times like these the faint of heart run to Treasuries...


A 3-month Treasury Bill yielding 0.06% ... on a gap lower no less. Yeah, yeah, yeah, credit spreads are blowing out. But might "shoot first, ask questions later" be the order of the day driving trading into safety? How much of this run into Treasuries, itself, is causing credit spreads to widen?

More to the point...

Are you watching the theater playing out in the Congress?

C'mon. Do you really think these people are going to let the U.S. auto industry fall into bankruptcy? So, what is the so-called leadership of the Democratic Party doing? Could it ... could it ... could it possibly be holding a Damocles Sword above the free market?

Chairman Bernanke! Start your helicopters...

Surely, the threat of an uncooperative Congress in the face of pending bankruptcy of the single largest industry in the United States makes for a very convincing reason to seek shelter in the safety of Treasury securities. Yet there should be no doubt: if the auto industry goes, the world as we know it is over.


It ain't gonna happen.

The game of financial chicken just gets seriouser and seriouser with each passing day...

Did you hear the date Senator Reid gave the auto industry to come up with a plan demonstrating "accountability?" Call it a ringing bell. The stock market's bottom should be in by then.

Let me tell you something else, too. Keith Boykin of "The Daily Voice" — an Obama spokesperson — spilled the beans tonight, telling the financial world the same thing I have been telling you...
"Obama will have more authority if things fall apart prior to his inauguration."

Duh! This is the same reason FDR didn't lift a finger to help Hoover as the banking system unraveled during the post-election (November 1932), pre-inauguration (March 1933) period.

Am I to believe a financial community whose best friend just so happens to be Treasury Secretary is about to let this happen? I think not.

Now, maybe I am wrong. Maybe there's nothing that can be done to stop the bleeding. Maybe the auto industry will be thrown into bankruptcy before the end of the year. If that's the case, then look out below. I do not think this will happen, but then again, what do I know?

On a related note... What if the SEC brings back the uptick rule? (Check out my comment. Right or wrong, I cannot say. However, I'm willing to bet you might soon hear other voices raising the same suspicion.) More than a symbolic gesture, I suspect a return of the uptick rule could turn off the "easy money" machine a number of short-traders are reporting.



RSI and MACD are diverging ... much as should be expected at bottom ... and much as I have been anticipating.

Volume's pickup deserves watching (much as I should have been watching this in September, at the time of the Lehman Brothers' bankruptcy). Still, though elevated, volume today is in fact diverging from October 10th. So, the situation now, with today's decline to new lows, is a little different than September. Of course, tomorrow is a new day.


A positive divergence registered today as the NYSE Composite sunk to a new low while the differential between NYSE-listed issues hitting new 52-week highs and lows was not nearly as bad as registered in October.


Another positive divergence registered here, too.

Ditto the NYSE McClellan Oscillator.

All the same positive technical divergences are present for measures tied to NASDAQ trading.

As difficult to believe as it might be during a week as bad as this one has been ... all indications suggest bottom is at hand. Within a matter of days the market's strongest rally in over five years should be getting under way...

Fast Money
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