Almost time for shorts...

The weather is heating up and so is the stock market. Struggling to breach the 875 barrier, the SP has been churning for a week now. The FOMC meeting is the catalyst for the action today. As the great P.Diddy once said, "It's all about the Benjamin's baby".....or something like that. I think the Fed chairman believed P.Diddy was referring to him with that lyric. Ben Bernanke aka Bam Bam is calling his friends at Xerox for more ink. The bond market sent a signal to Ben yesterday, driving rates on the 10-yr T-note rate up nearly 5%. This will spoil plans to keep mortgage rates down and would throw a monkey wrench into the anemic housing recovery plans by our dear government. The excess housing inventory cannot be sold now with mortgage rates around 4.85%. There is no way houses will sell if the Treasury rates rise and drive mortgage rates back above 5% and possibly further. If the decline in housing prices do not subdue, neither will the value of any of the MBS (mortgage backed securities). These are the "assets" our countries banks are holding which are considered toxic. This makes the banks liabilities greater than the banks assets and therefore our nation's banks are insolvent. Think about it....how can an economy function properly if the firms which control the money are insolvent? It's a scary situation to ponder, but that is where we are today. So what's that mean? More quantitative easing, a fancy term for printing more money. The Fed will run the presses, hopefully they have the funds to pay employees for overtime, if not, just run the presses some more. They will use the money to continue to buy the 10-yr and keep mortgage rates down. No one fully knows what unintended consequences will spur from this experiment, but what we do know is that the value of our beloved greenback is falling with each dollar printed. A depreciating dollar will lead financial assets denominated in dollars to appreciate in kind. read: stocks. That's why, I believe, we are up a cool 2.05% at 1pm, today and the dollar index is down 1.15%. Swings like this in the dollar index are not good signs of a healthy economy.

The FOMC meeting is at 2:15 pm est today and once they announce another Treasury buying binge, I'd look at the PST (short 7-10yr Treasuries). Rates will inevitably go up, because the folks buying our debt will eventually get sick of getting no return on their investments. When interest rates rise, bond prices fall. With interest rates on Treasuries around all time lows, build a position on the short side because when the rates start to rise, bond prices will fall.



I broke out the summer clothes a few weeks ago and threw on some shorts. I would like to get a couple new pairs but then I had to remind myself that we are in a recession and I am not allowed to spend...right? So I started thinking...how can I make some extra chedda to finance some new couture? Ok, poor attempt at a finance joke. Anyways, my thoughts are that, this dead cat bounce/false hope rally, is coming to a close if we don't break through 875 soon. If we do breakthrough, we could see an extension to this rally because a lot of traders will cover their shorts around the 875 level and this could lead to a short covering rally. With the financial sector still on life support and reality setting in that CRE (commercial real estate) is about to plunge, I look towards two trading vehicles. SKF (short finance) and SRS (short real estate). Both of the funds are around their 52-week lows and look like solid rentals to begin to build positions in.

I'm not sure what made me start this blog today, but I'm already enjoying the ability to communicate some of my thoughts. My writing skills are in need of improvement, so excuse the bad grammar, verbiage and/or communication skills. This blog will have a wide range of topics from capital markets and economics to politics and philosophy. In the future I'd like to get a couple of friends to be able to post on the blog to provide some insight and everyone will profit one way or another in the long run. Thanks for taking the time to read this and remember: The popular opinion is rarely the profitable one.