October 9, 2008: Remember the Date - This is Huge

Thursday, October 9th 2008 may be the day that trade desks look to as defining the direction of trade for the last quarter of 2008, and possibly the direction of trade in 2009.

Global central banks and investment institutions will be testing the resolve of each other to break the deadlock of trust. This is no longer a credit crisis, there is credit and liquidity out there, it is a Confidence Crisis, and until one or the other make a move that forces action the demise will continue. If there is not a positive reaction in equities to this week's interest rate cuts the markets will have signaled that major moves are still required before stability will be seen. It really is very important to those looking for financial stability that they see it in equity markets this week, because right now equity movements are dominating all markets.

The exchange traded fund for the Financial sector (XLF) may signal the break higher in equities, and start to make inroads to the 28% negative return that it is currently showing this year. Unless the Financials move the equity markets are stuck. Breaking 16.00 and holding will be the first leg, after that the upside layers are 18.00, 20.00 and then 24.00. If they can hold on volume levels of around 200 million shares on the days that these price points break, then we may see sustainable equity price movement higher.

If the XLF moves higher we will have a signal that risk is being taken on, and as a consequence, trust is being re-built. It will be a long process, but we do need that signal if we are going to see global markets getting back to swapping goods and services, and lending to each other, in an effort to create stability and to ultimately look for growth.

Equities moving higher will signal the initial move to Risk Tolerance, and the initial moves towards the the purchase of higher yielding assets other than bonds and Treasury notes. As that happens the forex markets will be able to get back to valuations on the strength of regional growth comparisons and interest rate variables, and then we will likely see currency pairs becoming less volatile.

The search for fair value on global debt, leveraged asset values, and on forward growth prospects, has created a volatile intra-day set of charts on most of the majors, and that has allowed the London and U.S. futures traders to easily move valuation at 02:00 EDT and at 07:00 EDT, something that has been seen again on Thursday. Those moves will become less exaggerated once price stability and order flows are back in place, and that will come from a stable equity market. It does not mean that equities have to go higher to signal this move, just to be able to contain the selling is where things start.

The USD and JPY may come under pressure from the EUR, GBP, and AUD if equity markets move higher as the higher yielding majors get bought, and remember to keep an eye on the price of crude oil that may strengthen on any overall USD weakness. The cuts in interest rates globally may allow inflationary pressures to build quickly on the strength of forward growth signals. It will all take time to follow through, but Thursday, October 9th may be the day that the markets look to as one that turns out to be very important.

Comments

[sango:]

Oct 9 2007- Dow hit record high 14,164
Oct 9 2008- Hopefully Dow bottoms out

2008 Oct 09 03:28 PM

[CaptD:]

Many companies like GE are under attack from the GLOBAL shorts (Oil $) and as a MAJOR US Defense contractor it is just one of the most visible companies in what I am now calling the (FIRST) ECONOMIC WORLD WAR or EWW 1.

If MAJOR recovery does not really happen tomorrow (10/10/08) then that will signal the beginning of a total economic collapse of the life style we have known in the past. Global "foot draging" where nobody wants to be first to lend $.

Get ready to discover many straGEtic US companies that are getting ripe for foreign takeover UNLESS SHORT TRADING IS HALTED ASAP BY THE SEC,
LIKE YESTERDAY. Imagine if Boeing was bought by Iran or China or Russia!

Our money (SEC) people are thinking of themselves instead of what is best for our country and will be labeled as $ Traitors as this man made situation continues to go down faster and faster.

2008 Oct 09 03:38 PM

[GeminiAtlas:]

CaptD, don't count on it, I believe tomorrow, they start to unravel/auction off Lehman's CDS portfolio. The banks are hoarding cash until they see if they get hit tomorrow or not with big default payouts. Hopefully it won't make too much ripples, but you never know...

2008 Oct 09 05:29 PM

[PainfullyAware:]

Doom Approaches.

I Wish More People Had Debated Ron Paul Rather Than Dismissed Him.

Debate Is The Distillation OF Reality.

When you can create money out of thin air you can buy governments.

2008 Oct 10 03:10 PM

[LCACM:]

During the last 2 decades most of the Capital Spending growth has happened in foreign countries and not in US. As a result the US worker does not have the productivity edge they enjoyed 20 years ago. The result of this is that their job prospects and consequently credit ratings have become much lower, and we see the consequences. There are only 2 ways to sort this out a) Longer term solution would be to impose tariffs proportional to the wage differential between US and it's trading partners. Goods from Europe will see much lower tariffs compared to those from Communist China where slave wages are paid. b) The other is to devalue the US currency via Bailout induced liquidity injections, so that the US real wages tend towards those of Communist China. Free Market ideological rigidity precludes Solution (a) so Solution (b) is being tried. This will lead to yet another liquidity bubble similar to the Internet Bubble and the Housing bubble, only larger in magnitude and more severe in its consequences.

2008 Oct 12 12:43 AM