Market historians may recall that just prior to the banking crisis that led to FDR declaring a 2 week banking holiday, FDR approached Henry Ford in February 1932.

The reason FDR approached Mr. Ford was that Ford had threatened to withdraw $20 million from a local bank. If Ford did that, it would spark a chain reaction of bank closures throughout the Midwest. Hence, recognizing Ford could spark a run on banks throughout the Midwest that could go nationwide, FDR sent two of his men to persuade Ford not to withdraw the $20 million. After politely listening, Ford told FDR’s men, “All right then, let us have it that way, let the crash come. If everything went down the chute, there would be a cleaning up process and everybody would have to get to work.” Whatever happened, said Ford, he was sure he could build up a business as he still felt young.

Six months ago, I introduced a small emerging growth stock company to readers, a natural gas producer out of Colorado New Frontier Energy Inc (NFEI.OB).

The background summary read: “The company is accelerating shareholder value primarily by rapidly building its proven and probable reserves, rapidly increasing production. The foundation for rapid future growth for many years to come is now in place and set to commence in 2008.”

Summary

The housing Crisis has spurred "Forgiveness Loan Initiatives" by Ben Bernanke. Could be the last tool in his shed, but he can't use it without the big banks cooperation, & banks ain't cooperating. Forgiveness in a tight credit environment is a mind-blowing oxymoron. With or with out forgiveness, the US financial system could implode causing a debt deflation spiral.

"No emergency can justify the return to inflation," Ludwig Von Mises said some eons ago. Just what would Von Mises say in response to the current cycle of aggressive monetary easing, I wonder?

This Von Mises market aphorism was January 30th quote of the day on Barry Ritholtz's blogsite, The Big Picture, after the Federal reserve had cut interest rates for a total cut of 1.25 bps to 3% in just 8 days. That is some high octane stimulus.

Black Swans are large impact, hard to predict rare events beyond the realm of normal expectations based on experiential knowledge. Truly, there have only been two black swan events of that proportion in the past 26 years - and that was the stock market crash in 1987, and (at least for us Americans isolated by two oceans) was the collapse of World Trade Center in September 2001.

The Iraq war in 1990 was not a black swan because we know about wars. Recessions too, are not unknown to us. We had a mild recession in 1989-1990, and again in 2001. Not even bear markets are unknown to us, so not even the 51% S&P 500 correction of 2000-2002 could be considered a black swan event. At best, since 1987, these have all been "Grey Swan" events - to borrow a coined phrase.

In 2006, working natural gas supplies in underground storage reached record levels. In fact, for the week ending March 23 2006, natural gas in underground storage was 67% above its 5 year average according to the Energy Information Administration. The glut in natural gas last year drove spot prices down to 4.05 by Sept 2006. For the week ending Dec 20 2007 the total working gas in underground storage still remains 9% above the 5 year average, indicating ample supplies.

This excess supplies no doubt contributes to the “speculative short positions outnumbering long positions by 96,357 contracts and net-short positions rising 3,476 contracts or 3.7% this past week from a week earlier” according to the Commitment of Traders [COT] report. No doubt, spec shorts are being emboldened by weather forecasts expecting unusually warm temperatures between now and March 2008 in both the East and the West regions.

Measured by the response of the SP500, we can see that the last two FOMC meetings on October 31st and December 11 have clearly disappointed investors.

While this reaction of the December 11 FOMC meeting has been short term bearish, the recent weakness did occur on overbought conditions. So the FOMC announcement was a convenient excuse for a retrenchment. Investors should be cognizant that the low set on November 26 following the Oct 31st FOMC meeting occurred on the Fed announcement that they would begin providing liquidity into year end for the money markets adversely affected by the credit crunch beginning November 28. With that initial injection, the SP500 gapped open 1% higher above the previous day’s 1426 settlement to 1441.

New Frontier Energy (NFEI.OB) is accelerating shareholder value primarily by rapidly building its proven and probable reserves while increasing production. The foundation for rapid future growth for many years to come is now in place and set to commence in 2008.

NFEI Profile

As suggested in earlier carry trade reports, the unwind of carry trades would ripple from one cross rate to the next. The initial unwinds in July/August were most severe in the Aussie/Yen and NZ/Yen carry trades. For the most part, carry trade investors have put those trades back on.

In the meantime, since the Fed cut the discount rate in mid-August, investors have begun taking off their DX/JY carry trades, a trend which has continued to accelerate as the US financial sector slips into a full blown recession. Cyclically, the DX/JY carry trade unwind should continue as long as the BOJ and Federal Reserves short term rates are converging. This convergence could take years as we have no idea how long the Fed will continue to cut rates, pause, and then begin to hike rates again as the economy pulls out of its sluggish recessionary tendencies.