Greetings, it’s been a bit longer than normal since our last client update due to family, travel and business demands. The “Mr. Toad’s Wild Ride” in various markets over the last 3-4 weeks feels almost like 3-4 years and literally are times that will reshape not only the various stock, bond and other markets but all of our lives going forward. I want to make a point to all that may happen to read this client report, the current “crisis” or recent events have been a long day coming. They are the result of allowing Wall Street to control DC so that both may profit by the, stealing the from the people doctrine. The sad part of this crisis is the fact that that it was created by Wall Street which handcuffed itself to the public much like a terrorist hiding behind its hostage in attempts to achieve its demands and still get away. The problems the people of this country face were created by those still currently in charge of “fixing the problem” and as Albert Einstein said, “The problems we face will not be solved by the same minds of those who have created these problems in the first place”!!!
SPY 20081101
The first question as always is how to manage investments in such an environment. These are only my estimations and will certainly change as the markets evolve or devolve as the case may be. Presently I feel that in the long term, we are currently in the greatest bear market as never before seen, and interpret that it will continue to the point where the S&P reaches 450 and the Dow 3500, give or take few percent. The time span and manner in which something like this may unfold is indiscernible at this juncture. I am not an idiot wave disciple or gloom and doomer. I love my country and am saddened to see the political depravity offered as choices this coming election and that is only a small portion of what constructs my reasoning for such the dismal current bear market estimation. Believe me when I say I joyfully hope that I am wrong for many reasons, one of which being that I have two small children and have come to look at the world and all parents of humankind completely different since becoming one myself, so with that said, What’s the trade?!

My best near term estimation is actually reasonably bullish and can see the S&P trading to ~1020-1120. I know that is a rather large window for price to do its thing but if we look at the date of Sept 19th 2008, the day where Paulson did his thing, price has done nothing but vomit lower ever since. Up to the recent low of 20081010 of 840 for the S&P cash, and 20081027 of 825 for the S&P futures, each index reached very significant time dates for both markets whereas only 1 reaching a significant price level for a potential temporary low.

A move in the S&P that rings a price tag of ~1020 will set the condition for the first potential range top and I do not have any conviction if it will even get there or what I will do on any absolute basis if it does, the current mischief being forced upon the various markets by the “Cabal” can and have moved this market by 10% or more from high/low/high in a single day. For the stock market to make it to 1020 on the S&P from its October lows would be a move of over 20%, something it already has done with even greater amplitude in just 3 days and a move to ~1120 would bring a bear market bounce of over 35%, so there can be several cyclical bull and bear markets within the context of the current secular bear market. That brings it back to what’s the trade again and therein remains the answer which is kind of like the old what is pornography response, that being, I’ll know it when I see it and it’s somewhere between 1020-1120 on the S&P for a sell to go flat and or short of 60-90%. My estimation is the market “should” range for a while somewhere below what I call the “The Peak of Paulson’s Puke” on 20080919 or 1291 on the S&P futures and the low on 20081027 of 825. This range “should” remain for a while providing several bull and bear markets before finally breaking lower to my dismal target as prior mentioned. What would cause me to manage more aggressively from the long side again is a 2-4 day close above ~1140-1200 on the S&P

My current estimation is also reaching into the bond, energy and precious metals markets. I will not go into much detail about any of them but will make the statement that in regards to bonds; I will be shorting them via several different vehicles using the Rydex Inverse Gov. Bond Fund, the TBT for an ETF, futures and options on the TLT for our managed accounts. My estimation is that there is currently about a (-10%) downside for the 30 year bond and with any luck provided by DC negligent mischief a (-20%) downside.

This is not a recommendation to buy, sell or take any investment position whatsoever. These are only current estimations and subject to change without notice and are intended for client communication purposes. Please take this or any other financial information with a grain of salt, as we do not predict markets or become dogmatic in any estimation. We manage risk, and volatility is an opportunity to profit for flexible investing and proper risk management.

Stock Market Choke Points for 2008 part 7B
By TimingStrategies.com

The month of July brought the largest recent shock of volatility in the stock market since March and the fact that the market for the month of July, was being touted by the financial media as a breakeven event on Weds July 30th with such “oh boy… great news” type cheer, is humorous at best! My thoughts on that media driven blather is the fact that the stock market is also pretty much breakeven since 1998, basically a lost decade! Japan’s stock market peaked out in 1989 at close to 40,000 on the Nikkei and today stands at about 13,000, pretty much a lost generation! If you take inflation adjustment into consideration of any true real return for either Japan’s or the U.S. stock market, it reveals itself as to the true nature of what wall street/government and central bank monetary policy is capable of doing to its own people! Be aware of how buy and hold investment advocacy plays into this trap.
S&P via SPY
At this point the question of the next direction for the stock market via the S&P is answered in its recent range between approximately 1280 -1290 on the lid, down to 1220 – 1200’s recent floor. Range bound markets are temporarily stable markets and are usually the norm before a break and run of instability resumes higher or lower. The recent price action on the NASDAQ 100 via the QQQQ, have been very helpful in providing a clue or tell to the rest of the market via its 3-5 day cycle rhythms in conjunction with the local range for itself and the S&P. Therefore my current estimation for the next 5-20 days of price action is premised on a second test of the 1220 - 1200 recent floor to as deep as a 1175-1165 “stab and grab” secondary low. Should this first premise play out as estimated over a 3-5 day time period, before any further price expansion above the 1285 – 1290 local maximum high occur, then any subsequent daily closing price recovery back above 1265, should set the temporary low for the 3rd to 4th quarter of year into the election.

With that said, the July 15th. low, was a satisfactory enough low for the market to still move higher into the election cycle without much further down side testing, albeit again, another Treasury/Federal Reserve and now SEC induced artificial low. This is to say that every temporary low seen in the markets for the last 12 months, (and since 2003 really) have been caused by manipulation/intervention and now collusion by those financially most benefited by such, and so far, they have all been just that, temporary and have failed. The fact that Merrill Lynch (as most all other major financial institututions) recently went out of their way to announce their strong balance sheet condition with no further capital raises required, only to pull that little stunt on Tuesday like they did, along with the recent SEC “No Short List” of selective financials, should be enough for anyone to conclude the obvious of the true nature for the banking/brokerage and overall stock market long term.

Everyone or anyone that makes hard line financial predictions about the stock market may get it right once or twice but are invariably the “Fool’s Fool” in the end from my experience. I will not attempt to make any such “predictions” as to the ultimate end game for the market. All thoughts and opinions in this client update are exactly that… an opinion and will be wrong sometimes and right others. Managing money requires managing risk as well as expectations within the context of near term price volatility while using the long term big picture as a sort of compass or like flight instrument gauges.

Stock Market Choke Points for 2008 part 5C
By: TimingStrategies.com

At this point… with oil hitting pretty much $138 today/this week and the response by the stock market on Thur.6/5, oil up ~$5.00 and the S&P up ~20 points on that same day, “Goldilocks the global growth princess” gets all the blather… then to see oil up ~ $10.00 Fri. 6/ 6 and the S&P down ~40 points, Goldilocks looks more like “Baldilocks the transvestite prostitute”. At the risk of being redundant from our last report, look at oil priced in U$ dollars in the chart below. The dollar in this chart is inverted to demonstrate the craven destruction of its value vs. the price of oil. That said...this week’s dramatic move in oil is not as easily dismissed solely on the dollar this time. Either we are seeing a temporary spike top in oil, (maybe $140.00 -$142.50 or so) or this is an early warning sign of something very serious and ominous upon us about to occur.

The divergence between the S&P/Dow vs. the R2K/NDX is my conundrum. Resolution higher for the S&P and Dow was my estimation for as far out as Mon./Tues. June 9th/10nth with a price target for the Dow at ~12050 and ~1350-1320 on the S&P for a short term bounce. That previous estimation is now currently suspect due again to divergence amongst other indices, but more importantly, the nature of the price structure on the S&P as it has developed this last week., Oil and the U$ Dollar are the big “its” of things presently. If oil can put in a slightly higher high on Mon/Tues say ~$140.00-$142.50 and then sell off below ~$135 or more and at the same time the stock indices on the Dow and S&P hit those numbers mentioned above, I will possibly get a short term buy signal from our Rydex EOD system that will probably require us to cover our current 40% short position by at least ½ to possibly getting long by 35%-120%. This will only be considered a very short term position switch until the S&P can close back above the 1375-1385 price level, the Dow needs to close above ~12350-12450 for any long position to be sustained.

Longer term I am still very bearish, but due to the short term oversold conditions of particularly the Dow and the Financial/Banking sectors I am looking for a snapback rally, provided we get at least another ~1.5% -2.5% sell-off follow thru on Mon/Tues with the worst being the better scenario. The clue or tell that I am seeing that possibly implies a worst than statistically normal sell-off potential in the cards at this time are the emerging markets which are far more volatile than here in the U.S. An accelerated break down in the EEM, EWZ, FXI and EFA are threatening a regression bounce next week here in the U.S.
S&P basis SPY
These items with consideration of the previous banking problems that have been temporarily shoved back into the closet again, the continuous Wall Street bailouts and etc. can on the outlier basis, create the domino effect of a October 1987 style 1-5 day panic sell-off. I do not predict, forecast or even estimate these types of scenarios as they are almost impossible to gauge unless you are on the “inside”. Conditions for an event of such magnitude have been building for decades and yet nothing in over 20 years… although true capitulation has been averted many times, someday… the printing press will be out of paper ammo or no one will want it anymore.

This is by no means a recommendation to buy, sell or make any investment whatsoever.
BTW,

Stock Market Choke Points
By TimingStrategies.com
From our last edition, our first long entry of 50% of account value in our Rydex EOD system was made in the indices basket at B1 on 03/07/08. The major premise for the allocation was a test of the highs on the local range of the S&P cash of 1380-1400 or ~138.00-140.00 basis on the SPY. I don’t like changing planned management campaigns on one day’s price action but I like even less making any absolute statements or commitments to market positions and their ultimate direction. The reason being is the simple fact that when one gets married to their position, more often than not they will end up being divorced from their money!

SPY

On Weds. March 26th we took ½ of the 50% long indices basket off for a remaining 25% long exposure, based on system divergence between the XLF, XLE, QQQQ and SPY. There are reasons and technical filters involved too numerous to cover in this brief update but suffice it to say, price action, typically, does not give the public a second chance to get in on a real bottom, this is a general rule and there are no absolutes. The March 17th/18th low was again another Fed manipulated/forced low and not a natural market low in my opinion. Incidentally we also bought the oil sector 10% on 03/20 in our Rydex EOD system and sold the full position on 03/26/08 and are currently short the bond market 10% from 03/24 also in our Rydex EOD system. At this juncture a successful test of the1317 level on the S&P cash or ~131.75 basis SPY at a minimum, is necessary for consideration of reimplementation of a 50% position and as deep as 1280 at the green B1 level on the S&P cash or ~128.00 basis SPY, with a close back above the Fed reaction day low of 03/20, at 1295 on the S&P cash, without a breach of the 03/17 low would be more convincing. Establishing a short position of 50%-100% from a low risk location, somewhere in the kill zone is ultimately the more desirable allocation or a 100% long position at the green B2 level at ~1235 S&P cash or ~123.70 basis SPY for a counter trend long is also part of the present scenario. At this time though, we must respect the current market range that has been provided for us to work with and use smaller position size until that range is breached. Simply putting on a significant short or long position blindly would be indignant of that current range. End of the first quarter is almost here and new public fund inflows; along with institutional asset/sector rotation is a higher probability. Energy, material and commodity areas may see temporary rotation into the several financial related areas. (ugh!) While this may be a successful shorter term momentum rotation play, longer term it most likely is a looser as the trend in “stuff” is fundamentally and technically UP, while the trend in all of the related “dirty paper” is fundamentally and technically DOWN! This is a bear market environment and the Fed/Tres. is hard at work trying to keep a near dead corpse i.e. the stock and bond market, alive, thru short squeezes and money printing. The sacrifice up until now has been the Federal Reserve Note or what used to be known as the Dollar, but domestic oil/food prices along with the developing world rebuking Wall Street’s and the Fed’s/Tres.’ credit /currency charade, has finally caused the laws of economics to be enforced. (Imagine that!) This is not a recommendation to buy, sell, or take a position in any investment whatsoever, regard any information you may be provided here as you should all other opinions, with a healthy grain of sea salt! We manage money professionally and make estimations to the best of our systems and abilities, we will be wrong at times, that is a given, the key to ours or anyone’s longer term investment success is management of the shorter term risk.

Visit TimingStrategies.com to see this Video Commentary
Current Position Rydex EOD S&P 01-09-08
Visit TimingStrategies.com to see this Video Commentary

STOCK MARKET CHOKE POINTS FOR 2008
by Brian Stoll
www.TimingStrategies.com
January 3, 2008
I want to begin with the several significant components of the stock market, due to the fact that the stock market is perceived by many individuals and presented by the media as its own entity unto itself. Nothing could be further from the truth. For example, the approximate capitalization of the US stock market is somewhere around 14 trillion dollars. The approximate nominal dollar value of the US Government, Municipal and Corporate debt market is approximately 45-50 trillion dollars. The US Dollar currency market is somewhere around 100 trillion dollars and the over the counter derivative market is somewhere between 450 -750 trillion dollars. Get the picture?

Yet, the general perception or folly put forth by the financial and political media to the public is that the stock market is the barometer or gauge of health of the US economy presently and going forward. That if the stock market is up, than everything is fine. The truth of the matter is that credit, currency and derivative markets are the real candy bar and the stock market is pretty much just the wrapper sort of speaking.

To understand the source of all this credit, currency and derivative creation one needs to look no further than the financial sector of the stock market or basically the banking and broker dealer sector of the stock market. That is where all the exotic credit, derivatives, leverage and so forth is created primarily. The Financial sector institutions are dependant upon credit creation and its proliferation to maintain life. This is where the problem begins and has now come full circle back again.

Current totals are that there has been 90-70 billion dollars of credit write downs in the financial institutions thus far in 2007. The estimation is that there are approximately 250 billion further in total write downs yet to be realized in 2008-09. There are also approximations of at least 1 trillion dollars up to as much as 2 trillion dollars in subprime credit that is coming due to reset higher in 2008. This is what has been just one of the focus fronts of all the Government bailout cash being shoveled into the banking /broker dealer firms in just the last 3-6 months.

Companies like Boeing or Caterpillar and such, do not issue credit. When they need money or credit, they can sell their own stock, but they’ll usually sell a bond which is underwritten by a financial institution like a Citibank or Bank of America or Merrill Lynch or JP Morgan etc: All types of credit must either continue to expand or it is contracting. An interesting part about the financial sector is that it makes up the largest percentage capitalization of the US stock market. Up until about June of 2007 it was approximately 35% give or take. Financials and financial institution credit has been expanding at an exponential rate ever since Alan Greenspan showed up at the Fed. This type of credit is now in contraction, or in revulsion to be more descriptive.

So what this translates into is the fact that if this sector of our overall modern economy is having problems, than this will directly translate everywhere else. The concurrent fact of that same equation is that this sector of the economy is actually the precise cause of the same problem that itself is suffering from, this directly implies a much bigger than normal succession of negatives for everywhere else included. So let’s just take a look at this financial banking sector using the banking index symbol BKX shall we.Stock Market Choke Points for 2008

Here we see what the performance of the Banking Index over a little more than a 3 year period on a daily basis. The thick horizontal dark blue line at the top is the Jan 1, 2007 starting date value and the vertical dashed blue line is the percentage drop from its peak. What is revealed here is that almost from the beginning of the 2007 new year, the bank stocks were sold aggressively, so what this also tells you is that the problems were already identified by late 2006 and pushed off conveniently until “next year” “next election” etc: What the dashed vertical line simply tells is the percentage magnitude of approximately a negative (-29%) and wipe out of approximately 3 years of its prior period, seemingly rather ugly, which is why everyone in the financial media keeps flapping about “is it time to buy these guys yet” ??? (Hint: no!)

That‘s what “was” or has been Christmas past. Let’s see what “potentially” lay ahead for Christmas future and I say potentially because there are always new variables entering into these types of equations. (Government bailout schemes, tax code changes etc) Here is a longer term monthly chart of that same banking index. First thing that comes to my attention is that the largest sector of the stock market is absolutely leading a charge lower. It has broken and closed below its longer term cyclical trend moving average (the white line) and two significant longer term support levels (blue horizontal lines) as well. If there is an early warning reason to be a seller of the overall stock market in general, this would as good a one as can make in my interpretation.

There is although some evidence for an argument which can be made though that a strong potential for a bounce is coming at just about 5% lower from current levels. Those elements are that it is approaching its historical secular trend line (the solid red line immediately below) and also its concurrent historical secular moving average (the green line immediately below) both at about 5% below current levels. Should this index break and close below these historical secular trend lines it signals a potential massive unwinding of the tens to hundreds of trillions of dollars of years and years of questionable credit proliferation, and thus the deflation of the stock and credit markets in the process.

What is the long term outcome of this scenario? I do not know and nobody else does either, especially if they try to convince you that they do. I do have an opinion but that’s exactly what it is. What I can tell you are my best estimations as to what presents the highest probabilities for managing the most likely near term price behavior.
Stock market Choke Points for 2008
Should there be a continued sell-off to the trend in the BKX uninterrupted approximately 5% lower, the most likely scenario should be a bounce at about the 84-82 level. From that level there should show a min. 7.5 -10% or greater bounce. Should that sell-off be short circuited by more Federal Reserve and Government intervention before the test of these levels can occur, then when re-continuation of the trend resumes, probabilities are much greater that such test of those levels will be unsuccessful and a breakdown below those levels much more likely. Should the later of these two scenarios occur, as described previously, the downside implications to the stock and non-government credit markets are so significant that it would rival or exceed the 2000-2002 financial environment.

This trend in the financial/banking sector is not alone in the stock market. There are numerous other areas in similar structures. I will not go into their details, but for example purposes, just take a look at the retail sector of the stock market on its longer term weekly chart. Consumer retail has been primarily credit driven and marginally by disposable income. The credit element, again, comes thru this sector and right back full circle to the financial institutions in this area as well, then transmitting throughout the rest of the market.
Stock market Choke Points for 2008

How this all lays out going forward into 2008 and how to manage it, is again an exercise in probabilities. I can only provide my best estimations. The first part or half of the New Year 2008 I anticipate being almost a mirror opposite of the second. Some of the few positive upside drivers remaining are, as always, the Federal Reserve and their perpetual monetary profligacy and ability to intervene in financial markets when Wall Street billionaires beg and cry for more free welfare bailout money. That is what has been currently taking place since about June of 2007 and have been possibly the only supporting mechanism for the stock and credit markets since. The other positive is 2008 will be an election year, that said, it has notoriously been a positive tail wind for the last 100 years due to the political money interests of Wall Street and DC. A couple ancillary but much less significant ones are the Chinese Olympics and Emerging Market global growth. I do not put as much emphasis on these though.

These two primary positive catalysts will either exert their influence in the early part of the year for 2008 or obviously the later as we get closer to the election. I anticipate this type of impetus to be good for about a positive 10% if exerted early in the year. This estimation then translates into how to determine at what price level is that influence being gamed and discounted going forward. Will it occur early in the first quarter of the year or will it be after a sell-off first, then a force used in the seasonally weaker part of the summer going into the election. If it to be later in the year, the 10% estimate becomes less of a constraint.

There are any number of sophisticated ways to assign a value to where this price level influence would be occurring and I have gone over several in great detail but about as effective as any is a simple price expansion above or below the current price range and short and longer term cyclical moving averages, which are almost perfectly aligned at the current level. I refer to attached chart SPY as a proxy for the S&P. Those moving averages and price expansion levels are all displayed within.
Stock market Choke Points for 2008 SPY

In Summary: The coming year in my opinion will most likely be the most volatile year experienced since at least 2003. There are as many long term influences coming into alignment than over the last 30 years. Central Banks in Europe and the US are very much aware of this and have been printing money with craven desperation in attempts to maintain control of something they are loosing control of, which was created during the Greenspan era. Volatility is not to be feared, it is opportunity. We have every tool available to manage and accomplish this. Central Bank intervention in financial markets makes this more difficult, as their level of intervention has been totally opaque and hidden behind the curtain, but it is coming a time, where the global financial community has created an element that helps remove their curtain, greatly reducing Central Bank efficacy while holding them to a higher level of accountability than they are comfortably used to operating in.

Part II
I have been convincingly bearish since September/October of 2006. This has been my Achilles heel. The subprime and financial credit issues being experienced presently were all emerging at that time back then and I resolved to manage the markets with that and other overwhelmingly macro bearish factors in mind. The Federal Reserve and Treasury Dept. in aiding and abetting the financial broker/dealer and political community have used massive amounts of money created out of thin air to subvert and forestall the natural course of the stock market. This can not continue much longer and certainly not forever. Inflation is rampant in spite of what the BLS and Gov. Statistics keep coming up with otherwise. One need only refer to $100 per barrel oil, $800 per ounce gold, $8 per bushel wheat and every other historically high price commodity. This is the direct result of all the things previously mentioned.

The Fed. and US Treasury know this, and they are in a no win corner. If they continue to print money into oblivion in further attempts to paper over the problem, they take the course of world wide rejection of the dollar and runaway hyperinflation. A mild deflationary course will cause most all paper and other assets to fall in price, excluding Government paper, but will maintain the U$ Dollar as the world reserve currency, which will allow them to repeat their process of re-inflation down the road. This keeps the Fed. relevant a little longer and this deflationary cycle will in the highest probabilities, cause stocks to fall in the process.
Stock Market Choke Points for 2008
SPY ‘08A
It is from this that I still maintain my bearish conviction on the stock market now more than before, although I am very quick to change that position in the Rydex account temporarily to avoid one last Federal Reserve steam roller job. To manage any potential short term draw down and show a significant appreciation in for 2008, the negative correlated or short funds in the Rydex account, provide some of the greatest potential for that outcome, implemented in full capacity at the proper time in 2008. The only question that remains is when/where that proper time and price is.

The S&P is and has been in a range contraction for the last 5 months now since August ’07. Take a look at the chart above labeled SPY ‘08A. This chart demonstrates the most accurate, predictive and responsive nature of the stock market. The stock market has this overwhelming tendency to move from price range contraction to price range expansion and the back to contraction or trend. This is the same for volatility contraction and expansion as well. Currently the stock market is at one of it’s more historically range contracted price structures in several years. The only element for profiting from these phenomena is when final resolution is made, to be fully invested from as close to the resolution point in the direction of trend. This I currently anticipate will involve the wash out or stab lower of the current #5? point in blue, to as low as the potential second point #5?.

From that pivot, a reversal back up above the 149.5 level, following the green solid line going up, would be a probable confirmation of that range/volatility expansion. Therefore any price action that demonstrates a daily closing above the current # 5? point at 144, provides about as much early confirmation that such resolution is occurring and a 50%-100% long position would be implemented. Should the current #5? point be breached and a daily price close below that level to occur for more than 1-2 days, then the probabilities shift to the resolution of a very deep sell-off that takes out the previous #3 point and momentum acceleration eventually below the #1 point. In this scenario the first part of 2008 is demonstrating its follow thru weakness from ’07, and that there likely remains a further, much deeper purging of the excess, which have the implication of anywhere between a 10%-20% sell-off into the early summer leading up to the election. In that case, the inverse funds will be implemented.

These are the two highest probability price dynamics that are currently developing. The former lends itself to the scenario that would portend a “presidential election year shot in the arm” type market, early in the first quarter of ’08 that has the min./max. potential for the 5%-10% upside which I described previously in this report. From that level I would be looking for the most favorable price location on an overbought price condition to sell the 50%-100% long position funds in favor of implementing the inverse correlated fund strategy, as most of the bloom would likely be off the rose for the year.

In Summary II: There are always two elements in managing any investment portfolio, an art and a science. The science portion of it is relatively simple, take all the present variables and then work from and within those known price structure variables to map out decision points. The art element is the elusive portion of any plan due to what is termed as a “non-linear data stream”. This simply implies that certain conditions and influences not currently present, can emerge and some of those currently quantifiable may fade or even disappear entirely. The only thing left after both are weighed is managing the risk, which all boils down to when and where to implement a consistently reasonable size % position for an account and when to really step on the gas so as to aggressively exploit a move with all you got. At some point in ’08, the later will present itself.

Current Position Rydex EOD S&P 01-02-08

Price Controls 2 by: TimingStrategies.com

Recession, global growth, inflation oh my! What will happen!? Who cares? What’s happening right now is the answer to the question of what to do today about tomorrow.

While the Treasury and administration keep jawboning about the economy and how it’s so “fundamentally strong” because “just look at the stock market, it’s up right”…
(well kinda sorta for now) Rome burns! The Barbarians are at the gates already. Except in the modern day Rome of 2007 it is an electronic paper fire on the books of it’s royalty merchants, the financial institutions of Wall Street. In fact you may very well consider the stock market to some degree an anti-thetical indicator of the economy for the time being. The stock market is not the barometer of the economy and business cycle that it may have been before 1987.

After the crash of the stock market in 1987, before leaving office, Ronald Reagan created the president’s working group on financial markets with executive order 12631 on March 18, 1988. This order, indirectly, gave to what are known as primary broker/dealer banks (think the big ones) an ever increasing carte blanche to steal from the public in several ways. To cover the ways this is accomplished by Wall Street is not the subject of this article, but we’ll get to that at another time.

Rewind the time machine back to the LBJ, Nixon, and Carter era of the 1970’s. Stagflation marks it’s economic foot print of this time period. Although disco comes to mind which I happen to think really was kind of fun, rapid monetary expandtion, commodity asset inflation along with falling business and employment demand apparently wasn’t so much fun. The Nixon administration in it’s attempt to hide these facts, particularly the commodity asset inflation part of it, implemented socialist/communist style price controls on several key material items. How’s that for free market capitalism Mr. Kudlow? Stocks, especially on a real inflation adjusted basis, sank miserably into 1982. Well so much for that idea.

Fast forward to 2007, the incredible bloating of alphabet soup SIV’s, CDO’s, etc: of the Wall Street credit machine has begun the pendulum’s swinging back in their own face. The creators of their own demise are now once again going to Washington for a bail out, just like spoiled little rich boys asking daddy to buy off the judge adjudicating the case in their financial drunk driving/vehicular manslaughter trial. Only in this scenario, the judge and jury are the world’s free markets, to which Wall Street’s little rich boys piled up their car wreck of worthless debt paper on.

Rich daddy George and rich uncle Hank are going to make everything go away though, at least on the surface for now. What we’ll do, they say to each other, is create a common man human drama in the public press to act as a diversionary tactic, sorta. The CIA does this all the time. What we’ll do, is claim that the average American working people who were preyed upon and “sold” these predatory adjustable rate loans, are going to loose their homes from no fault of their own. Therefore we are going to put a “freeze” on “those who qualify” against the higher re-set of the new rate. Presto… instant socialist/communist style price controls! How’s that for free market capitalism Mr. Kudlow?

What has just been accomplished in this approach is another bailout of the Wall Street menace. Had these loans been dealt with by the alledged free market capitalist system accordingly, they would have found their way right back onto the books of their Wall Street creators as a liability. The primary broker/dealer banks, due to FASB rule 157, would then have been forced to mark to market (that means free market, not price controlled market) these loans at their current market price, effectively starting at approximately 60 cents to the dollar of their original face value, all the way down to 10 cents on the dollar. With that kind of negative impact, most certainly there would be several insolvent (read bankrupt) primary broker/dealer banks on Wall Street in very short order. The hedge funds and individual investors that have done their homework (unlike the little rich boys who went financial drunk driving) would have earned their grades.

Price Controls 2 by:TimingStrategies.com
U$D/XLF

Conclusion: In a free market capitalistic process, the financial system would be purged of the cancerous financial rotting paper and even better, the financial system would be rid of those institutions responsible for their creation. For the mean time though, the day of reckoning as been put off once again for another few weeks or months, but the judicious shall have their reward. However during the interim, instead of just waiting for the blow up to occur to then see which decent companies are left to pick over, a simple yet effective strategy would be to short financial stocks using the negative 2 beta ETF symbol SKF and get long the Rydex positive 2 beta strengthening U$ Dollar fund. Yes, as completely contrary to what you may have been programmed to think about our U$ Dollar in regards to what a P.O.S. it may be, Wall Street’s financial institutions are the real problem P.O.S. So while since June 2007, yes the long Rydex U$ Dollar fund would have lost -13% the SKF would be up + 45% for a net return of +32% Why so? Well, keeping the price of oil and deflation topics out of the equation for this article, Wall Street’s financial institutions must now scramble for some of this famed liquidity that’s been on the sidelines for so long to bail out the S.O.B.’s that created this mess. The liquidity that kept being touted for so long that “just has to go into stocks” will now be needed to bail out these Wall Street mucks and will have to come in the form of U$ Dollars.

Dollar demand is just now beginning to rise in the last 2 weeks since Nov. 26th 2007 and is up just 4% or 8% with the Rydex + 2beta, while the same time the SKF is – 9% over that same time period for today Dec. 14, 2007 so about an even spread for the last 2-3 weeks . Another way to accomplish the same process with less risk is to go short the ETF, XLF while being long ½ the same dollar value Rydex + 2 beta U$ Dollar fund, for a net return of +17%. This will help avoid any near term volatility distortions due to more Fed. Intervention. See: Chart U$D/XLF

Timing Strategies Daily Notes
These are observations only, not trade recommendations.

Stock market currently stretched to a high probability local maximum. Regression lower by min. 2% on all major indices higher probability than much further potential upside, any move higher before min.2% sell-off should likely be capped by max 1% Mon/ Tues Dec.10-11 . Rydex inverse indice funds or inverse ETF’s symbols SDS/DXD/QID/TWM

Low risk short selling set-ups exist within several ETF market sectors as well. Ultra-short financial sector symbol SKF and Ultra-short Real Estate sector symbol SRS come to top of the list for preferred vehicle.

Oil stock sector extremely overbought. ETF symbol XLE provide additional short selling set-up, 8 days of uninterrupted higher highs, a sell entry on a print below $75.90 basis XLE or long Ultra-short ETF symbol DUG.

Curiously as I listen to our esteemed Treasury Secretary speak to the public media; it appears that as stock market conditions continually twitch at what was an emergency cut in the discount rate and the Fed. Funds rate, three recurring themes keep being repeated as if in mantra like fashion.

1.) In regards to this new Emergency Liquidity Enhancement Fund, that, “this is not a bailout”! (kind of reminds me of a quote Richard Nixon made when things got hot)
2.) That “the economy is strong and that the underlying fundamentals are healthy”.
3.) That the Treasury maintains a “strong dollar policy” for the U$ Buck.

O.K. well… as far as this new “Master Conduit Non-Bailout Fund” is concerned, why does the idea even exist and why are the Treasury’s fingerprint’s all over it from inception? I mean really! I don’t have enough info. on the operational guts of the program (still a work in progress seemingly at the government level) at this point, so I will not go into it much further, but if the Resolution Trust Corp. which was created purely to bailout the bankrupt S&L’s in the early 90’s, was operation bailout plain and simple, how is this much different? I’m sure someone can make a case on the surface that “this time it’s different” but how much really is it?

If the economy is strong and underlying fundamentals so healthy, how is it that the entire banking system is in need of this “Master Conduit” and emergency interest rate cuts? Why have S&P earnings overall consensus estimates again been revised approximately 80% lower, the same as they were revised from a “robust 16-18% in the first quarter” (emphasis mine) down to 3-5% after the second week in January of “07? That being the case… why does our president and all his “personnel” feel compelled to keep having bi-weekly news conferences so as to keep repeating such statements about the “strong economy”?

As far as “strong dollar policy” is concerned… why has our U$ Dollar has lost over -35% since February 2002, -12% since the current Treasury Secretary took office in mid 2006 and -9% so far for 2007? Mean while the S&P is up 6% for the year as of this date Oct. 22nd 2007. I don’t have the “official” government responses to these questions yet but if anyone hears anything, please let me know.