10 Year Treasury Note at 4.64%

So the market had a rally on Friday, as shorts covered and options expired and the Fed guaranteed we'd all have something to discuss this past weekend. The discount rate cut, while aiding liquidity and giving the market a moral boost by increasing expectations of a Fed Funds cut, should not sway you into a pleasant slumber just yet. Look at the 10 Year Treasury, now in a world that is awash in liquidity it is understandable that when risk aversion hits people will run to US Gov't backed securities but the underlying issues of the economy are now spurring this rise in the 10yr in addition to simple risk aversion flight to safety psychology. I still think we are headed for at least a year of choppiness tending lower for the major averages. Despite the Fed aided return to liquidity for CDO's and CLO's we are still experiencing an environment where the sub-prime mess will intensify with defaults continuing to rise as the lower and lower middle class consumers' cash flow is constricted by heavier interest payments. Furthermore, this recent bout of volatility should have reeked continued havoc on the Quant Funds and the Risk Arb funds who are seeing a stampede away from their favorite Private Equity deals. Life is getting interesting and I should hope the Fed doesn't bail out too many of these risk blind hedge funds by cutting the overnight rate on 9/18.

The Yen and Dow 12,000

Well friends we are on our way to 12,000 and perhaps 11,500 for the DJIA. I see a good year long bear market coming on. First to take note of is the unwinding of the yen carry trade, notice the Yen's appreciation against the dollar from 122 Yen/$ to 113 Yen/$. Unemployment has creeped up to 4.6% and should rise as the US economy continues to be weighed down by the fall out of the sub prime fall out. While the immediate market turmoil is more of a result of the lack of liquidity in CDO's and CLO's the more important long term note is that it speaks to the slowing of the US consumer. Warnings from Walmart and Home Depot should give us a fairly good clue as to where we are headed in the coming months. And for those of you who think the world economy can withstand a slowing US economy and still keeping on chugging I remind you that we are the world's primary end market, and as our dollar weakens against the Euro, the Pound and the Yen (as it must with the level of deficits but fiscal and trade that we routinely run)coupled with a Fed that will have to cut rates within the next six months, our purchasing power will further erode and conjunction with lower demand and hence the beginning of a global slowdown. My advice keep your money in cash or money markets for the next few months, let stock drift down, then when everyone is saying the only place to stow your money is in large and mega cap stocks, buy as many shares of IWM as possible and just sit back and wait for the fun to start.

Rooftops

Of our own being
The pinnacle of possibility
Yet we see the stars
Through the clouds
And see hope amidst our own darkness

Let's Hide Death

In antiseptic whiteness
And reinforce the notion that your life's work is all there is to life
Let's hide our loved ones away so we don't have to say goodbye
So we don't have to acknowledge our own mortality
Then one day
We'll be left alone
And we circle life
Slowly circling
circlin
circli
circ
cir
ci
i
.