The stock market is dangerous

If you were like many Americans this summer who just bought a foreclosed house because they were so cheap, you can now look back and say that your timing was a little bit off because Mortgage rates are much lower and the government just took over Fannie Mae and Freddie Mac.



If you think that Washington Mutual will not fail, even after the CEO is thrown out, then you haven't seen stock price of the latest bank failure on the FDIC failed bank list.
Silver State Bancorp

Washington Mutual

If you think that these markets aren't manipulated by rumors, then you probably weren't trading UAUA today.

If you think think that the stock exchanges that handle your trades are fair and orderly and won't fail if there is a major disaster or market crash, then you weren't trading on the London Stock exchange today.

PPT

Ok. This after hours jump could just be the PPT (Plunge Protection Team).
I'm not trying to make predictions on where the market is going based on news, but let me just say that the current news we have this weekend is terrible and the US Economy is in the shitter, and its getting shittier if that's even possible.

WaMu CEO is ousted.

I like this post from Elite Trader on the 5 horseman(thanks to Digs)

1.January-Fed lowers rates dramatically January 2008 to help banks.(January 21st the world stock markets plunge, and on Monday morning the FED does a surprise 50bp interest rate drop, and another 25bp days later at the scheduled FOMC meeting)
2.February-MBI/ABK delay downgrading
3.March-Bear Sterns bailout over the weekend. (interest rates on bonds spike at their lowest levels for the year, BSC to be bought for 2, but then is raised later to a higher price at $10)
4.July- SEC enforces rule of "NO SHORT SALES"(naked shorts) on selected financial stocks, which made it incredibly difficult for anybody to borrow shares to short on selected financial stocks like BAC, C, and GS)
5.September- Government bailout of Fannie Mae and Freddie Mac, which will cost taxpayers billions in an economy seeing record levels of unemployment and mortgage foreclosures.
6. Whats next- AutoMaker Bailout? WaMu or other big bank failure? FDIC failure?

With that acknowledgment out of the way, I'm ready to trade my signals no matter if the market goes up or down. 300pts can become 600pts, and 300pts can become -300pts.

Who owns FRE and FNM?
Institutional Holdings for FRE
Institutional Holdings for FNM

Paulson warned stock holders 2 months ago.

Where do US Treasuries go Now?

We have the largest corporate failure of all time occurring over the weekend and I don't see that big of a reaction from people as I would expect.

If the current trends keep going, stocks will go lower, mortgage rates will go lower, bond yields will go lower, housing prices will go lower, the Euro will go lower, Crude oil will go lower, and investor confidence will go lower.

I thought that interest rates were likely to be raised next year and that treasury yields were likely to bounce at these levels and never return, but, with the government taking over FNM and FRE, I'm not so sure.

The FED could lower interest rates more and mortgage rates could go lower. With the FED taking over FNM and FRE, I'm wondering how big of an affect this will have on US treasuries. Will there be a lack of buyers? What happens if a large bank like Washington Mutual collapses and the FDIC needs to go to the US treasuries for bailout money? We already saw the FDIC increasing reserves a couple weeks ago. The FDIC failed bank list is growing, with expectations of over 100 banks to fail before it is all said and done. I'm not sure where treasuries are headed right now. Even though we are at historically low levels, we could still go lower. The best thing I can do is to stay on the side of the trend and the trend is down.

Citigroup

I was asked about Citigroup. Here is a my reply.

I don't care about Value or company fundamentals. All I care about is the price and where its going. That's all that matters when I buy or sell a stock. I'm just a guy that trades from his home. I'm not an analyst for individual stocks, but if I had to guess, I would say we are not out of the woods regarding the current housing crisis tied to many banks. Washington Mutual will go before Citigroup if there is a major bank that fails. I thought Goldman Sachs statement a few weeks ago, telling investors to SHORT Citigroup was outrageous (C was trading at $17 then). The fact that C was on the SEC banned naked short list is good for the company stock price. If you held a gun to my head and told me I had to choose to buy or sell C, with a holding period of 1 year, then yes I would buy, I would buy deep in the money LEAP Calls. Possibly averaging in at small pieces at a time. I said BAC was a buy when it was at $25, before it dropped to $18., now BAC is at $29.
I have a macro look in my trading because I trade bond futures and stock indices. My outlook is for bond yields to rise,(Bond futures down), and possible bounce in the stock market in certain sectors, probably financials. 30 yr mortgage rates are on the rise. I'm thinking of switching my 401k to a bond based fund, instead of the 50/50 bond/stock ratio that I currently have that is losing money. Without a doubt, the FED will raise rates within the next year, possibly the next meeting, and mortgage rates are going to rise too. The double edged sword of rising mortgage rates and declining housing prices that is occurring has me worried.

FRE- WEAK MARKET AND FEAR OF INFLATION AMONG REASONS FOR SPIKE IN MORTGAGE RATES THIS WEEK