I am a technical trader first. I also think it is prudent to understand the nature of what is happening these days as we sit on unprecedented times.
The Fed is bailing out entities such as Bear Stearns with tax payers money (one might think that they are the lender of first resort instead of last resort these days) and the Fed is taking mortgage securities as collateral at the lending window.
I don't about you but this really concerns me that the Fed is holding Mortgage Securities that have fallen from 92% to 65% of supposed value and still continue to fall, as collateral. There is a reason that no one wants to mark to market! Bear Stearns was essentially going to be forced to mark to market because Goldman Sach would not take their swaps any longer. You must understand that no one else is willing to take these same mortgage securities being held and bought by the Fed as collateral.
Chuck Butlar writes three days ago, "the TIC (Treasury International Capital) data came in below the $80-85 Billion needed each month to finance the Deficit, once again...The total was a Net $64 Billion, and the previous month was revised down $2 Billion...
I find it strange that I keep hearing people say that "Deficits Don't Matter"... What a bunch of dolts! The TIC Net Flows tells us that they sure do matter if you can't finance them!
I read a report by David Walker, the former Comptroller of the U.S., where he was explaining the depth of the fiscal budget alone... He estimated that balancing the Federal Budget by 2040 would require actions as large as: (1) Cutting Total Federal Spending by 60% or (2) Raising taxes to 2X today's level...
He also states that "Closing the current long-term fiscal gap based on reasonable assumptions would require real average annual economic growth in the double digit range every year for the next 75 years.
Keep in mind that: During the 1990's, the economy grew at an average 3.2% per year...
So... As a result, we cannot simply 'grow our way out of this problem'.
Well... Now that's something to help wake you up, eh? But Deficits don't matter, so don't worry about what the former Comptroller of the U.S. says... HA! You won't catch me taking that bait! David Walker is a very smart man, and has been the Lone Ranger in Gov. in pointing out the problems with these deficits..."
Given all of the bad news that is out there, I am inclined to believe that a bottom has been made that may last for the next three to six weeks at a minimum. The Bond market is due for a correction as the Gov sells Bonds to pay for the stimulus package checks that are being mailed out to "save the economy" ...LOL (never mind that it is a loan against next year's returns).
How does one go about dealing with this information? I believe the key is to trade and to trrade well.
So I will leave you with a chart:
Below is a chart of the British Pound / US Dollar Forex Crosspair (GBP A0-FX). The Blue Lines are support levels from the 2.1161 high. The Red Lines are resistance levels taken from the 1.9338 low. The Daily chart is the big picture, the 60 minute chart triggered a long entry on 15 April 2008. The 1.9930 to 1.9952 area could very well be an area of consolidation for the recent up move. The Risk Reward Factor was 8.75 to 1.
(Click on chart for larger image)
(Click on chart for larger image)
This was a GET Stochastic Buy on the daily chart and a Counter Trend Buy on the 60 minute chart. Both Strategies came together and made for a very nice trade.
Trade Well,
Ernest O.
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