Posts Made By: Paul Kammueller

The daily polls on Rasmussen show that the lead Obama opened up over McCain last week is widening the last few days -- he's been leading 50 to 44 for 2 days running and the futures markets have bid Obama's odds up to about 58% where they were down to about 40-45% right after the republican convention.

So it looks like the trend continues to be Obama's friend, and the headwinds against McCain are gusting ever harder. McCain REALLY needed to get more mileage out of the foreign policy debate than he did.

Other interesting sub-facts, Obama is now attracting more Republicans than McCain attracts Dems, which is a reversal of the crossover for most of the year up to this point. Also interesting is that McCain and Obama are dead even among white women voters, a demographic that GWB handily won in 2004.

I'm not going to try to forecast anything now. The seemingly impossible happened yesterday with the defeat of the bill and with all the partisan finger-pointing after the fact the atmosphere is toxic enough that I'm not really confident that it will be salvaged in any form. There are a number of historical crises somewhat analagous but none of them have very happy endings.

Yesterday's selloff in the commodity markets (which largely preceded the vote) may have been a deeper economic signal. The 'tipping point' may have been crossed. Naturally there's no way to be sure until one is looking back at it.

The trendlines in place since Nasdaq's creation are broken, or very very 'bent'. Very oversold too of course, but we are beyond all of the standard deviations and are now in uncharted territory. The real-world implication is that the game has changed at some very fundamental level. If this were an old-world sailing map, off the right edge of the chart we would have the notation, "Here be monsters". Draw your own conclusions.

Overseas markets off 4-6% overnight. Things are looking more serious. This is somewhat in keeping with the consolidation in the VIX (volatility index) occurring in the last few days -- it looked set up to either burst upward in a 'panic' scenario, or fall out of its channel in the case of a furious rally, but going sideways looked pretty unlikely. A low open does pose the possibility of a bullish key reversal if a big intra-day rally is mustered, but given current conditions I'm not counting on it.

Gentlemen, we're living through history. The magnitude of what is happening, its global reach, its persistence, is now easily entering into the realm of long-term financial history. This time has made its imprint on the long-term charts as an epoch-shattering vertical-line dislocation event, and there is not as yet any sign of it slowing down. As this spectacle unfolds the economic fear increasingly gives way to a kind of morbid fascination, a 'how low will it really go'? kind of wonder.

Here's the NYSE composite, diagonally sheared to normalize to the 40-year trend -- there are some broad enough bends that it's debatable whether a trend of 40 years really 'exists' but if one supposes that there is and shears it to the right degree, a case can be made for a bottom somewhere near here based on deviations from and reversions to the mean (purple line).

The VIX went bananas today. Rising persistently for 6 weeks, it seemed to go parabolic in the last 2 days. This is basically a measure of fear (and/or lack of liquidity) in the market and it reached just an insane level.

High VIX combined with great volume implies we had an extreme level of panic and fear in the market today. Despite the panic, the indices were barely off from the open despite a wild round-trip throughout the day. The high volume, huge movement with little net change, and extreme level of fear present indicates to me that there *could* be a local bottom here. Also the banking index (BKX) *may* have just successfully executed a double-bottom formation. The 30-year bond yield may have just achieved the same thing.

Catalysts for a rally or continued selling may come over the weekend with the G-8 emergency meetings going on. We may get yet another rate cut soon. If there is a rally, it may be truly explosive as the fear level has been extreme and the money supply is growing fast. If Morgan Stanley or somebody similarly big folds up, with the VIX still at feverish levels it could be a setup for a really really bad day.

Here is roughly the last 18 months of the Dow Dividend yield performers index exchange-traded fund (DVY). While there is no sign yet that the bear market is over, we do have clear enough indications that things are deeply oversold even on the standards of the bearish trend.

Here I have attempted to approximate the first-order standard deviations within the trend with red lines, second-order standard deviations (marking extreme overbought/oversold points) with violet, and the current extreme-oversold state as a presumed third-order deviation in yellow (its position assumes a local bottom here, but that's conjecture and really that can only be judged in retrospect - I placed a similar overbought yellow line above the channel for symmetry, but with no actual equivalent overbought data points its position is purely conjectural).

The earlier post about a muni bond fund got me to looking at bond funds generally -- and except for treasuries, they're all getting HAMMERED. This is, to an increasing degree, NOT good. Friday was a bad day for corporate bonds, finishing off a bad week, even investment-grade issues. Volume in bond trading continues to drop, prices are tanking and yields are soaring. Despite the efforts of the Fed to make money cheap, on many fronts it is becoming more and more dear.

This is why even bond-fund investors, generally a conservative lot, are taking a beating. And similarly why investors in balanced funds, expecting to have a softer landing than their pure-stock neighbors, find their whole portfolio going down with the rest of the list.

Now think about this: stocks are going down, bonds are going down, commercial paper has become very weak, commodities are going down, real estate is still going down, and even the rally in treasuries pretty well ground to a halt this week. So where is the money going, what has it gone chasing? One candidate is that its being used to retire debts and bonds that are becoming impossible to refinance in the credit crunch, in a kind of self-immolation of the increasingly fearful markets. Theoretically this should make those monies available for re-lending elsewhere in the market -- but a few hundred billion will be soaked up by the treasuries sold to fund the bailout... and what else there is may go into hiding for a bit.

"National Sports Day"?! ROTFL