"All Along The Watchtower, Bernanke Kept his View"

"All Along The Watchtower, Bernanke Kept his View"

Dylan wrote it, Hendrix covered it immediately, Matthews reprises it in 1999. Bernanke could be listening to one of the three versions (below) on his I-Pod. The allegory is simple and yet likely to ignored again in a few more years.

I like the Chairman a lot. I like what he's done and how he's done it. In fact, he may have done a wee bit too much too early, but I'll let you decide that in a month or two.

I'm bullish, very bullish - beginning in October this year. We have been discussing the correction since May. Would it be 1987 or might it be 1998? The 1987 pattern dissolved as the 1998 pattern came to prominence, and a grand scheme it has turned out to be.

So far, Bernanke has shown an understanding of the difference between who's in the quicksand, and those who feel like they are being pulled into the mire. He knows that those who feel pulled toward the mire are holding onto the rope of rescue for the rotter in the quicksand. Let go of the rope! But have mercy on his soul.

Bad lending policy makes for bad lenders making bad loans to bad borrowers. Is that news to anyone? Lenders should suffer their consequences, just as the hedge funds, who played the high risk game, and their investors should as well. This isn't a child's game where everyone goes home unscathed. Market battles are vicious to the ignorant or the blithe.

While the residential lenders gluttoned on huge fees, as they lent the public's money to the 'thieves', they ignored the late hour for affecting a rescue or a change.

All the warnings and signs have been re-told throughout the long history of 'mad money' woes. From tulips to silver to bundled mortgage derivatives, the jokers always think it's different this time. It will go on forever. It doesn't, does it. Tulips are $5 a dozen, right?

The results are always the same. Pleas for help are barely heard because the glutton's belly is still so full of the rot he's trying to digest. The gastronomic pain is so severe, he can hardly utter a whimper. But the tears flow, the hand is waves a third time as the rotter's head slips silently below the mire. No, that wasn't Bunyan's Christian ridding himself of his heavy bundle to escape the mire.

Why should they be rescued? They knew what they were doing. They lent long (interest only) by borrowing short (commercial paper). They lent to the most obese of borrowers wearing "Do Not Resuscitate" medic alert bracelets. It's difficult to say who are the greater gluttons, the lenders or the rotten borrowers.

When did you learn this most basic of market lessons that extended markets correct extensively? I learned it in 1974 and never forgot it. Ever. A day does not set the sun that some sense of 1974 creeps to the front and calms the trigger finger. It often whispers, "Patience, lad, more patience. Use that trigger finger on your cup of tea for a bit."

Mr. Dylan wrote the allegorical poem (some say apocalyptic), "All Along The Watchtower", in reverse chronological order. Reading it in reverse, you may see, as I do, the symptomatic squealing of today's gored hogs in this line: "There's too much confusion, I can't get no relief. There must be some kind of way out of here."

For me, I'll take the thief's advice, "No reason to get excited." Even though life and its markets are not a joke.

This market correction is only about half over. As Harry Truman once said, "I never did give anybody hell. I just told the truth and they thought it was hell." More down to come into the Labor Day weekend low, even if the Fed is filling its injection syringe or sharpening its rate scalpels.

First downward was lead by the RUT, then it was the SPX and NYA last week. It may be the NDX's turn this time.
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I borrowed from Mr. Dylan, and I pray I have done no damage by imposing his words over this global dyspeptic-intermediation.

Read it in this chronological way for today's lesson in the potential of apocalyptic financial economics:

"Outside in the distance a wildcat did growl,
Two riders were approaching (Sir Dodd and his knave Barney), the wind began to howl."

"All along the watchtower, princes kept the view
While all the women came and went, barefoot servants, too."

"No reason to get excited," the thief, he kindly spoke,
"There are many here among us who feel that life is but a joke.
But you and I, we've been through that, and this is not our fate,
So let us not talk falsely now, the hour is getting late."

"Businessmen, they drink my wine, plowmen dig my earth,
None of them along the line know what any of it is worth (repos, mortgage backed securities)."

"There must be some way out of here," said the joker to the thief,
"There's too much confusion, I can't get no relief."


Then the original poem:

All Along The Watchtower
Bob Dylan
album: John Wesley Harding, 1967

"There must be some way out of here," said the joker to the thief,
"There's too much confusion, I can't get no relief.

Businessmen, they drink my wine, plowmen dig my earth,
None of them along the line know what any of it is worth."

"No reason to get excited," the thief, he kindly spoke,
"There are many here among us who feel that life is but a joke.

But you and I, we've been through that, and this is not our fate,
So let us not talk falsely now, the hour is getting late."

"All along the watchtower, princes kept the view
While all the women came and went, barefoot servants, too.

Outside in the distance a wildcat did growl,
Two riders were approaching, the wind began to howl."

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See and listen to the guys who understood the song:

Bob Dylan
http://www.youtube.com/watch?v=Q_ncQgjIlFM

Jimi Hendrix
http://www.youtube.com/watch?v=8aUDVpHxw9c&mode=related&search=

Dave Matthews Band
http://www.youtube.com/watch?v=hcBfiob0XbM&mode=related&search=

So far, it's just the 4th phase correction since the 2004 lows. 10-year Note rates go to 3.94%, or potentially to 3.80%, before this bull market correction is over.

Watch the EUR/JPY and USD/JPY for believable signals, like Yen down, then stocks are likely to rise.

With more downward action to come, we are preparing to buy the lows.

Join us if you want.

W. B. Busin

Timing Market Turns - FOMC Cuts Discount Rate

0900 EDT

We will enter 75 % long Swing positions in Dow, NDX, SPX and RUT. Stops for today's closing should be in the daily spread on Wednesday, preferably the highs on Wednesday.

This trade may only last until closing as today's action depends on the return traders to some level of "belief in the markets". Initial opening stops for first 90 minutes is yesterday's 1512 EDT low.

Cover long Treasury positions.

WBB


0825 EDT

We will update before the opening after we observe the reaction's aftermath.

As we have thought, the 1998 pattern appears broken or significantly shortened.

The FOMC's action is unusual since it is the Discount Rate that was cut and may have more bearish implications for stocks over coming weeks. It is bullish for today and likely into Monday.

We will update by 0915 EDT.

WBB


TWO MESSAGES FROM THE FOMC THIS MORNING AT 0820 EDT

For immediate release

Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward.

In these circumstances, although recent data suggest that the economy has continued to expand at a moderate pace, the Federal Open Market Committee judges that the downside risks to growth have increased appreciably.

The Committee is monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets.

Voting in favor of the policy announcement were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Richard W. Fisher; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Michael H. Moskow; Eric Rosengren; and Kevin M. Warsh.



For immediate release

To promote the restoration of orderly conditions in financial markets, the Federal Reserve Board approved temporary changes to its primary credit discount window facility.

The Board approved a 50 basis point reduction in the primary credit rate to 5-3/4 percent, to narrow the spread between the primary credit rate and the Federal Open Market Committee's target federal funds rate to 50 basis points.

The Board is also announcing a change to the Reserve Banks' usual practices to allow the provision of term financing for as long as 30 days, renewable by the borrower. These changes will remain in place until the Federal Reserve determines that market liquidity has improved materially.

These changes are designed to provide depositories with greater assurance about the cost and availability of funding. The Federal Reserve will continue to accept a broad range of collateral for discount window loans, including home mortgages and related assets. Existing collateral margins will be maintained.

In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York and San Francisco.

Timing Market Turns 08/15/2007

Timing Market Turns

We are still in cash since August 10th.

You may wonder why we haven't entered short.

First, it's expiration week in a perceived crisis for credit availability, with a week full of economic data.

Second, since the August 6th morning low we have two and a half days upward with a spike closing on August 8th (no trend). Then one down day followed by a spike down opening on the 10th that ended higher followed by two days down.

We expect an eventual retrace attempt but it is not a required action. In times like this, a patient swing trader and a cool headed investor takes an action that reflects their trading plan. We may miss a few quick trades but as we have stated for a few weeks 3-5 day swings had become shorter and more difficult to trade or cover risk for a long term portfolio.

The SPX is quite close to its overflow point at 1363. This is our structural level for the onsetting of a long term bear market. Closing below that level for more than 1 day will bring out the need to re-evaluate any structural phasing counts. It will also mean an entirely new trading structural plan, and also a revised investment devices to re-focus capital preservation for investors.
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The downward move has persisted through many intraday and daily buy signals. The Fed continues to attempt to add liquidity. We believe that it may be making matters worse for all stocks, instead of just the mortgage lenders and the bankers who fund them, and the private capital hedge funds who are leveraged on the same failing computer models that are now all converging simultaneously.

Bad lending practices usually grow bad loans, which result in additional lending to the bad borrower. Then comes the non-performing part of the story by borrowers and the resulting matrix of derivatives dissolve. That's all we are going through so far.

"Cash is king" is not a fable, it is so true at times like this.

Unpopular words, perhaps - but people want to know what is really happening.

I was scared in the 1974 drop, but not since then. Not in 1987 or 2000.

Even if this does not become a Bear market, and remains just a correction, the future finger pointing at causes will be useless. We know the cause, it's a correction.

Finger pointing is for the vain; the vain who never saw it coming and still don't understand it. Who? Politicians. They will be ready to legislate a solution to a non-existent problem in a few months.

The recent SEC removal of the uptick rule (10a-1), in place since 1934, is not the cause of this decline. This is the 4th or 5th longest bull market in history, so far!

Bull markets have corrections, then they turn upwards and get going all over again. If the uptick rule has any influence, it will make the correction far shorter but just as deep as it should be. There's nothing new under the sun or in the markets.

The simple existence of the TimerTrac service is evidence that markets go up and then they go downward. This is not 1929, but it does still look a wee bit like 1998. The Fed liquidity injections are potentially disrupting the pattern.

We have our Time Locus Points listed for this correction into October, and our "start the bear market" levels ( in previous post ). We do not believe that more than one of the indexes will reach those levels and only intraday. A closing below those levels will jeopardize our "Continuous Bull' outlook for the months ahead.

We hope they help you.

These turning point dates are objective and without bias for direction. Our comments about the Time Loci dates reflect what our models produce and how we interpret same. The dates have an abnormal accuracy.

We will update our comments here at least weekly, during this correction. Or you may join our mailing list.

W. B. Busin
W. B. Busin Group Publishing
http://www.market-timing-wbbusin.com