Twitchy Tuesday - EDITED - BOOMs After Hours!

Boy did the market have a tantrum this morning.

You had the Pump Monkeys (that'd be Cramer and others) last night basically trying to front-run another fed intervention move this morning.

And right on queue, at 7:00, the futures were spiked higher, anticipating it......... when it didn't happen, oops - back off it came.

Guys, think about this one. Another intervention? What - two trading days later? Is that good? It would appear to me that such a move would signal raw desperation. How about you?

The Yen is moving in lockstep with the S&P again. This bothers me - a lot - because currencies usually are uncorrelated with the market. Well, not for the last couple of weeks it hasn't been; there has been a near-lockstep move. Market down, Yen up. Market up, Yen Down. The correlation gets sloppy overnight but during the day, you can almost trade the S&P off the Yen/Dlr cross!

Why does this bother me? Because it says that uncorrelated markets have become correlated, and this indicates to me that there is a severe level of stress that isn't being recognized appropriately, and that foretells extreme violence in the financial markets on an imminent basis.

Last night The Wall Street Journal published an article that I have to add to the "Hall of Shame", in which they implied that Buffett might be interested in "pieces" of Countrywide Financial.

"Some investors speculate"? This makes the top page online and is considered "hard news"? Some investors speculate?!

Well in a Seance last night, some spirit told me that Rupert Murdoc was going to fall over dead in the morning from a TIA. Oh crap, it didn't happen. Time to fire the seance-master.

This sort of "pump monkey" crap has a place on Cramer's show, I guess, but in the nation's standard-bearer for business news?! You have to be focking kidding me.

Now here's the real problem with that rumor, as I see it - Warren has said repeatedly that CDOs and all this other "Alchemy finance" are weapons of mass financial destruction. He has repeated this over and over again, as recently as this last weekend!

Don't believe me, read it for yourself!

How many times do you need to hear a man who has amassed a tremendous fortune tell you that what these companies have done is beyond stupid and deserves a bankruptcy petition, not a buyout, before you listen?

He's been saying this for nearly four years!

What I want to know is this - given the full page ads that Countrywide was running trying to stanch a "run on their bank", did they get a bit of "special consideration" from the Journal?

Oh, and how do you know a rumor is complete bullshit? When CNBC runs it something like 30 times in a day! And that's exactly what they've been doing today. They got a lot of mileage out of it in the morning, but perhaps - just perhaps - people are starting to wise up. It got mentioned again around 1:00 and..... no change. Hmmmm..... how long before people realize they were sold a nice big fat bag by that rumor..... and its full of turds!

Then we have Chris Dodd, our esteemed Senator and Presidential Candidate, who had his audience with Bernanke and Paulson today. Now normally I would not really care much about that sort of thing, but in this case Dodd, if he wants to make a real difference in this mess, needs to step up and actually do something useful. What would lead me to actually consider voting for him? I'll tell you what:

1. Subpoena all of the primary broker/dealers, the Fed Governors and Paulson to find out who leaked the Friday decision on Thursday, and who traded on it. Appoint a special prosecutor and jail every last goddamn one of them.
2. Go after all these Wall Street boys and Mortgage companies (and their executives) for their actions during the "boom years" in making mortgages that they knew factually were unsafe. Mortgages that have teaser rates associated with them and which are qualified on those teasers require that the mortgage be refinanced or the property sold when they expire! Those are not mortgages, they amount to renting your house from the mortgage company! In my opinion that is fraud; we need no new laws, just prosecute the existing ones!
3. If you want to help homeowners, expand FHA availability. But do not take any action that will bail out speculators OR THE PEOPLE ON WALL STREET WHO PROFITED FROM THIS MESS.
4. Unfortunately a number of people will lose their homes. The good news is that they can buy another one at much lower prices, perhaps even their old home at much lower prices, as the banks and investors are forced to eat the losses in real estate valuation! If you want to help people in this situation, amend the bankruptcy laws so that primary mortgage debt (not refinanced, not HELOC'd, primary) is fully dischargable in bankruptcy.

How about it Senator Dodd?

Now let's talk buyouts. What buyouts? That's done. Want to see some economic evidence of harm? Look at the Wall Street banks, who just became SCREAMING shorts. Yeah, it doesn't look like it today, but heh, being in front of it is how you make your money, right?

Oh, in a Fed Speech today (by Lacker) we had a stern warning that equity market turmoil does not justify a rate cut, and further, that the Fed is not going to interfere with the repricing of risk.

Hope springs eternal.

Jobs? What jobs?

"The industry has announced 87,962 job cuts so far this year, 75 percent more than the 50,327 recorded for all of 2006, Challenger said. Nearly one-fourth of this year's cuts have been announced in August alone."

Shhhhh... the economy is strong. Remember? Don't bother us with the facts, just buy buy buy!

Oh, foreclosures? Up 9% last month, nearly a double year-over-year. But don't worry, the economy is strong and everything is ok. Now go out and buy some sucks, er, stocks.

Technically? Nothing happening right now. NDX came in over 1900, which is a reversal of the breakdown, but we've got nothing in the way of a buy anywhere. Nor do we have a sell. So technically, we've got nothing.

SPX and Transports have both held under the 200, with the SPX taking a run at it and failing.

So here's the four scenarios, in case you missed 'em;

1. Crash. Black Swan of some sort shows up and nukes the markets. Impossible to time. Probability: 20%.
2. Retest of resistance in process; we trade sideways and then break down. At present this appears to be the scenario we are following. Probability: 35%; breakdown within the next couple of weeks, but could occur any time. Trigger is likely news-driven.
3. Retest of resistance will fail; that is, we will go through the first-level resistance level and trade up to the 61.8% or even higher level from the first drop. This is followed by a far more serious plunge than we saw the first time. Probability: 35%
4. Its over. We have seen the downstroke and are about to enter a multi-year renewal of the Bull Market. Confirmation comes from a successful break and hold over the old highs. I see this as very unlikely, but you can't completely discount the possibility. Probability: 10%.

Specific-stock shorts are fine here, but broad-based market shorts have to be played with care in a sideways market. Don't do it with things you can't protect or get out of quickly. If we break north of 1490 on the S&P then you have to consider the possibility that it really is over and realign appropriately.

One indicator that concerns me includes the fact that Yen has a near-perfect correlation much of the time with the S&P 500 during the trading day as I mentioned above - this bears reiteration and is one of the factors that leads me to simply NOT BELIEVE that we have bottomed.

This bothers me because currency markets normally do not correlate well, or at all, with equities. When they do you're being told that something is very seriously wrong; currency markets are two removed from equities (the chain goes Currency > Credit > Equities), so when correlation appears between the ends you know the stress level involved is EXTREME.

Oh, one more thing - DJ Consumer Confidence (which printed after the market closed) came in at negative 20, down 9 from last month's negative 11. The economy is all doing great, and so is the consumer.

Yeah, ok. If you say so.

Anyway, this is where we are right now. Be fleet-footed and use sound money management - there are more cockroaches in the woodwork - that much I'm quite sure of.

PS: God the roachings came hard and fast. Let's see, National City has dropped all non-GSE mortgage programs, Beazer is trying to avoid being declared in default on their debt, debt downgrades on builders and more mortgage bonds came in Tsunami-size lumps this evening and more. Hell, it'd be a whole new Ticker just to list 'em all. Bottom line - if you're a builder or a lender, something probably roached you this evening. Wow.

Ok, ok, that 10% scenario #4? Might be 2%.