Oct 6, 2008 - Issue #131

Credit Default Swaps

'Credit Default Swaps'. Sounds innocent enough, doesn't it? Almost benevolent. That's what they wanted us to believe. Sounds like insurance. Who could be against that?

Why not call it, Credit Default 'Insurance'? Ah! Therein lies the rub. If they called it, 'insurance', it would have to be regulated. They didn't want to be regulated.

CBS's '60 Minutes', CNBC, and Fox are having a field day with this one.

If you liked 'Sub-Prime', you're going to love 'Credit Default Swaps'!

The ink had not yet dried on the bailout package when we find out what those wonderful folks on Wall street have been up to. If this doesn't scare the hell out of you then you should feel your pulse because you probably don't have one of those either.

It reminds me of the scene in the movie The Hunt for Red October where the 2nd-in-command yells at his commander, "You arrogant bastard, you've just killed us!"

When the market opens (if it opens), it will be facing a behemoth of financial modeling run amuck.

Sort of like what the Allied forces, during WWII, must have felt like at the beginning of the Battle of the Bulge when, caught by surprise, Hitler's huge panzer tank divisions suddenly came at them from out of the forest at the Ardennes. No one realized they were there, until it was too late.

Or, perhaps, when the world held it's collective breath during The Cuban Missle Crisis upon learning the Soviets had secretly installed nuclear missles 90 miles off Florida's coast. No one realized they were there either.

Now we know why the markets have been acting in so volatile a manner. The financial institutions of the world are scared out of their forty trillion dollar minds!

Heads Up:

During the next two weeks, the following Dow components will report earnings. Keep a sharp eye for 'surprises'. You might be able to catch a nice swing in the week or two leading up to 'Earnings Day':

10/10 GE.

10/14 AA, JBHT (Transportations).

10/15 JPM, KO, UTX, AMR (Transportations).

10/16 BAC, PFE, (Transportations) CAL, LSTR, LUV, UNP.

10/17 CAT, MCD, MMM.

Dow score card for the week ending 10/3/08.

DJ-30: 10325.38 -817.75 -7.34%. The Real World (arithmetical) DJ-30: 43.21 -3.43 -7.34%.

UP: 4, Down: 26.

Trends (weekly charts): This is the subjective part.

Rising (Generally Higher Highs/Higher Lows) 1 (n/c) 3%:


Consolidating (Generally Lower Highs/Higher Lows) 10 (-13) 33%:


Declining (Generally Lower Highs/Lower Lows) 19 (+13) 63%:

-*AA, -*AXP, -*BA, -*CAT, DD, -*DIS, -*GE, GM, -*HD, -*HPQ, -*IBM, -*INTC, JNJ, -*MCD, -*MMM, -*MRK, -*T, UTX, -*VZ.

+/- denotes change of direction.

* denotes change of category.

Comments? Ideas? Feedback? Let me have it, right between the eyes! I'd love to hear from you. Just reply to this zine and tell me what you think!

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