Pre Market - August 16th 2007

On Tuesday I posted the chart for the Japanese Yen and said that we had another crisis that could be in the making. Overnight that became a reality. The yen is up significantly and is creating the carry trade unwinding scenario that was being seen as a potential reality.

Also this morning CountryWide Financial (CFC) made it known that is has had to borrow $11.5 Billion from their credit facility. This is akin to you or I withdrawing cash from one credit card in order to pay another. With CountryWide Financial doing this it means that the company is adding debt to their balance sheet and companies that carry debt are viewed as "trouble". Well CountryWide is in trouble and that was amplified this morning by this news. CountryWide is in serious trouble and their ability to remain above water looks bleak at this time. CFC is trading down again in pre market on huge volume.

And also overnight William Poole, president of the St. Louis Federal Reserve Bank, said the subprime mortgage rout doesn't threaten U.S. economic growth, and only a "calamity" would justify an interest-rate cut now. That statement is also causing the drop in futures this morning because it reinforced the feel on Wall Street that the FOMC and the Government are out of touch with reality. I guess we will now see another outburst from Jim Cramer on this new statement form Mr. Poole. I rarely agree with anything Jim Cramer says but in this one case I will say that Jim is correct in that the FOMC is asleep. In my own view there is too much politics behind the FOMC and the US Government will go to extremes to never say the word "recession". Unfortunately that puts the economy at further risk.

We are seeing deeper sell offs in stocks that have been running up hard earlier this year (ie: Apple, CROX, etc). Stocks that have been running on hype and cult followings are the being hit as investors want to hold on to what money they have. If you were a large money trader and had to choose between pulling your money out of Apple or a General Electric you would choose Apple and sell it.

Housing starts data came out this morning and it is the lowest since June 1995. Initial jobless claims are on the rise again.

Some talking heads on CNBC have used the term "the perfect storm'. I won't say it is a perfect storm, but instead I call it a super cell thunderstorm. Like the one we had come through my town last year and knocked down numerous trees, damaged houses, downed power lines, etc. That storm had us very busy at the fire house as we had to respond to 46 calls for help in one night (and normally we only have 350 calls in one year). The markets are in the middle of a storm and there is no let up in sight. If I wake up one morning and I see a 50 feet high wall of water moving towards Wall Street then we will have the perfect storm. But 20 miles off shore the water is stirring!

This is an ugly market, the likes of which have not been seen for many years. I'm afraid the US Government will let this go "too far" before they acknowledge that recession is a possibility. But that word is hard for them to say with elections coming here in the US.

Today will be very wild. Lots of swings up and down. How will we close? If you have only 1 hour today to watch the markets then watch the last hour. That will give the better clue as to where we may be going next.