Be Prepared for everything. Expect Nothing.

Wednesday, February 19th, 2009
2344 hrs EST

The past few days have been a very interesting lesson for anyone that is a
student of financial and economic markets. The world has been waiting to
hear about all the grand recovery plans coming from Washington. The
response of financial markets to Geithners testimony, the stimulus
package, Japanese GDP numbers, the housing rescue package, and
Obama's speeches laden with promises have a lot to tell us and might give
us clues as to how things might unfold.

They have unfolded thus : in the last two weeks, a third of the equity values
of banks in the United States have gone by way of the reaper. The BKX has
lost that much, yes!
---
Before the crash of 1987 (I have the data and have been through it so many
times!) the markets had been drifting downward for a couple of weeks prior.
Option Expiration was on the 16th of October, with the Dow closing down
about a 100 points (the index was around 2250-2300, if I remember correctly).
The next market day (Black Monday) it would close down a whopping 500
points. I was 17 at the time and did not trade it but I have read all the papers
and have spoken to so many that were there. A few conversations a few hours
ago and the same people told me that the feeling in in the air is similar.

My bringing up the crash is not meant to alarm you. Market microstructure has
changed a lot since then. There are now all sorts of circuit breakers that will
kick until some semblance of sanity is again seen.
---
Bathed in monitor glow here's what I'm seeing :

Australia -1.24%
Shanghai +0.58%
Hong Kong -2.33%
Jakarta -0.77%
Nikkei -1.73%
New Zealand -1.54%
Straits -1.56%
Seoul -3.66%

and I keep looking up at an ES futures short position that I've been trading
since 3:30am this morning!

It helps to sketch out a SCARY SCENARIO for you :

Expiration happens normally tomorrow with some banks having a little rebound
during the day to give it up by the end. The market has a three digit decline. Over
the weekend, the government decides to take over the balance sheets of BAC
and C. The G7 comes out with a statement saying that they will coordinate to
protect deposits and backstop direct holdings of bank debt as long as its held
within the pension fund system (else there would be anarchy). People FREAK!!
They rush to banks to banks to get the cash they have. A bloodbath ensues in
financial markets over the globe.

There is a HUGE flow into US dollars+fixed income and Yen+JGB. Gold goes
through $1050. Several Eastern European currencies (Poland, Hungary, Latvia,
Belarus...) get clocked...the DOW goes to 6500 and the SP goes to 650....u
get the picture.

But...the above is only a scenario...I'm tired...

BE PREPARED FOR EVERYTHING. EXPECT NOTHING.

- aLV