Secret's of Traders would like to announce a change: we are now trading the ZB contract instead of the ER. Using the electronic 30-YR Bond contract (ZB) at the CBOT will give us access to market moves at different times of the day, as well as better diversification.
Each full tick (1.0) = $31.25.

Dear Trader,

My last update mentioned how there had been a great deal of bad news that market tried to ignore, but in the end succumbed to it. The very fact that the market tried to disregard this new spate of data was interesting. Was it a tell? I thought it might be, which is why I ended the first paragraph with, Of course, hope springs eternal so it may all vanish by the open. Well, that sure happened Friday morning: all concerns were gone.

Friday brought us a few new, but not surprisingly new, pieces of economic information: oil futures fell hard again, the US dollar rallied, Fannie Mae posted another enormous loss, and more banks admitted to scamming their customer via bogus claims on investments. All that mattered was oil, which led to a whopping 300-point gain on the Dow.

Friday's rally in the US dollar (and by extension the US stock market) was in part due to Russia 's invasion of Eastern Europe - Georgia to be exact. I know that sounds crazy, but that's exactly how the markets work from time to time - crazy town! Not mincing words, both Russia and Georgia said that they were at war with each other.

The fear of war caused a flight to safety into the US dollar, which in turn caused oil and other commodities to drop. The dollar's strength contributed to oil's fall of $4.82 a barrel to settle at $115.20 on the NYMEX. That brought crude's decline over the past four weeks to more than $30 a barrel. Wall Street is excited about the drop in oil because it should allow consumers to spend more freely. Said another way, it will allow consumers to more easily buy things they don't need with money they don't have. Credit problems? Who cares about credit problems?

For the moment, that has allowed the market to set aside nervousness about the financial sector, which is still contending with the fallout from the credit crisis. And speaking of the financial sector, fresh worries surfaced Friday after Fannie Mae (FNM) reported a quarterly loss more than three times larger than what Wall Street had expected and said it would slash its quarterly dividend to conserve cash. FNM posted a $2,300,000,000.00 loss for the prior quarter and said the dividend will be cut from 35-cents per share to 5-cents per share. After the recent Freddie Mac and now FNM disasters, can you hear your dollars being sucked from your wallet's yet? Bailouts may be imminent.

So what are FNM and FRE doing about these losses? For starters, both companies claim they will not be tapping your wallets for a handout (yet). They are determined to get through this own their own, and I hope they do. But what will they do? For starters, both firms will (gasp) make folks prove they have an income and (gasp) only approve loans that the customer can be more than reasonably assumed to repay. A novel idea, indeed. Is sanity returning to the way home loans are made in this country? One can only hope.

Freddie Mac has already exited the Alt-A market altogether, and if Fannie Mae does the same, the nationwide implications would be higher mortgage rates across the board. Furthermore, both firms are raising fees. Fannie Mae's new fees will price more borrowers out of the market. For a borrower with less-than-perfect credit, such fees could hike closing costs by $3,000 for a borrower with a $300,000 mortgage.

Of course, what FNM and FRE must do to save themselves is bad for lending and therefore dire for Wall Street. No matter how badly politicians want it both ways, easy lending and sound GSEs, it cannot happen. One must fall, which I believe will be the old days of easy lending to anyone who could fog a mirror.

But these long ranging concerns were shelved for another day. After all, there was a bullish war developing in Europe driving share prices up (odd, aint it?) so who wants to complain?

Today's Trading Tip:

"Building Consistency Needs to Be Your #1 Priority!"
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