Note to Fed: This is not just a real war we are fighting, it is the war to end all wars. Raising interest rates in wartime not only handicaps our economy, it weakens the war effort and creates vulnerabilities for our enemies to exploit, a la yesterday. Rates should be lowered forthwith.

Good Morning: Yesterday's drama created numerous opportunities for MODAR in an extremely volatile session creating a new milestone: 16 S&P contracts in 12 separate trade recommendations all of which were profitable. We are constantly tightening up on our parameters in the interest of delivering a superlative service, second to none and we are now increasing our positions sizes accordingly when appropriate, with all due regard for the level of risk. We have thus far made some 15 individual MDR's, Million Dollar Recommendations, on various Blue Chip issues and thus far had just three small losses of less than 1%. As you know, we scored some heavy gains with GM just weeks ago.

Paving The Way To A New Bull Market
The markets actually traded very well yesterday and may have already put in an extreme low for the month here. We mentioned one cyclic forecaster earlier in the week, calling for a Thursday low of significance, with the potential for a rally to unfold later in the month and this idea fit almost perfectly with our own. Although, there is still some risk of a breakdown from what is now shaping up to be the mother of all reverse head and shoulders bottom formations, should this structure remain intact and the markets are able to gradually and methodically move higher, then there could be a growing argument that the lows for the year may have already been seen and certainly, overcoming 1,300 on the S&P would go a long way towards ensuring that. We postulate that perhaps the Fed may be able to use threats of terrorism, as an excuse to begin lowering rates sooner than expected and in fact the promise of that could even see markets recover in anticipation of lower rates within six months or so. One thing's for sure, if and when the Fed finally begins to lower rates, expect a return to rock bottom lows in interest rates and it is not beyond the realms of possibilities that would could have a secondary phase of very low interest rates for a number of years, not unlike what has happened with Japan over the past decade or so. Just as Japan's cheap money has fueled recovery in the post 911 era: The possibility of another major economic engine, that might even be the US, becoming a major financing engine for World growth is entirely possible. Remember Japan's Yen took a tremendous pounding in the late 90's prior to extreme low interest rates era there, such that even if the same fate were to befall the US Dollar, beyond that, an era of stability could be a decade long event. In another example of this: Mexico suffered a catastrophic currency decline a decade ago, but today its economic statistics actually exceed those of the US with even lower inflation rates, a booming economy growing at 5% plus and stockmarket gains of 1,200% in just 10 years. And other neighbor Canada whose currency was also cut in half, has also risen to become the envy of the World in economic terms today. Conclusion: A decline in the US Dollar while painful to the pocket, might have enormously salutary effects longer term for the US economy.

The Next Bull Market Could Be One For the Ages
That should be enormously bullish for stocks going forward, as of now we are historically at one of the lowest fundamental levels ever and part of the reason for that is that the Fed's maniacal 17 times rate hike spree, has effectively kept an artificial lid on stock prices and really as soon as this pressure on stocks is removed, it could usher in an unexpectedly super-bull market of monumental proportions, and one reason why is that with the prospect of sharply lower rates ahead, the potential for numerous indices and stocks to be making new all time record highs would be palpable and self-perpetuating. It may look like a tall order for the markets to claw their way back towards their highs for the year but stranger things have happened and one big plus is, now rate hikes are on hold, some pressure has already been removed...

Still Volatile Times Lie Ahead

Notwithstanding beyond the next rally that may eventuate from yesterday's reversal attempt against a backdrop of a weekly decline, stocks have got their work cut out for them and we're seeing an increasing preponderance of more shorting opportunities than buying at this time, in spite of the fact that the indices rallied yesterday. The pause in rates alone may not be enough to support stocks sufficiently in the time ahead between now and the fall and therein a retest of the lows or even lower lows cannot be ruled out. On a more optimistic note, small cap and microcap issues are beginning to bottom out and emerging rallies are already evident. Given this sector peaked first, it would now appear to be bottoming and this would not be the first time the so called "January Effect" for microcaps actually became evident in August.

Trade Well
From the Desk of Savant