I sold most of the FAZ bought at 39.30 at about 70.

I am 121.8% ahead with FAZ (on paper) in the past week:
2/26: bought at 47.80
3/3: sold at 79
3/4: bought at 74+
3/5: close after hours: 101.36

I looked at a lot of indicators — FAZ doesn’t look very toppish. For instance, it is not elevated as far above the upper BB and has not been pushing the upper BB as long as when it made tops in the past, and the 20 dMA and 50dMA have bull-crossed and both are curving up more rapidly and at an accelerating rate compared to previous tops. Thus I am watching FAZ obesessively until it tops out, because it could turn my double into a triple or 4-bagger if things go well and I get out before in drops back by 50% in 3 hours or some such. Also the financials are dropping worse now than $SPX. Part of it is because they are beaten down so much that they are no longer a large part of the S&P; C is fighting to keep from becoming a penny stock. Of course, friends in high places have kept C and a few other financials with micro share prices from being automatically de-listed, as would happen to most other companies that were becoming worthless in market cap.

HIGHLIGHTS
· US MBA mortgage delinquency rates for 4Q08 rises to 7.88% – new record high

US Factory Orders for January drop 1.9% – better than expected
US weekly jobless claims fell 31,000 to 639,000 – better than expected
US 4Q business productivity revised to -0.4% after 3.2% preliminary – much worse

COMMENTS
The one step forward two steps back dance of equities proved less than beguiling today and left many wondering what magic potion central bankers can use to make up for the music turning from a remorseful tune to funeral dirge. Even after rate cuts from the BOE and a bold move to quantitative easing – targeting long-end bonds – and after the ECB cuts 50 bps – no one goes home happy in the US. Equities down over 4%; Oil nearly 4%; Gold up 3%; bonds up 3 points with 10Y yields down 16 points to 2.81% – all are symptoms of a party gone awry. The previous 20 years of central banking would have seen market’s bewitched with the idea of more liquidity. The trouble is the pump priming of new money no longer works in a world rushing to deleverage. Debt is a four letter word. The plans of the government are clear – rush money to the consumer. Obama’s mortgage plan should help 1 in 9 home owners but delinquencies are seen in 1 out of 8. So the elixir doesn’t cover the problem. Confidence has been shaken and the technicals reflect a market prepared to run to even more painful levels as many see the crush of asset deflation as the only mechanism left to fix years of easy living. The question of politics is whether the market pain will translate over into the real economy. We find this out tomorrow with the US employment report. It’s the usual event – but with more than usual interest given the risk of significant downside as many see the acceleration of job losses as yet another reason to fear financials and their exposure to the real economy. Many are searching today for a way out of this morass. The Camelot of better credit and the Excalibur of government stimulus falls today – we rush now to lesser ploys like the difference between mark-to-market and mark-to-model to somehow save the chart. Yet all isn’t lost. The shove lower in assets today leaves opportunities in FX – as the world dances around the inevitable rush to the bottom the differentials of currency values looks to be a logical place to find real value. Consider the themes: 1) Markets reward pro-cyclical policy. Today we saw the BOE do more than the ECB – result – GBP and FTSE higher on a relative basis than the DAX and EUR. 2) Countries that have room to still act are rewarded – so nations with surpluses to spend or rates still to cut outperform – witness BRL over TRY. 3) Disposable over durables. The market has figured out that even in a recession people eat and so its about needs not wants. The food producers will beat out the energy makers and the excess capacity users of industry will suffer the most – so the focus remains on MXN, PLN and KRW as the currencies in the eye of the global storm. Bottom line – the flexibility of global capital markets hasn’t died at the hand of an evil witch we merely have strayed off the dance floor. There is plenty of dislocated money to be found as the world runs for the safe rather than the logical exits.

CURRENCIES
Cross Low High
USD/EUR 1.2482 1.2584 Close: 1.2543
JPY/USD 97.72 99.54 Close: 98.27
JPY/EUR 122.7 125.02 Close: 123.2601
USD/GBP 1.4037 1.4164 Close: 1.4111
GBP/EUR 0.8854 0.894 Close: 0.8889
CHF/USD 1.1675 1.181 Close: 1.171
CHF/EUR 1.4677 1.4775 Close: 1.4688
USD/AUD 0.6356 0.6448 Close: 0.6366
CAD/USD 1.2782 1.2913 Close: 1.2903
NZD/USD 0.4969 0.5045 Close: 0.4981