Black Friday - More, But Less

black friday salesWe have seen the finish of yet another wild "Black Friday" weekend. Retailers were hoping for a sign of light at the end of the tunnel with the weekend sales performance. Thus far, results were not as good as many were hoping for. Sales slightly increased as a whole, but the estimated spending per person was lower than last year. Also, when breaking down the numbers, most of the sales were found in the big ticket "door buster" items, and much less in the standard inventory. In fact, very little brand loyalty was found in this year's ambush, as consumers were clearly looking for the best bargains. Wal-Mart's Sanyo 50" flat screen for under $600, was one of the favorites of the weekend.

Black Friday (and most of December) is the glory days for retail. A weakening spending per consumer is not necessarily a good sign. Sure, fundamentally, it is better that consumers are spending less and saving more. However, for the sake of a stronger economic recovery, it has adverse effects.

I spent the early mornings of Black Friday in the major big box retailers. As always, there were a lot of people. However, I did notice the large amount of "Looky Lou's" that were present, who were not pulling out their credit cards. Also, it looked as though holiday gifts were the main purchases for this last Black Friday. Retailers are hoping that consumers did not get most or all of their holiday shopping done this past weekend, because many are expecting a very strong December to break even.

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We are entering into holiday volume at this point, which becomes very vulnerable to big market movers and manipulation. I expect to see (as we did last year) big moves in opening and closing minutes, with a fairly mellow mid day trading pattern. 2010 still bears some big pot holes for many companies, and will be a very trying year for many businesses. If the government begins to start letting things unfold naturally, we could be in for quite a shock. Happy Trading.

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The Last Hoorah For Retailers

black friday retail salesAt this point, just from a general consensus I've taken, it seems that many clearly feel that the worst of the recession is behind us and we are beginning the roads to recovery. As I do not agree with that, there is one thing that is certain. Retailers around the country are hoping that Santa Clause packs his bag full of gifts, because for many, this holiday season could be the last chance for survival.

For many retailers, over 30% of their annual business is done in the next two months. It is the wonderful holiday season where everyone is in the spirit of giving...and buying. However, this year will be a unique year for the consumer and may not be the saving holiday season that many companies are hoping for. I have heard from several businesses that if holiday sales are not showing a strong rebound trend, most likely they will be closing the doors next year.

There are some goods. Banks have been very cooperative with consumers in regards to loan work outs. Even for those unable to work out their loan, they are most likely able to remain in their house from 6-24 months without a payment before the bank finally sends their notice to vacate. As a result, this may free up some extra disposable income for consumers looking spend.

Also, residential refinancing options still remain available for a rather aggressive rate. Many are taking advantage of refinancing their home and locking in a 5% or better 30 year loans, which frees up some cash.

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The problems are that we have seen a spike in the savings rate of consumers. Record jumps in the savings rate are continuing to take place as people are hoarding their money rather than wasteful spending. On top of that, credit has tightened up. Not only have maximum borrowing balances been significantly reduced, but credit card interest rates have spiked out the roof. Consumers are trying to minimizing the swiping of plastic, which is usually a big bulk of holiday spending.

Last year, the holiday season was a dreary one. For many businesses, another like it would force the doors to close. Sentiment remains the exact opposite to what was felt last year. Although our economic conditions seem worse at the time being, many people's perception of the future was a dark, dangerous one. Now, most seem to be chippy, believing that the worst is over and sunny days are ahead of us.

Retailers are the big gamble at this point and could reap some big returns depending which side wins out. If indeed this Christmas is a merry one, expect retailers like Best Buy, Nordstrom, Payless Shoes to go off. However, if sales come in at low levels, I would expect to see some big selling pressure on many of the big retailers. Black Friday will give us a good read of what to expect. I personally feel that Black Friday may not be that bad off, as many consumers have now become "discount shoppers. Happy Trading.

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Dell Earnings Not Delivering

dell earnings crashMarkets sold off a bit on Thursday as initial jobless claims came in at around the same number it did the month before. Analysts were hoping for a continual downward trend to help boost up confidence in the employment market. However, small businesses are continuing to struggle to boost profits. Most have maxed out their ability to inventory and operating expenses. All that is left for them to cut is employee expense. It amazes me of how few of people restaurants and fast food chains have working their store at this point.

Surprisingly, tech came out with some disappointing numbers following the close of today's market. Both Dell and Intuit reported disappointing with Intuit reporting a very dismal forecast. As I have said before, it is going to be extremely more difficult for businesses to meet a legitimate expectation going into next year, as most expenses that can be cut have been already made at this point. Unless of course you continue to cut jobs, which will in turn continue to drag down the economy. Until now, tech has been the bright spot in all of this, but is now showing that indeed they are vulnerable as well.

Going deeper into the holiday season, we will definitely see volume trail off in to record lows. Thus, we once again have the market very vulnerable to manipulation. Unless a rather significant even takes place over the next month to shake things up, I do not see how bears will get the upper hand with such low volume. Plus, retailers tend to get a boost during the holiday season, which usually is their best part of the year.

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The dollar showed some strength today as investors look for more conservative plays. As I've said before, the inverse relationship between the economy and the performance of the dollar still remains. I do see the dollar going for quite a ride, but that will most likely begin in 2010 in my opinion. With that, I see gold and energy prices pulling back to start the new year.

I worry that more and more are forgetting are vulnerability to a decaying market. We've had a bit of a mask placed over our eyes for the time being, but the pit still exists. I fear that if all information was made available to us regarding the current state of the banks, most would run for the hills. I hope that indeed, the damage will be minimal, but looking at what kind of action has taken place in this market the past 15 years, I don't see how that's possible. Happy Trading.

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Housing Recession - Double Dip?

residential bottom crashThere are many people who feel that the residential dip has just about bottomed (or is now beginning to get better). However, there are several things that could cause for yet an even further dip in the housing market next year. The substantial drop in the residential market was one of the big factors that initially led us into this recession. For most people, their home is by far their largest investment and when the value of that investment almost gets cut in half in nearly 2 years, it has large psychological effects. In fact, I believe the recent uptick in consumer confidence had a lot to do with the little growth we've seen in home sales. However, here are a few reasons why we may not be out of the woods yet.

Tax Incentive Ending
There is no doubt that the $8,000 government tax credit for first time buyers has pushed people who would have ordinarily waited to buy in a year or so into buying now. A majority of the houses being sold involve buyers taking advantage of the credit. Incentives like these usually call for an "advance demand" in the product. As we saw in Cash for Clunkers, auto sales spiked during the months of the program. However, the following months after the program was discontinued produced record low sales, thus squeezing 3 months of demand into one. As of now, the tax incentive program has been extended into March, but the government has made it clear they will be looking to get out of the business of bailouts in 2010. We can expect a rather aggressive drop in demand if and when this program is discontinued and analysts are expecting the drop.

Increasing Loan Difficulty
One very big factor of why houses are continuing to sell is that many can still get a conforming loan. The government has been aggressively buying Freddie and Fannie conforming loans, which has helped banks to issue them. That coupled with the 0% interest rates has helped interest rates stay aggressively low. However, just as it is the case with the tax incentives, the government also is looking to significantly lower its amount of loan purchasing that it has been doing, forcing banks to begin taking on the risk by themselves. As we have seen with the commercial sector, those type of loans are almost non existent at this point and the terms are not favorable for the borrower. As interest rates begin to climb up and loans become harder to come by, be sure that we will see yet another dent in demand.

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It is clear that job losses continue to mount up. Sure, the rate of decline is slowing, however, we can expect to see continued job losses well into 2010. As a result, discretionary income will continue to diminish in the overall economy. Increasing energy prices only makes this worse. Unless consumer sentiment can dramatically shift next year, we will most likely see most consumers wait "on the sidelines" until greener pastures grow closer. Without the incentives, it does not give consumer much of a reason to buy.

Built Up Supply
Sure, recently we have seen a bit of an uptick in home sales. However, this does not make up for the massive inventory that awaits the chopping block in the coming years. Just in foreclosed homes alone, the current inventory would well last us for 3-4 years. Due to moratoriums and government holds on foreclosures, the delinquent homes have only been building up more and more. Also, banks have been "staffing up" to prepare in the disposition of the millions of homes that are in the pipeline. Eventually, these homes will be foreclosed on and be put to market. When they are sold, banks will price them to sell, whatever that price may be. With the amount of supply which could be on the market at once, we could see a rather dramatic drop in price once more.

Much of these reasons will depend on how the government chooses to manage these problems and if they continue to try and combat them. As for now, they have created a false supply and demand curve by limiting the supply (through moratoriums and government regulated loan modification) and artificially creating the demand (through stimulus and incentives). If they at some point decide to discontinue this and let nature take its course, we could see some very adverse effects. This in turn would effect the entire economy. Happy Trading.

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Bernanke "Promotes" Recovery

Markets were right on cue today, as the Dow ended up triple digits again to open up the new week. Increasing energy and gold prices helped to lift markets, as well as some help from the Fed chairman. Bernanke addressed the economy today and discussed some of his outlook on the economy and some of the worries of investors. First of all, it looks like Bernanke will not be touching interest rates, until he sees a bit of a recovery in the employment sector. That could be well into 2010 or even 2011.

On the subject of the falling dollar, he did not seem to worried. He said that efforts of "promoting the recovery" would help in bringing back value to the dollar. Promote the recovery? Are we going to start seeing commercials about how we are recovering, so buy the dollar? In fact, I believe that has been the overall plan of the Fed in regards to all aspects of the company. Promote a recession is over. It is true that a big reason recessions linger and sink even deeper is because of the change of sentiment that comes to consumers. Once lending becomes tighter and business begins to fall, consumers feel they need to tighten up that budget and bunker up for the long haul. Such habits are good practices, but have a very adverse effect during a downward economy.

This time around, the government has been promoting that the storm has passed and that its OK to start spending again, in hopes that the consumer can help pull us out. Unfortunately, we have not been so easily convinced as retail sales continue to trail down (Pac Sun announced horrible earnings today after the close). However, it has been able to get markets at a much more attractive level for businesses, and banks have made a lot of money in the stock market (since they seem to be the only players right now). However, how sustainable is this recovery?

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We are now reaching the point of a 50% re-tracement from recent lows as well as a 50% re-tracement in time from the previous high to low. Such would indicate the beginning of a new leg down, but recently technicals have been non significant. It is obvious that the Fed is hoping to combat deflation with continuing inflationary decisions. The big move in gold and energy, is a bit soon in my opinion and I believe they are in risk of a downfall. I do believe gold will run a bit longer, as foreign nations are buying it like candy, but it could have a very swift reversal.

As for now, I am waiting it out a bit, and considering a few tech options, as I feel they are holding up the best for the time being. Energy and gold are getting at new record levels and are becoming a bit too high for me to consider a wise investment. This should be a very interesting year end. Happy Trading.

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Bank IOU's - New Investments

Markets took a bit of a breather today as the Dow closed down just under 100 points after a week of rallying. At this point, it's hard to speculate much past profit taking as there was nothing too significant released today. However, government officials are now claiming that indeed they may not need all of the TARP money. Really? I find that hard to believe. Considering the trillions worth of delinquent debt for banks has just magically vanished, I am sure that money has been hard at work.

Secretary Geithner seems to think that the remaining unused TARP funds can be used to pay down government debt, considering that the Treasury expects a "significant" amount of repayments being made on behalf of the banks in the coming weeks. I am quite skeptical of financial institutions who were considered on the verge of collapse not more than 7 months ago, all of a sudden able to completely free themselves of monetary assistance. If so, you know there has been a lot of money made under the table the past few months.

I have discussed in other posts about my involvement in some penny stocks, as I like to put some strong risk/reward plays in my portfolio. One in particular has been on fire as of late that I thought I'd share with you. Imaging3 (IMGG) has soared from $.03 to $1.22 in just a couple of months. The company manufacturers a portable 3D medical imaging device that is to be used in hospitals and medical clinics. Lately, it has been released that the machine will become FDA approved, which has been a big cause of the recent jump. How much higher this stock will go, I have no idea. I thought it was done at $.60. I just thought I would let you know that it's been moving and I'm reaping rewards because of it. I actively invest other strategic IPO penny stocks, shooting for high returns. I am currently investing in a new Solar start up that has some pretty impressive technology. If you are interested in investment, email me and I will point you in the right direction. I see a lot of potential with this company.

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I don't see a big reversal quite yet unless a huge change of sentiment comes. There are several economic factors that currently exist that could ignite that change. In fact, we are dangerously flirting with an absolute crash of the dollar, which would be devastating for our economy. Not only would that put enormous amounts of pressure on the consumer, but it would also put an end to foreign nations buying our debt. At any rate, much of the economic noise of our economy is muted from government stimulus, but it has definitely not gone away. For me, patience will win out and big opportunities are ahead. Happy Trading.

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Wall St. Winning - Main St. Losing

government spending crashWall Street is continuing to see successes from a stimulus rich economy at this point as markets have remained green all throughout the week. However, despite the big returns we've seen the past several months in equity markets, Main Street consumers continue to suffer. When looking closer at the facts, it makes more sense why.

For the past two decades, our economy has thrived on economic "bubbles", which as we have seen, can temporarily create very strong growth. However, just as every "bubble" does, we usually end up seeing a burst (as we have with the Internet and tech bubble). You would think that we would have learned from our prior bubble mistakes about the consequences that can come from such mindless spending. However, this is not the case.

The government clearly took the bubble route when they decided to set record amounts of government spending, printing and stimulus. It is one thing to stimulate money going into consumer's pockets, but $3 billion for Cash for Clunkers, $24 billion for first home buyer's credit, $787 billion in American Recovery and Reinvestment Act, and $700 billion in TARP. With all the spending, we were able to rack up debt in the amount of 10% of our GDP, just in 2009! Not only that, but we are also BORROWING at more than six times the amount we borrowed last year. Fortunately, for the US Treasury, foreign nations still have found value in investing in the dollar. However, due to increasing large currency printing and spending, the dollar continues to get trampled on when compared to other major currencies. At this rate, you can expect foreign economies to quickly stop buying our debt.

What is really devastating in all of this, is the lack of money that is getting into consumer's hands. Sure, Goldman Sachs and other Wall Street banks are making a killing, borrowing the Fed's money at 0% and investing them in riskier assets. However, bank loans shrank at an annual rate of $931.3 billion in the 2nd quarter of this year. And listen to this scary fact: prior to the fall of Lehman Brothers, it took the Fed almost 14 years to double the monetary base (currency and reserves in the banks). After the recent Lehman fall, it has only taken the Fed 196 days to do the same (45 times the amount!)

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When our government chose to take this route of recovery, it was the "quick-fix" band-aide choice that we've seen in times past. The only problem is (as we've seen), is that it eventually comes back to haunt us. In my opinion, it is for this reason we continue to see a climbing stock market, despite continuing weakening economic data. With this amount of government intervention, holding a strong short position at this point is just plain stupid.

Thus, I look to other means until these decisions catch up to us. Indeed, despite deflationary indicators, concerns are raised about the dollar. As a result, we have seen huge gains in commodities. Gold, oil, and agriculture are reaching new record highs as investors hedge up on the falling dollar. Even though, we have already seen huge gains from these sectors, we could continue to see them rise into the new year. I do still feel that eventually, the dollar will rebound strong, but at a 0% borrowing rate, a dollar recovery is difficult.

Our economy still remains on very thin ice. Just because the market continues to perform well, this does not mean our economy is driving that. As I always say, a market crash does not come when everyone is expecting it. At this point, I always am on my guard. Happy Trading.

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Trying to Fight Deflation With Inflation

g20 meeting rallyMarkets soared on Monday as investor's confidence got a boost from the weekend G20 meeting, which portrayed a strengthening of the global economy. A 200 point rally on 200M of trading leads me to believe that a small group of people are doing a lot of the buying.

With reading the headlines and sites nowadays, I almost feel like I am getting pitched on a multi-level marketing scam, when referring to the stock market. Analysts are proudly declaring the success of the market with firm recommendations saying "you can still get in, we've got a ways to go." Whether or not that is case, is still yet to be determined, but what makes me very cautious to partake of any such rally, is the fact that almost all of our recent successes are due to massive government stimulus and spending.

Last week, we saw our unemployment reached double digits (which in reality is much worse than 10.2%, when considering all consumers). Mom and pop businesses (which is usually considered the "salt of the earth", in regards to businesses) continue to rack up massive losses. In fact, it is very easy to see just how good businesses are doing by going into your local diner or cafe. Consumer spending remains considerably down. However, at this point, the government has manipulated the natural regression of GDP (which is historically 70% influenced by the consumer) by moving up numbers with massive amounts of government spending, stimulus, and rebates. The problem is that as markets continue to rise, investors will more and more begin to believe that a "natural recovery" is what is bringing back markets, which is absolutely not the case.

Last week, the FDIC approved banks not having to mark down depreciated assets to its current market value, as long as the loan "remains current." Now current will be defined in a variety of methods I am sure, but such a move is another huge cover up for banks. This goes to show investors that indeed opening up bank's books to the public to show the "true value" of their current assets would cause for most banks to be bankrupt. In my opinion, this is the cause of a continued 0% Fed interest rate, as well as government purchasing of mortgage debt. The government clearly knows that banks cannot absorb the true values of these losses. Inflating the stock market is also helping this process, however, at the expense of those investors buying into it.

Because we are still rather new into this downturn, effects of government intervention are quite delayed. As months continue to go on, our economy will more and more see effects of a mindless spending government. In my opinion, I compare this recent market bolstering to the construction of a building with a weak foundation. We are so concerned about the upward performance of the stock market, we have failed to evaluate the foundation of our economy and if we can sustain growth for the long term. Just as a building with a weak foundation would, I believe the stock market is waiting to come crashing down once more. However, with 200+ rally days like today, I continue to be watchful for the right time. On a good note, my 10.5% return with Lending Club remains in tact.

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Bulls Fight Back - Dow Above 10000 Again

starbucks crash earningsThursday closed with a rampage of buying which once again pushed the Dow back over 10,000. Anticipation of what investors are hoping for a strong employment report helped bring some confidence in trading. This is just the reason why I sold out of my shorts last week.

As for the rally, I don't see this continuing into tomorrow. Most of today's run was in anticipation for tomorrow's number. Best case scenario is that we do get a favorable report and we go on with our day. However, if the number comes in worse, I would expect to see a rather strong sell off. Unemployment is the one sign that continues to bring down the overall sentiment of many investors, as people know what kind of impact jobless consumers have on an economy.

Even though it seems as if almost all retailers have been crushing earnings reports lately (Starbucks beat their expectations today after close), it is important to know that this is not the case. In fact, more than half of retailers have fell significantly short of expectations, not to mention that most retailers have suffered massive losses compared to the year prior.

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Being in real estate, I have done a lot of work with Starbucks and worked with a lot of clients who have Starbucks as a client. From a landlord perspective, Starbucks is a worry for most. They have closed down hundreds of locations, put a halt on development, and are trying to get out of hundreds of more leases. Their sales have significantly dropped, but due to their report being better than expected, the stock rises. This same principal is happening all throughout the market, which is why we are seeing almost a complete void of fundamentals in the market currently. This fact will change, but for the time being, it makes it a very dangerous field to trade on.

I expect a selling close tomorrow as I do feel that unemployment will be better than it has been, but still very depressing. Hundreds and thousands still losing their jobs give me know reason to cheer, or buy stock for that matter. The dollar held up reasonably well today, despite the rally, which leads me to believe it's almost time to pull the trigger. Happy Trading.

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The Relationship of The Dollar and The Stock Market

cisco stock earningsThere continues to be an ongoing debate on the future of the dollar. In most cases, a decreasing value like we've seen in the dollar this past year (down about 13%), would be quite alarming for most countries, especially when considering our current economic crisis. However, government officials, at this point, remain not worried about the recent downfall of the dollar and feel that its recent move is due to the spike we saw last year during the peak of the economic turmoil.

One thing is for sure, there exists an almost perfect inverse relationship between the value of the dollar and the performance of the stock market (see graph below). Last year, when fears of massive bank failure was on investor's minds, the dollar spiked in value, it being the "safe investment" at the time. Bonds also found strength, as less riskier vehicles became appealing. However, due to the large bounce we've seen in markets recently, the exact opposite has occurred. Investors are returning to riskier investments and the dollar and bonds are getting left behind.

So far, the government is not too worried, because they are still able to sell their debt at this point. In addition to that, most smart economists know that are first big obstacle facing the US economy at this point is deflation, not inflation. Although inflation remains a critical concern for our economy, it is likely to not become a big problem until 2011-2012. A weakening dollar helps to mask a deflationary down spiral, which in most cases would spawn a dollar rally.

dollar stock comparison
For the most part, government officials don't mind the weakening dollar, because as we see from the graph, the stock market capitalizes from it. At this point, a strong dollar would most likely have a negative effect on market indexes. I do not see the dollar weakening much further and quite frankly, using the currency as "bait" is down right risky. All it would take is a "black swan" event to send the dollar into a whirlwind.

The Treasury is finding less and less buyers for US debt and markets continue to see resistance at this point. Even today, following a push in markets for most of the day today, we saw a rather big sell off to close the day, having the Dow only close up 30 points. The Fed's statements today saying that the outlook is good is rubbish. If this is true, why do interest rates remain at 0%. They're job is to keep peace and order in the economy and unfortunately, at this point, the best way to do that is by smudging the facts.

CISCO reported a "favorable" earnings report today after close, however, they were still able to lose over a billion dollars in revenues compared to the prior year. But, as we have seen with many companies before, investors are not interested in that. Companies inability to turn around falling profits will eventually lead to their demise. An economist "expectations", will do nothing for them. That is why, for me, it is important to compare earnings on an annual basis to get the big picture of the company's performance.

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Markets are continuing to see a lot of resistance at this point and heading into unemployment numbers, that can't be good. Now I do feel like we will see better numbers than we have in times past, but the numbers will most likely remain very dismal. There is definitely more selling pressure now then there has been, and I expect to see the second crash hit markets very shortly. Happy Trading.

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Black & Decker and Stanley Works Merger

black & decker mergerBlack & Decker stock went soaring today after hours over 25%, when they released shorty after the markets closed that their rival company, Stanley Works, would be acquiring them. In an all stock merger, valued at $4.5 billion, Black & Decker CEO Nolan Archibald explained the reasoning saying, "The driving motivation of the transaction is the present value of the $350 million in annual cost synergies and the combined financial strength and product offerings of the merged companies."

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Slowly, but surely we will see more and more mergers and new acquisitions as we continue along this struggling economy. We are now several months into this recession, which for most businesses and consumers, has been a strong stress test on their reserves. Many people have been able to hold out for a year on emergency funds and expense cuts. But how about 2-4 years? I believe in 2010 we will see even more giants fall.

The US government will still be looking to issue more debt in the coming quarter, however less than they had originally anticipated. The Treasury will look to issue $276 billion in debt for the 4th quarter of 2009, which is considerably lower than their initial estimate of $486 billion they made in August. However, don't think this is the end of government debt. 2010 Q1's estimate remains at $478 billion. This cut to the budget gives Congress some time to approve an increase to the $12.1 trillion total borrowing cap that is placed on the Treasury. We are currently flirting very close to that ceiling.

We saw much more volatility in trading today, which is beginning to look a lot like fall of last year. As a result, options are beginning to look favorable once more. Last Friday's huge sell off, was one of the largest sell offs we've had in quite some time. In my opinion, we should see some very strong selling pressure in November, as year end pressures grow near. December is still yet to be determined, as many retailers are awaiting this hopeful "saving" holiday season to keep them alive for the next year. Unfortunately, 70% of our economy (the consumer) has taken a massive beating this past year. Thus, for me, not a good outlook on this year's holiday sales. Happy Trading.

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