JJC:   All right, what the heck happened here?...

What made it so this guy's been... never mind... What happened?... How did oil and gas go into an endless dive and the financials and homebuilders erupt to levels five days ago we thought were impossible... How did the whole world go upside down?... And can the out of oils and gas into financials trade become an investment...

That's what we're discussing tonight...

After this dramatic two day reversal in everything that has happened in the last year... A reversal that is threatening to take away any gains we have in oil and gas and create unbelievable profits in banks and brokers...

First here's what I see happening... right now...

You know I've always felt that the rally in oil was about supply and demand, not speculation... I have always felt there was a level, a level we could hit, where even with supply not going up, because we're pumping as much as we can... I always said there was a level where oil could peak... I would say it was $150... It seems like that when we got to $148, we found that level... The use of oil in this country is now down 2% year over year, down... We have hit the level where the price has gotten too high where we can't use it as much as before, where we have cut back... Given how much oil in the world was pumping... Remember, we were going out full bore... We have no more room world wide for more oil in our storage facilities... This is the level... I don't think we can go through it...

That's what happened... It looks like we are not going to hit $5 gasoline... It means we're going to see gasoline go down next week... You know that's incredibly bullish for the economy and that's sending a lot of stocks up that we didn't think could go up... I think that will continue to do so... At the same time, it looks like there will not be runs in all our banks like IndyMac Bancorp Inc. (IMB) in California... We will not have runs on Wells Fargo (WFC) and JPMorgan (JPM), which reported a fine number today... We are going to tough this thing out... Why?... Because the US government has said it will not let these institutions fail... That's what that Fannie Mae and Freddie Mac statements were about this weekend... We will print money like there is no tomorrow rather than allow any big runs at our big banks... When you combine that positive fact that the SEC commissioner, the man who matters the most to hedge funds, is no longer going to tolerate bear raids... No one's going to allow you to just annihilate a stock by knocking it down, that's what all this prostrating is about... No longer allow bear raids against the financials... Then you have a dramatic shift from bear to bull as the managers betting against the banks, then selling them short had to cover, or buy them in... It was the single greatest short squeeze I have seen in my career, maybe in history... It was artificial but so what?... It has given the system a chance to breath, and that is bullish too... That's how you get up another 200... Now we don't care what has already happened in the market, you don't need me to know that... The question is what is going to happen... What is going to happen to these two sectors, banks and brokers and oil and gas... First, there were actual cost currents in banks and brokers... That's not being mealy-mouthed... That's not Wall Street jibberish... For the first time we have seen some positives in banks, the cross of the current... So it looks like outfits like JPM, Comerica Incorporated (CMA), today, WFC, actually doing better than we thought, even if Merrill Lynch (MER) after the close isn't... More important, we are going to see banks take advantage of these increases and raise capital to stay in business... The ones that do will stay in business... We're going to see some form of mortgage resolution trusts that I mentioned yesterday... That's going to allow these banks to put the bad loans to the government... they're going to split...

Remember, Wachovia Corp. (WB) goes to the bad loan bank and good loan bank... That's going to happen... Remember, the government drew a line in the sand over the weekend and let you know that it can stop any raid in its tracks for any bank in this country... More important, perhaps, is that we saw a ray of hope, a real one, in the most important issue of the day, the house price depreciation issue... That issue is the fundament of all our banking problems... If we can stop the decline in the value of your house, we will find a bottom... This morning we heard about a big housing start number... Wow, yeah, it was very exciting... That was actually a total head thing... There reality is different, better... Better for the end of the decline in your houses' price... That's because the single family home build was much smaller than expected... It was unbelievably small... And that's where the supply bulge is... We are now building around 600,000 homes in this country... Same as in 1991, where we had tens and tens of millions fewer people in this country... You know that we were building two million homes during the boom?... We get some federal relief for people who are at the risk of foreclosure, and we get that tightening supply...

We will find a price where houses will bottom... And the worst will be over... That's going to happen in 2009, and I feel more strongly about that today than I have any day this year... Oil is the opposite of this... Where as the shorts were having to weigh in the financials until the level where the government intervened, in oil the buyers of oil were having their way, until the sellers intervened because demand has slipped, it has slipped dramatically...

Put simply, people can't afford these prices... You see it on the road, you see it in the stores... Come on, so do I... You know how long it takes to get wherever you were going now versus before, it's faster... We're seeing it worldwide... $150 is too much, we will not reach that level... It will a major terror attack or a war to bring it to $150... Just like banks, once the momentum is broken, oil and gas have much further to fall... I think that oil can drop, drop quickly, drop another $20, overshoot to the down side... Again, unless we have a terror flare up... $110 is a possibility... That's still down substantially from here... I think natural gas dropped another 10%... It has already fallen in it's percentage much more than oil... Therefore, I think the stocks have much more to go down... I said last week that I thought natural gas has cooled and to start buying them... I started doing that for my charitable trust... I could say that I'm early... It's very easy to say that... Very easy to use that kind of talk... But I'm from a different school... I wasn't right, I was wrong... I was wrong... It was too early... The call to get out was good... The call to get back in was not... I screwed up... I was reacting to people I trust like Aubrey McClennan, the great CEO of Chesapeake (CHK), who did indeed, as we found out, bought 750,000 shares of CHK with his own money last week at $57.25... I do think he'll be right, but the stock is not at $54.74... In the short term, I think that both oil and gas and the banks have overshot in their respective directions... In the short term, the banks moved up too much, you should take profits... In the short term, the oils have moved down too much, you should buy them... They are statistically too cheap...

But the lesson here cannot be lost... The government has chosen sides... It is siding with the buyers and going right along side to take them up by shooting the shorts... And the oil market has chosen sides... Given the weaker economies worldwide, we have found a price that the world, particularly the United States, will not pay...