Freaky Friday Potpourri: Was That the Retest?

By Todd Harrison  JAN 16, 2009 9:45 AM

Reaction to morning supply will speak volumes.

 


It was captivating and chilling at precisely the same time. The financial markets, snapping fiercely out of the abyss, were suddenly no longer the center of attention. As word spread of a plane crash near midtown Manhattan, the entire world held its breath as details were disseminated.

Photograph: Gary Hershorn/ReutersWe now know that birds were the culprits and the pilots legitimate heroes, navigating the rare water landing of a commercial jetliner. The imagery of passengers standing on the wings of a drowning vessel—one that would inevitably sink—awaiting rescue is the definition of social symmetry.

This morning we awake to find investors waiting on the wings of a bailout, with Bank America (BAC) circled to receive an additional $20 billion infusion, the unveiling of an $825 billion stimulus package and Citigroup (C) being split by the sum of its parts. Yes, there’s a ton of news out this morning which, coupled with expiration, will make for a busy day.

When we mapped our ten themes of 2009, we offered that if the transfer of power passed smoothly, we could conceivably see a relief rally until the initial bloom faded on the Rose Garden (read text here, watch video here).

Yesterday, with the markets probing session lows, I asked “While all of my trading tells are pointed lower, why can’t I shake the sense that Snapper is, at the very least, gonna try and mount an upside run.” I stepped into a meeting and when I emerged, my eight screens were flush with green.

The trillion-dollar question, of course, is whether yesterday’s intraday reversal qualifies as a successful retest of the November lows. With the markets closed Monday and the transfer of power Tuesday, the pressure on the bulls to produce positive price action today is immense.

We’ll witness a press lower near the opening and the reaction to that supply will speak volumes as we edge towards our requisite respite and the pigskin playoffs.

The Bank Shot

T
he dismantling of the financial stocks is mind-boggling in scope but not entirely unexpected. Remember last year, we discussed the need for culpability to extend throughout the societal spectrum, from borrowers who over-extended on credit to institutions that financially engineered risk to policy makers who were compliant by acceptance.

The fact that many of these names are going to Fannieland (FNM) is perhaps the healthiest possible scenario through the lens of "taking medicine as a function of time and price." It is, however, massively unfortunate for the institutional staffers who simply followed their marching orders.

We're talking livelihoods lost here. Life savings evaporated. Careers ruined.

Therein lies the "other side" of the aforementioned "healthy" scenario: societal and structural implications. We've talked about the former storm so I don't think we need to beat that horse.

On the structural side—and something to keep in mind for those calling for the heads of financial professionals—is the fact that if there isn't incentive for people to fix the system, the system won't get fixed.

Incentive on Wall Street equals money. While the industry will be austere and ripe with humility for the foreseeable future, we must find our way to a healthy supply-demand and a balanced give-and-take.

For if we don't crack the code in short order, we run the risk that our capital market structure will cease to exist altogether.

Random Thoughts
 


R.P.

Position in USO