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Random Thoughts: Hurry Up and Wait!


Europe keeps investors on edge.

It was the single most important weekend in the history of the global markets-until it wasn't.

Many believed this past weekend was the no-we're-not-kidding deadline for European debt "resolution," but the next step was pushed until Wednesday, much like Angela Merkel said it would be.

While some watchers characterized the progression as "good, not great," the nuts and guts seem to boil down to how big of a haircut the banks will take on Greek debt (the banks want a 40% trim and the EU is calling on investors to forfeit as much as 60%, according to Bloomberg).

There is much at stake, including the fate of the euro, confidence in the region, solvency of the banks and-oh yeah-a global financial contagion (counter-party dominos).

There is a lot to this discussion, but suffice to say there are no simple solutions, just the lesser of several evils. And while progress has been made, there is still a ways to go. I will, however, offer a brighter side to this dilemma: This is a front-page conversation, and as we've long said, in order to get through it, we had to go through it.

A little perspective as we continue to find our way. We posited early last year after the first phase of the financial crisis that we were in the Eye of the Financial Storm and a sovereign sequel was on the horizon.

With The Second Side of the Storm upon us, we're one step closer to getting to where we need to be, although it's yet unclear what path we'll take from here to there.

More likely than not, there will be some sort of agreement, and perhaps the bears will be chased for a spell-that is, quite obviously, the focus of policymakers and institutions alike. If that happens, it will open the door for year-end performance anxiety as fund managers and pension funds chase their bogey.

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All the while, earnings are coming out fast and furious as we kick off the busiest week of earnings. Caterpillar (CAT) reported this morning and beat the Street (and it is also being "helped" by the tragic earthquake in Turkey, where rebuilding will need to take place). We should also remember that expiration was on Friday, and the tape typically takes a few hours to work off that hangover before a true tenor emerges. See it, even if you can't quite put your finger on it.

S&P 1250 remains the year-end line in the sand for stateside investors, particularly with DAX 5500 comfortably below, and as always, we must continue to finger the social mood pulse as that, and risk appetites, shape the financial markets.

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Random Thoughts:

  • Janet Yellen whispered about QE3 on Friday which presumably helped the tape (on expiration Friday, no less). I can't speak to its probability, but I can offer that it's tricky (given social mood into an election year) and we must watch for the reaction to that news, which is entirely more important than the news itself.
  • The Transports are up more than 23% in the last 15 sessions, and technical types are focused on TRAN 5K-ish, which is the level where they broke down and the 200-day moving average. Union Pacific (UNP), FedEx (FDX), CH Robinson (CHRW), Norfolk Southern (NSC) and United Parcel (UPS) are the top-five weightings in that complex.
  • Swiss banks are reportedly going to settle a U.S probe of offshore tax evasion by paying billions of dollars and handing over the names of thousands of Americans who have secret accounts. Are you really that surprised given the social mood sweeping the world?
  • I was on a plane last night returning from Florida (introducing my newborn to my grandmother) and landed to find the Raiders thoroughly embarrassed at home. If I was going to miss one game this season, I'm glad that was it-and for the life of me, I don't understand why they didn't sit Carson Palmer given the bye this weekend.
  • Have a good week, Minyans, and remember to breathe.

Twitter: @todd_harrison

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