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Making Sense of the Mess: Eyes Around the World


Watching the tape is like great reality TV.


You can talk about the pit, barbecue
The band was jumpin', the people too
Ah, mess around
They doin' the mess around
(Written by Ray Charles, masterfully performed by John Candy)

Good morning and welcome back to the slippery pack. As traders slide into their turrets for another episode of the world's greatest reality show, Asian markets dominated the overnight action. Shanghai-which we've been watching-lost 6.5% while regional sisters all ducked a deuce.

Shanghai? Ducks? It's a bit early to be thinking about Hoisin sauce but it's never too late to appreciate the ramifications for the global economy. Many pointed to the brave, new world while China climbed atop the perilous perch and now, as it fails anew at 3000, we should keep an eye on it as an important piece of the world puzzle.

So, we've got that. And we've got the funky action in the regional banks-remember, in the recession of 1989-1991, 25% of the financial universe disappeared. Now, during an entirely more severe situation, only 8% has vanished. Toss in the specter of a rate hike, shifting social mood, shrinking risk appetites and the strange sense that I've got a cavity and voila! Wrinkles on the forehead.

Last night on FBN Happy Hour, we were chatting about the RBS Capital Markets warning. I offered that there's nothing wrong with risk management over reward chasing as a central tenet of the decision making process. What I didn't say-but wanted to-was that upside prognostications abound on Wall Street. Why is there such an uproar because someone had the gall to warn their clients to the downside?

To be sure, the sudden rush of concern is, well, a potential concern for the bears. John Paulson chimed in this morning, offering that banks could lose up to $1.3 trillion in the credit crisis (hey, wasn't that about the amount the government has injected?). While I don't like running with the crowd-my column was written prior to the RBS report-I'm not sure there is a crowd. Indeed, the word on the Street is that it's a lot easier to be bearish than short.

Some Random Thoughts

  • The hardest part of live TV every day? The ability to time sneezes to the commercial break. Well, that and massive A.D.D.-ness, as evidenced by the deer in headlights look I sometimes have.

  • Mother? Mother Morgan (MS), put on a brave face late yesterday, planting a seed of hope that the washed out sector could finally find some sponsorship. The entire world is watching those frisky financials and they should be-the chasm between the BKX and S&P will close, one way or the other.

  • Socialization, the backbone of new media, is quickly becoming the cost of entry into the online space. While value is determined by how much someone is willing to pay, my sense is that, much like we saw after web 1.0, technology will evolve and deflate the perceived value.

  • With a conscious nod to the notion that volatility is the opposite of liquidity (and the powers that be flushed LOT of liquidity through the system), the VXO, while up 8% yesterday, is worlds away from previous pain fulcrums.

    Click to enlarge

    Sometimes, pulling back the lens helps put the present in perspective.

  • You think FedEx (FDX) was important yesterday? Think of how telling it will be if it doesn't hold $80.

  • Speaking of levels, S&P 1335 is the June lows and should be on ye radar.

  • We spoke about the long-term Google (GOOG) gap. See the short-term one as well, which "works" to $555 should it begin to spill and fill.

  • Does anyone else feel a distinct sense of relief that Mercury Retrograde is finally passing through?

  • There will be tremendous business opportunities for those that can weather the current storm. If it lasts five years, will you be in a position to do so?

  • FedEx's first loss ever. Lehman's (LEH) worst quarter ever. Is anyone else picking up a theme here?

  • When deflation finally arrives and crude ultimately dives, what type of knee-jerk rally will we see and is it worth playing?

  • Gannett (GCI): average down on my remnant Jan 30 call position or is that good money after bad?

  • Is that a double headed monster in the weekly DJIA?

  • While I used to have more positions than a nymphomaniac at a karma sutra convention, I'm keeping a tight leash on my risk through smaller positions with shorter time horizon. Current schnitzels include Google and the S&P puts, both of which are pure trades.

  • Gotsta hop, Yo. Have a mindful day.


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Positions in SPX, GCI, GOOG
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