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How Much Reform Is Priced into the Market?


The underlying catalyst is largely based on what we don't see.


I've learned a few things over the years, some of which are related to the markets but most of which relate to life. One lesson that has yet to make the list -- but is quite valuable in application -- is to never complain about being busy. Much like bumming about making some -- but not enough -- money is a recipe for future losses, stressing about too many "to-do's" has an equally undesirable "other side".

I offer this analogy as I struggle to juggle many hats. My first and foremost charge is to create content for the Minyanville community with the intention of effecting positive change through financial understanding. While I've been in a personal fast-market today -- I wrote most of my MarketWatch column last night in an effort to meet my deadline and had to significantly shift it's shape due to today's headlines -- I tried to scribe vibe to keep ye faithful ahead of the curve.

I won't bore you with the tertiary ramifications of trying to do too much; I've made no secret that when faced with the decision of writing something or trading something, I'll opt for the former in the interest of the collective benefit. Case in point is the sweeping regulatory reform we've incessantly earmarked over the last month. While I didn't fully get in front of that curve, my sincere hope is that others have.

Minyan Craig asks, as it relates to our earlier analogy regarding the 1000-point rally that followed the short-sale ban in the financials, if the upside is already baked into the market cake. My sense is that some of it is; remember, we flagged the marked improvement in sovereign spreads last week and the tape reacted in kind. All in all, the DJIA is now 750 points off the February 5th low, and the market is a forward-looking discounting mechanism.

I will again offer there are a multitude of two-sided risks, particularly given the specter of sweeping CDS reform. Should this legislation fast-track, there will likely be more gains to come, although it will do little to "cure" the underlying disease. If it's delayed -- or worse, turns out to be an empty initiative -- there is significant trap door risk as far fewer shorts are around to absorb the supply that will surely materialize.

Our daily tea leaves assumed an optimistic assumption for the better part of the session and began to fade in the final hour. Breadth was 2:1 positive but is now balanced. The financials tested the top of the BKX trend channel until JP Morgan (JPM), Granny Goldman (GS), Mother Morgan (MS) and American Express (AXP) flipped the downside switch. Beta, mixed for the better part of the day (Amazon (AMZN) and Google (GOOG) have been laggy) has now come for sale. Hey, the four-letter freaks had a heckuva run so I suppose they deserve an opportunity to catch their breath.

This is what we "see." I will remind ye faithful, once again, that the underlying catalyst for the current move is largely based on what we don't.

Some Random Thoughts:


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