The Ten Day War for Financial Markets
Historic times call for historic measures.
I smiled, unsure quite how to the respond. There’s the standard, “Not much, how bout you?” but that didn’t quite capture the spirit of this ten-day stretch. I thought about discussing the monstrous measures currently in motion, but I didn’t have the energy. Before long, I realized I hadn’t said anything. Judging by their reaction, that evidently spoke volumes.
We’re all about the forward lens in the ‘Ville. If anything, we’ve earned a reputation for being early with our observations. “The financial news you need to know before you know you need it” didn’t just materialize out of thin air; it was earned with prescient observations that eventually proved true. We’re not chest-thumping -- that’s not how we roll -- we’re simply communicating our style to those new to our community.
With that in mind, let’s revisit this freaky week, the second straight stretch that redefined the financial markets. Context is important, and there were vibes scribed that warrant attention. Financial literacy is a movie not a snapshot and above all, it’s a meritocracy; like most things in life, you get out of it what you put into it.
Setting the Stage
Upon my return from the Milken Institute Global Conference -- there was a ton of sharp insight offered out West -- we set the stage for the ten-day war by shifting attention from Greece, which received an initial bailout, to the rest of the euro zone, Goldman Sachs (GS), China and Berkshire Hathaway (BRK.A). The market, meanwhile, enjoyed a spirited sprint to S&P 1200 as Goldman tested the all-important $150 level.
The next morning, we asked if 2010 will be a Mirror Image of 2009--first quarter strength followed by serious supply--as posited in our Ten Themes in January. Returning to my roots, I also slapped on a bear costume with hopes of catching some Turnaround Tuesday blues. The market obliged with a 250-point haircut which as we would later learn, was simply an ursine appetizer.
As we readied to hike up the Hump and ECB Council member Axel Weber warned of “grave contagion effects,” we openly asked if Europe Would Order a Code Red. Later that day, with a European meeting looming large and the specter of something seismic hanging overhead, we positioned in front of the ECB and filmed some Random Thoughts on the subject.
We flagged Jean-Claude Trichet's faux pas Thursday morning as the ECB Tried to Avoid Sovereign Debt Contagion. The world wanted something -- let’s call it a reactive-proactive game plan -- but he seemed disinterested, perhaps even bored, when he touched on the topic. Shortly thereafter, we offered our sharp sense that something was seriously amiss less than an hour before the Flash Crash.
On Friday, in an effort to provide clarity amidst the confusion, we chewed through the Reasons and Results of the 1000-Point Plunge and shared our stream of consciousness as we wearily waded into the weekend.
Following the respite -- which wasn't really a respite as we worked wire-to-wire moving MVHQ -- we awoke to a trillion-dollar European Bailout intended to “shock” the “awe” back into the bulls. While it worked to the tune of 400 DJIA points, we openly wondered Will The EU Emergency Fund Work?
The next morning, we marveled at The Legend of Turnaround Tuesday and channeled Professor Jason Goepfert’s vibe that each and every time the market gapped 4% or more, as it did the previous day, it back-filled those gaps (which reside between S&P 1150-1100 and NDX 1925-1850).
On Wednesday, we weighed in on The War on Capitalism and warned of unintended consequences that result from decisions made in the midst of crisis. While high-frequency trading and naked CDS are easy marks -- and for good reason -- they’re already deeply rooted in a system webbed together with 500 trillion dollars in derivatives. In that regard, we must be acutely aware of the potential for counter-party contagion.
Yesterday, I joined the fine folks at Yahoo for three spirited segments on the future of “free” markets -- which can be viewed here, here, and here -- before returning to the ‘Ville in an attempt to Navigate this Historic Juncture. While the tape traded dry for the better part of the session -- and week, for that matter -- we saw late day supply after Deutsche Bank (DB) CEO Josef Ackermann splashed some water in the face of reality.
Back to the Lecture at Hand
We awoke Friday morning to fresh chatter of the demise of the Euro (another notion shared in our Ten Themes for 2010), European bourses are swimming in crimson, sovereign spreads widened considerably (with Portugal (+15%), Thailand (+12%), Spain (+12%), Greece (+11%), and Ireland (+10%) leading the way) and those aforementioned gaps in the S&P and NDX.
We strive to see both sides of every trade and there’s a case to be made for the bulls -- that’s what makes markets; if the last eighteen months have taught us anything, it’s to respect the unexpected. With that said, and as shared in real-time on our Buzz & Banter each session, I’ve been trading around the short side (selling blips to buy dips) with one eye on the gap fillage and the other on the second retest of the 200-day moving average at S&P 1100.
I will simply say this and yes, I’ve said it before. While credit markets are a focus, credit of a different breed -- that of credibility -- is the issue at hand for the markets at large. Faith and confidence in our systems and leaders is paramount, now more than ever; while social mood and risk appetites shape financial markets, psychology and free will dictate decisions in world full of worry.
The question we must ask ourselves is this: given the European Union screamed "ALL IN!" and pushed their chips on the table last weekend, what happens if the market calls their bluff into this weekend? One thing for certain, for capital market constructs around the world, the stakes have never been higher.
Good luck today.
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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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