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The World's Wildest Reality Show


Seeking the truth between perception and reality.


Sometimes I have to pinch myself to make sure this is really happening; the world's wildest reality show is wild indeed, punctuated by politicians who don't know the difference between a discount rate and the Fed Funds rate. While I'm all about transparency, I get the sense The American Grandstand wouldn't be so grandiose if the boys on the Beltway weren't fixated on the "red light."

As we juggled yesterday's struggle, the tape traversed higher in an attempt to recoup Tuesday's losses. This morning, we awoke to a world awash in a crimson tide after Standard & Poor's and Moody's (MCO) threatened to cut Greece's rating. That pushed the Euro to a one-year low, raising the specter of higher rates in a region reliant on easy money.

On cue, Greece announced they're planning to issue a 10-year bond next week, after the government shares a new austerity package of between €2 billion and €2.5 billion, according to The Wall Street Journal. A successful auction could alleviate angst in the near-term but as discussed in our Five-Step Guide to Contagion, it may simply serve as a Band-Aid on a broken bone.

I was talking to a friend last night and offered, "The writing may not be on the wall but the cap is off the marker." We speak often about how the financial crisis didn't disappear -- it simply changed shape -- and the derivative risks of social mood, the carry trade unwind (watch the dollar) and a litany of stateside issues, as discussed in my Ten Themes for 2010.

Profitability is found in the friction between perception and reality; the question is therefore begged, has the former finally caught up to the latter? While I foresee the inevitable consequences of our cumulative imbalances, I'm humble enough-and seasoned enough-to respect the motivation of cornered and scared animal spirits.

We spoke about this in September 2007,

"Do you remember watching professional wrestling as a kid? They used to stage these steel cage matches, locking two behemoths in the squared circle.

"Two men enter. One man leaves.

"Such is the case in the modern day financial fray as the 800-lb gorilla that is the credit crunch battles it out with elephants in the room that are global central banks. At stake is the claim to fame and new found riches as we unwind the twisted tale of our interwoven, derivative-laden, debt-dependent, finance-based market machination."

That dynamic remains in play, although one must wonder how much ammunition is left in sovereign arsenals. While munitions likely remain -- along with the Howitzer that is sweeping CDS reform -- I can't help but wonder, yet again, if the last bullet will be pointed inward. That's not a pleasant thought, I know, but there's a difference between negativity and reality.

I continue to execute my game plan of "trading around" a short-side bias with a defined backstop above (above S&P 1120) and the intention to "roll my stops" should S&P 1080 break. I'm also aware that my stream of consciousness has been particularly prickly of late, and can't help wonder if that's a building block in the wall of worry or a telling sign something sinister awaits. Take me at my word when I tell you that if I knew the way, I would take you home.

Dude, the 'Tude!

There's been some chatter about the utility of monitoring social mood as a precursor to market moves. I'm not smart enough to fully understand the complexity theories surrounding such seemingly amorphous assertions, but I know in my soul there's some "there" there (just as I firmly believed an invisible hand existed as far back as 2003, before the conspiratorial tag was removed).

Remember when the "Britney-Lindsay-Paris" bubble burst in the summer of 2007? It's no accident that the market peaked shortly thereafter. That may be the wrong analogy but history is littered with similar situations. Was it a coincidence that the steroid scandal broke in the midst of the market meltdown? I think not, nor do I believe "The Great Divide" we're currently witnessing -- Red States vs. Blue States, the Have's vs. the Have Not's, Main Street vs. Wall Street -- will pass without a meaningful move to the downside.

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