Random Thoughts: Debt Ceilings vs. Stock Floors
Kicking off a fresh five-session set.
Greetings from Minyanville HQ, where I'm back at my turret after filming the opening bell from the floor of the NYSE with the fine folks at Bloomberg.
While the red light was "ON AIR" this morning, I could hear an audible sigh of relief emanating from the market-makers on the floor. As the opening bell tolled and stocks rallied, I opined to the Betty Liu -- the smallest of the Liu's -- that we would see a "press lower" this morning before the true tenor emerged, and that's precisely what we're seeing now.
While there is a lot of trading left today (this week, this month...), I'm reminded of a recent column, Will the Fed's Last Bullet be Pointed Inward?, that offered:
"If we can agree that the last bullet in the Federal Reserve arsenal will be pointed inward, wouldn't that be triggered by a crisis of confidence? And wouldn't that start with a negative market reaction to intentionally placed "positive" news?
This isn't a vibe for today, per se, I'm just putting it out there. The Bernanke Put is a walking, talking contradiction. It will arrive if the economy falters, but the economy won't improve without stimuli (or, it hasn't yet, despite oodles of infusions).
The definition of frustration is doing the same thing over and over again and hoping for a different outcome. That also happens to be the definition of "stuck." As employment and housing continue to flounder, folks are waking up to the fact that there's the market... and there's an economic reality (inflation in things we need like food, energy, education and deflation in things we want in items such as laptops, plasmas, cell phones).
Bottom line: Policymakers have a "God Complex" and the simple truth is that nobody is bigger than the market. It's clear that they -- and "they" includes European policymakers -- won't willingly give up the ball. The market will have to take it from them."
Last Thursday on Bloomberg I offered that our forward-path is a function of sequencing, that we would not default, we would see a debt downgrade, and there is the matter of those black swans swimming across Europe. The order in which that played out, I offered, would be paramount to our forward financial path and the reaction to news, as is typically the case, would be more important than the news itself.
When we juxtapose the technical metric against this thought process, we see an upside window (if we power through last week's highs) which "works" 100 handles higher in both the S's and N's, as well as a few lines on the downside -- S&P 1285 (the 200-day moving average, or "right here, right now) and S&P 1250 (the bottom of the 2011 range). A breach of either or both of those downside levels would support the "bullet" thesis above; the ability to hold (those levels) keeps the upside patterns in play, if and when.
I do believe the market is pricing in a US debt downgrade. It's called a process of price discovery, not a "point" of price discovery.
I am seeing businesses "cover up." From lay-offs on Wall Street to the (perhaps-more-than-usual) seasonal summer slowdown, business (and money) managers are erring to the side of caution.
Wasn't it Lawrence Jameson who famously said, "To cheat is European, to get caught is American"?
For all ye faithful curious about Crash, I'll communicate that he's slowly edging back to his normal nutty self.
Thank you for saying "Yes," Jamie; I am indeed the luckiest man alive!
S&P 1250-1350: Mr. Valentine has set the price. Remember that it's a context not a catalyst, but be aware of the field position, as well as the reactive nature of confused masses.
One step at a time, and let's make sure they're made on solid footing.
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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