A Dark Knight Descends on Wall Street
Social mood shapes risk appetites.
Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.
It’s an extremely sad commentary; it’s not the type of discussion one wants to have.
As the macabre reality of the Aurora massacre sinks in, we’re left to digest the grisly act where 12 people were killed and 58 were injured during the midnight premiere of the new Batman movie, The Dark Knight Rises.
While one-off madmen are nothing new, this latest tragedy—coupled with last week’s bombing in the resort city of Burgas—is consistent with the direction of social mood in modern-day society and the implications for financial markets may be profound.
The anger among us is familiar to readers in this space. We warned of “a prolonged socioeconomic malaise entirely more depressing than a recession” in 2006 and foresaw the “tricky trifecta” of societal acrimony, social unrest and geopolitical conflict that was to follow on the horizon.
It was one prediction that we wish we missed.
In 2007, the conversation was entirely lighter as the Dow Jones Industrial Average tickled all-time highs and we fingered a trio of social starlets as a cause for pause in the marketplace.
Fast-forward five years and nobody is laughing anymore; homeowners are underwater, pensions are underfunded, unemployment is endemic, and a chilly chasm exists between the lifestyles of the rich and the struggles of others to exist.
The good news—if we can call it that—is that we’re seemingly still in the second stage of our three-phase continuum. While European Disunion is knocking at the door and the friction in the Middle East is palpable, the final phase of our current malaise—geopolitical conflict—has yet to fully emerge.
If every dark cloud has a silver lining, I suppose that would be it.
In the end, no words will soften the blow of what happened in Aurora. There are no guarantees in life and tomorrow is promised to nobody.
We do know this: Social mood and risk appetites shape financial markets, not the other way around—and signs surround anyone who is willing to pay attention.
A three-month short-sale ban in Spanish equities and Italian banks? Déjà vu, Boo! I will draw your attention to the scribes we wrote on either side of our similar situation in 2008, Martial Law for the Markets and Back in the U.S.S.A. Both articles contain parallels that are quite apt in today’s environment.
I held a rapid-fire Twitter Q&A on Thursday night (@Todd_Harrison) where I promised to honestly answer every question. When someone asked where the S&P was heading, I blurted “1250” before I could stop myself.
James Kostohryz wrote that this stretch feels like the “suspended reality” of 2007 when everyone knew sub-prime was a disaster but folks were emboldened by "the reaction to news." I agree with him.
Do I think we’ll see negative interest rates before this crisis passes? Yes, I do.
Do I think that risk assets will view this as a positive? Initially, yes.
I continue to trade surgically with defined risk and a hit-it-to-quit-it mentality, and those vibes will always be shared on the Buzz & Banter (click here for a free two-week trial!).
Germany’s Vice-Chancellor said in an interview yesterday that aside from Greece, “no other” country will leave the eurozone. Geez, I didn’t realize it was a fait accompli!
I remember a time when you could share good fortune with a friend without them thinking you were boasting. Social mood indeed.
Of the 118 companies in the S&P that have reported earnings thus far, 73% of them beat (reduced) expectations, according to Bloomberg.
In terms of today’s releases, Halliburton (HAL) beat EPS and revenues (and is trading lower), McDonald's (MCD) missed on both (it is getting McCrushed) and Eaton (ETN) was in line (but is trading higher as the market chases dividend yields).
- And you wonder why Wall Street is getting a bad rap?
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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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