We have all heard the saying that the market is like a bug in search of a windshield. Today, courtesy of Peter Tchir we proposed another one: the market is like a child in search of a Santa Claus (and Bernanke will likely be the jolly fat man).
From Peter Tchir of TF Market Advisors
Today felt like one of those family channel movies that come out around Christmas time. The child of parents who are down on their luck asks Santa for a shiny new bike they just can't afford. The parents spend the rest of the movie working extra shifts, selling knick knacks, anything they can, just so the child can get that bike. When even that is not enough, the neighbours pitch in, the people at the bike store help out, and in the end the child gets the bright shiny new bike with a ribbon on it beside the Christmas tree. It always brings tears to my eyes when I watch those movies. I admit I'm a sucker for them. So yes, all Hollywood movies, especially the made for TV kind, end happily.
So what does that have to do with today's market action? Well, just like the child in that movie, the markets are waiting for the ECB or FED or both, or Santa Claus, to announce some new program to stop this horrific decline of a couple percent in the market. Smart money is betting that the ECB, FED, or some other government agency will step up and give us a reason to rally. The data shows that the economy is taking a leg lower. Very few of the 'macro' problems have been fixed. Japan is still spewing radiation. MENA, with the possible exception of Egypt is worse than ever. Killing Osama eliminated one man, only to expose the potential danger from a nation, that we half considered allies while never trusting them or treating them well. The PIGS are back at the trough with their unending appetite for cheaper debt. We are using accounting tricks to keep exactly 25 million under our debt ceiling until at least August 2nd (or whatever date that Tim deems appropriate). Against the logic that things are getting worse and nothing has worked, is the Pavlovian response that governments bailout the markets and it is stupid to bet against a fresh round of stupid intervention. On data alone, the market would be lower, but we are so conditioned to expecting support at every crisis that no one is willing to miss the next rally. We all know St. Nicholas comes on December 25th, and we all know Trichet, Ben, and crew come every time the Dow drops 3%.
Away from the hope that some 3 letter agency will fix our 4 letter problem, there is very little reason to be buying the market here. Well, for better or worse, as bearish as I am, I am forced to be cautious on the off chance that Santa does exist and he, or some magician, pulls a rabbit out of their hat and save us from the current crisis. In the meantime, don't watch the Tin Drum, if you want to keep alive the Hollywood illusion that all gifts are good. Nor do you want to figure out what happened to those parents who worked themselves to the bone to get the bicycle, only to find out that the kid wanted an even bigger present on his birthday next month.
Sorry, for the lack of details, but today felt like an emotional day in the market, and really the first day in a long time that only the hope of government intervention prevented a major sell-off. The last time this much faith was placed in the government, the S&P was dipping below 1,000 in overnight trading. Maybe we have another 300 points of upside from here, but it is hard to believe that history will repeat itself.