Via Peter Tchir of TF Market Advisors
I have been very bearish. I fought some strong moves up. I argued why certain things wouldn't work - and by certain things, I mean everything the politicians out of Europe said. I'm not planning on being long for long. On the other hand, rarely have the technicians been so right. They all have said 1120 was support. If we bounced at 1130 or had overnight trading down at 1100 they just ignored that. Well almost everyone said if we broke 1120 we were going to 1080. The fact that we got there in an afternoon, with a bit of help after hours seems too good to be true.
Europe is fracturing, but France, without a doubt is still pushing for a solution. European co-operation weakens with every uptick in the market, but seems to strengthen with every downtick. It just feels like we are due for a bit of a short squeeze scare (or at least something that encourages new weak longs now that these are flushed).
The data has been marginal, but not horrible. When we were at 1200 on SPX I couldn't understand how anyone was willing to pay that given the data. At 1090 I think we are still too high, but am willing to listen to some arguments.
BAC was a disaster again today in terms of stock. I keep thinking that they never guaranteed Merrill Lynch debt. Why they merged the BofA securities unit into the Merrill Lynch name is beyond me, but with FHA, the lawsuits against MER and CFC that dwarf FHA's direct BAC lawsuits. MER also had bigger payments from the AIG bailout than BAC got. With renewed focus on the legacy mortgage business, it seems like there is a chance BAC could figure out a way to ring fence the losses. I would be more confident if they had made the decision to keep the less appealing, but safer, BAC Securities Inc. name, but no point crying over spilled milk or CEOs who made 10's of millions for making bad decision after bad decision. It just seems like there are things that BAC could do to protect BAC shareholders that aren't being given any value right now.
Then there is Morgan Stanley. I do believe there is something behind the scenes causing the big moves in the stocks, bonds, and CDS, but that it is more likely tied to principal investments in China, than exposure to European banks. But, there were people yapping about 1 year CDS, who can't spell inverted yield curve. Where there is smoke, there is often fire, but things rarely fall apart this quickly either, especially when too many people with so little credit experience are all trading based on the lack of information. There are clearly people being told to get out of MS risk and reduce notionals. They are paying 600 bps to buy 1 year protection, because all they can lose is 6%. They know that if they pay 530 to buy 5 year CDS, that they could lose 25% of the notional if it all goes back to normal. Flat to inverted yield curves are a bad sign, but rarely does it happen over just a couple of days, especially with financials who in this day and age have so many "alternative"/"fed based" sources of liquidity.
So I finally got a bit long. It scares me to death. I bought some HYG and XLF and covered all my SPY short. Couldn't decide on DAX. I will be very careful, only bought the things I think could have the biggest short squeeze bid tomorrow, and I do remember that we are only 30 points lower than we hit last Monday. 30 points is rounding error in this market. But we were also at 1185 just a week ago. I'm playing around for a quick bounce. I might be being too cute, but too many of the moves seem ripe for a rebound. I do think, as some smart commenter on ZH pointed out, that 1120 is now resistance rather than support.
Good luck, and thankfully I went against my mother earlier today and sold 1125's :) Remember when 40 points in the SPX actually meant something? Maybe the governments, and the central banks should step out of the markets, stop manipulating every tick, enforce some of the existing rules, stop bowing down at the altar of algo trading, and work on creating a market that humans can understand and take risk in and build for a future.
And I can't help but mention that BRK/A hit 80k back in 1998. It is at 105k right now. That is a 30% total return in more than 13 years. No dividends for shareholders in that time. In that time, every word he utters is broadcast widely. Governments do as he says. Investors pile into his trades after he is already long (only employees get to front run). He owns rating agencies, but then publicly comments on what things should be rated. With all the advantages, the returns, frankly, don't seem that great. Are we as a country, ignoring some people, who may not always be bullish, but at least have been right more often than not in the last 10 years? As a business and a country we should be looking for other oracles, and some of the best out there aren't always positive, but maybe that is what we, collectively need, a harsh dose of reality.