Guest Post: Dazed, Confused And Ditto

From Peter Tchir of TF Market Advisors

Dazed, Confused And Ditto

I could largely take yesterday's piece and insert it here.  Credit weaker across the board.  Stocks doing okay.  Yesterday's almost 40 point rise in the SPX was only able to get IG16 to tighten by just over 1 basis point.  It is wider, but tentative today as so many got hurt yesterday when stocks kept going higher. 

The major change since yesterday is that European Sovereign debt has joined the sell-off party in credit.  Nothing major as of yet, but they are finally pushing higher in yield terms as even the ECB might be running out of powder?  Gold moved down yesterday, which was a bit inexplicable as the hope of Jackson Hole and more printing was part of the reason for the stock market to rally.

Other reasons for the rally yesterday were the FDIC report.  I am not sure the data was as rosy as the optimists thought it was.  If all 865 banks on the "problem" list defaulted, the "problem" list would go to zero.  I am not so sure that is worthy of celebration.  But, just like the unemployment rate, where no amount of banging the table about low participation rates keeping it down, does much to temper the bullish urges, this data is out there and priced in (even if incorrectly).  It did seem as though the market bounced on rumors of BAC being saved by JPM.  Asides from bringing back memories of 2008 where rumours of banks saving each other ran rampant, it just doesn't seem credible.  Forget all the anti trust issues.  Mr. Dimon is not going to buy the BAC/MER/CFC without a cap on litigation liabilities.  I just can't see the government providing that.  The taxpayers would be suing the banks, but if they won, they would be getting paid by themselves above some set amount.  Maybe I underestimate the ability of the government to miss such obvious details, but no way does JPM buy BAC without a cap on all that litigation.  But for those in denial that this is more like 2008, the fact that bank merger rumors are back in vogue is another sign.  Also worth remembering, is Lehman had from March until September to shore up its capital.  They allegedly even turned down deals during that time as not providing good value.  They were on TV, seemingly non stop, during that period.  It all seems so 2008.