Guest Post: It's Only A Flesh Wound

From Peter Tchir of TF Market Advisors

It's Only A Flesh Wound

I prefer to quote Shakespeare rather than Monty Python, but the Black Knight scene just keeps popping into my head lately.  We have been in a period of intense volatility, have hit levels on the SPX (1100) that very few people thought we could.  Yet, the perma bulls have been back in force over the past few days. Armed with 5 days of decent performance and year-end forecasts of 1,400 or more, those perma-bulls were out in full force with their usual arguments.

"Transitory", "temporary", "just a soft patch", "decoupling" (I have lost track of who is decoupling from whom, and when that decoupling is good), "contained", and "oversold".  For the past few months, if not longer, the perma bulls cling to every EU plan as an excuse to rally.  Virtually no attention is paid to whether the plan is feasible or if it would even work, it is just assumed to be good and that Europe will finally be fixed.  Any scrap of positive economic data is instantly glommed on to and is repeated ad nauseum.  Bad data is pushed aside or blamed on something - weather being a favourite scapegoat.  Anyways, as I see and read this daily denial of the real problems that still exist, I just keep thinking about that knight insistings "It's only a flesh wound".   

While I am ranting,  I have to admit that I can't stand hearing how  "fundamentals" are good even if the macro picture is weak.  My understanding of the definition of fundamentals must be wrong.  I would think that multiple countries at risk of default, the biggest economies mired in debt, weak banks stuffed to the gills with bad, unmarked exposures, and clear signs of a slowdown with GDP weak across the board, ARE FUNDAMENTALS!  I am not sure when "fundamentals" became defined as last quarter's earnings.  In any case, the global macro picture eventually affects earnings and effectively becomes the "fundamentals", even as defined by the diehard bulls, so ignoring them is a big mistake.

It looks like the volatility is here to stay.  The US is waking up to the weakness many expected to see yesterday.  I did write yesterday that the market had felt "reachy" again and that whoever was selling MAIN at 139 would regret it.  It has moved steadily wider since then and is currently back to 146.  I think many investors will be reluctant to put back on hedges they just scrambled to take off, but if the data (and there is a lot) is bad today, we could get ugly in a hurry, as the market is definitely not oversold anymore.

The other curious aspect to yesterday's news flow was the FED dissenters taking the time to speak their mind.  I am not sure what it really means, but it does seem like they are trying to stop Ben from announcing some big new agenda at Jackson Hole. 

It has been the Euro


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