Editor's Note: Todd posts his vibes in real time each day on
Buzz & Banter
"Fire is a funny thing. We need it to live, cook and warm our
homes, but if we don't respect the power of the element, it can
ruin our lives."
I wrote in 2007 that discussed the potential for a financial crisis
resulting from how banks accounted for their off-balance sheet
liabilities. The sector was a stone's throw from all-time highs and
investor confidence reflected that; the pullback was seen as
(INDEXCME:BKX) tumbled 80% over the next 16 months.
There is a case to be made that the financial crisis of 2008 was a
a confluence of a mountain of credit coming
accounting standards brought into question
and conditioned expectations of upside returns. It was a perfect
storm of sorts; it was one of the nuttiest times in history.
In a normalized world, we would expect another 80 years to pass
before the next crisis. Given our digital landscape-and an
interconnected financial fabric tying the world together with
derivatives-we can't be so sure. The Internet, in addition to being
the most deflationary invention of all-time, has quickened the pace
everything from business cycles to mating
An eleventh hour deal that kicks the can into early 2014 remains
the most likely outcome
in Washington; financial positioning aside, we should all be hoping
that calmer heads prevail.
What happens after, however,
remains to be seen
; the greatest trick the devil ever pulled may have been convincing
the market that Washington is the binary catalyst into year-end.
Once step at a time as we together find our way.
- When I saw the Fitch ratings warning last -do these folks
(INDEXSP:.INX) futures were down 12 handles. A few hours later,
they were up 12 handles. F.U.B.A.R.? Yep.
- The most bullish thing this morning? Nope, not the price
-it's the cover of the
New York Post
. Now, I love the
-it's one of my guilty pleasures every day-but disaster is rarely
front page news before the fact.
- The most bearish thing this morning? The sad truth that
the devolution of social mood
has clearly infected Washington, DC, and as such, the most
logical sequence of events, while still the most likely outcome,
is not guaranteed.
- What remains unknown is how "real" tomorrow's October 17
deadline is; and while it may not be the rip-cord level for
funding, whether that perception will shape reality in the
markets is unclear.
- Back to the futures; my first thought last night, when seeing
that reversal of fortune, is that somebody (big) knows something.
Personally, I would like to see a forensic investigation into
whether folks in Congress directly or
indirectly added exposure.
- The reaction to news is always more important than the news
itself. Through that lens, keep close tabs on
Bank of America
) and the rest of its financial brethren as they chew through
earnings. And yes,
) reports tomorrow; it's always the granddaddy of that complex.
- My big beta complex-which is a proxy for performance anxiety
into year-end-trades firm, with
(PCLN) higher on the session.
- Meanwhile, the
(INDEXRUSSELL:RUT) is trading near all-time highs.
Respect, don't defer.
- I attended a wake yesterday to pay my respects to a close
friend who lost his sister. We often say that there is a massive
difference between loss and
and I'm reminded of that now. Keep the market in perspective, for
this too shall pass.