...is that the Fed still thinks it's about China
Today's markets should make the perfectly clear. The panic selling came after a report that said Chesapeake Energy had hired restructuring (ie bankruptcy) lawyers.
We don't know how much of that is true, but we know this: It was believable enough for the market to freak out. Shares of the company fell as much as 50%. That says a lot about the market psychology.
The worries in the market this year aren't about China. They're about commodity companies going bust. They're about the economies of commodity exporting countries having recessions.
The Fed seems to believe markets are just having a little hiccup on worries about China. On the weekend, a radio interview with Lacker was entirely focused on China. Kaplan also seemingly addressed nothing but China.
If Yellen in her testimony this week sounds the same tone then it's truly time to panic, because they have no idea what's going on.
The second question
Whether Chesapeake survives or not, we know commodity companies are going to go bust. The question is: Will it spill over to the financial system.
One of the oldest jokes on Wall Street is that 'Citi is always there'. It means that whenever there is a crisis, Citigroup is holding some of the toxic material.
Here is how the market is voting so far.