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One of the security guys stopped me yesterday to talk about the market. The pained expression on his face said it all. It was a combination of exasperation coupled with befuddlement that our nation can't seem to get it together. He talked about the 2008/2009 selloff and how he didn't sell, but now he's not sure he could handle such a ride again. He was dejected because his gut tells him this shouldn't be happening. He does hear the figures tossed around, the trillions of dollars that went out to so many people and entities but not to him. Why didn't it work? He understands how privileged he is to live in America, and even with the shenanigans of the market acknowledges with pride someone doing his job 20 years ago couldn't afford to invest in the market.

It's people like him that are getting crushed in the effort to transform the nation into a European Utopia. The problem is there is no such thing as a European Utopia and the effort to create one from the nation that has come closest to being a paradise is taking a toll. I left the security guard knowing he isn't going to take unnecessary losses and he might even be willing to buy the weakness, but he continues to fret about our fading greatness. I'm sure many share this sentiment as now people must wonder "now what?" Last night rumors of a TARP-style bailout of European banks made the rounds. Whether that's true or not remains to be seen, but one thing is for sure is that the stress test was a bust and they have no clue in Europe.

So, it's beginning to feel like fall 2008, but it doesn't have to be this rocky. We should fast track a way for corporations to bring money home and get tax cuts for individuals approved ASAP. With Congress sporting the lowest ever approval rating in several polls, it's time for everyone there to exhibit the leadership that goes along with their gold-plated security details and fancy titles. Americans like to be led and like to be wooed, so it's not too late to get them onboard. It can't happen with gimmicks and phony promises. It's not going to happen without admitting some mistakes even if only through a shift in policy. An example of that is the ECB resumption of bond buying, which wasn't vigorous or convincing.

Markets are sniffing out all insincerities. They have become hooked on intervention because there is no game plan for true organic growth that fuels economies and calms markets. I suspect the ECB will send a clearer, more convincing message to the markets beyond small purchases that amount to lip service. That brings us to the Federal Reserve. It hasn't been that long since the Fed put quantitative easing to bed even as pundits and doubters said there would still be QE3 and/or other forms of accommodation. Will ego make them hold out what is now inevitable? Is Bernanke so prideful as to take a page from Trichet? I don't think so, but Ben Bernanke is from that too-cool-for-school camp that says never let them see you sweat.

I haven't forgotten how far behind the curve Bernanke and the Fed was in 2008 and their game of catch up and innovative gimmicks, while helping, were far later than they had to be.

We are talking about Fed easing, which in my mind is only a treatment as the cure has to come from the fiscal side of the equation. We must unleash the economy before it's too wound up in self-doubt.

Invictus


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Yesterday I interviewed Peter Rose, CEO of Expeditors (EXPD), which recently posted record numbers but missed the Street by two cents and the stock has been under pressure since. To say he was pissed would be an understatement as he began the interview by throwing the CEO public relations handbook out the window, telling me his reaction to the Street's reaction was "WTF." It was refreshing to hear someone speak from the heart. He says he doesn't know if there is a global recession but his company is not in recession.

In his earnings statement he had the following quote: "We may not be able to control the direction of the wind in the overall market, but we think we've demonstrated over time that our ability to safely navigate the churning oceans is all in how we set our sails. Even with the global economic and political storms swirling around us, we must ultimately accept that we are the captains of our own destiny." I say Amen. The government controls policy and the Fed controls the cash, but we can still control our destiny. I applaud people that are fighting back and even in the face of huge odds want to preserve the nation's greatness.

I must say while we had a lot of people that wanted to throw in the towel yesterday we had more that were eager to buy weakness. I think individuals are standing stronger than institutions right now. That's because institutions get the real breaks and bailouts and in the process, have gotten soft. In Europe, there is talk of bailing out banks, again, and yesterday the Bank of New York actually told institutional clients they would have to pay for having too much cash in the bank. It points to the ease these behemoths have to move money into a foxhole and watch the rest of the country melt.

They say you can't fight city hall, so fighting the White House would seem an impossible task. But, maybe that's what it's going to come down to. Washington itself reminds me of Pandemonium, that special meeting place for Satan and his followers in Milton's Paradise Lost. He and his followers waged a war on humankind, and eventually coaxed Adam and Eve into disobedience, and that led to their fall from grace.

Take care not to be manipulated by the wrong things and take the wrong action. I think stocks are cheap, although there is a proper sense the economy is weaker and not gaining traction. It has always been difficult to model value in a declining macro environment. Couple with intangibles like consumer confidence and the lack of leadership adds more variables to such a task.

The Chart

The S&P 500 smashed through its 200-day moving average like a plunging asteroid. Maybe 1,180 would hold in a continued selloff, but at this point charts aren't very helpful, yet. On the upside, there could be a move toward 1,270 and we'd still be upside down and vulnerable.


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Europe

Morgan Stanley put out some great numbers on Italy today which illustrate the serious threat it poses to the rest of Europe.

Italian Job

  • €157 billion in paper due this year; the peak is September where €46 billion is due
  • €277.4 billion is needed for 2011; so far 65% raised; needs another €147.4 billion
  • 47% held abroad
  • €3 billion added with each percentage increase in yield for the first year, twice that in the second

Italy has the second highest debt to GDP ratio in Europe (Greece has the highest) and poses a problem substantially larger than Spain. There are so many interested, yet unconnected parties, involved in the would-be solution one has to wonder if the continent is more separated since the advent of the euro.

Source: Europe: Paradise Lost