Lots of Volatilty (Not Enough Bandwidth)
After an hour long delay on the tarmac at LaGuardia, I arrived in the wilds of Maine to find a) no connectivity and 2. the party in full swing at the lodge.
Its a pretty mixed crowd, with a few bulls but more bears than one might expect. The overall take was a mix — some believe that this too shall pass, while others await a replay of 2008.
I am away from the noise machine that tries to explain this, but what little I heard tried place the blame for this sell on a few of the usual suspects:
1. Europe: The problems in Europe were extremely well known prior to this week. For those who want to blame the whackage yesterday on the continent, why now and not 6 months ago? Nothing has changed, the PIIGs are just as insolvent as they were then.
2. QE2: The end of the Fed stimulus plan was known to the day. No one can are suprised that June 30th came and with it, went QE2. Yet that seems to be another non-surprise surprise.
3. Debt Ceiling Crisis Averted: No one Wall Street really believed that DC would allow this to go bad. The ugly partisan, “country second” approach might have been painful to watch, but a deal got done and there was no default and no downgrade.
4. Slowing Economy: We have now had several months of data that suggest economic activity is slowing, but not sufficient weakness to guarantee a recession. The pricing in of a weaker economy and softening earnings is a viable rationale, but I am hard pressed to explain why it finally took this week for investors to recognize this.
All of the above are Après moi, le déluge — excuses for what pundits cannot easily explain.
I am away from the data that would help me validate this, but the one aspect of these markets that leap out to me is that a major sell off such as this is rarely a one off.
This is a warning shot across the bow, and a 15-25% correction is now increasingly likely. Adjust your risk parameters accordingly.
NOTE: I am doing a quick Bloomberg TV hit at 7:30, pre NFP.
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