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The Morning After…

May 6, 2010.  Not gonna forget that one!  It was comforting to wake up this morning and see everything in its place.  Once again, nothing really changed.  The world is not fundamentally different than the day before, and sure enough, stock market prices are not all that far from where they were on May 5th (well far is a relative term here…the market still ended up going down a lot, but not all that much in the grand scheme of things).

Several thoughts are running through my head today:

    • Get a solution to Greece.  The ECB has to do something and do it fast.  That does not mean they have to rush into making a rash decision.  There are several options that do not require a total dismantling of the Euro or an outright default by Greece.  The most attractive option I have read about recently was to have the ECB buy up some sovereign debt around Europe and print away part of the problem.  Sure it is inflationary, but so too is the collapse of the Euro.  Each day the price drops farther, the corresponding costs of goods in the Eurozone rise a corresponding amount.  Jean-Claude Trichet: GET IT DONE ALREADY!  This accomplishes several goals, and most importantly prolongs Greece’s ability to come up with real solutions and decisions not made in the midst of an emotional panic.  We all know how poor decisions can be amidst chaos and it takes hindsight to truly reflect and realize our mistakes.  Let’s not let that happen again (no need to rehash Lehman, AIG, TARP, etc.).
      • Let’s get some humans in control of “plunge protection” in our stock markets.  Computers don’t know that Proctor and Gamble (PG) is worth far more than 30% below May 5ths closing price, but humans do.  A real specialist could comfortably step in and prop up those prices and prevent the plunge from happening.  My real frustration with all this is the fact that the “sophisticated investors” don’t get hurt nearly as bad as the retail investor in a frantic frenzy like yesterday.  Retail investors are told to “prudently” place stops below key levels and those stops did nothing but get blown out of the water yesterday.  Weak hands who weren’t all that weak potentially got flushed out of the market without even seeing or knowing about the crater on all equity charts.
        • The selling should be flushed out.  Any weak hands, whether institutional or retail were taken out of the market yesterday and replaced with real buyers.  Yes that sucks for the weak hands, but it seems like when a vertical move happens, the trend reverses (vertical can be up or down, what I mean by that is when you see a big LINE amongst waves, then we’re talking vertical).  Sure the market can drift lower in a choppy way over the next day or weeks, but overall, this could help fuel the next leg of the rally off of our March 2008 lows.
          • I keep wavering in my own opinion of the SLPs and my conclusion ultimately depends on what we learn to be the true catalyst for the selling.  If it was the fearful environment, then the SLPs did not do their job in preventing the bottom from collapsing.  On the other hand, if this were the result of a large erroneous order (I still don’t believe that), then the SLPs did a great job of reestablishing the bid and offer in the mid $112-114 range on the SPYs.  That snap back was vicious and fast, but my issue is that the damage was done.  Not only was it done, but I am 100% convinced that this move was fake.  It was fake.  It was not real, it was fake.

            We have the job number coming out momentarily.  With the lingering fear from yesterday, who knows what to expect.  I’ll be back later today with some thoughts and observations.

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