Marketview: Participant Blind Spots, MS, GE, IBM, HAL, NSC, UNP

• Posted by DynamicHedge
• on December 10th, 2011

Okay, so we got our “mini-bazooka” in the form of an intergovernmental treaty and the 500 billion-euro rescue package.  Markets have stabilized accordingly.  It feels like we are currently in a very comfortable blind spot as the market focuses on the short-term view.  Our blind spot being that a western nation facing a hard default is simply not a part of our reality.  Relatively few people alive have actually seen this occur (last one was Italy 1940).  The fact that we have never seen one occur has nothing to do with the actual likelihood that it does or should occur.  But it may anyways.

Right now, with only a couple notable exceptions, the market is signalling that the worst of the European crisis is behind us.  The very scary details are still very scary and yet time and context play a very critical role in how this all plays out.  Right now everything is status quo, expressed as: “Important people will not let a terrible thing happen.”  This is even what the important people think.  The truth is, as time goes on, less countries will have the ability to participate in bailing out their neighbors.  Or, self preservation will overtake the need to defend the blind spot.  The UK already said no, and Germany is mumbling no under its breath.  Things are objectively DIRE.  The wildcard is the timing.  Does this whole thing drag on long enough that is becomes easier to play accomplice than vigilante?  Look at Japan.  How long have the numbers looked atrocious and unsustainable.  Yet, how many bears have been decapitated over the lost decades by predicting and betting on eminent default?

The Eurozone can’t get out of the mess they’re in.  But if they can stave off the inevitable for long enough and the bears run out of bullets then they can probably have a softer landing and avoid total contagion.  I don’t believe that important people will not let a terrible thing happen, I do believe that people have a vested interest in staying in the comfortable blind spot until we have something to be more optimistic about.  Less attention will be paid to this going into the quieter holiday season and we’ll see where we end up after Q1 2012.  If this is still on the front burner then we’re all in huge trouble.  If it’s off the front burner, then we may look back at this week as a huge momentum shift in the market.

Still, be on guard for signaling: resignations should be treated as red flags not progress, and rising yields should be met with a shoot first ask questions later mentality.

Winners: $MS, $GS, $IBM, $MDT, $PFE, $WY, $MMM

Losers: $HAL, $BHI, $DD, $AA, $DOW, $NSC, UNP

Some mixed signals this week as things did not conform to the archetypal risk on, risk off trade.  Financials continued to get a bid, but so did some safety names.  Energy related stocks and some rails also traded off this week, yet the $TRAN remains fairly strong.  Watch for the $TRAN closing above 5000 as a very positive sign.

Winners:

 

 

Losers:

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