Remain Calm! All is Well!May 10, 2010 Posted by: Joe Morgan, CFA
I fell in to a burning ring of fire
I went down, down, down
And the flames went higher.
And it burns, burns burns
The ring of fire
The ring of fire
- Johnny Cash
OK, perhaps things are not as bleak as a "burning ring of fire," but positive price action over the last few months has reminded me of our title's famous line issued by Chip Diller as pandemonium ensued at the homecoming parade in "Animal House." It was time for a correction.
The infamous "fat-finger" trade on Thursday that drove the Dow down nearly 1,000 points was a pure blessing for both BP and Greece in terms of PR. In a quick scan of Barron's over the weekend, I noticed too many articles beginning with the phantom stock market drop as their lead (Barron's is not the only publication to fall victim to this, to be sure).
In fact, it wasn’t until page 56 — buried well in the back of the paper — that BP was even mentioned. But until Thursday, Greece and the gulf oil spill were the only stories being discussed.
Now, thanks to Mr. (or Mrs.) Sausage Hands, investors actually feel some relief, even though we find the Dow off 628.2 points or 5.6 percent for the week (to a 2-month low), implied volatility up some 80 percent to 40.95 for the week (a 13-month high), 10-year bond yields down 23 basis points for the week to 3.43 percent (a 5-month low), the euro down 4.1 percent for the week to 1.2755 (a 14-month low) and ... well you get the point.*
It's amazing what a little mistake can do to change perceptions.
In a day or two when everyone has forgotten how ridiculously easy it must be for Ivy League-educated, Wall Street power brokers to type a "B" instead of an "M," my guess is most of these markets will retrace a significant portion of these moves — except perhaps the euro.
No, unfortunately, there is some real uncertainty around the larger economies there as to whether the healthy ones can (and will expeditiously) bail out the unhealthy. Too bad there is no monetary institution that could simply force a merger with JP Morgan or perhaps Germany (yikes!).
Turning to the stock...Read More