Friday, February 12, 2010

Cashin’s Comments AN ENCORE PRESENTATION 02.12.10

On this day (+2…..which would be Valentine’s Day of course) in 1929, a group of
executives gathered for a mid-morning get-together. Records do not indicate that
coffee or buns were served. Nor do they appear to indicate that the seven men
gathered around the water cooler (maybe because there was no water cooler).
Anyway, seven top guys in "Moran Enterprises" were gathered in a non-descript
Chicago garage. Suddenly the regulators appeared. In this case the regulators were
dressed in the uniforms of the Chicago Police. So to comply with this surprise audit,
these seven men, men who worked for George Moran Enterprises faced the wall and
raised their hands (a standard audit procedure at that time).

This time, however, the regulators were not police. Rather they were Al Capone's hit
men dressed as cops. Instantly, they began firing Thompson sub machine guns (not
standard audit equipment even at that time) at the backs of the seven gunsels from
"Bugs" Moran's gang. After the initial burst, they checked the victims and put away
any of those still moving. Then they drove off.

From drive-up to drive-off the whole thing took less than eight minutes. The
bloodshed was so bad that one hardboiled reporter, from the Chicago City news,
walked into the garage, and remarked "I got more brains on my feet than I got in my
head". And, he had a big head.
Thus, the event entered American popular mythology as the "St. Valentines

To celebrate attend a Conference on Market Neutral Strategies. But, if some guys
claiming to be from the SEC show up carrying violin cases, try to crawl out the
restroom window.

There was clearly no massacre on Wall Street yesterday – at least not for the bulls.
Greece Graced Vaguely Causing Buck to Buckle And Stocks To Soar – An
announcement from European leaders of a commitment to assist Greece boosted the
Euro and dinged the dollar. That in today’s Pavlovian world sent gold, oil and stocks
higher. It was entertaining to watch pundits on TV trying to invent a stimulus or two
for the rally. A couple even tried to attribute the rally in stocks to movement on
financial reform.

Duh! What would make the Dow rise 100 points, gold jump $20 and oil to move up
nearly a dollar? The answer fairly jumps off the page. It was the pullback in the dollar
– er…..more directly, the dollar basket (DXY).

The relationship between the dollar and other assets is clearly evident by looking at
the minute by minute charts. We presume the pundits look for other causation simply
to fill up air time.

At any rate, the dollar driven levitation in stocks took the S&P up through the first
resistance band at 1074/1078. The rally made it to 1080 before it got winded. The
rally may be showing some signs of exhaustion, however. Next week could be

Greek “Rescue Package” Lacks Details And, Maybe, Commitment – A Bloomberg story this morning points up how
tenuous the presumed rescue package is. Here’s how the article began:

Feb. 12 (Bloomberg) -- German Chancellor Angela Merkel rallied European leaders to help Greece deal with its
debt crisis. She still hasn’t sold her political allies at home on the idea.

Lawmakers from Merkel’s coalition partner, the Free Democratic Party, are threatening to prevent her from
turning the moral support offered by European Union leaders yesterday into financial aid. They’re backed by polls
showing public opposition to such a move.

“Our citizens can’t be expected to pay for the consciously flawed fiscal and budgetary polices of other euro-zone
countries,” Carl-Ludwig Thiele, the FDP’s financial-policy spokesman in parliament, said in a phone interview

The dispute risks deepening the erosion in support for Merkel’s four-month-old coalition, which has slid in polls
amid bickering over bank levies, solar-energy aid and nuclear power. Combined support for three coalition
parties fell to the lowest since 2001 in a Feb. 10 Forsa poll.

Merkel’s clout will be tested if she seeks to go beyond the statement of support for Greece by EU leaders. They
pledged help for the Athens government in exchange for adherence to a budget-cutting regime, stopping short
of agreeing to concrete help.

If a Greek rescue package does evolve, could it bring down the German government? That could send Euroland into chaos
as other governments might freeze up in response.
The reaction in the streets of Athens is another wild card. Will the Greek government be toppled by public opposition to
the kind of austerity that the rescuers would try to impose?

This story is far from resolved. So to is the fate of the Euro. We may be at a rather historic moment.
China Hits The Brakes, Yet Again – China shocked the markets this morning by raising reserve requirements for the
second time in a month. The timing of the announcement may have been based on the extended closing of markets for
the Lunar New Year. There is a risk that the rapid multiple moves to tighten may convey the impression that China has
fallen behind the curve. That could cause problems for markets.

Us, Them And The Other Guy – For nearly a year, we have cautioned that Washington has poisoned civil discourse by
positing much of the discussion of the financial crisis as an “us versus them” issue. It does not serve the common good
and, as I cautioned Carl Quintanilla in December, it could spill into the streets in the second quarter.

In an op-ed piece in the Washington Post this morning, Steve Schwarzman of Blackstone, addresses the topic as it applies
to the banks. Interestingly, the op-ed piece appears to be whipping up a bit of backlash. Here’s a key part to
Schwarzman’s theme:

This country, of course, needs fundamental reform of our financial regulatory system, as I, and many other
financial institution executives, have publicly advocated for a considerable period. But we are debating this
hugely important issue in an inflammatory political atmosphere in which key participants seem determined to
single out the banks for special retribution in reaction to the financial crisis.

Schwarzman then goes on to list a broad variety of sectors and participants who contributed to creating the crisis. The
central thesis, however, is that acrimonious finger pointing is at least counterproductive and may be destructive to both the
economy and society.

Cocktail Napkin Charting – As noted above, the rescue rally 2.0 took the S&P through the first level of resistance. The
next series of resistance levels are a good deal more formidable. The first band is 1083/1088 and then 1093/1096.
Support is way down around 1058/1063.

Next week could be critical as the napkins hint that selling could resume, perhaps with a vengeance.
Consensus – China move sends futures lower this morning. Let’s see if more details show up on the Greece plan. It
remains all about the dollar. Stay very nimble.
Trivia Corner
Answer - The kitchen related six letter word with the two "soft G's" would be "ginger." Isn't that peachy?

Today’s Question - There are 26 letters in the alphabet. There are 50 states in the U.S. A list of the 50 states does not use
every letter in the alphabet. What's left over??


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