Bears, Own Up to It

 | Mar 19, 2013 | 6:00 AM EDT
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It's not that the market won't go down. It will. It's not that the market isn't treacherous. It can be. It's the lack of recognition that something different is happening -- something different and better than what's been before -- at least when it comes to Europe.

Look, I have no doubt that, when the banks open in Cyprus, it's going to be ugly. I am sure some people will pull money out of Spanish or Italian banks. But what bothered me Monday was that, of the people I heard or read, no one who had feared a big collapse off the Cyprus news was "impressed" by the action. It was almost as if people were disappointed by the lack of panic -- as if, somehow, they hadn't learned their lesson about how bad things can be.

The problem is, maybe they have learned. As has been written most eloquently by friend Peggy Noonan, the Wall Street Journal columnist, we are all tired of being scared. She was referring to President Obama as scaremonger-in-chief, which he most certainly has been about all things Congress and the budget. By the way, the liberal New York Times columnist Paul Krugman agrees with Noonan about this -- the scaring, albeit not anything else that I can tell.

I think that, as investors, we aren't just tired of being scared by U.S. politicians here. We are tired of being scared by the ministers overseas, particularly given that our companies have done much to break the linkages by which they used to be hamstrung. U.S. banks have pulled back dramatically from their European exposure. Sure, Citigroup (C) and JPMorgan Chase (JPM) maintain a presence, and Goldman Sachs (GS) is active in the capital markets. But none of these firms can swing around the capital they used to be able to do, courtesy of Dodd Frank.

JPMorgan is chastised by the "London whale" and has cut back exposure. Michael Corbatt, the new CEO of Citigroup, has point-blank said he's backing away from unprofitable markets, which no doubt includes some of these obscure places that are nonetheless potential trouble spots. Yes, Morgan Stanley (MS) has some exposure, but the new Morgan Stanley is largely a brokerage house.

While we all want to spot weak links in the system, do you think AIG (AIG) is still insuring financial instruments over there? Do you think our insurers are buying big chunks of European bank debt? Maybe some, but it used to be the staple, and I think they have learned by now, much as I believe the money funds have learned. Again, though, there are outliers.

We neither need to fear as much as we used to, nor should we fear as much as we used to.

Now, the story's not going to go away, because the incompetent European bureaucrats aren't going away. They still haven't rolled back the second interest-rate hike that was put through by former European Central Bank President Jean-Claude Trichet. The Europeans also haven't really addressed their banks in any systematic way, unlike what our Federal Reserve and Treasury have done. They let this Cypriot banking travesty happen right before their eyes, in slow motion, over many years. I mean, they do have regulators, don't they?

But, in the end, after the money's pulled out and the panic runs its course, do you think rich people will want to be in euros? Or will they want to be in dollars and benefit from the rise in the greenback?

Again, as I keep pointing out, I do not like the tape. I can't believe how many stocks have gone straight up. I do believe interest rates are going to surprise to the upside. I know the media will make the most of the riots I expect Thursday in Cyprus. I know that, if there is a line at a Spanish ATM, it will be filmed and broadcast around the world.

But, as I have often liked to point out, on Monday the market did not do what the negative people said it would. It was not crushed. It was resilient. Heck, it was even up nicely as one point, as nutty as that is.

Nevertheless, to the bears I talk to, that strength meant nothing. Nothing at all. Every negative person I saw or read simply said, "Just you wait." I don't know a soul who foresaw a market plunge who said, "Gee, that was impressive. Didn't see that coming." It was as if the rally from the lows never happened and the lack of a "promised" 2%-to-3% decline meant nothing at all.

That's just plain wrong, especially considering how much was done to scare people out of their wits for the last 24 hours. Calm is one man's victory, but it's another man's defeat. Either way, one should own it -- not shrug it off or ignore it as if it never happened.

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