Don't Get Too Comfortable

 | Sep 15, 2011 | 11:38 AM EDT
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Short squeezes in currencies and bank stocks, if not used to change fundamentally what is going on either through the issuance of eurobonds or equity, cannot last. Once again, Europe is being given a chance to TARP and stress test and issue equity. It is their time to get with the program.

The next 500 points probably depend on it.

We have systemic risk and we have economic risk. It is obvious from the funding problems we just had in European banks (i.e., two banks needing $500 million in funding) that this problem got so dire that they took action.

That's the squeeze.

But it is also obvious that without long-term capital raises that take worries about individual banks off the table, this move can't last.

In other words, we can go down on systemic risk -- that is. the taking out of the lows. And we can go down on economic risk -- that is, bound by the range.

We are at the upper reaches of the range as this move occurs, and if we don't see follow-up we will bounce down from resistance -- hence, why if I have a gun to my head, I would agree with Doug Kass's gun-to-his-head decision that the market will be negative at some point.

If you remove systemic risk, you take off the table the recession that our cyclical stocks have been flagging with their 15%-25% declines. But if you continue with economic risk, you can't go beyond retracing more than half of that move down.

That means to me that unless you want to buy tech (which is seasonably strong) or oil (which is going to be stronger if we aren't going into a recession), you should not do any buying up here.

A lot of this business of opining is about credibility. My near-term credibility of being negative (i.e., wanting to short) was walloped by the surprising answers that Tim Geithner gave to my questions, ones that are still propelling this market. Now that we are higher, I can't love it. Just too inconsistent.

Neutral to negative except tech and oil. Because a big move has now been made when I didn't see it, and I can't come in now and embrace it at this high a point in the range.



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