It's about Lehman. It's always about Lehman. It will always be about Lehman. That's what the summit accords were about, that's what the rally is about.
We hear this term risk-on risk-off, something that I am asked about constantly on Twitter (@Jim Cramer). They want to know what it means? What is risky and what isn't?
I think we have figured it out today. It's the idea that a Lehman lurks in Europe or it doesn't. Right now with the combination of the Ben Bernanke dollar put on the banks, the fact that the delevering of the balance sheets seems to be over and that the ECB stands behind the banking system, risk is real off.
I am at DEFCON 3, meaning I am on the lookout for the imminent collapse of a country or a bank. This summit made good on Tim Geithner's promise to me that there would not be another Lehman. In fact, it is almost impossible now because the banks have ample capital to help them from all over the world. No need to go to DEFCON 2, for now.
Now understand, we avoided another Lehman here by forcing capital raises. They are not going to do that there. They are willing to tolerate more leverage and more risk over there. This summit basically codified the right to be ultra-risky because the standards have been lowered by fiat. The summit blessed the notion that these banks no longer have to sell any sovereign debt. The summit blessed the notion of cowboy banking. And, of course, this summit blessed the notion that the bankers are so chummy with the governments that they are going to be protected, no matter how unpalatable that may be to us.
What does this summit accord do for the sovereign debt market? While it doesn't provide buyers, it does limit the selling which could mean that the market will not be flooded with secondary paper when they are offering primary paper. In other words, there won't be forced selling, so maybe rates can stabilize as the countries get their houses in order. You take the Lehman pressure off, you get to catch your breath, put in plans, work with the IMF to develop a backstop.
We will be dealing with this European debt issue for years and years. That's a legacy of welfare states that are being throttled back, but not fast enough to make debt issuance a snap. But the summit did accomplish something. The risk of a Lehman, so palpable that Thanksgiving week, has passed -- for now. That allows us to pay higher price-to-earnings multiples for those companies that are doing just fine. And that's what you see today.