Yawn

Amazing how one gets used to market volatility. Two months ago, today would have be a huge volatile date with the Dow swinging over 150 points from bottom to top. Now it is like, is that it? I have spent most of my day reading and thinking which is how I like to spend my day. I am by no means saying this is going to happen and only a fool would try to predict one but you have a set up for a huge collapse in the markets tomorrow. Let's say on any given day the chances of such a collapse are .001% or something. Well tomorrow my guess is that it is 5000 times that. Maybe 5%. (Defining it as a 3% + decline in the three major indexes) You have had a pretty weak rally today that if you dig into the numbers was not really a rally which is a pathetic follow through from Friday. You have Capital One bringing the mortgage mess back to the forefront after the bell and the apparent run on Countrywide continuing with no economic news coming out to direct the attention elsewhere. The Treasury Bill offering today showing that the fear in the market is still rampant with it falling the most since 1987. Three-month Treasury bill yields have fallen to 2.40 percentage points less than the London interbank offered rate, from 1.74 percentage points on Aug. 17. The "TED" spread, as it is known, is larger than after the 1987 crash. People are supposedly fleeing money market funds (something I did two weeks ago). Would not bet on it, just think the odds are much higher than normal. The supposed calm you see in equity prices is currently acting like smoke and mirrors if that is all you are looking at.

Oh one interesting thing I read today was that the consumer sentiment numbers are already below where they were right before the last two recessions.

Moody's was down 8% today. This is a name I have been short for awhile. The rating agencies are in trouble. They are playing catch up left and right trying to regain their credibility. Appears pretty shot to me. James Chanos (the Buffett of the shorting world) has been short this awhile. Of course Buffett has been long the name. I previously argued that I thought Chanos was probably right in the short term and Buffett was right in the long term. Not so sure about that anymore. The rating agencies are going to have a hard time regaining their credibility after all this is over with but their moat may be expansive enough that a better alternative may not emerge. Obviously Chanos was right in the short term, we shall see if Buffett will be right in the long term. I definitely am not going to bet against him.

Speaking of shorting I plan on doing a whole post on this. Several people have asked me about it recently. The way I look at shorts is totally different than the way I decide on what to go long. You cannot short on valuation. You will get killed. My shorts are all theme and event driven or some special something that will change the market's view of a name. This compared to my longs which are extremely quantitative in nature and where I obsess on cash flow. Anyway another post for the next couple of days later.