Stock Market

Today's tumble left the SP500 down at 1400. As I have discussed,
the auditors have arrived at the banks and internal audits are
in full swing at the investment banks. The pressure will be on
to make a clean breast of the CDO mess, including reserving for
likely future losses. The trick here is to recognize the heavy
losses, but not be stupid about it. That is, as the soon to be
arriving regulators and examiners will point out, spread some of
the pain out over time to soften the blow to capital adequacy.
Consumers are also reading over their home heating bills for a
chilly December and are paying more at the pump. Folks will need
a month or two to sort out priorities and look for ways to
conserve and save. The economists are throwing stimulus plans out
there and the economy will likely take center stage in the
presidential races as the pretenders pander away with growth
programs. Bernanke will face sharp questioning at the upcoming
Humphrey-Hawkins testimony as a Democrat Congress berates a Bush
appointee. And, Sweet Jesus, the media, they'll play it all up
to a fare thee well.

The market is rounding into a tradable oversold, but the emotion
level is cranking up not just on the Street, but across the land
as the media happily scares the crap out of people with a drumbeat
of negativity.

My guess is that the swirl of negative emotion about the economy
may not exhaust itself for another two months or so. This means
continued volatility for a spell and the pressures on trader and
investor discipline could be intense. The folks who succeed in this
pressure cooker are the ones who keep their cool and force those
wily and powerful emotions fear and greed into the background. Gird
up, as the legion of thumbsuckers and pantspoopers may still be
growing.