UBS floor guy Art Cashin has a good sum-up of yesterday’s big selloff.
Things That Go Bump In The Night – The selling yesterday was unrelenting and lasted throughout the day. It accelerated as the closing bell neared as traders feared they would awaken to find the Italian bond and stock market under devastating assault.
Traders chuckled as they watched a variety of pundits and commentators parade across TV screens completely misdiagnosing the cause of the selloff. Several tried to pin it on the 8:30 report of a drop in personal spending. That was like blaming the Johnstown flood on a leaky toilet in Altoona.
As a couple of young traders stared at the screen, shaking their heads in disbelief, I told them of a lunch I had decades ago.
A friend and I had strolled down New Street to the then fabled Eberlin’s restaurant. Founded in 1892, their slogan was “Old on New Street”. We sat at my favourite spot, a table just off the bar. Jack, the affable but somewhat inept waiter took our order, and, as usual screwed it up in the kitchen.
When we sent the order back to be corrected, my friend said – “How can he be so stupid?”
I responded – “Be thankful that he’s stupid. If he were smart he might have your job.”
The two traders listened to the story, nodded knowingly, took one more look at the babbling pundits and, then, went off to trade.
The key point is that the catalyst of yesterday’s eighth day of selling was the fear that Italy was on the verge of imploding – and might do so overnight.
We bounced in the futures this morning simply because it didn’t happen. Italy stabilised amid rumours that Berlusconi was going to announce a program of privatizations and business stimulating tax adjustments.
A further help to the bounce was the fact that Moody’s reaffirmed the AAA rating for the U.S. around 5:30 Wednesday.