The world market panicked today, as everyone scrambled for liquidity. That you know.The question is: do we see a big disorderly crash from here? Clearly, a lot of folks right now think we do, and some have been saying so loudly.
The question is: why?
There’s no major discernible reversal in economic sentiment, and there’s no Lehman (yet).
Indeed, as Mike O’Rourke of BTIG notes, in an evening note on “echo bubbles” and “echo panics,” this is definitely not 2008:
The markets never cease to amaze. A large portion of the 83% rally from March 2009 through April 2010 was referred to as an “Echo Bubble.” An echo bubble is a smaller bubble that emerges during the bounce after a larger bubble has crashed. Investors are comfortable participating in such moves because they see familiar signposts within the prices, news and market developments. We have not been among those who believe the recovery rally was an echo bubble.
Quite the contrary, we believe the U.S. has had many of the same problems post-bust as we had pre-bust. Early on, the re-pricing merited taking the risk and finally acknowledging the problems placed us on a path to repairing them. The selling that is occurring in the equity market today is an “Echo Panic.” Investors see many of the familiar signposts of 2008, such as over-leveraged entities, only today they are governments as opposed to banks. Other occurrences are risk spreads widening, government bailouts, shorts being banned and anti-market political rhetoric. Deflation fears are re-emerging as commodities collapse. There is massive de-risking and a flight to quality. The list goes on, but despite the similarities, this is not Credit Crunch 2.0.
Well, at least none yet. On Wednesday afternoon, Cramer said we should wait for 48 hours to see if a Lehman occurs. If not, we’re in the clear.
By that measure, we’ve got about 15 hours to go…
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