The 12 Best New Insights From Wall Street's Sharpest Minds

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Photo: Stephen Chernin / Getty Images

Earnings season kicked off this week.  But overall it was a pretty quiet.Spain was downgraded by S&P to BBB-, which is one notch above junk status.

Some U.S. economic data pleasantly surprised to the upside: initial jobless claims plunged, consumer sentiment surged, and inflation expectations dropped to a multi-year low.

Meanwhile, the best economists and analysts guided us through these persistently uncertain markets.

Jim Bianco Has A Surprising Theory For How Mitt Romney Is Tanking The Market

The most interesting comment came at the end, when he talked about the fact that the markets have been falling ever since Romney started surging in the polls after the debate.

Our assumption was that this was a spurious coincidence, and that the market doesn't have anything to do with Romney. The most interesting thing, we figured, was that it at least flied in the face of the idea that a Romney win would be much better for the market, and that thus the Romney debate win should have been bullish.

But Bianco was insistent that there was an explanation. A Romney win would mean Bernanke out, and a likely much more hawkish Fed, perhaps helmed by monetary economist John Taylor, who has been a big opponent of QE.

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Dylan Grice Is Watching Three Developments Very Closely Right Now

Inflation expectations -- Grice is concerned about the monetary easing being conducted by the world's largest central banks right now. His fear is that they could lose control of inflation -- and if they do, Grice said inflation expectations are the first place he thinks we will see signs of that happening.
The fragile social situation in Greece -- Grice cited the rise of the right-wing extremist Golden Dawn political party and its harassment of immigrants as especially worrying. 'What's chilling,' Grice said, 'is that the police are turning a blind eye.'
Rising tensions in Iran -- Iranians are becoming frustrated with the loss of purchasing power they faceas Iranian president Mahmoud Ahmedinejad pushes inflationary, easy-money policies. Grice said those policies are always the result of desperation on the government's part.

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JP Morgan's Tom Lee: The Bankruptcy Purge Of 2012 Is Mega Bullish For US Banks And Housing

'But a tailwind is building in 2013, in our view, which is the resetting of the credit scores for millions of Americans. The peak year of personal bankruptcies was 2005 and those records are removed from credit reports after 2012. Thus, beginning in 2013, we should see rapid improvements in the credit quality of millions of Americans.'

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ART CASHIN: A Close US Presidential Election Could Lead To Riots In The Streets

'The feeling was that the nation is so tightly and tensely divided that a close election could well inspire challenges to its validity.

Those challenges might take the form of an almost endless series of court cases like Florida in 2000. That could delay swearing in the President or some Senators or Congressmen.

But, the challenges might not stop there. The FoF discussion worried that the challenges might spill out into the streets, perhaps starting as demonstrations and quickly devolving into riot-like occasions.'

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JEFF SAUT: The Bears Always Forget One Thing

'This morning, however, such worries, combined with Iran hostilities, the Syria/Turkey situation, a slowing economy, the presidential election, the fiscal cliff, and talk of a double-top in the SPX, are all coming together, leaving the pre-opening futures off 7 points. What the bears fail to realise, however, is that in the short-run there is not a linear relationship between the fundamentals and stock prices.'

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DAMODARAN: There Are Two Types Of Investors – Orioles Fans And Yankees Fans

'Aswath Demodaran, the legendary NYU finance professor, ponders why Baltimore Orioles' fans are so excited their team has made the postseason, while New Yorkers are rather ho-hum about the Yankees' seemingly perennial inclusion--and relates this to stock movements.

His conclusion: what is true for baseball fans is true for the markets -- responses are not dictated by performance, but rather, by performance relative to expectations.'

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GOLDMAN: A Significant Tax Hike Is Coming, And Neither Party Is Even Talking About Stopping It

'We are surprised that neither party has seriously challenged the case for near-term fiscal retrenchment. In particular, the expiration of the $126bn payroll tax cut (1% of disposable income) is almost universally accepted. This expiration alone is likely to shave 0.6 percentage point from 2012 growth on a Q4/Q4 basis--the same order of magnitude as the estimated boost from QE3--at a time when investors are lining up to finance US government expenditure at a real 10-year yield of -0.8%. '

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SocGen: The Spain Downgrade May Lead To 'Widespread Selling Over The Coming Month'

'Even the prospect of seeing the two major agencies rating Spain below investment grade will lead to widespread selling over the coming month,' Societe Generale rates strategist Ciarán O'Hagan wrote in a note this morning.'

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ROBERT SHILLER: My Experience Naming My Son Is A Great Example Of Why It's So Tough Predicting Bubbles

RICHARD RUSSELL: Here's How China Plans To Take Over The World

'As the dollar declines in purchasing power, it will begin to lose its international reserve status. Foreigners will begin to avoid the US dollar. At around that time I believe the dollar will face growing competition from the Chinese yuan. To make matters more difficult, I believe the yuan will ultimately be partly backed by gold. This will be part of China's plan to take over leadership of the world.'

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KIT JUCKES: 'The Debt Super-Cycle Goes Into Orbit'

'I settled down with IMF's World Economic Outlook and have chosen two charts from it. The first shows public sector debt in advanced economies as a percentage of GDP, still rising sharply and now homing in on the historical mid 1940s peak. The expression 'debt super- cycle' was coined by the Bank Credit Analyst back in the 1970s. I thought that 2008 would bring this super-cycle to an end but it has been kept alive by switching ballooning private sector debt for even faster public sector debt growth. The quid pro quo is deteriorating sovereign credit quality in advanced economies, as well as negative real rates and central bank bond-buying. It's a recipe for a secular bull market for EM currencies that is interrupted by sporadic fears of return to recession.'

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DAVID ROSENBERG: This Is The Defining Chart Of The Ongoing Economic Crisis

The key chart which he sees as representing this moment?

This chart: Household net worth changed compared to five years earlier. This is what has made this decline unlike anything seen before, and it's what represents real pain for households.

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BONUS – DAVID TICE WARNS: THIS IS LIKE 2008 RIGHT BEFORE THE MARKET CRASHED

'I tend to be very, very early,' he said. 'This really seems like it seemed in early '08. Remember, in September '08 after Lehman went down, it wasn't until October and November until the market started crashing.'

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