The T Report: 1,000 Acts of Kindness

I have grown addicted to. Twitter. I find it a useful source of information – I’m not supposed to say rumors, but those too. Having said that, if all I knew about the hurricane came from twitter I’d be curled up in my basement in a ball sobbing and lamenting the collapse of civilization.

In CT, we got hit harder last year by two storms, but that’s not the point. Its the 1000’s and even millions of act of support and kindness that strike me. Neighbors helping each other, or even just checking in to make sure people are safe. But best friend, do everything together neighbors, just people who live near by. People spending a bit of their time helping someone. Offering people  place to shower if they don’t have water. So many little things, but things that to me represent what made America great. It seems sad sometimes that it takes disasters to bring people together, or that too often politics (and the Fed) forget that Americans are great at battling adversity. When something is thrown at this country, it has been able to deal with it. Sure, some government support is useful, but ultimately it comes down to the people and their drive and determination. In any case it was nice to
see the “participation award” culture disappear even if only for a day or two – though with election night less than a week away we have a firm deadline for the return of rhetoric, hyperbole, and vitriolic blame games.

While on the subject of hurricanes, I didn’t think it would mean much to the market. So far that looks correct. I don’t see natural disasters like this being positive – not a fan of broken glass. It will shift some wealth – wealthier people tend to pay less wealthy to fix things, insurance companies dip into their coffers to distribute some wealth to make payments, and even Keynesians are rewarded as debt burdened governments borrow more to do their part. The wealth shift can be mildly positive as it circulates some savings into the economy, but it is more of a shift and drags activity forward. Away from that, it is slightly disruptive since the somewhat random nature of a disaster is hardly likely to lead to optimal capital utilization. It’s great for my wood guy that I have to spend a few k on damage cleaning, but not ideal for me. For every city spending money on clean up crews,
that money likely would have been better spent on a specific (non pork barrel) project than this.

Looking for opportunities. So far, with home depot up 3% that looks like a short. If insurance companies get hit hard, it’s probably a buy. Not only is this affecting only a small portion of the country, it is more of a shift in business/income timing not a permanent sustainable change.

Europe

This is the key and Italy is in play. Greece had been a buffer for Spain. Greece is a shambles. No matter what bizarre choices, or non-choices, the Troika makes, it is clear that Greece needs one more default/restructuring to have any hope. In meantime, time is running out for Spain to make a request for ECB and ESM money. The programs are in place but have many moving parts and the delays are making it hard to hold together in a way that can generate meaningful help for Spain. While Rajoy does what Rajoy does (and I’m not sure even he knows why he does anything anymore) you can sense the tension mounting in Italy. If Spain takes a bailout, Italy might not need one. Italy might be able to bask in the glow of the Basque sun. The market would be so confident that bailouts are available they wouldn’t need to get one – at least near term.

But if Spain doesn’t ask, then Italy will need one. Spanish bonds will continue to slip if they don’t ask for money. It is obvious that currently the money is there of they ask, but their is growing opposition to making it available. As Spain slides, Italy will too. That’s why Monti met with Rajoy. He sees this. He sees the need for Spain to act.

So once again, we are at a tipping point in Europe, and I think once again they will take a step towards debt monetization. Given current valuations and the recent uptick in bearishness, this should be enough to spark a rally.

So I remain bullish, but would take some chips off the table on this current rally, which is 2% off the S&P futures lows, and wait for a pullback to accumulate.

Good luck and hope everyone is safe after the storms, and thanks to those who have acted in such a heartwarming way.