May You Live In Interesting Times

The old Chinese proverb (with English translation) of "May You Live In Interesting Times" certainly seems to be the case for financial companies and those affected by the credit crisis (which is just about all of us). Even just a quick review and read of the financial/investment news sites gives the following:

International Herald Tribune discussing problems with Citigroup and the financial industry in general. Meredith Whitney is also quoted as staying "There is no place to hide for them." It is felt that Citigroup is so big that they are exposed to nearly everything.

New York Times article continuing to discuss how gas and food prices are pushing up inflation.

London Times Online discussing how share prices fell on the London markets after news of historic drops in home prices, and inaction by the Bank of England, are striking fears that Britain is in or near a recession.

London Telegraph article on how the Bank of England is essentially sitting on the side lines with regard to interest rates while they try to determine if a potential recession or out-of-control inflation is their worst problem.

WSJ article reporting an 18% drop in Q2 net income at U.S. Bancorp as it triples it provisions for credit losses.

Chicago Tribune article on how investors are fleeing suspect banks as fear mounts regarding a more widespread crisis in the banking sector.

Reuters article about how George Soros is once again predicting that this is the worst financial crisis of our lifetimes, and that Fannie and Freddie are just the beginning. Soros goes on to say that it may not get better any time soon given that the Fed Chairman is in a box with limited options.

Financial Times article about how the credit crisis is causing Australian companies to sell assets in an effort to improve their balance sheets.

Bloomberg article regarding the dollar hitting new lows versus the Euro, just as Bernanke and Paulson discuss issues with Fannie and Freddie, and the markets in general.

MarketWatch article discussing how Lehman Brothers, while not in danger of failing, may need an alliance, need to go private, or even need to be taken-over to prosper, yet it is unclear who might actually be in a position to purchase them. European companies, such as Deutsche Bank, Barclays, and HSBC as possible candidates since most U.S. companies will not be interested.

Forbes reporting how German investor confidence is at a 16 year low.

Fortune article discussing how the SEC, if it did not already have enough to worry about, now has to spend more time and effort chasing down rumors and the spreading of false information given its ability to damage financial companies, and even the entire financial system with greater ease than ever before.

Investors Business Daily article regarding inflation in the developing world, and how 2/3 of global inflation increases are coming from emerging markets - the very same markets that are hoped to out-perform other markets in the future.

..... and on and on and on.

Of course, is it enough to have bad news reported again and again, or do we need to really feel the bad news? Even a recent BusinessWeek article highlights how we still do not seem to have enough fear in the markets. While the recent sell-off has been consistent, the slope of the sell-off has not been very steep, nor displaying the types of spikes that often indicate fear and panic.

As of last week, the put/call ratios were not at the panic levels of the last year. The recent high for the 10 day CBOE total put/call ratio was 1.1, off from the recent peaks of 1.28 in March. The 30 day CBOE put/call ratio had a recent high of 1.0, compared to 1.17 in March. The 10 day equity only put/call reached 0.82, below the 1.00 level in March. The VIX is showing a little more fear, moving above 30% today for a short time, but falling back below 28% mid-day. Stronger, but not really the mid-30s spike that many traders are looking for.

Some indicators are beginning to show more fear. The latest Investor’s Intelligence poll had the bulls declining to 27.4% and bears rising to 47.3%. The bullish sentiment has not been this low since 1994. The bearish sentiment has not been this high since 1998. This gives a difference of 19.9 percentage points, the biggest bearish spread since 1994. The recent AAII poll shows 22% bulls and 55% bears, a number that is similar to March levels.

Overall, still a mixed bag, but looking better. Given the recent events and news, it does make you a little fearful (pardon the pun) about what it is going to take to get the capitulation the market is looking for. Interesting times indeed.