Clumsy and Random Thoughts

• It is feeling very panicky right now, in that the market is moving suddenly and without proximate reasons. Unfortunately, the panic is legitimate. No one knows what a GSE bailout will look like.
• But you shouldn't conclude that a bailout would be difficult. Read this post. I stand by everything I said then.
• There are also rumors that PIMCO and SAC were not trading with Lehman. Both PIMCO and SAC have denied the rumor. Worth noting that PIMCO was one of the first to stop trading with Bear Stearns. Anyway, neither has reason to deny the rumor other than that the rumor isn't true.
• The more panicky things get, the more likely we get a relief rally after bank earnings are out. Odds are good that it will be a mixed bag, with some banks looking particularly ugly (Wachovia this morning warned of a huge loss) and others will be bad but not that bad. I mean, take a look at short interest on the NYSE...

• That being said, I don't think we can get a sustained rally (in credit or equities) until the market thinks it knows the outcome of both bank capital raising and home price declines. Now that will happen before housing has actually bottomed, because the market will look forward and conclude the worst is behind us.
• So I'm still vastly underweight credit generally and financials specifically. I've cut duration in an attempt to play a post-bank rally, but I'm just too chicken shit to buy a bunch of bank paper here.