Kicking the Habit

Story Highlights:

• We've noticed headlines declaring a credit crisis and subprime fears have subsided a bit; or at the very least, their potency in slamming stocks has diminished markedly.
• While the problems of the last several months deserve continued vigilance, it's likely their impact is fully priced in to stocks by now.
• As the old fears fall off the front pages of newspapers, they'll likely do the same in folks' minds. That's bullish.

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Ever had that unsettling feeling you've forgotten something at home? Maybe left the gas stovetop on or the door unlocked? Often this worry is born from the sudden realization we've done something unconsciously—performed a second nature process as automatic as a heartbeat or deep breath. (Granted, sometimes it's valid because we woke up late for a flight to meet the in-laws, and in the mad rush to the airport forgot clothes, toothbrush, driver's license, and a sunny attitude.)

After scanning our usual list of publications this morning, we found very little of note. This morning's news hit us like a ton of the softest down feathers and left us feeling, well, a little unsettled—like we were missing something. After all, over the last several months some folks have been wandering the streets shouting at innocent passersby, bearing sandwich boards declaring, "Ragnarok Is Nigh." Even the Fed's minutes, despite the market's negative reaction to them, didn't reveal anything particularly new or unexpected, and today's downward volatility is really just one of many volatile stock market days this year.

That isn't to say the problems of the last year have been fully solved. Market-driven progress hikes a bumpy trail, necessarily elevating heart rates to keep institutions in top shape. While credit problems and recession fears of the last several months deserve our attention, keep in mind these stories are getting very long in the tooth and are likely fully reflected in stock prices by now. For instance, just recently stories bearing the phrase "mortgage-backed security" would have leapt to front pages nationwide. But this morning's news of UBS unloading $15 billion of subprime securities to BlackRock or a large new mortgage-backed deal in the UK didn't even dent The Wall Street Journal's front pages.

UBS Divests Mortgage Assets to BlackRock at Steep Discount
By Martin Gelnar, The Wall Street Journal
https://online.wsj.com/article/SB121135358484810153.html?mod=rss_markets_main

Mortgage-Backed Securities Back in Fashion
By Lionel Laurent, Forbes.com

The suddenly muted volume of meaningful news lately is a good thing for stocks. Several months ago, anything related to credit ratings would've been broadcast from Everest. But this morning, the announcement of Moody's recently uncovered ratings methodology errors got a meager 300 words on page 16.

Moody's Reviews Its Rating of CPDOs
By Aaron Lucchetti, The Wall Street Journal
https://online.wsj.com/article/SB121133944790509705.html?mod=todays_us_page_one

What were the headlines this morning? Among others, these two were front page stories in today's Wall Street Journal.

Kennedy Diagnosed With Brain Tumor
By Gerald F. Seib and Susan Davis, The Wall Street Journal
https://online.wsj.com/article/SB121130331231307449.html?mod=todays_us_page_one

Doping Scandals Make Winners of Olympic Losers
By Nicolas Brulliard, The Wall Street Journal
https://online.wsj.com/article/SB121133077481109125.html?mod=todays_us_page_one

While Senator Kennedy's brain tumor is tragic and Olympic doping scandals riveting, let's not forget they're being sold as headline news in the nation's preeminent financial publication. Newspapers run the stories they think have the power to frighten us. So, as the old fears (e.g. subprime and credit crunch) fall off the front pages of newspapers, they'll likely do the same in folks' minds. That's bullish.

If the sudden silence is unsettling, remember what it's replacing. As any recovering bad news junkie will tell you, kicking the habit is a great thing!