It Was Twenty Years Ago...Fri-day

Nothing to do with Sgt. Pepper or the Beatles, but Friday is the 20th anniversary of the '87 market crash. Back then, market professionals were huddled around their Quotron and Bunker-Ramo machines frantically hitting the Enter key to see how much the Dow dropped. The long bond traded up with 5 different handles as investors ran for cover. The NYSE's new electronic system, which could handle all of 95 messages per second, was quickly overwhelmed, not that it mattered as almost all trades were done by pencil and paper. The tape was hours behind. The specialist system was strained severely, but didn't break or collapse.

Over the past few weeks, the equity markets, ex NASDAQ, have traded to new highs. The last few days, reality has set in as stocks have weakened. The battle out there still continues over who is right on the economy, the stock or bond market. The answer depends on who you ask and when you ask it. For a couple of weeks, since the brokerage firms reported earnings, the market seems to have forgotten about housing/mortgage/sub-prime situation as those brokerage numbers came in at or above expectations. The euphoria has ended with the reality of the banks' earnings. It may change later this week as more tech earnings come out.

The real answer is that, ex housing, things are looking pretty good in the US. There is a lot of excesses that need to be worked out in that space. Individual companies may or may not do well in this environment. Certainly banks are having issues. Banks and brokerages make up most of the liquidity in fixed income markets. Other entities like hedge funds that might normally step in here are restrained by tighter credit, valuation problems, and redemption events. The real, meaning not Wall Street, economy must be kept in focus through the noise.