Captain Renault Market
"I am shocked, shocked to find gambling going on here" is a famous line from Casablanca when Claude Raines' character, Captain Renault, shuts down Humphrey Bogart's Rick's American Cafe. Of course it was obvious that gambling was going on, Rick's was part casino. This line reminds me of the market since the Credit Crisis ebbed. The market somehow is surprised by events that are so obvious. It is obsessing that a global recession is either coming or already here. The bigger shock would be no recession. The credit markets essentially stopped in late August. For several weeks there was the real fear that the entire global financial system would collapse. Even the best corporate credits had difficulty accessing the credit markets. And consumers hit by the barage of bad news and declining stock portfolios are scared and scaling back purchases. How can this not translate to a slowing broarder economy. This is common sense.

Today the fear was hedge funds imploding. Hello! It's a miracle more have not blown up yet. Most hedge funds use leverage (how else to maximize manager fees) and we all know what happens to debt ratios and margin calls when equity evaporates. This should not come as market shaking news. Hedge funds are going to collapse, it's only a matter of time. This news needs to be priced into the market.

Update: The unemployment rate is going to shoot up. I read that Rhode Island is already at 8.8% unemployment. The market will be shocked by the pending bad news, but it should not surprise anyone.

Update Update: I saw this morning that the Wall Street Journal also used a Captain Renault reference last week. The Real Time Economic blog used it to describe Alan Greenspan's testimony before Congress and his comments about trading in the mortgage market. False indignation does not seem in short supply.