Over the weekend, two big banks, UBS and Citibank, coughed up hairballs and admitted big losses in their fixed income businesses. A small Internet bank (Netbank) was taken over by the FDIC and its insured accounts transferred to ING Bank. Another LBO deal (Acxiom) bit the dust, interestingly the banks involved paid part of the breakup fee, implicitly admitting that their unwillingness or inability to finance the deal was at least part of the reason for its failure. The ISM manufacturing index fell, holding barely above the 50% mark which is supposed to signify the onset of shrinkage, although considering this is an unweighted sentiment index one wonders why so many decimal places are published, one feels that a single significant digit might be too much. Early indications are that real estate sales in September were down substantially, probably as a result of the still-crippled mortgage market. Some of the lower quality ABX indexes are even now making new lows.

None of this has discouraged the continued buying of stocks. Bill Fleckenstein opined last week that the continued buying pressure is simply the result of “quant” or “black box” automated trading, where fundamentals are ignored and price action is the only consideration, feeding on itself. I have pointed this out in the past, as investment considerations have obviously long since departed the stock market. The Dow is up nearly 200 points as I write. As far as I am concerned, it is just a matter of waiting for the inevitable panic. I freed up some extra cash by rolling down my profitable positions in the mortgage bankers and homebuilders, in order to be ready. I also added to my SPX volatility play, buying a bunch of the SPX Dec 950 puts.