Greenspan's at a 10 and needs to be at a 2

What exactly does it mean to be retired? For Allen Greenspan, as we saw on Tuesday, his words still have the ability to move markets-even in his "intimate conversations," where he charges $150,000 per appearance. His utterance of the "R-word" was certainly not the only factor that caused for global sell-off that's set Wall Street abuzz, but is a part of what I like to think is a "perfect storm" that has been burgeoning since we heard the word, "sub-prime" last fall and has brought about this jolt, but hardly a correction. In the credit markets, though sub-prime mortgages have been under-performing and has gotten some investors worried, broker-dealers are well aware of the potential risks and are mitigating the risk very well through securitization of the mortgages (i.e. bundling them together with others and synthetically replicating the cash flows of other fixed income instruments) and structuring credit derivatives (FYI: according to Trader Monthly, structured credit desks had the biggest bonus payouts for '06). In FX, the feared unwinding of the carry-trade (borrowing in low-interest currencies such as JPY and investing in high-yielding assets, i.e. equities, commodities, real estate) is an enormous concern; however the Japanese Central Bank is well aware of the open interest in the markets and will monitor this and keep rates where they're at (0.5%). The rise we saw in the JPY was I feel because of the pullout in the spot market from selling the USD and a flight to quality (US Treasuries) pushing down yields. after the stirring in China when regulators announced a crack-down on speculators. Though it sounds a bit hawkish, the point is that interest rates will stay low and the numbers to watch are commodities prices (Oil went up to $62 and is at a recent 2 mo/hi) and economic indicators coming out (CPI, Payrolls, Inflation) to see the Fed's tone when the FOMC meets March 20/21. Traders always complain that there isn't enough volatility in the markets, but when they get it (as we saw the VIX volatility index skyrocket) they gripe. As long as policymakers continue to crack-down and stir the markets, these reactions result in sell-offs but also present good opportunities for bargain-hunters and keeps support up. For a few information resources check these links:
http://www.federalreserve.gov/ check the beige-book
http://www.cboe.com/micro/vix/introduction.aspx read about the VIX volatility indicator
https://gm.bankofny.com/ Bank of NY's Global Markets division is very generous with their research and commentary on FX and other markets-good for market color.
-Gerardo