Strengthening defenses - has been our theme lately; primarily due to a truly complacent behavior by the Senior Averages, while money managers certainly have to be aware of risks, given the 'air-pockets' in individual stocks; handful of momentum issues even remotely holding, while most sectors are moribund. 

Sadly, events of the past week have increasingly followed the natural course of a ramp-up into 'war', with the enemy realizing the Civilized World has finally hit the end of the 'denial road', and is being pushed (ironically by France more so than Russia) into stopping any pretense of seriously engaging the enemy; with limited resources poured into the task. IS and other Islamist extremist groups of course know this, and that's why (enormous miscalculation on their part that we think it was) their twin attacks on Russia (airliner) and France (multiple site assaults) became the straw that broke the camel's back (and will reduce IS in time to riding camels if they are still around, the fighters that is). 

It is this realization that contributed to this evening's global travel alert issued by the State Department (which is a bit contradictory to 'live your life and don't be fearful, or you give-in to the terrorists); and perhaps Belgium's continued as well as onerous total 'lock-down' (on business, citizens, students and everyone needing work in the days ahead); which is borne out of total responsibility, and we must assume they know more than we've heard, because it's obvious they have been instilled with fear to the point of virtual mobilization. 

They can't stop searching for vermin, and they probably believe the vermin are aware they have limited time to launch attacks before they're discovered via a multitude of ways, given enough time to the authorities. I have contended for a few months that this was the modern equivalent to the run-up to World War 2, or seemed like it. I wish I was wrong; but it increasingly looks every bit as wary as that era; with lock-downs and security sweeps reported or unreported, that haven't been seen since the early days of World War 2. Remember what was said by the Hanover Germany Police Captain when they evacuated a soccer stadium and fiddled with the story of a 'truck bomb' disguised as an ambulance (first they reported it, then they denied that); then the Captain said 'people will panic if we tell them what's really going on'. 

That's the point where it was pretty clear the terror threat has an economic as well as societal impact that was broader, and would be more encompassing as things evolved. In our extended weekend commentary, I pointed-out that this combative trend, in which actions suggest IS will attempt multiple strikes, has an immediate and perhaps prolonged impact on travel, leisure, and reduces an already fragile GDP outlook (really globally not just domestically) further. Quite sad as it was just at a time when France was showing more recovery than lots of other EU members; just at a time when Britain was actually junking perfectly good long-range aircraft (Nimrod); and Germany had just rolled-out the first of its new main-battle tanks (perhaps the world's best); while opening its arms to 'mostly' perfectly deserving refugees; but far too naively accepted without the screening needed. 

Everybody acknowledges there are insufficient resources to even start to keep track of everyone that's 'in', not to mention home-grown terrorists and potential traitors, to be recruited as Islamists get one thing they wanted (but nobody can help that now); and that is further isolation of Muslim communities, that by their own fault didn't assimilate into the adopted societies and now face suspicion especially as they tend to live or congregate in heavily ethnic areas (dare we use the world ghetto). Those who embraced their new national hosts, and did assimilate, really have no major problem. Muslims serve in the French Army for that matter; and nobody has a problem with that; provided things remain ok let's say. Same in Britain and other countries in Europe. Ironically, this 'war' will likely differentiate who is French, who is British, who is Belgian etc.; and be a defining point that actually (to those who are loyal) leads to integration within the society if this is handled right. But that may be some time down the road. 

The President arrived back in DC today; and meets with President Hollande at the White House on Tuesday. You will see (better see) a Barack Obama that's departed his standard line, while defending the importance of not overreacting (but quietly the change should be to stop prioritizing attacking Assad the war criminal, and realize it's criminal if we don't first dislodge the Islamist terrorists; although Russia is sort of beating us to the punch and giving Putin credibility he seeks, while the US looks dragged moaning into doing the right thing). Of course there's plenty to be concerned with; including an Iranian/Shia crescent being cobbled out, as the regional dynamics shift more than just with IS.  

The President's position on refugees is less critical now than how we receive or revoke passports or status of any US resident (citizen or not) that went there to fight for the enemy; and address the Islamic communities in the U.S. to stand-up for America, more than chastising citizens asking Government to do the one thing everyone agrees on, which is protect this Nation. 

The market will start understanding what's going on; as the sell-off in airlines, for which reduced revenue traffic means more than lower Jet A fuel prices, in the short-run. And that's something tonight's 'travel warning' directly pinpoints as relates to 'travel & leisure' stocks. The U.S. is not in a great position for the multi-front mobilizations that are probably required; but at least we know what the multi-city 'military exercises' (not just Texas, but LA, Miami, Chicago, etc.) were likely about; and why Homeland Security ordered 400,000 ammo rounds in one order. Also what the militarization of local police probably envisioned in a worst-case scenario; although much of that equipment has been eliminated, as it was excessively used in domestic protests, when authorities were told at the start it was for extreme situations. I guess one takes liberty with 'extreme'. 

In sum: there was every reason to be wary of market serendipity well before a terrorist threat. There is every reason now to believe the lowered estimates of even the bears (with respect to consumer activity and so on) are too optimistic if even one more incident occurs (as likely will, though we pray not) anywhere in Europe or closer to home. 

The President will likely tell us (as did Roosevelt) 'we have nothing to fear but fear itself', but that mixes strangely with 'travel alerts' and NYPD assurances to go out and celebrate and live your life. I understand both reasons (State Dept. has an obligation if there is the knowledge of plots underway thus is derelict if they fail to warn Americans, even if it's akin to a 'pharmaceutical TV add', that lists every possible side-effect, which rarely happens). 

And maybe that's the point: 'rare things happen rarely; common things happen commonly'. But the rare things in this case can be deadly; and as we've seen it only takes a handful of whack-job fanatics to throw a nation into a quandary or lock-down. 

PLUS, the analysis we've shared all through this year about 'buybacks' as part of the charade of strength is now being exposed to the public, at least as may apply to a number of companies. It's not just political pressure to put money to work; but now you're hearing (as if it were news; no it's not, just they're mostly finished) insider selling has been rampant. That was part of my argument: they didn't have the revenue (many not all companies) so they did buybacks aimed at underpinning earnings; thus preserving executive compensation; and just to add insult to injury, many insiders used the rallies on that financial engineering to sell into strength. 

Now, I may not agree (which doesn't matter) with the politics of those making it an issue; but it has been going on; and in a non-partisan orgy of liquidation. In the course of this, the S&P has oscillated above and below the 2100 area lots of times; but you'll notice it has more trouble staying above than below; then a concentration into a handful of 'what-works' stocks is cobbled together to save the day; before things run-into renewed selling. That's because there's nothing much under this market to prop stocks up; not earnings; not monetary policy; and now not even reasonable economic prospects. 

All this has been fatiguing at times; but we can't make the market; just assess it of course. If it takes one month or one year to manifest what's been going on so be it. This market's been extended throughout this year; with upside limits on the rebounds, and clear concentration into a handful of stocks (those were the indigenous upgrades we've talked about at high prices) to hold things while they could. And here we are just before Thanksgiving with a bit of a crisis; and a seasonal pattern that 'normally' points higher. This is not a normal time. 

Bottom-line: "foreign governments have taken actions to guard against terror attacks, and some have made official declarations regarding heightened threat conditions. Authorities continue to conduct raids and disrupt terror plots.  

We continue to work closely with our allies on the threat from international terrorism.  Information is routinely shared between the United States and key partners in order to disrupt terrorist plotting, identify and take action against potential operatives, and strengthen our defenses against potential threats."           

source: U.S. Dept. of State; (all wire services, around 5:45 ET, Nov. 23)

Conclusion: earlier today, in emphasizing (as I did on the weekend remarks) a need to get an intraweek rally try early, because traders would depart early in a broken-up holiday trading week, and because Belgium did NOT go back to a normal working-week condition (which is very disruptive and costly so wouldn't be a decision taken lightly) we wanted to increase our short-side defensive posture to defend against risk of a market decline really any time. 

We are not trying to scare anyone (Washington's reversal of attitude should be sufficient to do that); but rather toughen resolve, both regarding 'extreme Islam and related terrorists' as well as making sure one isn't over-exposed to market risk. If another tragic even occurs; it's obviously problematic for everyone. But if, God willing, it does not, there is still no real bullish alternative, because the vast majority of bullish rationales (and dispensing of credit market analysis) all year has created an aura of bullish invincibility that is just that; an aura. 

As this illusion gets it's comeuppance, whether right now or not; it's dangerous to be fully long this market; it's potentially disastrous to be leveraged; and the traditionally inverse equity and credit linkage has a prospect to return, whether or not the Fed moves to hike rates soon. 

We hold short overnight (coincidentally) Dec. S&P  / E-mini from 2092.