Have two Pandora's Boxes been opened? Fed Chairman Ben Bernanke may have opened the first one. No matter that it is highly unlikely economic data will come in showing sufficient strong and sustained growth to justify tapering bond purchases any time soon — markets see it differently.
The bond market is wound so tight that even raising the remote possibility of ending tapering of bond purchases has thrown prices into a tizzy.
St. Louis Fed President James Bullard, speaking to reporters in London, said the Fed will move very slowly. He said: "we are not is a position where we are having to make decision about cutting the whole program in half or bringing the program to a halt in a short period of time." He would be happy with reducing buying slowly, by $15-$20 billion a month.
The second Pandora Box? Overnight, traders noted to me that the market started to drop yesterday at 10:30 a.m. ET — almost the exact moment that the Internal Revenue Service's Lois Lerner took the Fifth Amendment during congressional testimony.
I agree this is a bit far-fetched (this is when the Bernanke Q&A began), but several traders said that Lerner's appearance opened a second Pandora's Box: that this scandal might have serious legs. They offered that any hint of a prolonged, Watergate-style investigations through the summer may tie up President Obama, and by extension any hope for an advance on critical issues. These include: fiscal negotiations, the debt ceiling, corporate tax reform, and of course entitlement reform — all of which was discussed during Bernanke's testimony.
Not surprisingly, Rep. Cantor was on CNBC this morning screaming about what an egregious abuse of power this was, and vowing to get to the bottom of it.
1) If you have any doubt that the global economy is not in great shape, look no farther than what happened in Japan overnight: The Nikkei down 7.3 percent at the close, but the intra-day swing was 9.1 percent, the worst drop since the tsunami. The Japanese market opened up but seems to have responded more to a spike in Japanese bond yields and poor Chinese data.
With Europe still in recession and China looking shaky, it lends credence to the idea that global central banks are not going to be reversing positions to any dramatic extent — at least not in the near future.
That doesn't mean that traders can't get hurt, specifically on the Great Trade of the last year: short yen/long Japanese equities. Dollar/yen down two percent, but the damage is much worse...the dollar/yen is a heavily leveraged trade, so you could be down two percent on the charts yet due to leverage your loss could be 15 percent.
The real worry is in the Japanese bond market: the Fed may be tapering, but the Bank of Japan (BOJ) is not. There will be more stimulus in Japan, and with yields rising in the U.S. the clear threat is that more Japanese stimulus will lead to a big sell-off in Japanese bonds. Remember, the banks and insurance companies are the ones owning these bonds.
Still, panic may be premature: the Nikkei still up more than 40 percent for the year, 80 percent since November.
2) Three companies are set to debut on the NYSE today after pricing offerings last night:
a) Constellium NV (CSTM), an aluminum products maker, priced 22 million shares at $15 each, below the $17 to $19 price talk;
b) ChannelAdvisor (ECOM), priced 5.8 million shares at $14 — the high end of its $12-$14 range. They are part of last year's hot IPO concept: cloud computing. Specifically, software as a service...they allow customers to optimize merchandise sales across multiple online channels. In other words, they help people with stuff to sell to connect with online marketplaces like Amazon or eBay or Facebook or comparison shipping sites like Google.
c) Ply Gem Holdings (PGEM) priced 15.8 million shares at $21 apiece, above the $18-$20 price talk. They manufacture exterior siding, fencing, and windows and doors.
—By CNBC's Bob Pisani