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Wrestling With The 'P. Diddy Market'

How discouraging was today's midday drop to traders?

"Why even play?" one trader said to me. "This is what I call the 'P. Diddy market'...You'd save money by doing the Diddy: renting a yacht, and sailing it full of party people, come back in a month or two, and you would have saved money."

Cynical, huh? But that's the way the Street has become...cynical, and doubtful.

For the record, traders provided several reasons for today's midday weakness:

1) longs in financials are lightening up ahead of the end of the ban on shorting financials, which occurs at midnight tomorrow.

There's been particular weakness in Morgan Stanley and Bank of America.

We are waiting for details of Bank of America's capital raise, which should happen after the bell. Note that the end of the short selling is complicating things, because risk arbitragers have been prevented from shorting Bank of America, and going long Merrill Lynch.

MS was weak on concerns that the Mitsubishi capital infusion deal might not close, but our David Faber noted that a MS spokesperson has said they were on track to close the deal by the weekend.

2) Bernanke's somewhat downbeat comments on the economy, despite the fact that Bernanke clearly opened the door to a rate cut in his speech.

3) retail investors who have just received their quarterly statements are continuing to dump stocks.

4) sell the rally continues to be the most effective strategy.

This reasoning seems rather feeble, especially given the remarkable attempt by the Fed to expand liquidity in the past two days:

--expanded TAF facility

--new facility to purchase commercial paper

--will pay interest on bank reserves

But the Street wants a rate cut!

Bottom line: the market is still not showing the ability to absorb bad news.

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