Stocks languish as energy and financials decline

Volumes in the equity markets today are modest. There is no panic and little news. There are no buyers of any consequence. Stocks are declining materially due to lack of interest.

Big energy stocks are declining as oil declines in the commodities markets. At this point it seems that this direct link should be somewhat tenuous, but it persists.

Financials, especially large caps, are declining due to the fear of unexpectedly large write- downs that may be reflected in fourth quarter results to be posted in the next two weeks. That's the knee jerk view, but what's really happening is that investors are alarmed about what seems to be the government's arm twisting of Citibank in exchange for its recent support. Citi's endorsement of a proposal to allow judges wild west discretion over individual mortgages in bankruptcy is a complete about face endorsement of a horrible idea. Their proposed sale of a gem franchise of stability, Smith Barney's brokerage business, that in fact makes sense in a integrated retail financial model is also suspect. Combine that with renewed rhetoric by Barney Frank and others that unequivocally suggests that they view the government's non-voting shares of banks as essentially ownership, full ownership, positions and investors are right to be concerned. Why own banks now?

Those are the areas under pressure but across the board today there is a renewed orderly exit from equities. Cash is still being raised, liquidating funds are still being unwound, and the outlook for near term news relief is almost zero. Many companies that have strong balance sheets and leading business franchises look increasingly attractive.