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The Bait and Switch


Quack, quack!


"You look down, they know you're lying and up, they know you don't know the truth. Don't use seven words when four will do. Don't shift your weight, look always at your mark but don't stare, be specific but not memorable, be funny but don't make him laugh. He's got to like you then forget you the moment you've left his side. And for God's sake, whatever you do, don't, under any circumstances... "

--Rusty Ryan, Ocean's Eleven

The countdown continues as we anxiously await Elmer and the obvious question on everyone's lips is: what do we want to hear? That's the query I'm fielding from multiple sources and as everyone else is lobbing in an opinion, I figured I'd toss my three cents into the mix. It did, of course, used to be two cents but inflation has actually seeped into my vernacular!

The debate seems to center on the word "patience" and whether it'll be included in today's text. If they take it out, perception might (continue to) migrate towards higher rates still. Leave it in, the thinking goes, and fixed income will rally and take the entire tape with it. But I must again introduce the prospect of credibility (or lack thereof) if the Fed Heads remain in denial. In other words, if it walks like a duck, talks like a duck and acts like a duck, how long can they continue to call it a dove?

I'm not sure how the tape will react to any of the above scenarios as the intangibles will surely come into play. Rates, as Brian discussed, are at an inflection point and they'll likely tempt traders with a minxy carrot. For Hoofy's part, he's got a bunch of constructive stochastics, near-term pressiness and corporate spreads that are firmer than a college cheerleader. From where Boo stands, however, the writing is on the wall and physical graffiti is only a matter of time.

I will only ask you to respect both sides of the coin and understand that we're FAR from a near-term technical extreme (either way). And while my big picture bearish bent is steadfast and true, that'll mean little as we dance forward through these nuances. Define your risk, put limits on your orders and don't trade for the sake of trading. There are 8,000 hedge funds standing in a circle shooting at one another. The last thing you wanna do is get caught in the crossfire.

Good luck.

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