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Buzz & Banter


Having been away from my desk (and my invaluable Bloomberg) for the past week was a valuable exercise in mind-clearing on many fronts. As I ease back onto the field, I have two observations to share:

First, this little rally this morning brings into full relief how scared shorts are to have exposure on ahead of the Fed meeting, and how confident longs are to keep theirs. After all, since the Fed has been so successful in goosing the stock market for the last several months (with liquidity, with deflation talk, with jawboning about buying the curve), why wouldn't you trade the trade that's worked?

Which brings us to the second observation: Whatever the actual number of basis points the Fed cuts by, pay close attention to the language in the release. As the Fed has gotten closer to the zero boundary on the Fed funds rate, they have systematically become more aggressive in verbal/written persuasion of the markets (starting with Bernanke's November printing press speech). Fewer bullets means more arm-waving. Let's see how vigorous they want to wave their arms this time.

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