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What Does Bernanke Look Like To You?


If tomorrow's statement says "All is Well", the markets will demonstrate the exact opposite.


From a trading perspective, I think the communications from the Fed tomorrow are critical. It's a question of respect. Right now, Bears neither fear nor respect that Fed. They are extrapolating Bernanke's inaction to date into a permanent policy of laissez-faire.

Put yourself into the head of a bear. If you think Boom Boom = Hoover, and you know the financials are rolling over (because you have eyes and a chart), there's absolutely no reason on earth not to short any and all banks. Bear (BSC), Citi (C), Goldman (GS)... if recent past is prologue, they're all going down; the only question is how fast and how far.

But if the Fed snaps out of its stupor and stops telling us "All is Well" like a young Kevin Bacon about to get trampled in Animal House, the Bears will be trapped. An active Fed isn't in the thinking of folks shorting Bear here. If you're shorting the XLF, down nearly 20% in a month, you need the panic to accelerate, not just "stabilize".

To the points of Todd-O and Prof. Mike "Freakin' New Guy" Shedlock, no, I don't think the Fed can "fix" the underlying problems facing the economy with a rate cut. Yes, I know what the stated mandate of the Fed is. Neither matters, for a trade. For a trade, if Bernanke goes from Kevin Bacon to Marsellus Wallace, telling traders, in effect, that they "got no problem... I'm on (this)", shorting the financials becomes a bad idea in a big hurry.

The Fed can't solve the problem but they can soothe the fear, largely by acknowledging that the fear exists for good reasons as opposed to denying it entirely. From where I'm sitting, the next 500 Dow points will be determined by Bernanke's ability to morph from Bacon to Marsellus. If tomorrow's statement says "All is Well", the markets will demonstrate the exact opposite.

And now, on to some random thoughts...

  • Aunt Fannie (FNM) isn't the only big rally with no apparent catalyst today. There are big moves out there well away from the headline financial gang. Among these take a peep at...

    • Activision (ATVI), up 4-bits on a continuation of their good earnings news...

    • Callaway (ELY) up the same amount from the lows made last week after bad earnings news...

    • Fresh Del Monte (FDP) getting fresh to the tune of 10% at the day's highs simply because folks gotta eat...

    • Cooper Tire (CTB) rolling higher on an earnings beat...

    • Finally, FTI Consulting (FCN) up again after good news on Friday and because their business model "helping companies confront the legal, financial and reputational issues that face their future" seems like a good industry to be in during these strange days of implosions.

  • What do they all have in common? Not much. You can make the case that investor confidence has been damaged over the last few weeks but, from where I'm sitting, no one's going to buy stocks like these with this much aggression unless they were convinced the markets were in a dip, as opposed to a free-fall.
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Position in ATVI

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