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Freaky Friday Potpourri: The Morning After

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Traders push through the dust left in the Fed's wake.

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Times are hard, you're afraid to pay the fee,
So you find yourself somebody who can do the job for free
.

(Steely Dan)

Following yesterday's upside effort, all eyes turned to Clarence Beeks as he was set to deliver this morning's orange crop report. The verdict? Anticlimactic. For minutes before it reported slippage in nonfarm payrolls (albeit less than expected), the Federal Reserve announced another shift in the rules of engagement for the auction facilities.

As per Mr. Practical on this morning's Buzz:

The Fed just announced an increase in the amount of TAF and that it will now accept "AAA" rated mortgage back securities as well.

This indicates that 1) there must be further and bigger problems in the banking system than thought and 2) banks have increasingly less and less good collateral to give in exchange for capital from the Fed.

The banking system is not functioning. There's only one bank…the taxpayers.

We can debate the ramifications of these actions until we're blue in the face but the simple fact is that they're there, they're caged and they're again being proactive. I have little doubt there are further skeletons in the attics of their life. The question remains when the bones will again rattle the collective consciousness.

We've been musing about the potential for a false breakout above S&P 1405 (perhaps to 1420) and we're now there. That's not a technical bent (Hoofy will now lean against 1405 on pullbacks) but it's worthy of a mention given volatility levels (VXO 19) and the structural smoke. I'll again be watching the financials for guidance after the opening fade (retest) lower.

You're Going the Wrong Way!

How do they know where we're going? Well, they don't... for now. Given yesterday's Art Carnage in commodities, the knee jerk response was to buy stocks. Makes sense, right? Lower price at the pump is an intrinsic rebate for cash strapped consumers.

Or not.

Old school Minyans know the drill. We've discussed our lens as crude climbed the slippery slope and equities tagged along. Now, given the recent slippage, the first blush reaction is that it's an upside catalyst. If I've learned anything in business or in life, it's that you can't have it both ways.

There are other dynamics in play. Credit spreads are helping financials, on the margin, and that's shaping psychology. I would offer, however, that through a structural lens, the higher dollar should lead to lower "everything else," particularly if the commodity supply continues (which, baring an Iran conflict, I believe it will).

And that-the chasm between perception and reality-is where traders bake their cake.

Again, I've been allowing for a false breakout above S&P 1405 (path of maximum frustration) and, a few core positions aside, I'm in hit it to quit it mode. I simply wanna make sure Minyans don't get lost in the conventional wisdom that commodity carnage is a good thing for stocks.

My sense, and this is just one man's humble opinion, is that this will be all too evident by the time May goes away.

Random Thoughts


R.P.

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