Tuesday, March 18, 2008

Let's think this through....

If each marginal Fed action was relevant to the continued health, well-being, and solvency of this market and financial institutions....shouldn't a disappointment of "only" 75 bps have knocked something off the S&P?

And if each Fed action doesn't really mean that much, or anything at all, then why are they cutting so much when they're clearly worried about inflation (or would be, if they weren't worried more about other stuff)?

Perhaps the Bear Stearns failure really was the climactic event that marks a short-to-intermediate term bottom...though the index price action on the day was hardly climactic.

Or maybe this is just the latest sucker's rally, a hallmark of bear markets.

But if markets are rallying because they think that the Fed has its mojo back (in terms of getting traction on policy easing), shouldn't gold be rallying?

Maybe the real answer is that these short term reactions are all noise, to be forgotten as distant history in a week's time.


CV said...

Oh boy MM,

You are wandering into a mindfield here as per usual ;).

I have some other noise for you. Why is the USD strengthening against the JPY and Euro on the back of this (this may obviously reverse itself as I type)? Is this the Dollar Smile? Or is it an indication that investors after all see the Fed being a little more concerned about inflation?

I agree on equity markets though. Given that this should have been seen as a let-down the SP500 should be down now. Another point could simply be that investors are beginning to worry more about the Fed's ability to contain inflation than anything else. There sure has been much talk about this lately.

'Or maybe this is just the latest sucker's rally, a hallmark of bear markets.'

Could very well be. I am awaiting the European action with interest then since this will tell us whether the Fed has really re-claimed its mojo or not. Another thing, did we not get some inflation worries this time around c.f. the two dissidents Dallas Fed President Richard Fisher and Philadelphia Fed President Charles Plosser? Could this be the last volley from the Fed in a while?


Macro Man said...

"Could this be the last volley from the Fed for a while?"

Sure...until late April!

Anonymous said...

To add; Why are bills still bid if this is the turn?
If I remember correctly, it was not all that unusal to see the busted names from the TMT madness get run to the sky becuase the bust was 'over'.
Good post this morning MM, best of luck to you in your new gig.

Macro Man said...

Good question RJ, though 2's are getting buggered this evening. Typical...all the rest of my fave trade ideas have already come to pass, so now I am missing a sensational entry point on selling 2's by a day!

postmaster said...

"TMT madness"??

Anonymous said...

You have a chance to buy Yen at a better level, though. :)

I agree that most of today's action looks like (very loud) noise.


Anonymous said...

"I agree that most of today's action looks like (very loud) noise."

one man's noise is another man's signal