By
Peter Tchir
:
I think we all know now what the Fed is thinking. Ben is happy
to add more liquidity to the system but is constrained by a group
that needs to see bad data before they can support him. I think it
is pretty straightforward on the economic data front. Bad data,
particularly in jobs and housing will make the Fed react, but it
will take some actual bad data, not just "blah" data like we have
had the past few weeks.
The bigger question is how quickly would Ben respond to a
decline in the stock market?
Although the Fed made it clear they focus on the economy, there
is strong evidence that they would react to a downturn in the
market, but I think they would be reluctant to move unless we saw a
significant move. Without weak data, I don't think the Fed is in
position to do anything until the S&P 500 broke 1,300 and bank
stocks were under pressure. So there is a Bernanke put, but I think
that put is much farther from "spot" than many investors
believe.
Now that the Fed is out of the way, what else is there? Pretty
much just the ECB is left with any near term ability to "fix" the
markets. The IMF has raised its "firewall". What the firewall
accomplishes is beyond me, but in any case, rumors of a big
firewall cannot help the markets anymore, so it really is going to
take the ECB to provide any form of government or central bank
stimulus. Otherwise we are left with earnings, which as I said on
Bloomberg TV
last night, are okay, but not great. There have been some big
"beats", with AAPL being the most obvious, but there has been some
weak guidance, and pretending that analysts don't set "beatable"
numbers is a bit silly. The game is clearly to set estimates that
companies can "beat" them, so unless it is an extremely big beat,
don't get too excited, and we do also seem back to a stage where
some of the biggest earnings beats have been from companies that
took great pains in what they categorized as recurring or one-time
charges.
Yesterday's short covering rally in Europe seems over. Today in
CDS, Spain is 10 wider, at 475, while Italy is only 3 wider,
helping confirm that most of yesterday's price action was short
covering as the most illiquid and most "beat up" names
outperformed. Spanish 10 year bonds are back out to 5.85% and
briefly getting below 5.7% yesterday. Remember when 15 bps was a
week's worth of trading, and not 24 hours? That continued lack of
liquidity remains a concern.
The economic data this morning should move the markets, and for
once, I think bad news will be bad, and good news will be good, as
the Fed's position is pretty clear.
Then we will likely spend the entire afternoon tracking moves in
AAPL, since if not yet at the stage of "national pastime" is
certainly the main thing for traders to focus on in the absence of
any other news.
Fixed income ETF's performed extremely well again yesterday,
with both HY ETF's doing extremely well. I cannot find much to like
about HYG and JNK at these prices. The underlying bonds that drive
the yield are getting sketchy at these prices. While high yield
still offers value, I think it is key to find some alpha as most of
the beta has been squeezed out. Looking for specific credits and
specific bonds for those credits is the most important it has been
in at least a year (from the long risk standpoint).
Disclosure:
I am short [[SPY]], long [[HYG]], but positions change
See also
Today's Market News To Trade On: 5 Stocks Moving On
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