Benny and the Feds

Hey Kids, shake it loose together
The Benny's cutting something
That's been known to change the markets.....Benny and the Fed's.

If you still don't get it, click on the link below and hit play sample:

http://www.eltonography.com/songs/bennie_and_the_jets.html

Benny and the Feds gave us a 75bp cut today, although two of the Fed Governors dissented on this one (Fisher and Plosser compared with just Fisher last time). Well, that's what happens when commodities and energy inflation starts to spiral into the next bubble. Interestingly enough, core PPI came in higher than expected, exactly what I was talking about in the previous posts - CPI is holding because Producers are getting stung by higher prices but they're trying to hold back from passing it along too fast to the Consumers. It's also amazing how quickly we can become conditioned to something because some investors were disappointed that we only got a 75 and not a 100 or 125 basis point cut! Kind of crazy when you think about it.

The real news of the day was LEH and GS posting better than expected results and showing no liquidity concerns. Again, just like the article I linked into yesterday's post on LEH. So the combination of Brokers being allowed to tap into the Discount Window and LEH and GS showing that BSC was the only liquidity fool in the 5 major independent Brokers drastically eased concerns about another failure in the Financial Sector.

What does this all mean? With the Fed stating today that they didn't think inflation was out of control because they anticipated further "easing" in energy and commodity prices, while at the same time dramatically reducing interest rates - which causes energy and commodity prices to go up.....wait a minute! I'm going around in circles, uhh, uhhh? Well.....OK, yes I do know that the Fed thinks that we're going to slow down economically, so it was ok to slash down interest rates because a slowing economy is our inflation buffer, and therefore.....Uhhh, well never mind.....

I do understand that the Fed got caught between a rock and a hard place. The nasty rock was the unbelievably foolish speculation on CDO's by many Financial institutions (BSC, MER, C, BAC, AIG, etc. etc. etc.). The hard place was their tardiness in raising interest rates to stop the real estate bubble. Now they are left with taking drastic, semi-panicked action to save Financial institutions by targeting both the short end and the long end of the yield curve. Lots of fun, lots of circus action. I always say that the Fed's job - and it's not an easy one at all - is to save some people from themselves. When you really think about why we have to regulate the markets and what happened in 1929, you understand why I say that about the Fed's job. Oh, and by the way, they still have the real estate market to deal with.....

The biggest movers today were, by far, the Banks, Brokers, and other Financials. Lots and lots of short covering out there. The wild price action in LEH alone would be hilarious if it wasn't so tragic (almost 800 billion in overall stock market cap was wiped out in just yesterday's big drop, and that was just in the U.S.). Well, alot of that came back today.

Here are some semi bullish to bullish stocks I am keeping an eye on:

Chemicals: CF, MOS, APD, PX (although we may be getting a double-top in DBA)
Steel (strongest group): SID, NUE, STLD, AKS
Metals/Mining: CLF, POT
Manufacturing/Machinery: IR, CAT, TEX
Energy: SWN, ESV, RIG, DO (may be very close to breaking out), DVN, APA, XTO, EOG, ECA
Financials: COF
Tech: RIMM, FSLR, AAPL (turning up), IBM, HPQ
Railroads: CSX, UNP, NSC, BNI
REITS: AVB, EQR, PSA, PLD

The Bearish sectors include Healthcare - especially HMO's, and still some Financials.

I am still playing day swings. I like the DIA and SPY for a possible day swing tomorrow after a consolidation intra-day. I may like some of the stocks on the bullish list as well. Why am I still playing day swings? Because we aren't out of the woods yet. If we do see "slowing" data as the Fed suggests, and we roll over, then I may actually turn around and play puts on the Energy and Commodity groups. Until the market starts trending again - one way or another - I am sticking with my shorter, day swings.

Today I finished out the paper trade on the DIA short swing from yesterday. It was a very nice play that netted me over $2,100 in one day. I'll look there again tomorrow.