by Larry Levin
"Oh, the humanity!" is a well known phrase coined by Herbert Morrison's on-the-scene radio report of the 1937 Hindenburg disaster. When the FOMC decision hit the tape I thought I heard 'ole Herb himself, but I was actually hearing a trader (or two) beside me who were very very long, as the S&P and its brethren went down in flames. When the carnage finally came to a close and I turned on the TV in my office, the usual suspects were wailing and gnashing their teeth over the Fed decision. Here's a thought fellas - go short once in a while. It's a favorite pastime here in the Windy City .
Although this is the third straight meeting with a rate cut after the financial markets seized up in August, the rate cuts and accompanying statement isn't what Wall Street wanted. And to make matters worse, the Fed "had the nerve" to reiterate its concern about inflation. For those of you who live in Economist-land, inflation is not a problem. But for those of us who live in the real world, inflation is a constant concern. Later this week we'll see who is right when the PPI and CPI are released.
The difference between the inhabitants of Economist-land and the real world are stark. In Economist-land they don't count things that go up in price. How convenient. For the rest of us, however, we cannot avoid the increases. If you prefer to believe the government, try this experiment: Go to your local gas station, fill up the family truckster, then go in and ask to pay the CORE price of fuel and not the "headline number." Every time I do it, I get thrown out on my fanny but it's always good for a laugh. Too bad I don't live in Economist-land - it sure would be cheaper.
I don't believe the Fed knows the PPI and CPI data in advance, but it may be getting closer to using real inflation data rather than the make believe nonsense it currently uses. And that may be the reason why it resisted Wall Street's clamoring for a .50-.75 rate cut today.
Maybe the FOMC wants to distance itself from the would-be 1.00-point cut of Greenspan? Who knows? The Fed statement did, however, mention that it knows economic growth is slowing; housing prices are correcting etc., which means the Fed will continue to cut rates as time passes. In fact, I'll bet the Fed makes a surprise rate cut when the usual suspects on the financial stations go in to full anaphylactic shock, demanding what it wants like a child screaming for a Snickers bar in the checkout line. We'll get more rate cuts folks don't you worry, they're coming.
Excuse me if I sound a little cavalier, but the stock markets are still only 5% off of their ALL-TIME highs. Furthermore, I am a 20-year veteran of the S&P pit, which means I go with the flow. Unlike the One-Way street signs in the financial press, I embrace bearish moves with the same enthusiasm as the bullish moves. So I'll let the Pavlovian bell of rate cuts get my bullish motor running as equally as the bearish phrase "Oh, the humanity!" can get me to sell, sell, sell.
Good luck and "go with the flow."
Trade Date: 12/11/07
E-Mini S&P Trades*
(before fees and commissions):
8:32 B/A Buy 20.25 = -1.50 all
8:53 VA Sell 19.00 = -1.00
9:05 VA Sell 19.50 = +.75, +2.00, +2.00
1:43 MD Sell 94.25 = +.75, b/e, -.75
2:29 MD Sell 87.75 = -1.50 all
E-Mini Russell Trades*
(before fees and commissions):
1) Sell @ 11:59am at 793.4 = +.5 (1 lot)
2) Sell @ 1:27pm at 781.4 = +1.4 & +1.4
3) Sell @ 1:36pm at 779.6 = +1.5 & +2.0
4) Buy @ 1:58pm at 777.0 = -1.1 (1 lot)
5) Sell @ 2:05pm at 775.5 = +1.0 & +3.0
6) Buy @ 2:56pm at 767.0 = -.6 (1 lot)
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