The T Report: When Doves Cry

The Fed Doesn’t Speak it Bleats

Yesterday’s minutes confirmed just how dovish this Fed is. While there was nothing really new in the minutes a few points were reinforce and worth repeating

• The Fed believes their policies help the economy. While many of us question their policy and its effectiveness for the economy, it seems clear that most of the Fed members believe their policies are helpful
• The focus has shifted from the “wealth effect” and the Fed will not be deterred by high stock prices if they feel the economic data warrants a move

Those two points seem key. Having said that, the minutes produced minimal results. Stocks went up, but Apple was the driver. I would have liked to see banks lead the way based on Fed policy and they didn’t.

So we have to accept that this Fed is exceptionally dovish and is ready to follow Ben on the path he has chosen. Whether they accomplish much or how soon they act is anyone’s guess, but that should provide continued support to this market and helps explain why volaility remains low.

Continued “Weakness”

Europe is continuing to trade off. Spanish and Italian bond yields are 20 bps and 10 bps higher this morning in 5 years. CDS is leaking with Main back to 144 and IG18 back to 101. Spanish stocks are down for the 2^nd day in a row, knocking 4% off the recent valuation.

On CDS, I would start looking at selling here, and covering IG18 which had been put on below 98. On stocks, I will be cutting shorts, but not yet adding back to longs in Spain and Italy or in banks.

I just don’t yet see the signs that this weakness will turn into a meaningful correction.