Tags: Dow | Fast Money traders | Guy Adami | cnbc

How Will Fed Promote Year-end Rally?

By    |   Tuesday, 06 Oct 2015 04:11 AM

On Monday, Friday’s dramatic reversal of 400 Dow points from its low continued for another 300. Some of the Fast Money traders attributed this to the Fed’s inaction on interest rates, and Guy Adami went so far as to predict, as this writer has, that the Fed will launch another round of QE, although he said this would be the worst thing the Fed can do.

It appeared that Friday’s drop on the opening might have been due to an over-reaction by naïve foreign traders to a jobs report that all agreed was poor, including poor revisions to previous months. However, more informed traders appeared to revert to the theory that “bad is good” and to express relief that the bad numbers mean that the Fed is unlikely to raise rates by the end of the year, which is the Fed’s stated intention, one that is disbelieved by a minority who remain skeptical and cynical. Monday’s action represents follow-through from Friday’s relief rally.

However, another way to look at this is that the upward move is a more or less normal reflection of seasonality that favors the first five days of the month/quarter, compounded by the “new volatility paradigm” that makes triple-digit moves commonplace. Therefore, the action so far does not necessarily validate this writer’s thesis that the authorities – the Treasury and the Federal Reserve – will sponsor a year-end rally in financial markets.

Integral to this thesis is the idea that the Fed’s so-called “Dual Mandate” – stable prices, full employment, and financial stability – evidently the Fed can’t count to two – has in fact expanded, aided by the 2008 episode of the financial crisis, to encompass at least ten mandates.

The thesis holds that one of these mandates is bringing financial markets within the ambit of government-sponsored enterprises (GSEs), a term that used to refer mainly to Fannie Mae and Freddie Mac but extended as a result of the 2008 bailouts to encompass the TBTF banks and is now presumed to extend to so-called Systemically-Important Financial Institutions (SIFIs). Remarkably, during yesterday’s CNBC interview with former Fed Chairman Ben Bernanke, Becky Quick suggested that the Fed’s mandate may have as many as 20 elements. Bernanke insisted that all relate back to the Dual Mandate, but this is debatable and should be debated.

On CNBC, technician Rich Ross, of Evercore ISI, presents a chart illustratimg his view that a year-end rally is in store. Adami responds that the bounce Ross predicts could be even more powerful than Ross expects, but the bulls and bears will have to resolve this, and ultimately Adami would fade the rally. Evidently he is convinced by the bear case articulated by another technician, Carter Braxton Worth, that this is a bear market, so rallies should be sold.

The basic reason why a rally is needed stems from the ideology espoused by Cass Sunstein, the Mikhail Suslov of this administration, which holds that if something is a good thing to do, everyone should be “nudged” to follow suit. So if it is good to have health insurance, everyone must have it, and if it is good to have a mortgage, everyone should have one. In fairness, the administration has backed off a bit from pushing mortgages, but now it is backing mutual funds and annuities as financial products rank-and-file workers should own. How this mandate will be managed over the next year and reconciled with the Fed’s stated policy remains to be seen.

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Robert-Feinberg
The basic reason why a rally is needed stems from the ideology espoused by Cass Sunstein, the Mikhail Suslov of this administration, which holds that if something is a good thing to do, everyone should be “nudged” to follow suit.
Dow, Fast Money traders, Guy Adami, cnbc
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2015-11-06
Tuesday, 06 Oct 2015 04:11 AM
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