Fast Money - Fed's New Rules (12/16/08)

Recap of CNBC's Fast Money, Tuesday December 16.

Fed Cut Bounce: Best Buy (BBY), Microsoft (MSFT), Intel (INTC), Arch Coal (ACI)

On the Fed’s dramatic rate cut, stocks soared as Best Buy buoyed technology stocks with its strong earnings report and Nasdaq names Intel and Microsoft shone. Jeff Macke said the rate cut was a sure thing, but he was surprised at the size of it. Karen Finerman commented reducing debt is good for consumers, but she is concerned about inflation. Guy Adami said an S&P above 900 is a bullish sign and he thinks the index could reach 1100 by the end of the year. Tim Seymour doesn’t think the market has improved fundamentally, but the weaker dollar may provide opportunities. Macke likes Arch Coal as a trade.

Goldman Sachs (GS) Still Shines

In addition to the rate cut, financials were helped by a Goldman loss that was not as deep as feared. Finerman doesn’t think, however, this means an immediate recovery for financials. Seymour would buy Regional Banks HLDRs (RKH).

Going Home: Toll Brothers (TOL), Lennar (LEN), D.H. Horton (DHI), Homex (HXM), Gafisa (GFA), Empresas ICA (ICA)

Housing stocks Toll Brothers, Lennar and D.H Horton closed higher on the Fed’s commitment to keep mortgage rates low, but Macke said he would stay away from the sector and would not even short it. Karen Finerman thinks the jobs number coming up will put a damper on the housing rally, since no one can buy a home without a job. Tim Seymour would look at emerging market housing plays Homex, Gafisa and Empresas ICA. Adami thinks the low rates will force inventory lower and will be good for homebuilders.

McDonald’s (MCD), Acuity Brands (AYI), Agnico-Eagle Mines Limited (AEM), Gold Fields (GFI)

The dollar fell on the Fed rate cuts, and Macke said he sold McDonalds and didn’t short any stocks. While there is already a significant short interest Acuity Brands, Adami would short the stock. Tim Seymour thinks gold miners have moved too far too fast and would short AEM and GFI.

2009 Might Be Rough

Doug Cliggot CIO of Dover Management thinks the Fed rate cut is not a blank check to be bullish. He would tell those not holding stocks to sit tight because there is too much risk. For those who are not satisfied with just cash, he would choose corporate bonds rather than stocks. For those who do own stocks, he would stick with consumer staples and utilities. The coming year might be dangerous because “we have no idea what the hedge funds are going to be doing early in the year.” He thinks 2010 might be a safe enough time to buy stocks.

PIMCO CEO Speaks

Mohamed El-Erian, head of the world’s largest bond firm said one word in reaction to the Fed cut, “Wow!” followed by, “They're not only saying effectively we're going to zero and we're going to stay there for some time.. but they're saying they're going to buy whatever they need to buy and blow up their balance sheet."

El-Erian discussed some possible unintended consequences; “The simple one is that the currency comes under pressure. The more difficult one is the outcome of messing around with market relationships.”

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