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I think we all know now what the Fed is thinking. Ben is happy to add more liquidity to the system but is constrained by a group that needs to see bad data before they can support him. I think it is pretty straightforward on the economic data front. Bad data, particularly in jobs and housing will make the Fed react, but it will take some actual bad data, not just "blah" data like we have had the past few weeks.

The bigger question is how quickly would Ben respond to a decline in the stock market?

Although the Fed made it clear they focus on the economy, there is strong evidence that they would react to a downturn in the market, but I think they would be reluctant to move unless we saw a significant move. Without weak data, I don't think the Fed is in position to do anything until the S&P 500 broke 1,300 and bank stocks were under pressure. So there is a Bernanke put, but I think that put is much farther from "spot" than many investors believe.

Now that the Fed is out of the way, what else is there? Pretty much just the ECB is left with any near term ability to "fix" the markets. The IMF has raised its "firewall". What the firewall accomplishes is beyond me, but in any case, rumors of a big firewall cannot help the markets anymore, so it really is going to take the ECB to provide any form of government or central bank stimulus. Otherwise we are left with earnings, which as I said on Bloomberg TV last night, are okay, but not great. There have been some big "beats", with AAPL being the most obvious, but there has been some weak guidance, and pretending that analysts don't set "beatable" numbers is a bit silly. The game is clearly to set estimates that companies can "beat" them, so unless it is an extremely big beat, don't get too excited, and we do also seem back to a stage where some of the biggest earnings beats have been from companies that took great pains in what they categorized as recurring or one-time charges.

Yesterday's short covering rally in Europe seems over. Today in CDS, Spain is 10 wider, at 475, while Italy is only 3 wider, helping confirm that most of yesterday's price action was short covering as the most illiquid and most "beat up" names outperformed. Spanish 10 year bonds are back out to 5.85% and briefly getting below 5.7% yesterday. Remember when 15 bps was a week's worth of trading, and not 24 hours? That continued lack of liquidity remains a concern.

The economic data this morning should move the markets, and for once, I think bad news will be bad, and good news will be good, as the Fed's position is pretty clear.

Then we will likely spend the entire afternoon tracking moves in AAPL, since if not yet at the stage of "national pastime" is certainly the main thing for traders to focus on in the absence of any other news.

Fixed income ETF's performed extremely well again yesterday, with both HY ETF's doing extremely well. I cannot find much to like about HYG and JNK at these prices. The underlying bonds that drive the yield are getting sketchy at these prices. While high yield still offers value, I think it is key to find some alpha as most of the beta has been squeezed out. Looking for specific credits and specific bonds for those credits is the most important it has been in at least a year (from the long risk standpoint).

Source: The Fed Clarifies And The Market Yawns