Adding Short Exposure on the Fed Pump

The Fed Pump was our last catalyst to break through 1400. I'm going to be more negative, and if we pop to 1410, 1420 etc on S&P 500, I will began layering in even more shorts.

Since I don't know what the flavor of the day will be (strong dollar? weak dollar? commodities are great? homebuilders are great?), I'm using the broadest short I have which avoids the Dow stocks (multinationals, baby) and focuses on those needing the power of Americans, Russell 2000 (TWM). When the hedge fund computers decide if this is a time to jump right back in weak dollar plays, or to continue this recent rotation out - I'll pounce. For now - who knows what the algorithims are saying... they are probably fried.

As you see, the Fed once again is showing it is very intent on "fighting inflation" (not) In fact, I believe a lot of people (me included) are surprised there is not any stronger wording about inflation - even jawboning- it would have gotten CNBC into a lather about how "hard the Fed is fighting inflation". They [Fed] still live in a fantasy world of "lower inflation in 2nd half". I guess they will hold that line until Dec 31, 2008 and then will be forced to change the language to "lower inflation in 1st half 2009". As with kids, watch their actions not their words.

Here's my take - the Fed is afraid of deflation. Deflation gets rich people mad - it hurts people with assets the most (all their assets get devalued - think Great Depression). Inflation, on the other hand, focuses its hurt on lower and middle class - it hurts people who consume. So you can guess which side the Fed is erring on (not the peons). It's either that... or they are truly believing the numbers coming out of the government about inflation (no problemo!)... I don't know which of those 2 thought processes that the Fed brain trust seems to be using... to fear more.

Disclosure: Long Ultrashort Russell 2000 in fund and personal account

Comments

[chinooking]

first time i have read you,won't be the last ,,i like the attitude

[John Egan]

Your cynicsm stokes the fires of my Irish heritage, and caters to my French bleakness.. Thanks for the laugh!!!

jegan ;-)