The Way We Were: One Year Ago On March 16, 2010

HedgeFundLIVE — Let’s rewind back to exactly one year ago on March 16, 2010 and see what out Chief Market Strategist Jeremy Klein had to say on that day:

Yeah! It’s Fed Day! Today we get to sit on our hands until 2:15, notwithstanding some jockeying for position during the first hour after the Open, analysing all the different machinations available to our central bank as they convey their current stance on monetary policy via a two word phrase.

I won’t bother you with a digression about yesterday’s action in equities except to say throw the session out as it was completely worthless from a predictive standpoint save another morning sell off where for the third consecutive day, the low point of the downward action was printed later than the previous day’s thereby signaling the bears are getting more comfortable with holding their shorts.

While there might be some chit chat about the Housing Starts data at 8:30 AM, today is all about Big Ben and the team. With no chance of a fed funds rate hike and an additional move up in the discount rate unlikely as the FOMC indicated they will “assess over time” whether the 50bps penalty spread between the former and latter is appropriate, the focus, as it usually does, will shift to the text released from today’s meeting.

Specifically, everyone from Bill Gross to our trainees here at TFG will scrutinize the phrase “low levels of the federal funds rate for an extended period.” Quite simply, an accompanying statement that includes those exact words or changes to something less extreme, such as “some time,” provides the two main potential scenarios for what we, as traders and investors, will concern ourselves with.

The consensus calls for the Fed to keep the current verbiage of “extended period” for today with an adjustment coming during the April 28 meeting. Certainly, this reasoning is understandable, for the economic data has remained decidedly mixed and largely unaffected since the January 27 meeting; so much so, that I expect the text to continue to speak of a slowly improving economy with soft labour and housing markets as last month’s snowstorms dragged overall activity.

If the statement ultimately delivers the expected, then I would envision the market to whip around a bit before resolving itself modestly to the upside for the remainder of the afternoon. If the group-think falls down and we do get a change in words describing the duration of the current accommodative state, then stocks, led by Financials, will encounter problems. It matters little what the new phrase du jour the Fed uses because the only shift from 100% easy monetary policy is something not 100% easy.

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