The Not So Graceful Fed

The Federal Reserve chose our scenario number one which was an increase of 25 basis points and a hawkish statement. Key phrases such as "measured pace" were left in the text. Clearly the Fed is VERY concerned about recent inflationary pressures.

We predicted that the Fed would indeed be more concerned with inflation as opposed to growth. However, we were surprised by the pathetic attempt to throw the Bulls a Katrina bone. Our hopes were that the language in the text would offer more comfort to the stock market in regards to their awareness of potential economic softening. Essentially the Fed went on and on in a rather nonsensical description of Katrina, only to negate their pretend sympathy by reverting back to prior hawkish language.

We immediately interpreted this as negative news and scaled back our positions dramatically. Positions that we exited include NASDAQ 100 Trust (QQQQ), Texas Instruments (TXN), Intel (INTC), and Google (GOOG). Currently we are Bearishly positioned at 25% invested.

The Fed had an opportunity to walk the balance beam, but in our view they slipped hard and are now performing a new painful straddle position, and we're not talking options.

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