After stocks decline following a hefty half-point cut, what more can the Fed chief do?
Joe Lavorgna, Deutsche Bank’s chief U.S. economist, said he was surprised by the dovish tone of the Fed statement Wednesday with its focus on sustaining growth and indication that it can step in and cut rates further between meetings.
But the big issue is now the bond insurers. If they go under, the entire financial system will fall on its own weight, he said.
The focus also turns to Friday’s jobs report, which Lavorgna predicted will be inline with estimates of 160,000 new jobs and a headline unemployment rate of 5.0%. Again, the data might not be much of a boon for markets if by then it looks like the bond insurers are going to tank.
To trade in this opaque environment waiting for news on the bond insurers, Lavorgna recommended reflation trades like deep cyclicals such as chemical and railroad stocks as well as gold and TIPS (Treasury-Inflation Protected Securities).
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Trader disclosure: On Jan 30, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders: Finerman's Firm Is Short (IJR), (IYR), (IWM), (SPY), (MDY), Finerman’s Firm and Finerman Own (CROX), (HD), Finerman Owns (CROX) Calls, Finerman Owns (GS), Finerman’s Firm Is Short (LEH) and Owns (LEH) Puts Finerman’s Firm Owns (MO), (SUN), (TSO), (VLO), (WMT), (YHOO); Najarian Owns (AAPL) Calls, Owns (C), (CSCO), (ETFC), (MCD), (MS), (MSFT), (XLF), (RMBS), Calls, (YHOO) Calls; Macke Owns (ATVI), (YHOO), (DIS), (INTC)