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The Reflation Trade Gets Real

The reflation trade gets real. Is everyone listening to Ben Bernanke? He's made it clear that 1) in housing, he's buying mortgage backed securities to get rates down, 2) in the private credit markets, he's buying Treasuries, and 3) in consumer lending, he's helping out with the TALF program.

You can say it's wrong, you can say it's not enough, but you can't say they are doing nothing. And the implication of this is that it is making the "reflation trade" a lot more real.

The "reflation trade" is based on the theory that the combined global stimulus efforts are designed to "reflate" the value of all assets. Therefore, buying hard assets and the stocks around them are the way to go.

Few traders disagree with this idea, but many argue it is way too early to play this trade. Deflation will remain an issue for months, if not a year or more, the skeptics argue.

Others are willing to play the game now, if only for a lack of investment ideas.

It's been a hell of a rally. At the open, the S&P 500 was 20 percent above the March 6th lows. Lowry, the oldest technical analysis service, noted that this was the best performance of any rally since the bear market began.

Demand has been strong: there has been three 90% upside days since the March 6th low.

The big issue is sellers. Selling pressure is easing, but they are still lurking, as witnessed by the mid-morning selloff in financials.

Remember, everyone—bulls and bears alike—agreed that we would see a big rally.

Now we've had it. The difference is that bears insist we will go back and test the lows. And that is still the majority opinion.



Questions? Comments? tradertalk@cnbc.com

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