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Does The Fed Know Something The Market Doesn't?

Tuesday, 10 Aug 2010 | 5:51 PM ET

The latest move by the Fed to bolster the flagging economy led some investors to wonder if the Fed knows something that they don't.

Specifically, the U.S. central bank said it would begin funneling proceeds from its maturing mortgage bonds into longer-term government debt in an effort to support the sputtering recovery.

Although stocks bounced from their session lows Tuesday on the news they still closed in negative territory.

The stock market's lukewarm response suggests to Deutsche economist Joe LaVorgna that investors do not find the move soothing -- or for that matter bullish.

"I think the market takes the move to mean the Fed is effectively questioning the recovery," he explains on Fast Money.

LaVorgna thinks the action is really more symbolic than anything else; that it really doesn't do anything. However it does lead to speculation that the Fed knows something that Wall Street doesn't.

"I wish they had left well enough alone," LaVorgna adds. "Instead they're tinkering with it and now investors will now start to wonder how strong will the second half be? We run the risk of amplifying investor worry."

Analyze This: Fed Do the Right Thing?
The Fed may have made a mistake, says Joe Lavorgna, Deutsche Bank.



* Hear more from Deutsche economist Joe LaVorgna. Watch the video now!


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Trader disclosure: On Aug 10, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Terranova owns (AKAM), (BAX), (FCX), (MOS), (PFE), (SU), (XBI); Terranova owns (GLD) Calls; Seymour owns (AAPL), (BAC), (GOOG), (POT); Finerman owns (AAPL); Finerman's firm owns (ARM); Finerman & Finerman's firm owns (BAC); Finerman’s firm owns (BBY); Finerman's firm owns (LEA); Finerman’s firm owns (KFT); Finerman & Finerman's firm owns (JPM); Finerman & Finerman's firm owns (RIMM); Finerman’s firm owns (TSX); Finerman’s firm owns (GYMB); Finerman’s firm owns (PLCE); Finerman's firm owns (WMT); Finerman's firm owns (DAN); Finerman's firm is short (IJR); Finerman's firm is short (MDY); Finerman's firm is short (SPY); Finerman's firm is short (IWM); Finerman’s firm owns S&P 500 puts; Finerman’s firm owns Russell 2000 puts; Pete Najarian owns (CSCO) call spreads; Pete Najarian owns (CTRP) calls; Pete Najarian owns (GS) calls; Pete Najarian owns (RIMM) call spreads; Pete Najarian owns (AKAM) calls; Pete Najarian owns (HPQ) calls spreads; Pete Najarian owns (V) call spreads

For Brian Kelly:
Accounts managed by Kanundrum Capital own (GLD)
Accounts managed by Kanundrum Capital own (TLT)
Accounts managed by Kanundrum Capital own (PFE)
Accounts managed by Kanundrum Capital own (C)
Accounts managed by Kanundrum Capital own (GDXJ)
Accounts managed by Kanundrum Capital own (MED)
Accounts managed by Kanundrum Capital own (ANDE)
Accounts managed by Kanundrum Capital own (ORI)
Accounts managed by Kanundrum Capital own (INTC)
Accounts managed by Kanundrum Capital own (ECA)
Accounts managed by Kanundrum Capital own (UNG)
Accounts managed by Kanundrum Capital own (SPY) Puts

For Hugh Wynne:
Wynne maintains a long position in Duke Energy Corp. (DUK)

Accounts over which Bernstein and/or their affiliates exercise investment discretion own more than 1% of the outstanding common stock of the following companies EIX / Edison International.

The following companies are or during the past twelve (12) months were clients of Bernstein, which provided non-investment banking-securities related services and received compensation for such services AEP / American Electric Power Co Inc, D / Dominion Resources Inc, DUK / Duke Energy Corp, EXC / Exelon Corp, FE / FirstEnergy Corp, PCG / PG&E Corp.

An affiliate of Bernstein received compensation for non-investment banking-securities related services from the following companies AEP / American Electric Power Co Inc, DUK / Duke Energy Corp, EIX / Edison International, FE / FirstEnergy Corp, PCG / PG&E Corp.

In the next three (3) months, Bernstein or an affiliate expects to receive or intends to seek compensation for investment banking services from AEP / American Electric Power Co Inc, D / Dominion Resources Inc, DUK / Duke Energy Corp, EIX / Edison International, EXC / Exelon Corp, FE / FirstEnergy Corp, NEE / NextEra Energy, PCG / PG&E Corp.

Dennis Gartman
***No Disclosures***

Peter Boockvar
***No Disclosures***

Simon Leopold
***No Disclosures***

Joe LaVorgna
***No Disclosures***

Scott Natons
***No Disclosures***

CNBC.com with wires.

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