Cheap money from the Federal Reserve could spur the economy, but contrarian trader Steve Cortes said Thursday it was time to get defensive.
Veracruz founder and author of “Against the Herd,” Cortes pointed to a drag on stocks despite positive news this week as a sign.
The S&P 500, he noted, was up only 8 points — “not even a percent” — despite stellar earnings from Apple and a Federal Reserve announcement that it would keep interest rates at current historic lows into 2014.
“So far, at least, the response has been very underwhelming, and the reason is because monetary policy is like a narcotic: The more you take it, the less it works. And we’ve seen this with each application from the Fed,” he said on “Fast Money.” “I think what the Fed is telling us, in fact, is that they are seriously worried about a Japan-type scenario.”
Cortes said the Fed was “actually taking us close to that precipice” — and as a result, equities were reacting.
Brian Kelly of Shelter Harbor Capital disagreed.
“The Federal Reserve — the guy who has the printing press — has told me: Assets are going to go up. That’s his whole plan. Asset growth equals economic growth. That’s all he can do. He’s the only one who can do it. So why am I going to fight the Fed? I want to buy assets,” he said. “Commodities are going to rip. Stocks are going to rip. And I even think U.S. Treasury bonds are going to rip.”
Kelly made a bull case for assets following the Fed’s move.
“You print enough money, I guarantee you, asset prices will go up - might have to print a couple of trillion; I don’t know how much it’s going to be,” he said. “But what the Federal Reserve told me yesterday is they are willing to print as much as it takes to make sure asset prices go higher.”
Cortes looked to a narrower field of assets to make his case.
“So far the asset that has gone up since that announcement has been bonds, where I’m long and adding to longs,” he said. “I’m saying that the place to run is going to be into safe yield: Tobacco, utilities and absolutely into bonds.”
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Trader disclosure: On Jan 25, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Najarian is long AKS; Najarian is long BAC; Najarian is long PNC; Najarian is long WFC; Najarian is long GDX; Najarian is long NFLX; Najarian is long MSFT; Najarian is long IBM
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