The 'See-Over Trade'

At an event last night to raise money for a fine charity, Wounded Warriors Family Support, a roomful of hedge fund traders were talking about the two big questions: 1) what the Fed will do post-QE2, and 2) why the market is holding up so well despite Europe and signs of a slowing economy in the U.S.

On the first question, most felt that the Fed would not walk away, but would find some way to keep rates low, be accommodative, and—if really needed—create a new buying program.

On why the market is holding up so well, several factors were citied in addition to the Fed's continuing accommodative stance:

1) the "see-over trade:" growth will reaccelerate in the second half of 2011, so that allows you to "see over" bad numbers now (sounds like 2000 and 2007, doesn't it?);

2) the Fed's action will keep the dollar weak, which creates a mechanical trade in favor of commodities and commodity stocks;

3) we are going into an election year, there is no way anyone in Congress or the White House is going to allow the economy to sink on their watch (unemployment extensions, anyone?);

4) there's just no where else to put money, unless you believe in Armageddon and go entirely to cash or gold. We keep printing money, but there is no place to put money. It's not an intellectual choice, investors are being forced into the market.


1) the G8 leaders (U.S., France, Germany, Italy, Japan, U.K., Canada, Russia) are meeting on a boardwalk (Deauville, France); they are insisting global growth is accelerating. The euro is stronger.

2) Pharmacy benefits manager Medco Health loses a big contract from Blue Cross Blue Shield's Federal Employee Program next year to rival CVS Caremark . That program provides $3 billion in revenue to Medco (but less than 10 percent of total revenues), with 9.8 million mail order prescriptions. Medco drops 13 percent on the news, while CVS Caremark rises 6 percent.

3) Tata Motors reported better-than-expected full-year results, but shares are being pressured by 2 percent over shrinking margins for the Indian automaker.

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