The Day Ahead: Test the Fed's Voodoo

Have a grand weekend? I would hope so -- the weather was glorious for those of us on the East Coast. As for me, I had a mild run-in with three trench coat-wearing teenagers in the mall. They were playing creepy, voodoo-like cards at a table near the food court, and after two of them caught me grinning in their direction, they proceeded to shoot over a bunch of interesting hand and arm gestures.

What's with kids these days anyway? Had I done that as a teenager, an adult would surely have struck me upside the back of my head.

Still, I am thankful for this teenage sign-language exercise, as it got me thinking that the market is poised to test the Federal Reserve's latest round of voodoo for the first time. I coin it "voodoo" because, honestly, have you ever met the individual responsible for conducting "X" number of monthly bond buys? Of course you haven't. You can't buy that experience on eBay (EBAY) -- you can only watch it from afar as you witness changes in all sorts of asset prices. Seeing as the weekend presented virtually no new reasons to sell the rally, it's worthwhile to follow along as I test whether Bernanke's fairy dust has staying power, or whether it's falling atop an animal that will die regardless of what he does.

Testing the Voodoo: Macro

The problem on the macroeconomic front -- and I'd harped on this throughout August -- has been the weakening trend in new orders in countless manufacturing reports. Prior to the Fed's fairy dust, this had been growing as a considerable risk to the back-half economic outlook. That's been captured in the language of the first paragraph in the Fed's recent policy decision.

This week, we are starting into the barrels of the Empire State and Philly Fed manufacturing reports, both of which are unlikely to show a marked improvement in new orders. Should the disappointment on new orders be sustained, and should stocks trade higher regardless, this would show the fairy dust is working -- thus gaining support for the bulls. Even if we see sluggishness on the Philly Fed's employment index for another month, there is a strong chance it will be written off, given the obsessive focus by Bernanke and Company on one side of their dual-mandate coin.

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