Today the Dow broke a record and will likely finish the day with a record high. Some thoughts on a Fed driven rally.

Many of us have watched the climb of the stock market since March of 2009 with a general sense of of unease.  We’ve watched our central bank, the Federal Reserve, do all that it could/can to move shares up. Every time the markets faltered the Fed came to the rescue and dumped piles of cash on Wall Street. Check out this chart of the correlation between the Fed’s printing efforts of the past few years and performance of the S&P.

SP QE cc

The Fed wasn’t supposed to do this. When I started trading the idea that there was a Fed “plunge protection team” out there was total conspiracy theory territory.  But by just looking this chart it is fairly clear that if there wasn’t an effort to protect against plunges before, there certainly is an effort now. We have taken leave of the market in the market. A politburo in the form of the FOMC has taken over economy.

Earnings etc still have an important role in the stock markets, but far more important on an aggregate level is whether the Federal Reserve will continue to print money, raise interest rates, and so on.

But hey, that’s reality. Lesson 1 on the Street—”Don’t fight the Fed.”

Our stock markets are now as much political tools as anything. If stocks rise the monied classes don’t complain as much. This is a vital lesson our government has learned over the years. It’s what got Obama re-elected in my opinion. Had the Dow been kicking around 8K in November it is extremely unlikely that Mr. Obama would be president today.

So enjoy the new highs. Who knows maybe we’ll continue to move higher. But know that the honesty of the market (what was left of it) has been a casualty during this rally. That may not matter to many as they watch their 401ks plump up, and don’t get me wrong I enjoy it as much as anyone, but the death of the market driven market matters to me and it should to anyone who believes in fair play. (A quaint concept I am aware.)

27 comments
Reticulator
Reticulator

What do Ben Bernanke and Lawrence Welk have in common?  A. Bubble machines.

John Watts
John Watts

If drawn with constant value dollars, it would be DOWN.

Louis C Carl
Louis C Carl

Am honestly confused but expecting bad things, really bad things. Selling index funds, buying silver.

Jo Anne Buchanan
Jo Anne Buchanan

What goes up will go crashing down whenever they see where the economy is going.

Alan Goos
Alan Goos

Straight inflation does show up in the stock prices. If the price of post-its goes form 1 dollar to 2 dollars due to inflation 3M's price to earnings will shift down, and More people will buy it at the bargain price of whatever it was. Gold doesn't /produce/ anything people want. Stocks are a better inflation hedge, in my humble opinion. Government money is loose, Bank money is tight (dodd-frank and basal 3): http://www.nowandfutures.com/key_stats.html Look at the graphs under "total money" even with government debt factored in growth in the money supply has been /slower/ than it has been in decades. We're a ways away from hyperinflation people. Relax a bit.

Alan Slavens
Alan Slavens

Then a woman in Nebraska will fart and it will plunge again. After a man in Idaho coughs it will go up again.

Ron Patterson
Ron Patterson

This is where the inflation is hiding , for now , when rates return to the " real world " the dow will crash and so will everything else that's based on currency value or interest rates.

Harold Basco
Harold Basco

I'd say it's time to dump what's left of your portfolio that you were holding onto hoping this would happen...

Kenneth Wilson
Kenneth Wilson

Have some make believe = +200% of the money supply printed and distributed, QE3 now +40B per mo makes this bubble http://www.bing.com/images/search?q=money+supply+chart&id=DEA299755DDC76569BC757030AB29AD1B2C9735C&FORM=IQFRBA#view=detail&id=DEA299755DDC76569BC757030AB29AD1B2C9735C&selectedIndex=0

Sterling Walsh III
Sterling Walsh III

Another boom just waiting to bust. and what will be blamed? the free market.

A.w. Till
A.w. Till

It's to make people feel good where they will presure the Republicans on raising the debt limit!!!

Eric Elkins
Eric Elkins

The Republicans are just as guilty of the corruption in DC as the Democrats Gary. Instead of drawing lines in the sand between bought and sold political parties, how about drawing a line between justice and corruption regardless of what lapel pin the a-hole wearing?

Neil Storan
Neil Storan

that's gonna be a big day when the fed runs out of ink

Gary Griswold
Gary Griswold

The minute congress cuts off the fed funding it will crash. Oh, but it will be the evil republicans at fault. Watch the spin:o/

Kem Post-Noreiga
Kem Post-Noreiga

I guess Ben, the good ole Fed Chairman, is printing $$$ like crazy. Haven't these politicians taken micro & macro economics?

Rodney Carr
Rodney Carr

Bids on government jobs will save money.

Charles Seeburger
Charles Seeburger

Yep! It's reaching levels it hasn't touched...since two months before the last melt down.

Matthew Surenko
Matthew Surenko

I thought the highest the dow has gotten was 17 k years ago !

Francisco Framil
Francisco Framil

Another Fed created bubble ready to burst, as the true economy wont sustain it...