Which Way Wednesday – Waiting on the Fed – Again

Dave Fry drew the line and all we have to do is break over it today and we're at new all-time highs on the S&P 500.  It is widely expected that the Fed will begin to "taper" today, cutting their $85Bn monthly injections of cash into the markets down to about $70Bn – so they'll "only" be pushing $940Bn a year into the system – not over $1Tn anymore.  

Even the thought of this small change has sent commdoities lower – notably gold, which has fallen back to the $1,300 line with silver at $21.62 and copper at $3.25, which is down 13% from $3.75 at the beginning of this year and indicates that this market rally (up over 20% for the year) has nothing at all to do with demand and everything to do with supply – of money!!! 

MORE FREE MONEY is chasing the same amount of stocks and bonds (consumer and corporate spending are flat so it's not going into goods and services) and that's depressing the rates bonds need to pay to attract the deluge of cash while pumping stock prices to the moon and beyond.  So much so that the McClellen Oscillator is now pegging the most overbought it's been since mid July, the last time the S&P topped out (1,709 was the 8/2 high). 

We went over the ramifications of this our Member Chat Room this morning so I won't re-hash it here but it's something we're going to be paying very careful attention to today.  We remain bullish for the moment (see last Tuesday's post) but also skeptical that we'll be making those new highs – or keeping them, at any rate…

No, this is not a chart of One Direction fans vs how much skin Miley Cyrus keeps covered, this is a chart of the Monetary Base of US Dollars ($2.7Tn, up from $800Bn in 2009) vs the CPI (lower) over time.  

IN PROGRESS

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