Monday, September 20, 2010

OK, So Now What?

Stocks just pushed higher through resistance on Monday as traders searched for clues that either the economy was improving or the Fed would change some wording in Tuesday's FOMC rate policy meeting.

Rates are expected to remain unchanged, at ZERO, which, if one were to look at it objectively, would consider it a glorious time to take on additional risk. After all, borrowing money without any interest - or marginal at best - is accommodative to speculation, just the kind of easy credit policy which has created all the other prior bubbles.

From certain perspectives, it makes perfect sense to invest in US equities. On the side of caution are those who believe the entire Fed operation is nothing more than a grand illusion, destined to fail. In the meantime, investors simply cannot refrain from buying stocks with cheap money. Buy, buy, buy was the message delivered today, loud and clear.

The major indices have rallied through their 200-day moving average and are testing the high end of the recent range. Whether this current rally has enough impetus to surpass the highs of Spring will be known in a number of days or weeks, though there seems to be nothing standing in the way of new highs heading into the elections, despite what cynics might be assuming about the political nature of the markets.

Dow 10,753.62, +145.77 (1.37%)
NASDAQ 2,355.83, +40.22 (1.74%)
S&P 500 1,142.71, +17.12 (1.52%)
NYSE Composite 7,266.02, +111.37 (1.56%)

Advancing issues buried decliners, 4693-1152. New highs soared past new lows, 531-45. Even volume was a little improved from the sluggish levels of the past six weeks.

NASDAQ Volume 2,027,424,375
NYSE Volume 4,064,069,750

Commodities participated in the overall euphoria. Oil gained $1.20, to $74.86. Gold closed up $3.40, to another new record, at $1,279.00. Silver slid just a penny, to $20.78. Today's rally - and the general rally of the past two weeks would be more believable if commodity prices were more contained. The gains in commodities are only proving that while stocks may be favored in the short run, there's no scarcity of skepticism among investors, who are buying the precious metals and oil as protection... against exactly what, nobody seems certain. But, whether it's inflation or deflation, commodities and bonds have been rallying right alongside the stock market.

All asset classes usually do not gain or fall at the same moments in time, but, with the massive amount of liquidity being suppled constantly by the Federal Reserve, anything is possible, including re-flation, inflation and even hyper-inflation. The Fed is swimming in some very dangerous water, indeed.

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