About Me

Retired chief investment officer and former NYSE firm partner with 40 years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Thursday, May 30, 2013

Stock Market -- Short Term

Technical
The blow off trend from the April low of SPX 1542 has been broken, leaving the market
trying to build short term support around the 1650 level. The primary trend channel up
from the Nov. '12 low expanded earlier in the year and is now running SPX 1590 - 1660.
So, as of today, the SPX is still running right near the top of the channel and remains
extended despite the minor pull back over the past week or so. SPX Daily

The extended time period MACD has worked well in this cyclical bull to help determine
turning points in the market, but check out the whipsaw action in evidence since late Feb.
of this year as the market has continued to power ahead. The MACD is currently very
overbought and there is a suggestion it could roll over again. The better gauges in this
run have been the trend helpers such as the 10 and 25 day moving averages. Reading them
suggests the first step to a correcion would be for the 10 day m/a to break below the 25.
Then we would have to see if the market weakens enough to lead the 25 m/a to roll over.
As of today, the rally, although extended and overbought, is still intact.

Fundamental
There is way too much jibber - jabber from the Fed governors including some recent
semantic sleight of hand by cousin Benny himself. Continued slow economic and jobs
growth coupled with low inflation suggests the Fed, by its own criteria, should continue
its current QE program.

My weekly cyclical fundamental indicator (WCFI), after rising sharply over Dec. '12 -
Jan. '13, has not been able to sustain above levels reached in early Feb. The SPX has
run 10% higher since then, and with no material acceleration of the economy to report,
the bulls are running with the QE ball with a number of players figuring they have a
"lock" on further SPX gains since growth anemia is not seen as likely to threaten the QE
program while flat corporate profits are not a pressing issue yet.

Tuesday, May 28, 2013

My Analog For Current Times : 1932 - 37

I took another long look at the 1932 - 37 era of the Great Depression, when the economy,
profits and the stock market came off the '32 lows on the wings of massive QE by the Fed.
This epoch  compares nicely to the current 2009 - 2014 era. Over the former period, a
post traumatic syndrome struck nation experienced growth stall outs and weak stock
markets when the Fed relented on QE just as we have seen in recent times. Back then,
credit was scarce in the system and public confidence was low just as we have experienced
over the past few years. So, then as now, monetary liquidity was the life blood of the
economy. There was a final QE surge over the 1935 -36 period that pushed up production
and earnings, and with investor enthusiasm running high, the SP 500 rose to 18 x net per
share by early 1937. With the punch bowl removed in '37, the economy went into recession
and the stock market tanked. It was years before the market regained the bullish magic. If we
press the analog, we would expect the QE punch bowl to be removed before the end of
2013 and for the market to hit a major cyclical top in 2014.

My concern recently is that the US economy has been responding anemically to the current
big QE program which we cannot say for the 1932 - 37 era when FDR was tinkering with
fiscal stimulus programs and production growth, though volatile, was more robust. As well,
the debt load was lighter back then, too.

The very limited case history I am using would suggest that the stock market could well
remain exceptionally strong until the Fed shrinks or eliminates the big QE program now in
force provided there is sufficient economic progress in real  terms to keep investor
confidence on a positive bearing. Ironically, and here is where the analog with the 1930s
could break down, a significant acceleration of real economic growth coupled with a degree
of cyclical inflation could actually punish the stock market as some players would worry
that the current liquidity gravy train would be derailed. And, I suppose, such a correction
could occur.

Right now, with big QE laid on and a low investor threshold for what is good enough
economic progress, the market rolls on up just as it did from early 1935 to early 1937.

Saturday, May 25, 2013

CBOE Stocks Put / Call Ratio

The CBOE all equities put / call ratio is a measure of market sentiment which
represents real money on the table from market players. CBOE Equities Put / Call

Note that when the weekly P/C drops below .55 it signals relatively heavy net
call buying and that it tends to foreshadow topping action. Note as well that when
the 13 week P/C ratio gets down to the .60 range, it tends to coincide with market
tops reflecting overly bullish bets. Fast corrective action last week and back in
mid- April has kept this indicator from flashing a strong and tradeable market
overbought (13 wk. reading of .60). Traders with skin in the game are bullish no
doubt, but are fast to alter bets when the tape gets wobbly. Something to keep in
mind.

Friday, May 24, 2013

Stock Market -- Weekly

Fundamentals
1. The market normally responds very positively to quantitative easing by the Fed. There
is a powerful QE program underway which has been the primary source for the powerful
market rally underway since late 2012. The surge of monetary liquidity into the financial
system has been strong enough to encourage determined push-back from the conservative
members of Fed's board, but, since the economy has so far responded only anemically
to the program, the Fed's "hawks" have been held in abeyance.

2. QE faces important economic headwinds now including much sharper fiscal drag, a
still strongly conservative banking system and a business sector which has remained slow
to hire and even slower to reward labor productivity. There appears to be a growing number
of stock market bulls who are happy to tolerate very sluggish business sales and earnings
growth on the premise that a continuing meek economic expansion will keep large scale
QE in place and allow excess liquidity to flow into equities and some other assets, such
as housing prices. Players have been using this rationale to chase stocks higher, figuring
the continuation of QE will provide a large stream of liquidity to support the inflation of
the market. Good luck with that. Meanwhile, since a meaningful re-acceleration of real
economic growth is not yet suggested by my favorite leading indicators, I am reduced
to hoping such will show up soon.

Technical
The weekly chart shows the SPX in a powerful uptrend since the latter part of 2011. The
strong market is both heavily overbought and extended, but the indicators have yet to
signal that a break down is in store. SPX Weekly

I also have a link to the cumulative NYSE adv / dec line. The market tends to stay on a
positive course so long as the weekly a/d line can stay above its 6 week simple moving
average. NYSE Advance / Decline

Thursday, May 23, 2013

Stock Market Sentiment

I have been tracking advisory and related market sentiment for longer than I would
care to remember. This type of data is helpful in determining when attitudes are
either too bullish or too bearish, but is not so helpful when it comes to shorter run
trade timing decisions. Sentiment is too bullish now, and on balance, is the most
bullish since 2007. Even so, % bullish measures lag the very high readings of the
1990s. What I watch for from a timing perspective are occasions when the bulls
start leaving the party even as the market goes up. Not all advisors and investors
are dummies, so on the premise that the smart money leaves early, you watch for
overly bullish sentiment begin to fade ahead of the market. Sometimes the fading
process happens rapidly, but you can often find yourself with a little headstart. Right
now, sentiment is too bullish but it has been relatively stable since it moved to excess
in Feb. of this year. You can check in here weekly and keep your own data and charts.

NIKKEI....

I did some long side trading in the $NIKK following the 2011 quake / tsunami partly
because of the old maxim that chartwise, all price gaps get filled. The trades were
ok, but it took quite some time for the market to fill the gap down in price that came with
those horrible events. Japan has taken a turn to heavy duty QE in an attempt to bolster
its very low growth and to shake off deflation pressure. This move has triggered a
parabolic run up in the NIKKEI since last Dec., a run which has created one of the
strongest overboughts ever seen in the modern era for a major market. On its way
up, the index experienced several gaps up in pricing and you have to wonder whether
and when the larger gaps will be filled by corrective price action. $NIKK Daily
Truly rowdy stuff.

Tuesday, May 21, 2013

SPX -- Daily Chart

After the SPX fell to 1542 on 4/18, a new, supercharged postive move was started to
add to the decently strong rally in place since 11/12. The sharp trajectory of this new leg up
coupled with the mild erosion of trading volume suggests a blow off move where poorly
disciplined traders flat chase stocks higher as prices are marked up steadily ahead of them.
So, we have a well defined powerful advance which has grown progressively overbought
and more rowdy. Just to give you a feel for how this advance has gone, there is 6 month trend
support all the way down at the 1580 level and longer term cyclical trend support down around
1470. Thus, there could be a correction as large as 12% without a violation of the primary longer
run trend. SPX Daily Chart

Sunday, May 19, 2013

Economic & Profits Indicators

Leading Economic -- Weekly
Both sets of weeklies were strong over the Jun. '12 - Feb. '13 period. The uptrends have
broken and both WLIs have turned flat since Feb. These indicators can be volatile, but
right now no acceleration of economic growth is indicated. Monthly new order data
from purchasing managers has followed a similar pattern.

Coincident Economic -- Monthly & Weekly
The monthly series from Economic Cycles Research (ECRI) shows good progress for
the economy over the second half of 2012, but has been flat since, indicating growth
acceleration has gone into eclipse. The weekly series shows ever so mild progress so
far this year (BOJ).

My Customized Coincident Economic Indicator
It follows others, but I use total civilian employment and real take home pay instead of
payroll and wage data. Measured yr/yr, the economy is performing well when the %
change is 3.0 or stronger (last seen in 2011). Currently my coincident indicator is up
but 1.2% yr/yr. This reading may be lower than others you see because I have factored
in the recent increase in the payroll tax from 4% back up to 6%. By my measure, the
basic economy is in a cyclical growth momentum downtrend dating back to Feb. 2011,
when the indicator posted a strong 3.8% reading. The main problem areas continue to
be slow employment growth and a progressive deceleration of real take home pay
into negative territory. This is a very dreary economy.

Profits Indicators
S&P 500 12 mo. net per share is running close to $99.00 going into May. April was a
weak month for profits yr/yr as both volume growth and pricing power were low.
Margins may have also been clipped for industrial companies as the price / wage
measure was unfavorable.

There will needs be a considerable acceleration of top line growth ahead to move S&P
net per share off and up from the $100 annual level now in evidence. Many players are
confident that nearly global QE from the world's central banks will result in stronger
global economic progress. Not quite yet, but devoutly to be wished for.

Friday, May 17, 2013

Gold

Longer term readers know I have been shorting the gold price periodically through
ETFs since Oct. '10. I have used small positions to generate good profits but have put
more capital to work after gold broke down so badly to the $1350 oz. level. I closed
out another short today figuring the gold bugz would scramble to hold support again
down around the 1350 level. At $1364, the spot price is now about 17% below its
40 wk m/a and since I regard -20% the 40 wk m/a  as a very large oversold, I had
another reason to book the gain. Weekly Gold Price

The bugz will be fortunate to escape another test of the $1350 level which is likely to
come sooner rather than later. The chart shows my view that the new battlefield for gold
is the $1550 - 1350 level. A simple view of the chart suggests this range could be in
place for an extended period, but as I said last month, gold is simply too volatile to
expect that to happen. And here we are already set up to test the lower end of the band.

There continues to be strong rotation out of gold and into equities. SPX Relative To Gold
The new QE program has been a boon to stocks but not to gold because the QE program
is bound by a relatively tight upper limit for inflation and because the CPI itself has
decelerated sharply from a cycle-to-date peak of 3.9% yr/yr for Sep. 2011 down to 1.1%
recently. This rotation is fabulously overbought as traditional equities players have left
gold to return to the old homestead. It will be fun to watch the relationship going forward
as gold is deeply oversold while stocks are getting heavily overbought.

Thursday, May 16, 2013

30 yr Treasury Bond

First up is a link to the 5yr. daily chart for the long guy. US 30 yr. Treasury % Yield

The downward break in the yield range of 4.70 - 3.50% over the second half of 2011
in part reflects the increase in confidence the Fed would continue to maintain a ZIRP
policy for short rates. But the sharp downtrend in the long Treasury yield from 2011
through the first half of 2012 also heavily reflects a deceleration of the growth of
industrial production, weaker sensitive materials prices, a fall in the factory operating
rate and, not least, a sharp deceleration of the CPI measured yr/yr.

Since mid - 2012, there has been a minor pick up of industrial output and sensitive materials
prices. Those two factors alone account for some of the muted recovery of the 30 yr.
yield, but I suspect the major factor was the kick off of a new and aggressive QE program
by the Fed. QE is seen as bearish for the bond market because players presume it will
lead to faster economic growth and inflation. However, the rise in the long Treasury yield
has stalled recently because economic and inflation data have started to turn soft despite
the large, still relatively new QE program. Treasury players are no longer so sure that
QE will work to push the economy to faster growth and that higher inflation will result.

Sensitive materials prices have been more stable recently, and oil and petroleum product
prices have started to move back up. Thus the downward pressure on the inflation rate is
likely to ease and this plus the ongoing large QE program is likely to keep bond traders
hesitant to jump in and push yields down hard. The wild card now is whether the fresh,
weaker economic data is a fluke or not. The volatility in the long Treasury yield in the range
of 3.25 - 2.80% could continue for several more weeks as traders sort out the economic data
ahead.

The current message from the Treasury market to the equities market is to be more
circumspect.

Wednesday, May 15, 2013

Stock Market -- Perhaps For You, But Not For Me

Economic progress in the US is just too slow and fragile to hold my interest on the long
side of the stock market. My proxies for US business sales are growing only about 2%
yr/yr which is way below a respectable growth rate of 6% (to include inflation). Despite
the very large $85 bil. per month QE program from the Fed, there continue to be
headwinds that are curtailing progress, most notably growing fiscal drag, declining real
incomes for wage earners, a business sector that has been too cautious and neglectful of
the workforce except for those at the top, and a banking sector still too preoccupied with
maintaining liquidity and rebuilding capital. Companies can still find ways to slash costs
and maintain margins, but for now the economy is too doggy to support confidence for
the future. So, despite the ongoing QE, a liquidity trap has been forming and I now regard
the stock market as unattractive. Given the market action so far this year, I am now in
a small minority. I am not calling a top as I see the strongly positive interest in equities
that has been underway. I say only that value has been left behind for a momentum play
and that until the US economy can muster more sustainable strength, a now dreary outlook
for maintaining sales and profits growth should eventually catch up with players' thinking.

US economic performance continues to be very disappointing and a large gap has opened
between our potential and how we are actually doing. Perhaps in the end, QE will
undermine the headwinds enough to put the US in a stronger, more balanced position, but
I want to see this first. And, perhaps official Washington will eventually realize the
damage fiddling with austerity can do, but I want to see this first. Finally, the betrayal of
the public trust in Wasington has been so harrowing that perhaps some may come along
to pull the chestnuts out of the fire, but I want to see this first.

From a trading perspective, I have made a tidy sum. Look back at posts in late 2008 and
early 2009 and you will see how early I turned bullish. Believe me, this market owes me
nothing. Now my concern has turned to the need for this great land to start doing better.
Of course, I'll keep the posts going and try to hold the editorializing to a minimum. After
all, how many old line classical liberal Democrats are left?


Tuesday, May 14, 2013

SPX -- Monthly Chart

The month of May is not even half over, but I thought it would be interesting to have a
look at the SPX monthly chart anyway. SPX Monthly

Of course the market is overbought and we all know that. What strikes me though is that
the monthly MACD measure for the SPX is fast approaching the high levels last seen
during the grand bubble years of of 1998 - 1999. As well, longer term RSI is moving up to
a strong overbought as is the momentum measure.  They have started to chase stocks hard
and if you are a long side player with heavy (for you) money on the table, know that you
are now with fast company and big players who have a variety of issues with this market
but who do not want to lose client business because they are on the sidelines in a power
momentum run.

Sunday, May 12, 2013

Financial Liquidity & The Stock Market

Measured yr/yr, my broad composite of financial liquidity has been running about 6.3%.
Concerns that the banking system could be hoarding liquidity are not without some
validity as the system's loan book is up only about 4% over the past 12 mos. My "quick
liquidity" measure of the ratio of bank Treasury holdings to commercial and industrial
loans is running 1.2x, which is extraordinary for a fourth year of economic recovery. The
biggest sore spot within bank assets is the real estate portfolio which has been flat now
for an extended period as new loans only match the level of run-offs and charge-offs. In
typical post big bust fashion, the banks have gone from profligate lenders to mean spirited
liquidity hoarders.

However, system money and credit liquidity growth of 6.3%, albeit it rather moderate by
post WW 2 standards, happens to exceed the yr/yr growth of the business economy by
about two full percentage points. This development reflects both modest growth and low
inflation or business pricing power. The excess of liquidity shows up not just in the
banking system's investment account but has been flowing into the capital markets and into
residential real estate prices as well. With investor confidence elevated regarding risk
assets, the stock market has been a direct beneficiary of excess liquidity growth. Note
well here too, that the Fed's large new QE program is contributing significantly to the
growth of the broad measure of financial liquidity.

Total business sales seen globally not only reflects modest US economic expansion but
slow offshore growth as well plus currency translation penalties for US based businesses.
In my view, the sluggish business environment hardly warrants the recent sharp increase
of the market's p/e ratio, but investors at large have been more focused on the asset
inflation effects of the Fed's current QE program.

Speaking for myself, if I do not soon see that this big QE program is underwriting an
acceleration of real economic growth at least in the US, I will probably conclude that
the US stock market is overpriced and unattractive. Whether many other players will
think the same soon is not yet for me to say as folks seem smitten with the slow growth /
excess liquidity concept so visible in the stock market.

Thursday, May 09, 2013

Initial Jobless Claims & Stock Market

For many years, I have used initial unemployment claims as both a leading economic
indicator and as a key component in tracking the stock market. In brief, falling claims
translates to rising stock prices because falling claims signifies a strengthening job
market. Now, when you are an indicator guy like me, the inferences to be drawn from
data behavior can be very interesting. Note for example that for the past 30 odd years
initial jobless claims have rarely fallen below 300k weekly and that claims data rise
before business downturns. What struck me recently is how rapidly jobless claims have
fallen and how close the recent readings are to the 300k level. Initial Jobless Claims

There are intriguing possibilities here. Powerful downtrends in claims tend to end
well before they make a cyclical low. Since this stock market advance has been so
highly attuned to the claims data, the question that pops up is whether, given the
already "low" level of claims, a consolidation down near the 300k level might not
be far off. At least it is somemthing to think about, because such a consolidation could
take considerable steam out of the momentum of the market if it comes along over the
next six months or so. As well, the history of claims data already suggests most of the
"juice" the declining data have provided to the stock market is likely already reflected
in prices.

There are other obvious possibilities as well, but the rapid improvement in claims
so far has me watching the data more acutely than I normally do. I would also not be
surprised that there are many players out there who have been cheering the claims data
as it descends but who are not aware of just how far along the trend has come.

Tuesday, May 07, 2013

SPX -- Daily Chart

Early signs here that the boyz are starting to chase the market up. At 1626, the SPX has
shot up to a 3% premium to its 25 day m/a. The market is at the top end of the six month
trend channel and is on the verge of moving up into a strong short term overbought. It's
worth watching right now because the run ups to the top of the trend channel top
(now 1630) have become progressively more toward the spike than a run along the
ceiling. SPX Daily

Page views at this site tend to rise sharply when the market gets shaky or corrects. Views
fall when a good run up is on. Page views are currently falling like a rock.

Sunday, May 05, 2013

Stock Market -- Weekly

Fundamentals
The SPX crossed the 1600 level this week on a strong up. The market is now traversing
the threshold where value is left behind and momentum becomes paramount. I figure this
is so because with around $100 per share earning power, the SPX starts to get fully valued
up around the 1650 -1700 area (The 5/3 close was 1614). I will back away from this
view if  business activity picks up not just in the US but globally because that development
would finally add a solid boost to earning power.

Technical
As I now see it,  the cyclical bull market is in the final up - move of its second wave up
from the early 2009 low. I mark the second wave as commencing over Half 2, 2011.
This leaves open the idea that the market could experience another wave up out in time.
Such could well eventuate given the economic slack still extant in the system and the
powerful monetary fundamentals in place.

For now, I see the SPX as quite overbought on an intermediate term basis. Note the
large premium it is carrying over the 200 day m/a. SPX vs. 200 day Oscillator
Viewed in the context of the past 25+ years, the odds are only about 1 in 4 that investors
will see the SPX significantly higher over the next six months. A 10% premium for
the SPX to its 200 day or 40 wk. m/a is a tough hurdle to surmount.

The SPX also shows as overbought on RSI and MACD. Included on the weekly chart
for this edition is the full 14 week stochastic measure. Note that intermediate term
sell offs tend to be confirmed when the full stochastic breaks 80 on the way down and
note too, that the stochastic can remain overbought in positive territory for weeks at a time.
SPX Weekly

Friday, May 03, 2013

Economic Indicators

Leading Indicators
My weeklies are trending up mildly and remain volatile to reflect up and down swings
of initial employment insurance claims. The weeklies have tended to be strongest in
the Oct. - Apr. time frames in recent years, with 2012 - 13 no exception. The monthly
data on the breadth of new orders have been following the same seasonal pattern, with
new orders also pointing to mild growth.

Coincident Markers
I have used the ISM PMI data for manufacturing for many years to gauge the US economy.
Monthly readings for the composite above 56 suggest robust manufacturing activity. The
mfg. PMI has been in a range of 50 - 55 for the past two years and has recently moved
down to the bottom of this 24 mo. range. The weekly coincident indicator I follow shows
modest progress at +1.5% yr/yr.

Economic Power Index (EPI)
This indicator simply adds the monthly yr/yr % change of the real wage to that of civilian
employment growth. A reading of +4% is a nicely strong one. Unfortunately the EPI has not
been up to the +4% level since early 2007. It is currently running about +1.7% before an
important adjustment for the recent 2.0% increase in the payroll tax. That adjustment takes
the EPI for April to -0.3%, which is weak although not fatal as consumers can draw down
savings and leverage up to maintain stronger spending although it is distressing to know
that so many have to add debt to meet incremental spending needs.

You should note that decelerating and/or weak real hourly earnings have typically shown
up during bear stock markets. When the higher payroll tax is subtracted from the real wage,
the US is showing a current -1.5% . Note well that the last time the US had a string of negative
real wage readings was in 2011, when stocks did experience a sharp correction. Purchasing
power that is under pressure in real terms can often be fodder for economic and financial
misfortunes.

Economic Slack Measure
The rapid disappearance of slack in the economy in terms of production capacity, falling
unemployment and a rise in capital costs is a fundamental signal for an approaching stock
market top and eventual business downturn. The reduction of slack in this recovery has
come from deep levels and  has been mild. So, there is plenty of room for the economy to
expand further without causing normal cyclical stresses. As for the stock market, it is the
deficiencies like deceleration of the real wage, reduced business pricing power and
modest output growth that need concern us.

Economic Forecaster Guest
The long Treasury yield often gives a helpful picture of collective perception regarding the
direction of economic momentum and the prospects for cyclical inflation pressure. $TYX

Since last summer, when the Fed re-introduced the prospect of further QE, the yield on the
long guy has drifted higher as the bond players anticipated eventual faster economic growth
and a potential re-acceleration of cyclical inflation pressure. As economic data cooled in
late winter, the market reversed as folks had second thoughts about the state of the economy.
There has been a clear break in the trend toward a higher yield on concern the big QE
program was not going to lead to sustained, accelerated growth. Notice the big hiccup after
this week's data. An eventual rise above 3.25% -- should it occur -- would signal that
the growth story is back in play and that the Fed may again have second thoughts about
heavy QE.

Thursday, May 02, 2013

Global Economic Supply & Demand

The very sharp decline in the growth of global industrial output over the past two
years appears to have also triggered a slow down of investment spending on new
capacity which has led to a degree of stabilization in industrial materials pricing.
Measured yr/yr, global output growth has been running around 2 - 2.5%, compared
to the strong 5 % growth seen over the 2004 - 2008 period and a long term growth
rate of about 4%. Very few countries are going anywhere in a hurry relative to the
past.

Slow global production and trade growth over the past two years has taken the steam
out of the commodities market and this has removed a major originating stimulus for
inflation.

Here is Dr. Copper's take on the situation: Copper Price The metal has shadowed the
loss of growth momentum in global industrial output nicely and also catches the ramp
and subsequent fizzle in China's output as its export orders have been decelerating.
Note that copper is now sitting down at critical support. Small wonder then that even
the ECB got off its ass today to add some liquidity to the pool the other major central
banks have been enlarging.

Wednesday, May 01, 2013

Monetary Policy

Fed Funds Target Rate
The FFR% stays at 0 - .25%. We are currently in the fourth year of economic recovery
in the US and it is interesting that over this entire time frame my short term interest rate
indicators have never fully aligned to support raising the FFR%. There has not been a
case to boost short rates for cyclical reasons based on indicators that have worked like
a charm for over 50 years.

Liquidity & Economic Growth
The Fed is continuing its plan to expand its balance sheet by about $85 bil. a month via
Treasury and agency securities. That adds up to $1.02 tril. for a 12 month period and is
equal to about 8.1% of my broad based measure of US financial liquidity. This is a big
program which should bolster the US economy substantially. Started in late autumn of
last year, the program has had a mildly  beneficial impact on the US economy. For
example, For the 12 mos. ended Nov. 2011, industrial output expanded by 2.5%. Since
then, production has increased at a 3.0% annual rate. Moreover, the banking system has
turned more cautious with lending operations over the past 4 - 5 mos.

The Fed's game plan is for a cumulative build in economic growth as the large
injections of liquidity well into the system. But, progress has been constrained fiscal
policy tightening, a conservative turn in the banking system and a business sector
reluctant to hire, pay decently and invest. At today's FOMC meeting, a nervous Fed
thought it appropriate to remind folks that it can raise as well as reduce the size of the
QE program.

I was pleased to see that the Fed has layed the blame for slow economic progress at
the door of fiscal policy (both Obama and the Congress). If over $1 tril. a year of new
liquidity is going to produce just a paucity of progress, then we all should pressure our
elected officials to develop and implement policies to grow and not cut jobs rather
then extend reduced circumstance through continued austerity.

Stock Market -- Daily Chart

The SPX has been in a strong, sure footed uptrend  since late Nov. last year. The dips
have been bought aggressively and this has caused the conventional, momentum based
indicators to whipsaw in merciless fashion, all to the benefit of daytraders and buy-and
hold players. The driving premise has been: QE is good for stocks; slow growth keeps
the Fed committed to QE, so a sluggish economy helps the case. There is also the "TINA"
school -- "There Is No Alternative -- a thought which builds off the Fed's ZIRP policy.
Whatever the longer term merits of this strongly Fed policy centered strategy may be, the rally
to new highs is overbought on a number of measures. Even so, since the trend has been
so well drawn, the wiser course at this point for many traders might be to watch the
action of the market against its 10 and 25 day moving averages since the interactions here
have not whipsawed like the conventional indicators. SPX