One Hand Takes; The Other Giveth In Abundance

For a little over a year, the Federal Reserve has been
"removing accomodation" by raising short term interest
rates and squeezing monetary liquidity. That would be
the Hand That Taketh.

But friendly bankers have swooped in on the scene. And
Giveth they have. Measured yr/yr, bank credit growth
has rapidly accelerated by 12% to nearly $5.2 trillion.
Loans to individuals -- mortgages, home equity and
personal have jumped 15% to $3.9 trillion. So not only
are folks not saving, they are happily leveraging up
to buy homes, cars and all of life's other necessities.
Sound money types and assorted other bears are seething
at what they see as wanton profligacy.

Now, after a couple of quarters of inventory rebalancing,
order rates for business have turned up, promising
higher production and more jobs. Earnings estimates will
inch up, and this has supported and extended the rally
in the market.

The Fed will likely press on with its accomodation removal
program and the banks will likely be glad handing both
consumers and business, at least for a while.

The issue here is that money left on deposit or in money
market accounts is still a loser.It depreciates in value
and in an expanding economy, it is going to be spent until
short term rates rise enough to protect its value and/or
economic developments occur which give consumers pause.

Inflation stimulus has originated with commodities in
this cycle, a typical development. And looked at seasonally,
the push to higher inflation is still in place, although
it has narrowed primarily to oil, gas and fuels. So, the
Fed has another reason to remain cautionary.

In the long run, the Fed will win out. That is why economic
and financial risks in the system are continuing to rise,
even if corporate earnings do better than many expected
in the short run.