Monetary Policy

Back on Sep. 15, I argued that a review of the cyclical indicators that have held sway in the Fed's
decisions for setting interest rate policy since the end of WW 2 suggested that if anything,
the Fed should be easing policy. In view of the continued weakening of economic momentum and the
further development of economic slack via falling facilities operating rates, that opinion remains
warranted in my view. In Its apparent desire to raise short rates as 2016 fast approaches, the FOMC
has resorted to spin to make its case. Perhaps a couple of bumps up to short rates will do no economic
damage, but it is costing the Fed credibility and the twists and turns of Fed communications  are
adding needless volatility to the markets (Draghi over at the ECB is faring no better in this regard).

To compensate for an obvious indiscretion, the Fed promises to be sparing and gentle in raising
rates so as not to be too disruptive to the economy and the markets. This is good to know since the
US economy and stock market have yet to prove they can transition away successfully from a
strong dependence on large scale quantitative easing toward dependence on customary internally
generated resources.

With falling net per share and an elevated stock market, the S&P 500 is now trading just slightly
below 20 x latest 12 months earnings as the Fed prepares the next round of monetary tightening.
I have the market as significantly but not yet outrageously overvalued.