Friday – Dow Up 500 Points to Start the Year – Should We Quit While We're Ahead?

Even more impressive was the fact that we held our levels yesterday (see Morning Post and Morning Alert to Members for more detailed analysis), despite the rapidly rising Dollar – now testing the 81 mark, which usually bodes ill for equities (it's killing gold, now $1,638 at 8 am).  The Dollar really started flying on the release of the Fed Minutes (see yesterday's comments in Member Chat) which spooked SPECULATORS (not investors) as it was apparent not all the Governors were on board with QInfinity.  

I had pointed out in yesterday's post that we had Fed speak from 3 Governors today and we had discussed earlier in the week that they had to be spinning something and now it's clear that what they're spinning is the minutes.  Plosser (hawk) and Yellen (dove) will both speak at the American Economic Association Meeting in San Diego this afternoon and Bullard (slight hawk) will speak after hours at some other thing in San Diego.

We may get a hawkish overall slant as Treasury has to pawn off over $100Bn worth of notes next week, some of which expire in 2023 and 2043 at sub-3% rates that any rational economist can tell you will be only a slightly better investment than just planting the money in the back yard and praying for a money tree to grow from it over that same period of time.  

We got our money supply data from the Fed last night and M2 is up to $10.3Tn from $8.7Tn at the start of 2011 and I'm no math wiz but that's 18.4% more money and wouldn't that, then, devalue all money by 18.4%?  That means giving you 6% interest on your money over the same 2 years puts you 12.4% behind, right?  That does make sense because the Dollar Index is down from 89 in mid-2010 to 80 now and that works out to 10.1% but we just had a 1.5% bounce in the Dollar on the Fed minutes or we would, in fact, be looking at the same 12% drop.  And we're not even counting the $3Tn that is tucked away on the Fed's balance sheet - WOW!