Friends

I think we have our answer. For anyone who wondered just why stocks have been rising for the past 6 months, we got our definitive answer over the past two trading sessions. Stocks were going up because of easy money. End of story. The minute there is even a hint of tapering (the Fed pouring less punch into the punch bowl), stocks are sold. Forget that the reason the Fed would ease off the peddle is because economic conditions are improving. No, in this scenario good news is definitely bad news. At least, that is, for the past couple of trading sessions. Maybe, just maybe, we can get to a point where stocks rise because the economy and profits are getting better. That would be a “real’ foundation that could be built upon. Buying stocks just because the Fed is overflowing the punch bowl always felt like a game of chicken. Look, back in December of 2008 you remember we wrote that it doesn’t pay to fight the Fed. Stocks fell for 3 more months, but the Fed was just getting the punch bowl out of the cupboard. Once they starting filling her up, stocks have climbed ever since. Here we are five years later and the Fed has filled that bowl continuously. They’ve done their job. Hopefully it is time for them to begin to step aside.  Let the market correct, then we can build a rally on true economic progress. Ok, enough pontificating – for now.

For the day, the Dow Jones Industrial Average was down 353 points to close at 14,758. The S&P 500 was down 40 points to finish the day at 1588. Gold was just crushed, with the precious metal falling $94 to trade at $1279 per ounce, while oil was down $2.84 to trade at $95.40 per barrel WTI.

An even more important story over the past few weeks has been the damage done to the bond market. Remember, as rates rise bond prices fall. The 10 year treasury note yield was 1.60% less than two months ago. Today we crossed 2.43% on the ten year. That is an amazing move.

Look folks, the markets are going through withdrawal, but that’s the only way to get sober. Yes, it’s ugly at first, but to get to where we want to be we have to first go through the cleansing process. It’s not pretty, but some would say necessary. Let’s see how the week finishes tomorrow.

Have a nice evening everyone.

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