Ever since Bernanke put quantitative easing part two into play the stock market has behaved like a trained dog. This happened when the Federal Reserve Bank Chairman Ben Bernanke spoke openly during his Jackson Hole, Wyoming speech in late August the stock market will be given more liquidity as needed. Therefore, this is another was of saying he will print more money. Now the market rallies whenever the U.S. Dollar Index declines which has occurred almost daily since August 27th, 2010. The stock market will usually trade higher on days that the Federal Reserve is doing a Permanent Open Market Operation or better known as POMO. Many investors are now believing that the stock market cannot go down or decline because the Federal Reserve will always be there to save the day. Can the stock market be propped higher for all eternity? Will there be a point in time when the stock market can actually decline again?
If you watch any of the financial channels all we hear about is strong financial growth and good corporate earnings. This sounds like the same rhetoric that we heard in 2003 – 2007. Can this five year cycle that lead to the largest credit and housing crash that we have seen since the Great Depression be repeating all over again so quickly? Perhaps, this is the new normal and we will just continue to make and pop bubbles along the way for the next 100 years. The big question that we must ask ourselves is, what is the next bubble being created? That answer will probably require more time as we are all unsure what is left to pop in this market. Clearly, the front runner for a bubble will likely be commodities at some point if we had to pick one. Obviously that excludes precious metals as they should be considered a true form of currency, especially, in a fiat money system.
The problem now is that the Federal Reserve Bank and the politicians in power have lost a lot of credibility with the people. People do not believe in this quick fix Keynesian system anymore. In 2008, the American people voted out a failed and defeated Republican party. At that time it was a Democratic sweep. Now in 2010, we come into another important election cycle and it is likely to be a Republican sweep as the Democrats will likely get voted right out of office. People have had enough of all the false promises and quick fixes. Americans want real change and are tired of being treated like a dog waiting for scraps to fall off the kitchen table. This election should not benefit the stock market as everyone is expecting. Business as usual could actually see a change and that also goes for the Federal Reserve Bank. This is not because the Republicans have all of the sudden become better and more responsible people. This is because there is a new movement in the U.S. called the Tea Party. As long as the Tea Party does not get corrupted it is possible that real change is on the way. We shall see.
