No. of Recommendations: 8
I would like to thank everyone who responded to my post of a few days ago, "Nor'easter moving in," especially brucedoe, who posted details supporting the case for stability and a continued bull market.

On Friday, the market seemed to catch its breath after the topping pattern and buyers swooped in.

Although the Fear & Greed index is still in "Extreme Greed" (76), it is lower than it has been for the past month or so. The "Mungofitch lagged MA" has dropped slightly but is still way above the MA line and still very bullish.

All measures of stock market bullishness cooled off slightly last week, but are still well in the bullish range. Volatility is up very slightly.

Those who thought that the pause last week and worries over the government sequester are "a tempest in a teapot" may well be right. The Nor'easter may just be a spring shower. I think that the next couple of weeks (especially Monday) will establish a trend that will affect the spring 2012 market. The mungofitch 99-day rule is bullish, and it is months away from another potential sell signal.

Nothing like leaving things to the last minute, but "By the end of this week, federal agencies will notify governors, private contractors, grant recipients and other stakeholders of the dollars they would be about to lose."

The USD is in a rising trend against several important currencies. If Jeff was here, he would warn that the dollar is rising to a point that the stock market could be depressed.

Despite press chatter, the Federal Reserve is strongly growing M3 over the rate of growth of both inflation and GDP. The Fed is successfully supporting the rising stock market while suppressing consumer inflation since monetary velocity is low. The rising trends in Treasury yields have stabilized.

Commodity prices are moderating. The sudden sharp drop in copper is because of China, which has large inventories and a slowing construction need. The price of gold may have hit a support level at $1560/ oz -- this may be a good buying point for those who believe that gold's price will rise in the future due to the rising money supply.

Real personal income and real personal consumption expenditures are growing steadily. The Leading Indicator is stable with slow growth.

There are no Macro crises in the news, other than the potential sequester.

The market is still very bullish. Next week may be a quiet week...or not.

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No. of Recommendations: 16
Fed is successfully supporting the rising stock market while suppressing consumer inflation since monetary velocity is low.

While I agree with that assessment in broad terms, it seems to me that one of the reasons inflation is known to be pernicious once it gets started might be that to effectively fight it is to engage in a strategy which causes a lot of pain. The famous story of Paul Volker increasing the Fed funds rates to the 20% range in the 1980s in his historic efforts to curb inflation is one primary strategy that will not be available to whoever might be at the helm of the Fed when next inflation rears its oh so ugly head. 20% of $17 trillion in debt is $1.4 trillion per annum in interest costs alone.

In a stock market increasingly (and increasingly global as well) dependent on massive liquidity injections, one of the other primary inflation fighting strategies.....that of draining the liquidity....seems to have some major negatives for more than our country getting crushed. Witness the seizure in the world markets this past week on just the notice that some Fed governors had even dared to suggest such a dastardly course of action. Imagine what might happen if those suggestions turned into policy.

Now I know that those who favor the current Fed policies point out that measured inflation is really nowhere to be found. But then (for me) that begs the question of whether we are to believe that the same Fed who didn't see the housing bust coming, and didn't assess it properly when it arrived, has suddenly morphed into a "genius" Fed? One does wonder.

But the point about inflation that seems to get overlooked is that, like many things in life, by the time the symptoms show up it is already well entrenched.....especially when we deceive ourselves that the thermometer we use to measure the inflation is not skewed to providing low-ball readings. We all like to think that we will intuitively know to correctly interpret the readings but in a busy and complex world, we often forget about the assumptions we make.

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