Last week stocks tumbled almost 2%. The bears were rejoicing. "Here we go!" they shouted with glee. "The big drop is coming.... finally".
At Option Millionaires we know better. We know that this centrally planned market is going to make anyone who can understand it some serious profits. Last week, with all the bears as happy as could be, we wrote this: http://bit.ly/AlFYOr. We could not have been more right. Since we wrote that post stocks have yet to decline. We called for SPY $140, and that is what we got, less than 5 trading days later. Another amazing call here at Option Millionaires.
Stocks are sitting pretty. They are, and remain, impervious to downside. The FED has clearly succeeded in their mission to send everyone into risk assets. Grandma Jones who was living on a fixed income couldn't afford the drop in her interest income so she's liquidated all her conservative positions and backed up the truck on some $567 a share AAPL stock. Great-Grandpa Salvatore, who worked 40 years as a mason has taken his entire savings account and loaded the boat with some Chipotle Mexican Grill at $400.05 a share. You can't lose. I joked last week in the chat room that buying stocks right now is like "Shooting Fish In a Barrel". Someone responded that "even that takes some effort". What a great statement. The FED has made buying stocks an effortless task. As if we needed any confirmation of this, late in the trading day JPM said they are joining the herd and buying $15 billion of their own stock. The market took off, we breached levels unseen since well before the financial crisis. Tech stocks haven't been this high since 2000. It seems I'm not the only one scratching my head.
Stocks should keep rallying... right? That remains to be seen as there are clearly some headwinds for equities. I am by no means calling a top. I think SPY $140 can quickly turn into $150. Stocks clearly have momentum and a very generous FED on their side. But we need to look at the big picture. Ben Bernacke and the FED have done a marvelous job. Unfortunately what they've done from 2008 until now was the easy part. Print, Print, PRINT, PRINT.... dilute, dilute, devalue, devalue, devalue, reinflate, reinflate reinflate.... it has been very easy.
With economic data coming in better while every other major central bank is still printing money........ the FED has a serious problem.... a USD that is growing stronger and rising interest rates. The sharp rise in the interest rate sensitive USD/JPY pair implies a nice ramp in interest rates. The USD also should continue to strengthen as the FED gave no firm commitment to QE3 today. While stocks march higher even with a stronger USD (which I like), I think at some point this will come back to haunt stocks. For now I am very proud of the FED, with QE3 still on their mind there is no way they could condone it with stock prices this high.
The FED has a very tough path ahead. They could very easily lose control of interest rates as the economy improves and money leaves bonds for stocks. The USD could see a sharp rally and this could hinder the "economic recovery". The easy part is done. From here on out its going to get much tougher.