April 29, 2013 | 8:13 AM EDT
The 'Friendly' Fed
Embrace Ben Bernanke and his band of Merry Pranksters. They control this market.
There have been three great inventions since the beginning of time: fire, the wheel, and central banking. --Will RogersThe best piece of market advice over the last few years is "Don't fight the Fed." We can probably expand that to include central banks around the world, but the concept has unquestionably been correct. Nothing has been more important to the market than the gush of liquidity that bankers are supplying. This morning, Jon Hilsenrath of The Wall Street Journal, who is one of the Fed's unofficial spokesmen, has an article entitled "Tame Inflation to Keep Fed on Course." The article not only discusses how low inflation will keep the Fed's printing press going but goes on to point out how there is fear that inflation may be too low. Ultimately, the bears believe that the Fed's policies are going to lead to hyperinflation when it is finally forced to reverse its policies, but anyone who has anticipated that has been chewed up and spit out by this market. The market loves cheap cash and we have it endlessly. As I've often mentioned, I'm bothered by how the market has an artificial and manipulated feel to it, but that is what happens when the central bankers are in control. Their goal is the relative weakness of their currencies and endless cheap capital, and that benefits the stock market because it is the easiest and most convenient place to park cash. The key for market players is to recognize that the game is different now. Big-picture economics, fundamentals and even technicals take a backseat to liquidity. The technicals are a particularly good example of how the efforts of the central bankers will offset normal tendencies. Once again, we have a V-shaped bounce after a technical breakdown. Typically, a bounce like we have had over the past six days will see some pressure as trapped longs look for exits and bears reload, but in this market the liquidity forces buyers to jump in and we just keep on running straight back up. It has happened dozens of times since the Fed began easing in 2009 and it is not going to end until the printing presses slow down.
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