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Is The Dow Breakout Really Positive?

  • Written by Syndicated Publisher No Comments Comments
    March 25, 2013

    The Dow reached its old highs and broke out to still higher highs. It doesn’t seem worried about the Cyprus situation. Congress has just successfully passed the first annual Federal budget in four years. The FOMC meeting this week indicated the Fed is more positive in its outlook for the economy. 

    So, will the Dow maintain its breakout and the positive trend until the end of the market’s favorable season in April or May?

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    Some global markets that have been in that position before indicate it may not be a positive situation to be in.

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    It does make you wonder, particularly with the DJ Transportation Avg, which often leads the economy, so unusually over-extended above its long-term 200-day m.a.

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    What? Larry Kudlow is becoming a Bernanke fan?

    For years ultra-conservative CNBC host Larry Kudlow has been one of the most vitriolic critics of Fed Chairman Ben Bernanke and the easy money policies the Fed adopted in attempting to rescue the economy from the 2008 financial crisis and ‘Great Recession’.

    But in his article in The National Review this week he wrote:

    “All this is to say that the demand for cash and cash equivalence by consumers and banks is so strong in a risk-averse environment that all the Fed has really done is meet those cash demands. It’s not working the printing presses overtime.

    In fact, the inflation rate during this whole period has been trending around 2 percent or less, far below the expectations of Fed critics (including myself). Over the past year, M2 growth has been about 7.5 percent and M2 velocity has fallen by about 3.5 percent. So the rise in nominal GDP is a historically low 3.5 percent.

    Interestingly, while the inflation rate has remained subdued, so have market-price indicators, such as gold, the dollar, and commodity indexes. The suggestion here is that Bernanke, rather than mounting a high-inflation policy, has been avoiding deflation.

    At the end of the day, the Federal Reserve is not the engine of growth. Low tax rates, light regulation, and limited government spending create the incentives for more rapid economic expansion and prosperity-inducing opportunities.

    But if I have this story right, the market monetarists want the central bank to enforce a nominal GDP growth rule, which will avoid both deflation and inflation, and thus give fiscal incentives breathing room for a more rapid job-creating expansion.

    I don’t agree with Bernanke’s unemployment target or his criticism of lower government spending. But I confess that he may have the monetary-stability story more right than I originally thought.

    If gold remains soft, and King Dollar steady, perhaps the former Princeton professor deserves a little more credit. He may have gotten that story right.”

    It’s not often that someone of Kudlow’s stature makes such an admission.

    To read my weekend newspaper column click here:   Better Investing Performance With Much Lower Risk!

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    Images: Flickr (licence attribution)

    About The Author

    Sy Harding publishes the financial website www.StreetSmartReport.com and a free daily Internet blog at www.SyHardingblog.com. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!

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