Bulls Push On! But For How Long? To Inflation and Beyond!

The markets being followed were mostly green today, with solid gains, but how long will this little rally last?

Asia:
Nikkei => 7,972.17, +23.04, +0.29%
Hang Seng => 13,117.17, +239.08, +1.86%
Straits Times => 1,575.94, +16.91, +1.08%

Europe:
FTSE => 3,804.99, -52.11, -1.35%
DAX => 3,996.32, +8.55, +0.21%
CAC => 2,760.34, -6.94, -0.25%

U.S.:
Dow => 7,486.58, +90.88, +1.23%
Nasdaq => 1,491.22, +29.11, +1.99%
S&P => 794.35, +16.23, +2.09%

Me:
AMD => 2.97, +0.21
F => 2.47, +0.19
FPL DI => 3.89, +0.08 (Note: Closing Bid was 5.50, so unofficial change is +1.69)
NG=> 2.51, +0.26

Today was an impressive push to the upside in late trading. Reason for the push was the announcement that the Federal Reserve would buy $300 billion in government debt (long-term Treasury securities). Why would this cause the market to go up? Well that took me a moment to figure out.

Apparently it is a speculative reaction. Investors are assuming that if the Federal Reserve is buying the debt that the government has racked up, then the Fed is showing confidence that the debt will be payed off. In other words, that all the assistance that the government has supplied to struggling banks will be paid back with interest. Now this interest needs to be significant enough to cover the interest to be paid out to the Fed for buying the Treasury securities. If these banks are going to be able to pay back their debt with interest significant enough to pay back the aid they received, then they should be liquid enough to lend money to you and I, in the form of mortgages, loans, and credit card limits. Right?

But there is more. The Federal Reserve also lends money out to the banks themselves. Money they use to lend to you and I at a marked up interest rate. Doesn't something seem strange about that? The Federal Reserve is effectively loaning money out to these same banks by means of two different avenues. And where are they getting this money to buy the Treasury securities and loan to the banks? They get it from the U.S. Treasury that prints the money and stamps the coins. Hmm, I smell inflation coming around the corner very quickly, how about you?

That is my opinion, you can take it or leave it.

Disclaimer: I am not a stock broker; I am not a financial advisor; I am not recommending to you what to buy or sell. I am just an opinionated investor. If you decide to follow in my footsteps you are taking risk. It is inevitable that I may be wrong. So if you are going to follow in my footsteps that is your own personal decision. I am not responsible for any loss that you may, and probably will, incur regardless of my opinion.