Wall Street loves easy money. That’s what I conclude from today’s 200-point stock market rally, which started early and gathered force, pushing the Dow back over 10,000 at the close of trading.
Oddly enough, stocks roared at yesterday’s opening by nearly 150 points, a response to the GOP sweep in New Jersey and Virginia. The government’s health-insurance takeover plan looks dead after the elections. Nancy Pelosi is walking off a cliff with her Saturday vote in the House. I don’t think she’s got the numbers. Post-election, Blue Dog Democrats are going to have a hard time voting for big tax hikes, big spending, big government, and a $500 billion Medicare cut. Independents, seniors, and affluent suburbanites all moved to the GOP column on Tuesday, a negative referendum on the Democrats’ big-government scheme.
For whatever reason, stocks sold off yesterday afternoon — right after the Fed signaled easy money for as far as the eye can see. To quote the Fed: “exceptionally low levels of the federal funds rate for an extended period.” Today, however, it looks like stocks took another read of the zero interest rate and the exploding Fed balance sheet and decided that there will be at least another six months of pump-priming and dollar-creation from the central bank.
Of course, gold keeps rising. It’s now $1,090. But the Fed doesn’t care about gold — or the declining dollar, or rising commodity prices, or even the higher inflation expectations that are being built into the Treasury bond market.