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As we anxiously await the Fed's imminent decision, the bond market fluctuates, and the 10-year note is yielding 2.89 percent (Rick Santelli's line in the sand).
Sunday's bombshell announcement that Larry Summers was no longer seeking the Federal Reserve chairmanship candidacy launched investors back into Treasurys. On Monday, we experienced one of the most precipitous drops in Treasury yields thus far in 2013, as the market believes that the QE program will not be wrapped up as quickly without Summers at the helm.
This move—which was nicknamed the "Summers slam" in the bond pits in Chicago—certainly caught some shorts in the bond market.
Janet Yellen, the vice chairwoman of the Fed Board of Governors, is now the most likely nominee. And when Ben Bernanke steps down, a Yellen appointment will probably make for a much smoother passing of the baton.
So counterintuitively, Bernanke is now in the position to taper a bit more rather than less, because the QE program will probably be around a bit longer under Yellen's leadership, compared with under Summers'.
(Read more: Whatever the Fed does, gold will rally: Schiff)
Get excited, because one of the most highly anticipated events for the market is finally here. On Wednesday, the Federal Reserve will finally answer the question that has long consumed the thoughts of investors worldwide: Will the Fed announce a tapering of its quantitative easing program in September?
Whether it announces a large taper, a small taper or no taper at all, the Fed's decision will have a tremendous impact on how the S&P 500 trades (and the S&P e-mini futures alongside it). So, keeping in mind that most analysts and traders believe that a taper in the range of $5 billion to $15 billion is priced in, let's analyze how the market will respond to four possible scenarios.
(Read more: Whatever the Fed does, gold will rally: Schiff)
A slightly bigger taper, in the ballpark of $15 billion to $20 billion, would cause a short-term correction. In this case, the S&P September e-mini futures would likely fall to major support at 1,681.
All eyes are the Federal Reserve's policy announcement. But while it's expected to be one of the year's most important events for stocks and bonds, Peter Schiff believes he has already figured out the likely impact on gold. Because according the CEO of Euro Pacific Capital, whatever the Fed announces will end up being bullish for the precious metal.
Many expect the Fed to announce that they will begin to reduce, or taper, the pace of its massive bond buying program. According to the latest CNBC Fed Survey, market participants see the a taper of about $15 billion coming, and a plurality believes that it will be announced this month.
Peter Schiff believes that a smaller taper is coming. But he says that no matter what the Fed announces, gold will end up rising.
On CNBC's "Futures Now" on the eve of the Fed's expected announcement, Schiff outlined three scenarios, and went on to explain why each would end up being good for gold.
Scenario 1: No taper
"If it's no taper at all, I think gold will rally," Schiff said.
This makes a great deal of intuitive sense, as tapering concerns have certainly appeared to weigh on the gold market in the back half of the year. After all, Fed bond-buying has depressed interest rates, making noninterest-bearing assets like gold look more attractive. And because the Fed simply "prints" the money used to buy those bonds, some believe quantitative easing will end up creating inflation, which would be a boon for gold.
That said, Schiff does not see a Fed announcement of no tapering as a likely scenario.
(Read more: The best Fed taper scenario possible?)
Are Apple shares cheap? Now that they've fallen over 10 percent on the back of Apple's recent product launch, it seems to be a fair question. But even though Apple now has a lower price-to-earnings ratio than do slow-growth companies like Microsoft, Intel, or IBM, Doug Kass says the stock still doesn't present an attractive value.
"Apple has become a value trap," the founder of Seabreeze Partners Management said. "This is a company with no growth, and profit margins that are way too high vis a vis the competition."
Indeed, at its latest media event, Apple disappointed many investors but not releasing a much cheaper iPhone, as some had been pining for. Instead, Apple released more high-end phones that will keep profit margins high, but threaten to do further damage to the company's already-declining market share.
(Read more: At a crossroads, Apple must make one huge decision)
"We remain disappointed with Apple's decision to remain a premium priced smartphone vendor," Credit Suisse analyst Kulbinder Garcha wrote in a note that downgraded the stock to "neutral" from "outperform" after the event. "On our new estimates, Apple's smartphone share will decline to 15.5 percent/13.1 percent this year and next from 18.1 percent last year."
But Kass says that there's a second issue at work: While Apple's prices have stayed high, the company has not delivered innovation to keep pace.
The S&P 500's revenue growth for the fourth quarter is expected to be 1.0 percent, the research company FactSet reports. That might not sound terrible, but if not for a weird quirk in one company's accounting, the expected revenue growth would be more than double that.
The culprit is Prudential. In the fourth quarter of 2012, the insurance giant reported revenue of $46.1 billion, which was almost five times what the insurance giant reported in the fourth quarter of 2011, and amounted to more than half of the company's total revenue for the year.
The revenue surge was due to two "pension risk transfer" transactions, one associated with General Motors and one associated with Verizon. This led to a major increase in revenue in the fourth quarter, but also led to a big boost in "insurance and annuity benefits." Since the benefits were expensed against the increase in revenue, earnings were not impacted like the revenue number was.
But because of the one-time boost, Prudential's revenue in the fourth quarter amounted to a massive 1.7 percent of the entire Q4 revenue for the S&P 500, according to S&P's Howard Silverblatt.
Prudential, then, is expected to show a massive (and misleading) decline in year-over-year revenue in Q4 2013. And that, in turn is dragging down the revenue growth expectation for the entire index. So while the estimated revenue growth rate is 1.0 percent, "if Prudential is excluded, the revenue growth rate improves to 2.2 percent," according to FactSet.
(Read more: Where did earnings go? Profit outlook gets gloomy)
As the Larry Summers news boosts the gold market, December gold futures should be well supported above $1,308.30.
With news that Summers withdrew his name from consideration to replace Ben Bernanke as Fed chairman, gold opened higher Sunday night. This continued the bullish momentum we saw into the electronic close on Friday.
On Sunday, gold traded up more than $25 from its Friday floor close, reaching a high of $1,336. This may look like a monstrous open, since gold closed the floor session on Friday at $1,308.60, but in reality, the electronic session went off just below $1,330, and gold traded less than $10 higher on Sunday night.
As gold's trend line fails, the bears smell blood. And now, $1,285 to $1,280 is in the cards.
Gold plummeted through $1,352 early in Thursday's session, and even found itself trading below its 50-day moving average at $1,331.80 for most of the day. Thursday's floor trading session closed at $1,330.60, but gold finished the electronic session with a bounce off of $1,320, which only served to set it up for a further washout overnight.
(Read more: Gold heads for worst week in 2 months on Syria, Fed)
With an overnight session high of $1,330.80, traders can see how Thursday's floor close and 50-day moving average came back into play as a strong resistance level. When gold touched that level overnight, it gave aggressive bears one last shot to sell.
Gold's low in early Friday trading was $1,304.60, which is below the $1,308.60 retracement-related support level. The momentum is undoubtedly to the downside, and we have consistently said that a close below $1,352 will put $1,300 into the cards within the next session or two.
(Read more: Gold price: 'Last hurrah' may be on its way)
As the S&P 500 approaches a fresh all-time high, what's a timid investor to do? If you're still on the sidelines, economist Robert Shiller thinks that you can still buy in to the market. He would just advise you to take it easy on the bullish enthusiasm.
"I'm not really saying don't invest in stocks," the Yale economist said Thursday on CNBC's "Futures Now." But "don't expect miracles."
After all, stocks might be more expensive that you think. The commonly used 12-month trailing price-to-earnings ratio shows that the market is currently valued at about 19 times earnings—which is only slightly higher than the historical average of 15. But Shiller's cyclically adjusted price-to-earnings ratio (or CAPE) casts things in a different light. CAPE compares the price of the market to inflation-adjusted returns from the prior 10 years, and shows that the market is now valued at 24 times earnings. That is well above CAPE's average reading of 16, and according to Shiller, that means that stocks are now somewhat expensive.
The current reading is "high by historical standards, but it's not super-high," Shiller said. "I'd say it's suggesting—based on historical evidence—real returns of something like 3 percent a year for the next decade."
Shiller says CAPE is "a better measure of price earnings, and it predicts the stock market better than the traditional" P/E ratio. But his metric has recently come under some fire.
In an August piece in the Financial Times ("Don't put faith in Cape crusaders"), Wharton professor of finance Jeremy Siegel wrote: "I believe the CAPE ratio's overly pessimistic predictions are based on biased earnings data. Changes in the accounting standards in the 1990s forced companies to charge large write-offs when assets they hold fall in price, but when assets rise in price they do not boost earnings until that asset is sold."
Instead of using S&P earnings data, Siegel suggests using the after-tax profits reflected in the government's national income and product accounts (NIPA) data. "When NIPA products are substituted for S&P reported earnings in the Cape model, the current market shows no overvaluation," Siegel writes.
In many ways this is a complicated academic argument, but the economists' dueling models have serious ramifications for the average investor. Shiller's belief that the market is relatively expensive leads him to predict that stocks won't move much higher. On the other hand, Siegel's call that stocks are reasonably priced supports bullish calls like the one he made on Aug. 6 on "Futures Now," when he argued that the Dow could easily hit 18,000 by the end of 2014.
(Read more: Siegel: Keep buying—you 'can't lose')
Dennis Gartman told CNBC's "Futures Now" on Thursday that his gold call last month couldn't have been more off the mark.
"I think the stock market has a little bit further to go on the downside, perhaps another 25 or 30 S&P points," Gartman said on the Aug. 22 episode of "Futures Now." "So if I had 'X' amount of money to put to work, I'd put it to work in the gold market."
What's happened since then? To put it bluntly, that turned out to be dead wrong.
From Aug. 22 to Sept. 12, the S&P added 30 points, while gold slid $40. Overall, the metal underperformed the S&P by about 5 percent.
"Clearly I'm wrong on the gold, and there's no reason to be anything other than truthful about it," Gartman said.
(Read more: 'Pre-emptive selling' pushes gold to 4-week low)
"What's happened? Peace, or whatever, has broken out. And peace—or at least a lessening of the discord—is always bearish of the gold market," Gartman said.
Whereas U.S. military action once seemed likely in Syria, the emergence of a credible diplomatic option has changed the odds completely. And since war-based uncertainty tends to boost gold, the smaller chance of a strike took a serious toll on it.
(Read more: More 'innocent victims' if US strikes Syria: Putin)
Gartman also pointed out that gold had been a crowded trade, saying, "A lot of people were bullish, a lot of people were long."
Now that the Syria situation has been moved to the back burner, market participants are refocusing on the same old question: What will the Fed do?
This question is more pressing than it's been in a long time. The Federal Open Market Committee will make its next policy statement next Wednesday. And many expect that when it does, the Federal Reserve will announce a reducing, or "tapering," of its quantitative easing program.
(Read more: Retail investors shrug off fears of Syria, Fed taper)
So will the Fed taper? In my view, yes, a taper is coming—and the better question to ask ourselves is, what will the taper look like? Will it be a $20 billion to $25 billion reduction, or will the Fed take a more cautious route, and only taper down $10 billion or $15 billion?
I believe that the Fed will taper somewhere between $10 billion and $15 billion, and I also believe that this number will mostly be factored in to asset prices already.
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