More Tough Questions

I asked a few tough questions the other day, most staring into the eyes of this rally and doubting this rally. Still, any trader should turn around and look at the other side. If the rally was built on QE, then how can we rally on the notion the Fed will begin to taper? Logical, right? Logic plays very little in the short-term view of the market. It comes into play for value investors and long-term fundamental investors, but not for traders or for short-term market reactions, so we can just toss logic out.

Still, equities are forward looking, so shouldn't a taper mean selling? Well, it does, but now that selling comes from precious metals and bonds. Without a constant QE, Treasuries can easily move higher in yield and lower in price. Theoretically, Treasuries are more sensitive to QE than equities. Therefore, a forward-looking market will sell that which is most sensitive first. Furthermore, precious metals, which are often used as a hedge against inflation, will suddenly act as though there will be no inflation since we are tapering. If we didn't have inflation with QE, then we sure as hell won't have it without QE. So, this is another area to sell. Not just the metals, though, we must sell miners as well....293 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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