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Amateur Investors Weekend Stock Market Analysis (2/22/14)

http://www.amateur-investor.net/Weekend_Market_Analysis_Feb_22_2014.htm

There has been a lot of conjecture that as long as the Federal Reserve keeps printing money the market will continue higher no matter what happens with the economy. As you can see in the chart below since the 2009 low the Federal Reserve has been printing money at an accelerated pace (red line) with a strong correlation in the market (points a to b).



Now if we take a look at the longer term the Federal Reserve been increasing the money supply since the 1960's so this is nothing new. Keep in mind just because the Federal Reserve prints money doesn't mean the market has to rise as we saw from late 1999 through 2002 when the Dow lost 39% of its value. Furthermore from the mid 1960's through the early 1980's the Dow went nowhere for 17 years as the Federal Reserve continued to print money at a steady pace (points b to c). Finally the Federal Reserve spun up the printing presses from the 1930's through the early 1940's (points d to e) which looks similar to what has occurred recently. Back then this was followed by a sharp rally in the Dow from 1932 through early 1937 (points f to g) but then the additional money printing eventually had a negative affect on the market as the Dow lost 53% of its value.

Thus as these examples show even if the Federal Reserve continues to increase the money supply that doesn't mean the market has to move higher.