Fed Monetizing and S&P 500 Index

And now that the Fed is (mostly) done manipulating the stock market, traders are fleeing stocks. (Geesh, do we detect a trend?)

“There is a clear relationship,” writes James Turk of goldmoney.com, “between the rise in the S&P 500 Index from its March 2009 low and the Federal Reserve’s purchase of U.S. government debt instruments, which it calls ‘quantitative easing’ (QE). Another term for it is money ‘printing.’

“The Fed is simply turning U.S. government debt into more dollar currency, which of course debases the dollar. It also explains the correlation in the above chart.

“Note how the S&P Index started climbing with the commencement of QE. The S&P dropped early this year when the Fed announced QE would end. Interestingly, the stock market soon rallied thereafter, probably because few believed that the Fed would really take away the ‘punch bowl.’ But it did, and the S&P has been in a downtrend ever since...

“Now that the Fed has stopped printing, the S&P 500 Index not only stopped rising, but began falling to reflect the true state of underlying economic conditions. Consequently, I expect that there will be new calls in Congress for another stimulus package, but more immediately, it seems likely that the Federal Reserve will recommence its purchases of U.S. government paper. Quantitative easing, I expect, is about to get a second chance at reviving the moribund U.S. economy.”