John Ransom

If one were to take a look at the technical signals for the market, there are plenty of reasons to be concerned here. The market came close to breaking support levels earlier this week on strong, convincing volume.

Currently the market is trading below it’s 20-day moving average at 1552 and need only give up another 11 points before it’s broken its 50-day moving average. Normally that’s a cause for anxious waiting.

The news on economic front continues to be worrisome as well. Slowing growth in China, European economic stagnation and mixed earnings here at home are signaling that downward revisions to economic expectations are in order.

Indeed, the IMF recently revised it’s forecast for global economic growth downward based on these new data.

While conceding that private demand is growing in the U.S. the IMF has cut GDP growth forecasts to below 2 percent on the basis of government sequester saying, “In the United States, the focus should be on defining the right path of consolidation. While the sequester has decreased worries about debt sustainability, it is the wrong way to proceed. There should be both less and better fiscal consolidation now and a commitment to more fiscal consolidation in the future.”

Buy now, save later, in other words, the usual recipe cooked up by statists and liberals.
The recipe is also an indication of why it’s likely that financial markets will continue to move up indefinitely, despite technical worries, fundamental worries and wild cards like a North Korean missile launch.

Peace and prosperity- relics of the 20th Century- are way over-rated when you got gobs and gobs of cash created by the central banks worldwide.

In the chart below, I overlay the U.S. monetary base on the S&P 500 over the last two years. As you can see there is a strong correlation between the movements of the S&P 500 and increased monetary base.

^SPX Chart

^SPX data by YCharts

What strikes me in the chart isn’t so much that the expanded monetary base is driving the market up, but rather that it is acting as a floor for the market, preventing overly broad declines.   

And look how much liquidity has been added to the monetary system just recently.

John Ransom

John Ransom’s writings on politics and finance have appeared in the Los Angeles Business Journal, the Colorado Statesman, Pajamas Media and Registered Rep Magazine amongst others. Until 9/11, Ransom worked primarily in finance as an investment executive for NYSE member firm Raymond James and Associates, JW Charles and as a new business development executive at Mutual Service Corporation. He lives in San Diego. You can follow him on twitter @bamransom.

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