Anyway, as lb said, the trend in LQD is still just barely intact. JNK traced out a bear flag and seemed to hit major resistance at the 20 EMA on the 30 min chart, but then blasted right through in the final minute of trading. It’s enough to give one the impression that the entire market is still some kind of *unmentionable gaming institution*.

Yeah, stick a fork in the LQD bro… High volume on a pullback to the 50 d EMA is NOT what longs want to see in this tape.

It was an amazing uptrend. But look out below…

More importantly, what does LQD say about SPY???

Especially you of the “long” persuasion.

I have a question – there’s all this talk about how much money the fed has been injecting into the economy. … What happened to the trillions we’ve lost in the housing market? How about the trillions lost in bad loans? Stock Market losses from last year?

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The Money Supply is actually Money x Velocity. Velocity loosely corresponds to a demand for cash. Lots of Cash and little Velocity creates a Liquidity Trap. Money without velocity is relatively useless. The Fed is hoping to offset lower velocity by making oceans of cash available. HFT and oil traders are taking them up on it. Not many others are.

So, to answer your question, a lot of the cash evaporated because velocity evaporated.

So noted. Once “all” of the planned QE incl. the agency stuff is spent, it seems up is the only way these rates can go…

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That’s the million dollar question. Inflation or deflation. Or both.

The Fed is duplicitous in that it only defines inflation in terms of CPI and Philips Curve logic.

It ignores asset bubbles intentionally and feels justified in doing so. It’s ‘exploring’ how to recognize and deal with them but isn’t hopeful of success, or so it says. I believe they will fail because they have no will to succeed and asset bubbles are a tool in their chest.

It appears to ignore the value of the dollar. The falling dollar is a pure reaction to the printing press. It’s just not on the radar and probably never will be.

So we will see a falling dollar, which isn’t inflation as the Fed defines it. We will see periodic asset bubbles, which are really a tool of monetary policy and not inflation, according to the Fed. .

Deflation corresponds to how people live in real life. No demand + excess capacity + oversupply in some things = lower prices. No demand for credit = low rates, cash is king, and high savings rates. Like Japan, the US carry trade will emerge and Africa will start being developed so they can be exploited as the last market on Earth.

Then,wait for China to explode. They’re just starting their bubble.

The additional debt will have to be paid back one day (as long as there is political consens that ever increasing debt finally leads to self-destruction), probably via higher taxes (which puts breaks on consumption, hence anti-inflationary). John Mauldin has written about this at length. http://www.frontlinethoughts.com/index.asp

In December 2008 the April 2010 TIPS were pricing in a deflation of 7% over 15 months. That would have been a disaster (TIPS are redeemded at par, but if an older one is trading far above par, and you have deflation, your principal can shrink, hence those TIPS were trading below par). Even over 10 years the difference between TIPS and Treasury bond yields was close to zero. See http://www.marketoracle.co.uk/Article7970.html

At least now we have moved away from such a doomsday scenario (zero inflation until spring 2011, going up to 1% by 2014 and ca 2% by 2019). Of course the TIPS-Treasury yield spread has no predictive value – it’s just what the market currently prices in.

Further reading here: http://seekingalpha.com/article/118363-tips-on-tips-treasury-inflation-protected-securities