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| May 12 Commentary |
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Uncertainty Rules In This Managed Market Rally
Given the comparison between a traditional business cycle bull market and the current managed market rally, what could cause the rally to end? The key to the stock market rally is low interest rates. Therefore, the only thing that would force the Federal Reserve to raise its interest rates is rising prices (inflation). The average American believes inflation (prices) moves up when too many dollars are chasing too few goods. However, China's massive production and currency value manipulation neutralizes any possibility of this happening.
Another reason prices other than food and energy cannot rise is due to banks not lending, thus creating money. Finally, velocity plays a role as well. For prices to increase you need two things: extreme money growth and increased money velocity (spending).
Money must be spent on a rapid basis. Currently, the bulk of investor money has gone into mutual funds that hold bonds. Since March 4, 2009, $369 billion have gone into these funds (source: Newsweek). Both money velocity and money growth are currently experiencing very low growth rates. There is no reason for the Fed to raise rates anytime soon.
The current stock market rally would end in a New York second if it were not carefully managed. The Fed controls interest rates and bank lending, thus money creation and spending. Therefore, there will be no need for interest rates to move higher beyond a token increment until interest rates and lending are allowed to move with supply and demand.
There is a vast difference between a traditional business cycle bull market (of the past) and today's managed market rally. Favorable market comparisons and historically low interest rates are the only things really holding up the market. The latter is meticulously managed by the Federal Reserve. The rally will continue as long as interest rates remain low and profits rise due to low expectations.
Sincerely,
Kenneth Coleman
| Past Commentaries |
| February 25, 2009 |
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| January 30, 2009 |
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| October 10, 2008 |
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| September 22, 2008 |
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| July 18, 2008 |
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| May 27, 2008 |
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| April 28, 2008 |
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| March 18, 2008 |
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| January 15, 2008 |
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| November 28, 2007 |
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| September 24, 2007 |
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| August 23, 2007 |
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| July 27, 2007 |
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| June 27, 2007 |
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| May 17, 2007 |
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| April 30, 2007 |
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| February 24, 2007 |
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| January 25, 2007 |
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| December 11, 2006 |
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| November 27, 2006 |
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| October 23, 2006 |
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| September 05, 2006 |
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| August 17, 2006 |
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| June 26, 2006 |
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| May 29, 2006 |
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| May 5, 2006 |
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| April 20, 2006 |
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| April 06, 2006 |
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| January 25, 2006 |
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| December 22, 2005 |
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| November 17, 2005 |
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| October 10, 2005 |
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| September 19, 2005 |
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| August 15, 2005 |
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| July 13, 2005 |
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| June 13, 2005 |
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| May 17, 2005 |
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| March 14, 2005 |
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| November 30, 2004 |
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| November 5, 2004 |
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| October 8, 2004 |
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| August 11, 2004 |
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| June 29, 2004 |
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| May 19, 2004 |
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| April 26, 2004 |
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| March 20, 2004 |
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| February 25, 2004 |
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| February 2, 2004 |
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| December 29, 2003 |
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| December 8, 2003 |
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| November 5, 2003 |
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| September 29, 2003 |
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| July 31, 2003 |
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| June 23, 2003 |
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| June 09, 2003 |
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| May 19, 2003 |
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| April 3, 2003 |
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| March 10, 2003 |
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| February 19, 2003 |
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| January 31, 2003 |
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| January 3, 2003 |
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| November 27, 2002 |
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| October 8, 2002 |
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| September 18, 2002 |
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| August 26, 2002 |
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| August 5, 2002 |
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| June 28, 2002 |
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| June 17, 2002 |
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| March 8, 2002 |
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| February 14, 2002 |
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| February 11, 2002 |
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| January 7, 2002 |
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| December 10, 2001 |
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| November 28, 2001 |
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| November 15, 2001 |
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| October 31, 2001 |
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