One thing is funny about this rally: People are wondering why it is happening. They do not see good economic news, nor good corporate profits and thus think there is no reason for it.

However, late last year into early this early the Fed doubled its balance sheet, a fancy term for printing money. The federal government expanded hugely with a financial bailout for their buddies and then a stimulus package.

To quote Mark Faber, editor of the Gloom, Doom and Boom report “If the S&P 500 drops to 800, they will print and pass another fiscal stimulus. If it drops to 700, they will print more and do anther fiscal stimulus.”

Printing money can add liquidity and lift all markets. In the long run it usually leads to inflation. However, right now we are in what Milton Friedman would call the "sweet spot." This where printing money lifts financial markets and causes a rebound in the economy.

Enjoy it while it lasts because one to two years down the road we will be looking at massive fiscal deficits and massive inflation.

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