A Look at Friday’s Market: The broad market indices moved slightly lower on Friday in a relatively lackluster trading session.  In the commodities markets,  Oil was higher by $0.47 to $92.89 per barrel, and Gold was higher by $7.80 to $1,775.60 per ounce.  In the grain markets,  Wheat was higher by $0.176 to $8.972 per bushel, while Corn was higher by $0.022 to $7.482 per bushel, and Soybeans were higher by $0.030 to $16.216 per bushel.

A Few Thoughts on Monday’s Market:  The major market indices and a large number of the various sector indices that I track are obviously benefiting from the Fed’s 3rd round of quantitative easing, otherwise known as QE3.  However to be very clear,  I consider QE3, and the previously quantitative easings’, QE1 and QE2, to be an unprecedented form of market manipulation that is not only ineffective, but one that has very serious, negative unintended consequences that are detrimental to the US Economy.  Manipulating interest rates to artificially low levels will not make up for bad fiscal policy out of our elected officials in Washington, DC.  Worse yet, these artificially low interest rates are creating a bubble in all bond classes as savers either search for higher yields or safety;  these artificially low interest rates punish savers with reduced interest income, and create a sense of uncertainty that is holding back business development.  It seams that the only group benefiting from these artificially low interest rates is the largest companies in the US and global economy.  These are the companies that dominate the major market indices; and that is why these indices are doing so well, while the rest of the economy is seems to be disconnected from the stock market.

One sector that is not benefiting from the quantitative easing is the transportation sector.  There is a very good reason for this.  The transportation sector by its very nature deals with a lot of small businesses and consumers, two groups that are struggling.  Additionally,  capital goods that can be financed with borrowed money are not the only factor in these companies bottom lines. I bring this up because the Dow Jones Transportation Average has not participated in the recent market rally.  Dow Theory basically states that the Dow Jones Industrial Average will not continue upwards to new highs for very long without the Dow Transports moving higher as well.

Now one of two things is likely to happen.  Either the Dow Transports is going to rally or the Dow Jones Industrial Average is going to move back lower.  I think we would be looking at the Dow Jones Industrial Average well below 13,000 if it wasn’t for QE3.  My best estimate is that it is more likely that the Dow Jones Industrial Average will move lower than we will see the Dow Transports rally.

The Bottom Line:  I remain skeptical about the recent market rally.  To me all of the quantitative easings are a form of musical chairs, in which the person left standing when the music stops is going to be left with big losses.