From Dan Denning on the bright side of the Moon:

--Well that was a short dollar rally. December gold futures hit $1,174 in intraday trading before settling down $1,164.80. That was still up nearly two percent. And gold is now up almost 32% on the year. Copper, silver, and oil were up as well.

--But then everything is up this year, at least since the markets started buzzing in March. The S&P 500 is up over 64% from its March 6th low. That's an exceptional bounce even by dead cat standards. With negative real interest rates in the States, owning cash is losing money. Hence the rise in stocks.

--Yes, rising U.S. stock prices could have something to do with a fictitious recovery. But with labour markets weak and housing getting worse (rising foreclosures) we're not counting on it. So we'll stick with the credit-fuelled stock rally.

--It's gotten so surreal on markets that yields on some three-month Treasury bills briefly dipped below zero in trading action. As it is, the yields on Treasury bills are hovering just above zero. Bloomberg reports that, "For the first time in seven decades, Treasury bills are paying no interest while stocks continue to appreciate."

--Why would investors lend their money to the American government for nothing? And why would they continue buying stocks at the same time? Ponder....and discuss.

--We think the answer is that the Fed's policy has forced global investor into an either/or situation. You either get out of cash and into equities to beat inflation. Or, you are so terrified of buying equities divorced from normal valuations that you prefer capital preservation in the form of Treasuries, even if you're losing out to inflation there as well. At least you get your money back at a non-inflation adjusted par value three months later.

--Or, you could buy assets like gold, oil, silver, and copper.

--Why the sudden move in markets yesterday? It could be that Federal Reserve of St. Louis President James Bullard told markets the Fed should keep buying mortgage-backed securities after its self-imposed March deadline for exiting the market expires.

--The Fed's plan to purchase $1.25 trillion mortgage debt and agency securities has effectively kept U.S. interest rates from creeping up. It's also kept the housing market afloat, although even at these levels you are not exactly seeing refinancing boom. But it's the prospect of more quantitative easing by the Fed that must have markets spooked about inflation.

--Bullard said, that, "If the economy came in very weak, let's say, in 2010, weaker than expected, we would have the option of doing further quantitative easing." The Fed would do this through additional asset purchases, presumably with more, uh, "money" it created.

--Bullard also said that, "If the economy came in stronger than expected and inflation expectations started to ratchet up a little bit we could maybe sell off some of these assets and remove some of the accommodation from our quantitative easing program."

--The market must not have heard that second part. Or maybe it didn't believe it. Maybe it concluded that the Fed loading itself up with mortgage-backed securities is not a healthy expansion of the central bank's balance sheet. Maybe that's why the dollar fell and gold rose.

--Hey it turns out that we were wrong and man-made

--And please don't write in saying that doing nothing is not an option. Doing nothing IS doing something. It means NOT doing something stupid until you have a fuller picture of what's going on. And there are still many in the scientific community who are modest enough to admit that the earth's climate is too complex a system to determine whether releasing carbon dioxide into the atmosphere is actually causing temperatures to rise today.

--If you were even more sceptical, you might conclude that promoting global warming (or climate change) has become a lucrative industry for both scientists and failed U.S. presidential candidates with massive carbon foot prints. Both have a strong desire to tell other people how to live.

--In any event, climate science is not our beat here. But the behaviour of hysterical crowds and how to survive it IS our beat. So

Meanwhile, our colleagues over at The 5-Minute Forecast argue that the stock market should never have been rallying in the first place. The economy still stinks, they say, and it is showing no signs of recovering. In fact, a close look at the housing market tells you all you need to know about the economy...and the news is not good.

Check out both of these stories below in today's edition of The Daily Reckoning...

Jay Shartsis, the mind behind the Shartsis Option Alert in New York observes:

The always-intriguing "Stock Cycles Forecast" is looking for an important top right in here. This bearish outlook stems from a quirky collection of indicators called "time and price squareouts." For example:

1) The big S & P low in October of 2002 was 769. If one adds 769 days to the grand top of Oct 11, 2007, it comes out to Nov 18, 2009.

2) Nov 18, 2009 is a "natural square" of the crash of 1929.

3) The Oct 2002 low of 769 on the S&P 500, converted to months is 25 and due west from 25 on the Gann Square of Nine points to an S&P target of 1,104. We are there.

4) We are 85 months from the low recorded on Oct 10, 2002 and due West from 85 on the Gann Square is 1,105, which coincides with the same S&P 500 target.

5) The low last March on the S&P 500 was 666. If we subtract that in days from the recent peak of 1,102, it equals 666 days, which would bring us back to the date of the Lehman bankruptcy - the event that started the crash.

I know all this sounds very wacky and mystical, but Jenkins (the editor of Stock Cycles) has had some very good calls with this methodology in the past.