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(2/22/14)
There has been a lot of conjecture that as long as the Federal
Reserve keeps printing money the market will continue higher no matter what
happens with the economy. As you can see in the chart below since the 2009
low the Federal Reserve has been printing money at an accelerated pace (red
line) with a strong correlation in the market (points a to b). 
Now if we take a look at the longer
term the Federal Reserve been increasing the money supply since the 1960's so
this is nothing new. Keep in mind just because the Federal Reserve prints
money doesn't mean the market has to rise as we saw from late 1999 through 2002
when the Dow lost 39% of its value. Furthermore from the mid 1960's
through the early 1980's the Dow went nowhere for 17 years as the Federal
Reserve continued to print money at a steady pace (points b to c). Finally
the Federal Reserve spun up the printing presses from the 1930's through the
early 1940's (points d to e) which looks similar to what has occurred
recently. Back then this was followed by a sharp rally in the Dow from
1932 through early 1937 (points f to g) but then the additional money printing
eventually had a negative affect on the market as the Dow lost 53% of its
value. Thus as these examples show even if the Federal
Reserve continues to increase the money supply that doesn't mean the market has
to move higher. 
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