David Fry's Daily Market Outlook

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Includes: EWP, FDN, FXI, HHH, IEF, IYT, SPY, USO, XHB, XLU
by: David Fry

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Tough inflation fighting talk from the Fed but the only action from them lately is to keep the money supply growing. There are some enterprising and naturally cynical folks who have reconstructed the discontinued and now hidden M-3 money supply statistics.

Courtesy: Shadow Government Statistics.

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Courtesy: Now and Futures.

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Even if the above graphs are correct, and they probably are, the only thing that matters is what dominant investors (read: hedge funds and trading desks) accept and act on. Currently they like the excess liquidity being added by the Fed and that interest rates are still moderate historically.

The bond market vigilantes usually have things right; but, now they seem a little confused. They like the tough inflation fighting rhetoric but certainly aren't getting too bullish either.

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One of the Fed's challenges is to provide a soft-landing cushion for the beleaguered homebuilders. The Fed can't buy excess housing inventory, but they believe in their power to instill confidence in both consumers and speculators.

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Let's look at a broad range of equity market sectors to assess current conditions.

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Elsewhere around the planet, financial markets may be even stronger than in the U.S.

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Okay enough already! You get the picture—markets are rallying globally and the breadth is healthy.

Now you're probably thinking: Why the cynicism? Because some of us don't like markets being manipulated with data changed or withheld from investors. But, the bottom line is Mr. Market and the bulls are in charge. Even if we don't like the rules of the game, it's not our job to fight the Fed or the tape. However, with markets this overbought and investor enthusiasm running like its 1999, chart postings could get ugly fast. Perhaps the GDP number on Friday will be upsetting or possibly some post election blues. Usually a correction from levels such as these come from unexpected sources.

Disclaimer: The ETF Digest maintains positions in: iShares Lehman 7-10 Yr Treasury Bond ETF (NYSEARCA:IEF), streetTRACKS Gold Trust ETF (NYSEARCA:GLD), S&P 500 Index (NYSEARCA:SPY), iShares Dow Jones Select Dividend ETF (NYSEARCA:DVY), Utilities SPDR ETF (NYSEARCA:XLU), iShares Dow Jones US Real Estate ETF (NYSEARCA:IYR), PowerShares Zacks Small Cap (PZJ), PowerShares Zacks Micro Cap (NYSEARCA:PZI), Materials Select Sector SPDR (NYSEARCA:XLB), Software HOLDRS Trust ETF (NYSE:SWH), Internet HOLDRS (NYSE:HHH), First Trust DJ Internet Index ETF (NYSEARCA:FDN), iShares S&P Europe 350 Index (NYSEARCA:IEV), iShares MSCI Spain Index ETF (NYSEARCA:EWP), iShares S&P Latin America 40 Index (NYSEARCA:ILF), iShares MSCI Mexico Index ETF (NYSEARCA:EWW), India Fund Inc. (NYSE:IFN) and iShares FTSE/Xinhua China 25 Index (NYSEARCA:FXI).