Dow Rides Home Depot, Others to 111-Point Rally

Dow Rides Home Depot, Others to 111-Point Rally

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Remember the last Federal Reserve meeting? Wall Street pros were all but positive Bernanke & Co. would pull back on stimulus -- that is, until the $85 billion monthly asset purchases stubbornly remained the same. That said, this month the "smart" money says the Fed will keep the $85 billion figure steady tomorrow, and the prediction may actually be on point. The easy-money policies, however, are starting to worry some of the planet's most powerful financial executives, and with today's market sharing an ominous quality with previous market bubbles, who can blame them? The Dow Jones Industrial Average rallied 111 points, or 0.7%, to end within 50 points of all-time highs, at 15,680.

Home Depot was one of the biggest blue-chip beneficiaries of Fed policy speculation today, tacking on 1.9%. If the Fed keeps frantically buying treasuries, rates are bound to remain low, enabling more buyers to access real estate markets, a trend few Home Depot investors would protest. In fact, the growing disparity between demand and supply drove U.S. home prices to their most pronounced year-over-year increase since 2006 in August.

But real estate isn't the market BlackRock CEO Laurence Fink thinks is overheated. It's stocks Fink sees as bubbly, as a direct result of the Fed's loose-money policies. Sears probably wishes it could access this elusive loose money everyone's talking about, even as its stock rocketed 11.8% higher Tuesday. Unfortunately, the remarkable gains today were spurred by Sears' desperate financial ruminations, not a robust earnings report. The company floated the idea of spinning off its successful Lands' End brand, and will shutter some Sears locations as the department store sees losses steepening by more than $80 million in the current quarter from a year before.

Finally, shares in Education Management , which runs for-profit post-secondary schools, added 5%. Education Management's stock has gotten some enviable mileage out of last week's industry-moving development, in which a competitor's European assets were acquired by a private equity firm.

While it's great Education Management is getting love, the rationale is a little shaky to me. I'd rather see the company rise on a strong quarter than on a rival's keen sale. This sort of speculation is merely a different version of the same disease seen elsewhere in the markets right now. The amount of debt investors are taking on to buy stocks on margin soared to more than $400 billion in September, the highest level ever. The last two times that figure peaked? Early 2000 and the summer of 2007.

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