Auto sales jumped a few years ago when the Federal government offered up your tax money for other people’s clunkers. About that time, home sales were jumping as the Federal government used your tax money to pay for a tax credit for first-time homebuyers. Of course you know what happened after those programs expired. Yep, auto and home sales plummeted. The only thing your tax money accomplished was a transferring of future purchases into the present. Which of course leaves us with a future period without those purchases—-hence, the plummeting. Any economist worth half his salt saw those ones coming.

Now there’s the Fed’s QE program and the perception that it’s what’s been fueling the run-up in stock prices. Uh oh!! But there are some differences worth noting: QE wasn’t billed as a program aimed at directly subsidizing stock market investors. QE is not the depositing of money onto the earnings statements of publicly traded companies (I’m in the camp that says the rally’s been more about earnings than it’s been about QE). QE has, however, suppressed interest rates, which makes for higher profit margins (lower borrowing costs) and for less competition for the stock market. So for sure it’s helped the rally along.

So how does all this shake out when the days of QE finally come to an end? There are a lot of smart folks (well, at least good test-takers) who are committed to the notion that stocks are going to tank when the Fed removes the punchbowl. They cite the selling that occurs after the issuing of every credible threat that the taper’s on its way (a little of that went on today upon the release of the minutes from the Fed’s last meeting). And they may very well have it right. My problem with that thinking is that the inevitable taper-inspired selloff is so, well, inevitable. You see, big sell-offs are never that predictable (of course there’s a first time for everything).

Given that the stock market serves as a discounting mechanism, if cutting QE is a for sure market-killer, you’d for sure think that after a 25% year-to-date gain in the major averages the smart money would have for sure hit the exits by now (since the taper is for sure coming in the next few months). But, hmm, it hasn’t.

All that said, the one thing I know for sure is that a selloff is indeed inevitable (can’t know when), I’m just not nearly convinced that cutting QE will be the catalyst. And, by the way, periodic selloffs are not to be feared by clear-thinking long-term investors. They’re necessary, cleansing, exploitable, phenomena.

Stay tuned…