NFTRH 204 went like this... Crazy talk about the Outer Limits and complete control in the opening segment (It's All Out the Window Now) and a serious talk about the DML (Dear Monetary Leader), deflationary destruction and the Crack Up Boom in the Wrap Up segment. In between was a whole lot of nuts and bolts functional analysis of the situation. Anyway, here's the other half of the bookend...

Dear Monetary Leader is ushering in a brave new world and we will have to be nimble and ever in possession of a functional filter or better yet, bullshit detector. I believe this is it, the beginning of the end game. It is funny to think that so many months ago this letter had come up with another one of its little buzz phrases in 'i2k12' (inflationary 2012), which I had imagined holding sway in the second half of 2012 after the deflation scare had reloaded the will of policy makers to inflate.

Now we are here and I must admit there were times when I was brought to my figurative knees with respect to that view. That is what markets do; they humble you and challenge you to be the best you can be. That is probably the biggest reason I love this so much.

Moving along, I write a lot about perceptions among market participants and now I am not so sure policy makers even care about perceptions. I see so many extreme things in so many charts that taken at face value, would cause me to write RISK IS HIGH... GO CASH.

But then turning away from the technicals, sentiment and macro fundamentals the FOMC statement from last week says "the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month" and their actions "should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative" and... "the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens."

To which any sane person might question "what if these policies fail to bring about the desired effect this time as they failed to do the first two times?"

Further, we might question whether this is the crack up boom. Now, we hear about the hyper inflationary spiral every time the 30-year yield approaches the red line (EMA 100) of the chart on page 4. So why is the usually evenhanded NFTRH suddenly acting like a raving inflationist? I would have to say that the biggest reason is the proximity of asset markets to their recovery and/or all-time highs even as the Fed panics as if we were in the midst of a deflationary Armageddon.

What I find fascinating is that they are trying to pump asset prices even further. The FOMC mentions supporting the mortgage markets by its manipulation of interest rates. Well, here is the Housing Index; it has something to do with mortgages doesn't it?

The chart was produced on July 1 for NFTRH 194 and a now modest looking target of 145 was set. At the time this was just another indicator to keep us leaning bullish over a very difficult summer as the rally got going. At the time the target was established many people - including this writer - wondered how and why it could get to the target. Now look at it; the thing is going parabolic.

To me, this is exciting, fun, scary... no, frightening all at the same time. I have been writing for a lot of years now and the stuff I have been writing about may actually be engaging. Again I am not smart enough to know whether the eventuality will be a deflationary unwinding or a hyperinflationary blow out. Prechter and disciples of von Mises can fight that one out. I don't need to know the ending because right now we are on another transition from deflationary to inflationary and NFTRH rides the interim macro plays. i2k12 is engaging, finally.

Yet I cannot get 'CRACK UP BOOM' out of my head and it is not just because asset markets are going up. It is because of the resolve with which the Federal Reserve seems to have locked itself into its stance.

The game has changed and I sense NFTRH changing with it. That is because I am changing. Change is good I guess. Let's play it for all it is worth and hope that by taking enough prudent action along the way the fallout will not be as bad as it could be when this macro operation fails one day.

Meanwhile, the last word this week goes to the lone FOMC dissenter, Jeffery Lacker - one the bad cops I often refer to on the blog - who in reality is a relatively sane and ethical person, like Richard Fisher and afew other lonely official voices.

"Further monetary stimulus now is unlikely to result in a discernible improvement in growth, but if it does, it's also likely to cause an unwanted increase in inflation," he said. "Unemployment does remain high by historical standards, but improvement in labor market conditions appears to have been held back by real impediments that are beyond the capacity of monetary policy to offset."