September is normally the worst month of the year, but this time it has been a strong month for equity markets.
This has happened before - the last time it occurred was 2007. Then the equity market rose 15% in the month of September and carried on rising until 16th October. It then crashed by 50% and bankrupted some of the world's largest financial institutions.

As precedents go, this is not a good one. We draw no comfort from the fact that markets were strong in September. They can, and are still likely to, drop back again.

In a normal, or average, year we sell in May. This time the market was exhausted by April so the downturn started a bit early. The mid-summer rally, however, began right on cue on the first of July. In most markets it then ran out of steam in mid-August but it carried on in some markets.

We need to know what caused this rise. The flow of funds analysis shows that the US public are abandoning equities. Mutual funds are haemorrhaging money. It is going into bonds. Most long-only managers are not dealing and many hedge funds have given up. Eighty per cent of turnover these days is computer algorithmic trading.

We now know that the US Fed have been doing Permanent Open Market Operations or POMOs. They started in March 2009 and have done 42 so far. Typically, they inject between $1.7-7billion in a single day into the market. This turns the algorithms positive and the computer trading does the rest. In short, the Fed has been goosing the market higher as a form of quantitative easing.

We do not wish to chase after that type of buying power. To put it into perspective, after the rise to date the US market, or S&P index, is now back to levels it first hit in 1998. Using the words growth or bull market in this context is an abuse of the English language. Not only has the market made no progress but it is priced in dollars, the value of which has fallen by 30% on a trade-weighted basis. Over this same time period, the Indian market is up 650% while Brazil is up 1400%. These are proper bull markets and that is where we wish to be invested.

David Fuller's view I do not disagree with any of this. However, a Fullermoney maxim is that "Monetary policy trumps most other factors most of the time." I hope to understand why markets are moving up or down but in terms of my investments, I would rather be right for the wrong reasons rather than wrong for the right reasons, to the extent that the real reasons are objectively discernible.