This week, I read an article on Seeking Alpha by Jeffrey Saut entitled “Stock Market Timing?”

While I have much respect for Mr. Saut’s experience and knowledge in the industry, I do not agree with his recent missive, as it is replete with market fallacies and circular logic.

Within this article, Mr. Saut takes market participants to task for not understanding the market:

"As mentioned on numerous occasions, if nothing else, if investors only understand and appreciate the following, they will always be on the right side of the market and will never be influenced by others' opinions or news headlines:

Investors must understand the role of the U.S. central bank (the Fed). The U.S. Federal Reserve System was created in 1913 to perform all roles monetary, but one of their key statutory (written in law) mandates is to "To maintain orderly economic growth and price stability." This agency has more and better information on the economy than anyone in the world. It was not created to promote hyperinflation or to create depressions. The Fed's key mandate must be clearly understood and appreciated.

The stock market is a leading economic indicator. The economy does not lead the stock market. Hence, once these two points are clearly understood and remembered, the market's logic becomes apparent. Hence, when the economy slows and heads into a recession, the Fed will ease and will keep easing until the economy responds (remember, that's their mandate). The stock market, being a leading economic indicator, will have bottomed 6-9 months before the recovery begins, not after. For example, "the market" bottomed in October, 2008 and the recession ended at the end of June, 2009 and a [market] recovery commenced, eight months ahead of the [economic] recovery. Conversely, when the economy overheats; inflation surges; and speculation is rampant, the Fed will tighten by draining liquidity from the system and raise interest rates in an attempt to cool the economy. The stock market, being a leading economic indicator, will head south long before the onset of a slowdown or recession, not after. This chain of logic is so simple that anyone with an IQ slightly above room temperature would understand it. Yet, most on Wall Street with umpteen degrees and decades of experience can't figure it out."

However, it seems Mr. Saut is guilty of some of the same errors for which he calls out others.

Let’s start with his first premise. He suggests that in order to understand the market we must understand that it is the Fed’s responsibility to “maintain orderly economic growth and price stability.” I have recently penned an article regarding my perspective on the Fed’s control of our market, and have explained why the common view of the Fed is based more upon fallacies than fact. But, the gist of that article is summarized in the following paragraphs: