After months of speculation and anticipation about how many bullets he might have left, Federal Reserve Chairman Ben Bernanke finally pulled out a bazooka.

On Sept. 13, the Federal Open Market Committee released a statement revealing that the Fed was going to buy $40 billion of mortgage-backed securities a month unless job growth doesn't improve, in which case it might buy more.

Thus Bernanke is going to pursue an essentially open-ended program of asset-buying (aka "quantitative easing," or QE) that can become even bolder if he doesn't get the kind of economic performance he wants.

Oh, and by the way, the FOMC also extended its zero-interest-rate policy into 2015 and is going to continue its so-called Operation Twist.

Bennie and the Inkjets

I don't know what other folks expected, but this was about as large a round of QE as Bernanke was liable to pursue. Overall, however, the U.S. stock market response to the Fed announcement has been relatively tame.

While I think it is important not to underestimate what Bernanke has done, people should not blow it out of proportion, either. This is not a direct step to hyperinflation, and it doesn't mean that the value of cash is instantly going to zero. We may get there, but there are going to be a lot of steps in that process.

Always look for subjectivity-verb agreement

What is significant about what the Fed has done is not so much the amount of securities it is buying, but rather what the statement reveals about Bernanke's intentions. He wants the labor market to improve "substantially," and he doesn't feel compelled to cut back on what he is doing until after the economic recovery "strengthens."

That is a lot of subjectivity, meaning he can do what he wants as long as he wants, and that is a powerful statement, I think.

That doesn't mean stocks in general will go up. They could, or they might not. In addition to weak earnings, they are going to have to deal with the fact that interest rates are probably going to rise from somewhere around five years out on the yield curve. Once the bond market has realized that it has more to fear from inflation than to gain from the deflation-scare trade (which I think is essentially over), it may have an impact on stocks, though I wouldn't expect that to happen any time soon.

Then there are the consequences of the election and the so-called fiscal cliff.

Thus, stocks could go anywhere in the next few months.

Initially, they are probably headed higher, though at some point there is likely to be a very nasty sell-off. I don't really want to spend a lot of time thinking about the latter because, as I have been saying for years now, and as has been so aptly demonstrated since the lows of 2009, trying to get short in a money-printing world is a dangerous proposition. (Not that being long is easy, especially when you know how artificial everything is beneath the surface.)

Bonds away!

Given the fact that I feel strongly that a (long-awaited) inflection point for the bond market may be at hand, this week I initiated a small short position in the U.S. 10-year Treasury bond.

From a tactical standpoint my goal was to take advantage of the current bounce in the bond market, but I have no idea if this is going to work (anyone who claims to be sure is delusional).

For one thing, when the Fed is in buying as much paper as it is, it could make it difficult for a bond short to work. On the other hand, the bond market is even bigger than the Fed, so if I'm right about the shift away from deflation psychology, then I could have a winning position for quite some time to come.

At any rate, this is a very modest position, and I have no huge expectations. Thus, I won't hesitate to throw in the towel if I think my timing is not right, but I also probably will add to it if I think it is working, and then figure out how I want to manage my risk along the way.

In summary, I am in essence trying to capture the idea that the bond bull market has ended. But these things take time. I just want to test the market with a bit of a position. While this is the sort of tactic that works for me, no one should follow suit without doing his or her own research and carefully assessing the risks.

As a final note, regarding precious metals (my favorite long idea), and in which I do have a big position, I think the tendency for everyone will be to fight the last battle. So many people were so wounded, shocked and beat up mentally during the gold correction and slaughtering of gold stocks over the past year that they are going to be inclined to sell too soon rather than buy enough and net-net put a bid under the metals complex for some time.

However, if it weren't for the fact that we have an election coming up, which could theoretically upset the macro apple cart in some way, I would say the metals are almost a layup to close 2012 "high and last."

King World News

My latest interview with Eric King was a fun conversation to have and I think readers will really enjoy it. Readers can listen to it here. 

At the time of publication, Bill Fleckenstein held a short position on 10-year U.S. Treasurys and long positions on gold and silver.