Dice on newspaper stock pages © Tom Grill, Photographer

Was last week's rally -- you remember Wednesday and Thursday, right? -- on the surprise "no taper" decision from the Federal Reserve a sign that stocks are heading even higher or an indication of an increasingly nervous and volatile market?

I'd vote from the latter.

Think about this "indicator": A decision to put off a cut of what was probably no more than $10 billion to $15 billion a month in Fed purchases of Treasurys and mortgage-backed securities was enough to drive the Standard & Poor's 500 Index ($INX) to a new all-time high.

That's clearly an overreaction, unless global financial markets see the Fed's decision on when to taper as a marker for the end of cheap money. I think the logic goes something like this: As long as the Fed doesn't taper at all, the moment when the central bank decides to start raising short-term rates is postponed. When the Fed does start to taper, even if rising short-term rates aren't on the immediate agenda, they do go on the calendar.

In other words, the big rally last week was a relief rally, and global markets are starting to make a transition from certainty that U.S. short-term interest rates will remain at 0% to 0.25% to a period of worry about exactly when interest rates will start to climb.

If this isn't the endgame for cheap money, we've moved closer to that endgame, and that means more volatility and more exaggerated market moves.

Globally, money is still cheap. Short-term benchmark rates are effectively 0% in the United States and Japan. It pays to borrow at low rates and put the money to work. It doesn't pay to keep money on the sidelines, since cash and its alternatives pay almost nothing. Traders and investors who look down the road to 2014 or 2015 can see this environment coming to an end: The Fed has said it will keep short-term rates at their current extraordinarily low level until 2015, but doubts are starting to creep into the collective mind we call the market. If you want to play the cheap-money game, there isn’t an endless amount of time to waste. You don't think it's coincidence, do you, that VerizonCommunications (VZ) just sold $49 billion in bonds, beating the largest previous bond offering from Apple (AAPL) by a mere $32 billion? Verizon sold $15 billion in 30-year bonds alone.

This remains a global financial market driven by the availability of cheap cash. And the biggest worry is that the world's most influential central bank can't be all that far away from taking away the punch bowl.

Jim Jubak

Jim Jubak

Look past negative data

If your goal is keeping your money working, it pays to look past negative data or the lack of data for as long as you can. U.S. markets did that immediately after the Fed decided on Sept. 18 not to begin tapering its program of buying $85 billion a month in Treasurys and mortgage-backed securities. The S&P 500 rallied even though the Fed's decision to keep pumping the full $85 billion a month into the global economy (and global financial markets) was predicated on persistent underperformance in the real economy.

As markets get closer and closer to what they feel to be the end of the cheap cash punch bowl, you can expect to see more volatility. The trend may still be upward -- after all, the cheap money is still available -- but market volatility will increase as everyone edges closer to the door.

If I'm right, what we should be seeing is a greater use of derivatives and trading strategies designed to protect against downside moves. We know from past market "events" that these trading strategies, unfortunately, can have the effect of actually increasing market volatility. For example, if everyone's computer-programmed trades are set to sell when the S&P 500 drops to a certain level, then at that point, rather than stabilizing the market, such a trading strategy will produce a rush of selling.

If I'm right, what we'll see are relatively big short-term shifts among markets and assets as traders try to keep cheap money at work but see to limit risks and maximize rewards. The huge jump in gold at the end of last week is an example -- the big move up on Sept. 18-19, fueled by short-sellers covering their positions, was followed on Sept. 20 by a rout in gold and gold-miner stocks.

Any conviction here? Any sense that gold or gold-mining fundamentals had changed? Nah. But it’s certainly a big rush to take advantage of a temporary move in prices.

Story of the moment

For equity investors, I'd suggest watching the moves in and out of U.S. and European stocks. The story of the moment on Wall Street is that European equities are cheap in comparison to U.S. stocks, and in the past week or so I've seen significant moves up in European stocks. To this way of thinking, it doesn't really matter that European growth continues to lag U.S. growth. A move into European stocks and out of U.S stocks is a short-term effort to take advantage of a perceived differential in asset prices.

Similarly, watch out for some of the money that had flowed out of emerging markets to continue to flow back in simply because traders are looking for a short-term rebound after a big sell-off. There's enough "good" news to fuel the flows -- for example, China's manufacturing index climbed to a six-month high in September, the Chinese government announced over the weekend -- but the real driver here is a sense that assets are due for a bounce.

The problem in all of this, of course, is that since there's not much in the way of fundamentals underpinning these actions, it's very hard to predict how long any move in one direction or another will last. It's something to watch, for example, that the good news on Chinese manufacturing didn't produce a big move up today in Chinese or Asian stocks. Maybe that's just an issue of timing, and we'll see that move up on Tuesday, or maybe it's an indication that after a rally of 20% in some Chinese markets, traders are treating this as time to sell on the good-news moment.

The danger here for investors is that they'll get swept up in these moves and interpret a slosh of global money as an indication of something more fundamental and lasting. You don't want to overpay for a stock because a sudden move higher in the market flavor of the week leads you to believe that the fundamentals of the stock, market or economy have changed. In the same way, you don't want to be frightened into selling just because the money has sloshed away from a particular stock, market or economy.

On the other hand, the opportunity for investors from this volatility is that some stocks with great fundamentals will suddenly become cheap because global cash flows head elsewhere. Then, thanks to short-term volatility, you'll have a chance to find bargains where you never thought to find them.

My advice in this market for most of us who aren't day-to-day traders is to know what you want to own and to know what you want to pay. Keep your list of stocks that you want to add to your portfolio at hand and know what price would be attractive to you. Same with stocks that you already own. Try to calculate a fundamental value that isn't dependent on the whims of the moment.

Not so long ago, I put together a list of stocks to buy when the price is right. I'm going to update that for a new post in the next week or so.

When in 2010, Jim Jubak started the mutual fund he manages, Jubak Global Equity (JUBAX), he liquidated all his individual stock holdings and put the money into the fund. The fund did not own shares of any stock mentioned in this post as of the end of June. Find a full list of the stocks in the fund as of the end of June here.

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Jim Jubak's column has run on MSN Money since 1997. He is the author of the book "The Jubak Picks," based on his market-beating Jubak's Picks portfolio; the writer of the Jubak's Picks blog; and the senior markets editor at MoneyShow.com. Get a free 60-day trial subscription to JAM, his premium investment letter, by using this code: MSN60 when you register at the Jubak Asset Management website.

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