QE2. Buy The Rumor, Sell The News

"U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.

"By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services.

"We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation."

This is the famous helicopter speech by now-Federal Reserve Chairman Ben Bernanke from November 2002. There's just one problem.

It's total BS.

The only thing the government can always do is waste money.

Can they make you spend more? No.

They might generate higher prices, near term, because commodity markets are priced in dollars, which might cause you to pay more at the pump. But will higher gas, food, or gold prices cause you to spend more? Doubtful.

Until they change human nature, you're more likely to cut back on driving as gas prices move higher, and yes, you might even sell your gold if you need to eat.

What you're unlikely to do is jump on a plane to Fiji. You are unlikely to buy the latest bigger better flat screen TV. You are unlikely to do much of anything but try to survive. Now is that higher spending?

I'm hearing that hyperinflation is right around the corner, that gold is on its way to 5,000, that a Santa Claus rally will take the Dow over 12,000, that QE2 will make prices rise because that's what the Fed wants.

QE2 is the ultimate jawbone. I must admit its brilliance. It's working, for a time. Until it won't. And what then.

Let's recognize it for what it is. It's a classic pump and dump. It's buy the rumor, sell the news. The party has started before the guests have arrived.

And you know who the guests are, sadly. The public. They always arrive at the perfect time. Late.

As for the fate of QE2, I'm sensing it will be a dud.

Instead, look for an increasingly more conservative Fed. Its owners are used to making money, not losing it. A balance sheet polluted with worthless garbage will not serve their needs, nor would it ensure their survival.

David Tepper lit this fire. Of course some wild hedge fund cowboy had to do it. God love him. He made $7 billion on a ballsy bet against the insanity of 2006-2007. $4 billion of it went into his own pocket. But now he's high as a kite.

Should I make $4 billion, I'll be retired, not on CNBC talking to Joe Kernan.

Know that when you're most apt to make a bad trade is right after you make a great one. All those euphoric feelings color your analysis. I never listen to last year's hot trader. But I try to learn how they got that way.

I congratulate David Tepper, but he's so flush with endorphins that he can't see that his analysis is circular. There is no win-win in the market. It's zero sum.