This will be a November to remember.

With overwhelming Republican victories in the midterm elections now in the rearview mirror and the Democrat-in-chief Barack Obama admittedly bruised from the “shellacking” delivered by a fed-up public, financial industry lobbyists have nothing left in their way and will be shooting holes through recently enacted, but not yet implemented, regulatory reform legislation.

That is likely to mean a more favorable future for banks and brokers. And, that dovetails perfectly with the message trumpeted by the Federal Reserve on Wednesday, which is that they want banks to have free money and leverage themselves up with risk-free assets. They figure that the brokers will do well too because their plan includes pumping up the equities markets.

The whole quantitative easing thing is simple, in case you don’t understand what’s going on. The Fed wants inflation, but it doesn’t want the usual brand of inflation everyone fears. The Fed wants asset inflation. By announcing that they are buying bonds (folks, the Fed doesn’t have to announce anything) they are telling market participants that they are going to push up prices for everyone. They want to keep nominal interest rates on the short end of the yield curve (overnight bank to bank lending rates) at zero and they want real rates (the nominal rate minus the rate of inflation) at less than zero.

The game is designed to continue to prop up bank balance sheets so they eventually start lending more freely to John Q. Public (but that’s not going to happen) and lend to corporations (that is happening). It’s also designed to push money into the stock market, because with yields so low and the “threat” of inflation from the Fed’s easy money policies gaining attention, investors will seek higher yields and inflation protection in stocks. That is happening.

The public isn’t buying, but institution are buying and lifting prices. It’s a confidence game. If the stock market is improving, corporations are doing better (because they are re-tooling their own balance sheets with inexpensive debt they’re floating and from robust overseas earnings courtesy of the weak dollar) and banks are getting so flush they’re talking about paying out dividends again, everyone feels better.

It’s a confidence game. And it’s starting to work. It’s definitely working for businesses (big businesses). But the big game the Fed is trying to win is the public’s confidence in the revival of real estate. If they can keep rates low enough long enough and banks, businesses and bond and stock markets look fat and juicy, they are hoping that the broken leg of the economy, residential real estate, brings up the rear and the economy finally starts growing.

It’s a confidence game and that’s why this will be a November to remember.

If it works, if the broken leg of domestic economic growth gets bandaged up enough so America’s economy can start walking again, we just might have a couple of years of rising markets.

We’ll continue to enjoy that prospect by adding still more positions this coming week.

I have confidence in the power of lobbyists and Republicans to join forces with the Fed to inflate the next bubble, make that bubbles. And, until reality hits, which it eventually will (I’m talking about the real inflation monster being unleashed) the asset inflation game is going to make us some good and steady gains.

I’m going to surprise you this week. We’re going to take some positions that you may not realize are starting to look very enticing.0

Sincerest regards,

Shah