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« Do ETFs Pose a Threat to the Market? | Main | The Quest for Yield (Part 4): Covered Writes »

November 16, 2010

Comments

oldprof

Dal P -- You have it exactly. For investing purposes, it really does not matter whether we agree with Bernanke or not.

Thanks for joining in.

Jeff

oldprof

JohnF -- Nice to hear from you. My reference to "Don't fight the Fed" is not suggested as the reason to invest. It is intended only to emphasize that the Fed is bigger than you or me. Too many people disagree with Fed policy and therefore decide to ignore the likely effects. For some this has become a multi-year habit.

My reasons for liking the market relate to the rather obvious improvement in economic fundamentals, market valuation, and the continued growth in earnings.

I disagree about forward and backward earnings, but prefer to discuss that in the context of one of many (many) articles that actually introduce data showing why forward is better.

Meanwhile, I hope you prosper in your trading, and appreciate your comment.

Jeff

Louis C

True, and let's not forget the ever-shrinking money multiplier. A fractional reserve system only works when the multiplier effect actually has significance.

Simit Patel

It's inflationary because it causes a lack of faith in the US dollar, which causes a move out of the US dollar, which causes dollar-denominated prices to rise.

to elaborate, there are two types of price inflation:

1. demand-driven price inflation. customer A and customer B engage in a bidding war for Asset 123, driving prices up for Asset 123.

2. currency-induced price inflation. people move out of the currency, causing the currency to lose value, causing prices denominated in the weakening currency to rise.

Dal P

Jeff,
Very interesting and well-presented. The screencast from Abnormal Returns is especially good.

There are plenty of times where it is very complicated. This may be one of those rare gift times where it isn't.

I think it's currently advantageous to run with what the markets are giving us. Watch, absorb, and act - not the media, but the markets. Not what the markets should be doing, what the markets are doing. I'm not letting the financial media distort the view. Then, for me, it's an easy choice.

johnf

I think the "fighting the fed" phrase is most overused. Worse, it's a bad reason to invest in the stock market. While the market can react to more liquidity in the market place and rise, eventually the drugs wear off.

Sadly, the Fed's medicine is merely aimed at repairing the banks -- not job growth. This is the Japanese model and the result is known.

I don't see Fed intervention in the markets as savvy and it is not a making of a solid fundamental. This is obvious by recent past history...two bubbles in the last 15 years.

Furthermore, I personally prefer Shiller's 10 year smooth average of PE. This to me means stocks rate to offer low returns, combined with a low dividend yield.

I also tend to think of the future as one of low returns because of the mind shift in American consumer activity and the fact consumers remain highly levered: around 110%.

Thus, I see things as very cloudy with low returns. Any boisterous rallies -- if enjoyed -- should be sold to protect gains. Just one man's opinion.

World economy update

Most Americans have absolutely no idea how fragile the world financial system is right now. Once the rest of the world loses faith in the U.S. dollar and in U.S. Treasuries this entire thing could completely unravel very quickly.

The Federal Reserve is playing a very dangerous game. They are openly threatening the delicate balance of the world financial system.

oldprof

Mike C --Thanks. Fixed now.

Jeff

Mike C

The Kasriel link doesn't appear to be working.

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