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Politics : President Barack Obama
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To: Road Walker who wrote (115376)6/14/2012 1:55:59 PM
From: RetiredNow  Read Replies (1) of 149317
 
True, but Fed manipulation, especially programs like QE and Operation Twist have a highly inflationary impact on stocks. That makes them much more volatile and prone to large drops. Either way, high volatility means high risk. High risk means that the risk-adjusted value of stocks are a lot lower than what the market is pricing today.

Here's a thought experiment for you. When Operation Twist ends in two weeks and if the Fed does not replace it with anything else, then what level do you think the S&P500 will find equilibrium at? That's my thought process. I think the SP500 without Fed props would be value at 1,000 or maybe closer to the q-value of 800-900. Therefore, I only have about 10% in stocks and have had that posture since early 2011.

Eventually, the Fed will take away the punch bowl. When they do, there will be an adjustment. When that happens, you can safely get back in, because then the stock market will be a better reflection of the true value of the underlying companies. That's just my honest opinion.
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