This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

'Don't Fight the Fed' Is Investors' Takeaway From Jackson Hole Conference

The hawks within the Fed are concerned that all of the liquidity pumped into the financial system will eventually end up producing a period of more rapid inflation that will put pressure on the Federal Reserve to reverse gears and keep prices from rising excessively. The historical record is that excessive monetary growth always translates into excess price increases at some time in the future.

The other concern floating around is that the stock market is experiencing a bubble created by the easing monetary policy -- and that it will one day burst. A leading indicator of this possibility is the statistical measure called the Cyclically Adjusted Price-to-Earnings ratio or CAPE, created by economics Nobel Prize-winning economist Robert Shiller.

Right now, the CAPE measure is above 25. Its historical average is slightly above 15. Shiller's argument is that CAPE eventually reverts back to its mean. He is very careful to say that the timing of the reversion to the mean is ambiguous and the measure can remain above or below the mean for a considerable period of time.

The point is that at some point in the future, the CAPE measure will revert to its mean.

But the argument still holds that investors should not fight the Fed. And this is currently what is being translated into the stock market. The events at Jackson Hole did alter investor expectations.

The concerns expressed by the hawks at the Fed and by Shiller should not be dismissed, however. As long as Federal Reserve actions can be interpreted as supporting the current view that short-term interest rates will not begin to rise until the middle of 2015, investors can take advantage of the run-up in the stock market. Just be prepared to stay nimble.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.74 -1.15%
FB $117.58 0.73%
GOOG $693.01 0.29%
TSLA $240.76 -2.81%
YHOO $36.60 0.03%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs