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
TheStreet Open House

'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.

Read More: Roche Investors Should Breathe Easier After InterMune Acquisition

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

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,031.14 +43.63 0.26%
S&P 500 1,984.13 -1.41 -0.07%
NASDAQ 4,518.9020 -48.6960 -1.07%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs