The Investor Behavior Project at Yale University, under the direction of Dr. Robert Shiller since its beginning and now under the auspices of the Yale International Center for Finance, has been collecting questionnaire survey data on the behavior of US investors since 1984. If I were a qualified financial consultant, which I’m not, I’d say: If you have a few bucks left over after you’ve paid all your bills, covered yourself with adequate insurance and put away a little for a rainy day fund, take the plunge into the market and, if you’re thinking long-term, take your chances! It’s been a lot of fun watching the market over the years, but if you ever figure it out let me know. I personally think that if the market is going to fail big time, my money is already lost.
If you believe that the world can come out of the recession without the US consumer, then perhaps you will think that the market will go up and up. Knowing that the plunge protection team is involved in stock manipulation is no indication which way the market will go, as Bernanke also has to sell bonds. Treasury bonds are going up in value (yields are declining) as the bond market predicts a depression. Maybe it wasn’t, but how about investigating the HFT companies that pulled out of the market, tanking liquidity big time.
Linda Duessel also was quick to point out that when the money on the sidelines, ie, retail investor money starts coming back into the stock market, she would become more conservative. In other words, once this sucker rally takes money from average Joe, the smart money is going to get out of the stock market ! I still say it would be better had the Fed not bailed out the banks, bought bonds, bought stocks, controlled the housing market.
A recent article by me on the Seeking Alpha website indicated that reverse repos could bring the stock market down and increase volatility. The issue is whether the reverse repo market can be used by the Fed to manipulate the stock market and whether the Fed will take the stock market down in order to fund all the excess treasury bonds for sale. We must also realize that the California housing market could take down the entire US economy.
So, my argument at Seeking Alpha is that the Fed may want to crash the stock market to scare investors into fleeing stocks and buying bonds, which will also keep interest rates low, which is another Fed goal. This of course is a counter argument to those who believe that the Fed cannot hold interest rates down as the treasury printing presses work full time. Anyway check out the article and know that the bond and stock markets are manipulated big time.