Valuation-Informed Indexing #121 — Federal Reserve Interventions Cannot Prop Up Stock Market Prices

I’ve posted Entry #121 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Federal Reserve Interventions Cannot Prop Up Stock Market Prices.

Juicy Excerpt: I believe that that is why the Fed is acting to reassure investors. The thought is perfectly rational — It’s better to spend some money preventing a panic than it would be to spend the large sum it would take to recover from the panic. I do not believe that the Fed is responding primarily to political pressures. I believe that there is a sincere belief that intervention is sound policy. I believe that there is a concern that other forms of government intervention have not worked and that we need to take some extreme measures lest things unravel.

The core problem remains the level of overvaluation in the stock market. Investors can never develop a sustained confidence in the market until we hit much lower price levels. There has never been a secular bear market that ended with price levels anywhere near those that apply today. I believe that most investors “know” this on some level of consciousness (in a general way, not in the particulars). Thus, we will not see a sustained bull market without first seeing much lower prices. Investors just cannot shake their worries until things get much worse.

Leave a Reply

Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Comments links could be nofollow free.