Quote:
Originally Posted by TexaninVA
That's what I'm saying actually... at least in part. The Fed has flooded the system with new money and, among other things, forced interest rates lower. By manipulating the rates lower, and goosing the stock market higher, the de facto policy is to create a "wealth effect" such that investors will have no other choice except to put their money in the market to generate returns.
I think this policy is particularly pernicious when it comes to the elderly and retirees who, for the most part, don't fully understand what's happening. All they know is they can't make any interest income in bonds or CDs anymore so they go into the market. It's actually immoral in some ways but that's another topic.
You may fully understand and appreciate why you're in the market but I think there are a lot of people out there who don't and thus likely to get hurt at some point.
|
I agree about the Fed pumping up the market and that a lot of people will eventually get hurt. Although, inexperienced investors usually get hurt because they typically get out at the bottom and get back it at the top.
Having said that, the Fed action is not all bad. Cheep money has allowed many corporations to restructure their debt, thereby reducing their operating costs. Many are operating leaner and smarter in many respects. Many have continued to expand, albeit more slowly during the recession, so their stock prices are catching up with the growth and changes they have made in recent years. Yes, the Fed is helping to pump things up, but it's not all hot air in my opinion.
