New Federal Reserve Chair

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 |  Includes: DIA, QQQ, SPY
by: John M. Mason

Larry Summers is out!

Credit inflation is in!

It is now obvious that the people that control Congress want a Federal Reserve Chair that will err on the side of monetary ease.

Tapering will occur but it will be "tapering lite".

The advice to investors...don't fight the Fed! Go with the flow!

As I have written many times and will write again in the future, excessive Fed actions create special investment opportunities.

Don't expect a major pickup in real economic growth. The problems in the economy are structural not cyclical.

Profits will be posted but given moderate economic growth they will not be robust.

Therefore, stock market performance will tend to be bubble-based. To discuss this point let's turn to the cyclically-adjusted price earnings measure…CAPE (see my recent post on CAPE and the profit/earnings picture). Remember, CAPE is still quite high and, as I have written before, if profits do not rise to bring the CAPE-measure lower, stock prices will need to fall. If CAPE remains around current levels it will be because of the excessive amount of credit in the economy and not...as just argued...because of a strong economy and strong profits.

Be wary of bonds. The Federal Reserve will not be able to keep yields on longer-term bonds down.

And, it terms of the future of economic policy...it is Congress that is in control...not the President. But, what else is new!

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.