"Avoid the crowd" should be one of the first rules for investors. Judging by the size of the throng that has been gathering for the past several weeks under the "things are getting better" banner, it may be time to head the other way and prepare for the possibility that things will get worse fairly soon.

The VIX index is one market barometer that is giving off feel-good signals. It recently closed at about 14, some 66% below its year-ago level. That figure doesn't need much interpretation: investors are extraordinarily complacent about the level of risk in stock prices, a situation that should send a signal to everyone's inner contrarian.

Another put-on-a-happy-face argument has to do with the housing market. Many media outlets and some economists are trumpeting upturns in prices and new housing starts that, on closer examination, are little more than bumps along very low bottoms. Moreover, a

"Desperation" is probably too strong a word for what was in the air when the FOMC met on September 12 and 13, but it may not be far off the mark.

The press release outlining the committee's decision to embark on QE3 and keep monetary policy "highly accommodative" at least through mid-2015 certainly isn't a document that puts worries to rest. The release acknowledged the so-so state of the economy, noted that committee members are "concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions," and gave a nod to "strains in global financial markets [that] continue to pose downside risks to the economic outlook." QE3's $40-billion-a-month purchases of additional mortgage backed securities didn't come with a time limit; instead, the Fed will play things by ear, adjusting its actions as the data unfold and taking "appropriate account of

Investors will be poring over Federal Reserve Chairman Ben Bernanke's August 31 Jackson Hole speech for days to come. One section in particular deserves attention because it highlights what could be a fatal flaw in how Dr. Bernanke looks at the Fed's ability to shape events. That flaw is hubris.

The Chairman notes in his speech that one

potential cost of additional securities purchases is that substantial further expansions of the balance sheet could reduce public confidence in the Fed's ability to exit smoothly from its accommodative policies at the appropriate time. Even if unjustified, such a reduction in confidence might increase the risk of a costly unanchoring of inflation expectations, leading in turn to financial and economic instability.

Dr. Bernanke goes on to say that such an "unanchoring" hasn't happened yet,

in part because of the great emphasis the Federal Reserve has placed on developing tools to ensure that