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Barron’s: Now’s Not the Time to Buy Stocks

By    |   Wednesday, 23 Feb 2011 08:56 AM

The Federal Reserve’s continued expansion of the money supply through its quantitative easing program (QE2) is helping to send stocks soaring higher. But that’s not going to last, writes Randall Forsyth of Barron’s.

With the Standard & Poor’s 500 Index rising 98 percent from its March 2009 low and 31 percent from its July 2010 low, mutual fund investors are finally allocating money to U.S. stocks.

But their timing is off, Forsyth says. “It is the late buyers that set market tops. They jump on the trend after it is under way and pay high prices to those who got on earlier.”

Federal Reserve Board Chairman Ben Bernanke's injection of liquidity is driving stocks higher.

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Fed Chair Ben Bernanke
“The question is what will happen when the spigot is turned off at the end of June? And what would happen if the Fed allows its balance sheet to shrink as its holdings of mortgage-backed securities run off?” Forsyth asks rhetorically.

“Contrarians know to run in the opposite direction of the crowd, not with it.”

Judging by Tuesday’s market action, Forsyth has it right. “There’s a heightened element of risk as oil prices rise, which could weigh on a fragile recovery,” Jack Ablin, chief investment officer at Harris Private Bank, tells Bloomberg.

“From a global security perspective, there’s also an element of uncertainty and risk. Even as fundamentals look better in the U.S., our stock market might see a dramatic move because of all the global pressures.”

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The Federal Reserve s continued expansion of the money supply through its quantitative easing program (QE2) is helping to send stocks soaring higher. But that s not going to last, writes Randall Forsyth of Barron s. With the Standard Poor s 500 Index rising 98 percent...
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2011-56-23
Wednesday, 23 Feb 2011 08:56 AM
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