THE BLOG
03/08/2013 09:12 am ET | Updated May 08, 2013

The Great Stock Market Rally

"I have been in many a country and they have thousands of problems," said humorist Will Rogers. "But America's problem as to 'Where to invest my money?' is unique. The whole world would give their right leg to be bothered with that problem."

Actually, I think the world has changed a lot since Rogers made that quip, and many people beyond our shores share our investment quandary. It really is hard to know whether or when to invest in the stock market. It is in fact exceedingly difficult for professional investors to make that call.

Unfortunately, in these days of quantitative easing when it is virtually impossible to get an honest return on bonds, savings accounts, money market funds or CDs, investing in the stock market is about the only viable alternative, though we have learned the hard way how quickly the market can head south with our retirement savings.

The latest run-up of the Dow Jones Industrial Average to its highest level ever took quite a few people by surprise. Some are distressed that they missed the rally, coming as it did on the heels of the worst recession since The Great Depression, and against the backdrop of an economy still struggling to get people back to work. And everyone is wondering how long it will last -- if now is the time to buy in or sell off. It comes as no comfort to know that the experts are all over the lot. Opinions are like egos -- everybody has one -- and as often as not they get in the way of sensible analysis. What really are we to make of a stock market that roars ahead despite a weak economy?

First, the economy is not as weak as it has been as we see in the modest pickup of autos, housing and manufacturing activity. Today's employment report indicates that the trickle down monetary policies of the Fed are beginning to work. There was a major surge in private sector employment of 236,000, and unemployment ticked down to 7.7 percent. This does not indicate a strong recovery, but clearly indicates the momentum is improving.

But this bull market is not driven primarily by economic reality on the ground but rather by the Fed's endless quantitative easing that is now being replicated by our trading partners around the globe. As a result, the world is awash in trillions of dollars in easy money and since there is no payoff for saving or game changing new technologies to invest in, the money quite naturally gravitates to the equities markets. Fed Chairman Bernanke has said he will continue the quantitative easing for at least two more years without indicating how we will ever be able to exit the quantitative easing without a shock to the economy.

This unprecedented expansion of the money supply is beginning to look more and more like another bubble. A sudden burst of inflation, a new crisis in Washington, or some other external disruption could pop the stock market bubble. But for now it is Bernanke's game, and he clearly intends to keep it going. For as long as he has his hands on the spigot, I see little likelihood of a sustained market correction. Don't fight the Fed.

Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking engagements. March 2013

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