I have been unwilling to invest more money into the stock market for the last couple of years because the stock market has this uneasy, codependent relationship with the expansion of the Fed’s balance sheet. Every time the Fed threatened to cut off the purchases the stock market had a temper tantrum. I hate this market psychology. As an old school MBA type I am much more comfortable with a market that goes up when the unit sales goes up. As a result I missed out on the stock market gains in 2013. Jeff Sauts makes a very good argument on BussinessInsider that the stock prices will continue to go up for the same reason it has since 2009.
…there has been a very tight correlation (R2) between the expansion of the Fed’s balance sheet and stock prices since 2009. If the Fed expands its balance sheet by another 12% over the coming year, it is conceivable the SPX could increase by another 12%
His argument is solid so despite my qualms I will probably test the investment waters in 2014. I would be much more optimistic about investing in the stock market if our government was reducing the policy risk on small and medium sized businesses. This is MBA advice you would have gotten in the 1980s. The government needs to get out of way so businesses can get back to their running their business. The Affordable Care Act and the increased regulations are a distraction that has increased the risks to small businesses. It is hard to grow your business with all of these meaningless distractions. I have said it before. If we want to grow middle class wealth we have to focus on making things bigger, better, faster, or cheaper.