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Friday, October 8, 2010

Profiting from Bubbles: 'Grab Marshmallows'

What's an Investor to Do?

[But] as long as the music is playing, you've got to get up and dance.

--Former Citigroup CEO Chuck Prince

Perplexed by a stock market that (inexplicably?) is once again on the rise -- along with all manner of commodities (oil, gold, silver, etc.)?

That, despite at best conflicting economic signals (continuing weak employment numbers, constricted lending, soft housing, etc.).

You shouldn't be.

Behind the scenes, the Federal Reserve has signalled its ongoing commitment to print money as a way to stimulate the economy, via a mechanism euphemistically labelled "quantitative easing."

"Grabbing Marshmallows"

So how should investors play such an environment?

If you have the stomach, take Barry Ritholtz's advice (my paraphrase):

When the Fed adds even more gasoline to the conflagration, [investors] should grab some some marshmallows and sticks and head over to the boy scout jamboree campfire.

--Barry Ritholtz, "Do You Wanna Be Right, or Do You Wanna Make Money?"

Note to the intrepid: the trick is not waiting around for the embers.

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