Breakout

Best Thing for Stocks Is No More Fed Easing: Jim Paulsen

Breakout

Nothing can silence a crowd quicker than success. Picture a basketball game, with screaming and taunting fans trying to jinx the opposing player at the free throw line, and then how quickly they go silent at the sound of swish.

It's the same on Wall Street. For most of the summer, a slumping jobs market and ailing economy had fans (a.k.a. investors) on the edge of their seats, hollering for another round of easing or stimulus from Ben Bernanke and the Federal Reserve. But now that stocks have rallied back to their yearly highs, the clamor for QE3 has died down, and the so-called ease-addicts have disappeared.

For Jim Paulsen, Chief Investment Strategist at Wells Capital Management, the best thing for stocks right now would be if the Fed stays out of sight.

"The fundamentals have been treated," Paulsen says in the attached clip, "what we need to do, and what hasn't been done yet by the Federal Reserve is to treat confidence."

And the best way to do that, he says, is for the Fed to let this recovery in stocks and economic data continue under its own steam.

"I think the Fed, by continuing to respond every time the stock market dips as though they're panicked that we're going to fall into a depression, is helping to keep confidence low," he says. "The Fed doing nothing would do more good for confidence than it would do harm to fundamentals."

If stocks continue to rise, and if the tone of economic data continues to top expectations and we come out of this soft-patch without Fed acti0n, Paulsen says it would be a post-crisis first.

"I think that would build confidence that the economy and markets are starting to stand on their own, that they are no longer so monetarily addicted, they're no longer subjected just to sugar highs, that these are rallies are real," he says.

"I think we'd survive it [QE3]," he says, "but it would be much better if the Fed just stands down."

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