I have added my answers to Wendy’s excellent questions. My apologies for not better explaining my position in the first post.Does this mean that you are now a bull?No, I certainly am not a bull. I try to always consider a range of outcomes. My median expectation is a broadly flat market for the next 5 to 10 years. Jeremy Grantham published his latest 7 year market forecast yesterday (10/9/12).  He is forecasting the SP 500 to return 0.0% real assuming 2.2% inflation. I agree with his forecast.Do you believe that the Fed's QE infinity forever will control the business cycle, over leverage, malinvestment bubbles? I would not use the work control, but given 5 to 10 years, the Fed’s goal is to “moderate” the business cycle, over leverage and malinvestment. Instead of forcing an immediate, painful resolution, the Fed’s goal is given enough time, the excesses can be worked out slowly. “Soft landing” is a fair description.The question isn't what the Fed believes, because all the central banks are far into unknown territory. Yes, the central banks are in unknown territory. Let’s assume the Fed wakes up one day and says “We were wrong. Our models didn’t work. The job growth we planned for did not materialize.” If that day arrives, they know they have at least one silver bullet left.The Fed and Treasury absolutely, positively CAN raise GDP. Recall that one of the components of GDP is government spending. I am going to use an absurd example to make the point. The Fed and Treasury decide to give $ 1 million to every man, woman and child in the US tomorrow. GDP will increase. People will spend a lot of that money, matter of fact, most of the money. Inflation will pick up which is what the Fed wants. Voila! More jobs will flow! This is Ben’s “Helicopter Drop” which he picked up from Milton Friedman. If $1 million is too absurd, how about $100k or $10k . . . It is just a question of how many dollars it takes to get the desired GDP and job growth. But you say, “these onetime money drops create no lasting effect.” No problem, we will make everyone into lottery winners with annuity payouts. Why don’t we pre-announce 10 years of $ 1 million per year? Do you believe that the world economy will languish for decades, like Japan's? Yes, based on the excellent work of Reinhart and Rogoff, we can expect MANY more years of low growth and deleveraging. One decade plus is reasonable. Yes, the US is Japan IMO. Because otherwise the immense increase in the money supply will lead to inflation. Everyone that has predicted high inflation has so far been proven early at best and wrong at the worst. I still think we will see higher inflation, but it might take literally decades to materialize.Is it safe to get into the water? I am NOT in the water and do NOT plan to re-enter the water any time soon. I would NOT enter the water with a median 7 year equity forecast of 0.0% real return. I estimate the beta of all of the widows and orphan portfolios is in the range of 0.1 to 0.3. So we are mostly, but not totally immune to large changes in the equity markets. And yes, I am at the extreme end of the risk spectrum. Obviously my views of the Fed and equity markets might be 100% off base. Most other investors have a higher allocation to equities. I can NOT prove that Grantham, Hussman, Ed Easterling and Andrew Smithers will be correct. However, I am going to bet with them instead of against them.Thanks,Yoda Jeremy Grantham 7 year market forecastshttps://www.gmo.com/America/CMSAttachmentDownload.aspx?targe...
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