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High Stock Prices Make Sense Right Now
FoggyTom10

Maybe, sort of. Institutional Investors can’t borrow directly from the Fed, banks have to intermediate and they don’t always react the way the Fed expects. My theory is that leveraged investors (certain types of Hedge Funds) are impacted by changes in liquidity driven by Fed balance sheet changes. I wrote it out in this thread above.

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High Stock Prices Make Sense Right Now
FoggyTom50

I’d be curious to know what you think about the theory Fed asset purchases are driving the market.

The link between Fed balance sheet and stock prices isn’t tight, but there seems to be a fuzzy connection—stock returns were higher than long run average during QE1-3, then went sort of sideways for awhile after 3 ended, after 2016 the global economy was on a better footing and stocks rallied until QT ramped up enough to matter, draining liquidity and the 4Q18 “correction” followed by resumed rallying coincident with “stealth QE” to mitigate illiquidity in the

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1zby
"money printing = devaluation -> inflation" - that is kind of obvious - I would start with asking what are the arguments against it. In 2008 it did not work that way - so it looks kind of disproved, but times are changing. The Ray Dalio recent blog posts suggest that the USD global reserve status might be at the end of its cycle. Another thing is that the US government debt it increasing and at some day it will reach one of two reinforcing thresholds: one where investors would start seeing it as dangerous (and demand higher rates) and the other where servicing that debt becomes burdensome and the US government would have to devalue it.
2johnswentworth
This is also something I have yet to study in depth, but the Fed model makes a lot of sense (specifically the capital structure substitution version). Under that model, companies generally use stock issues/buybacks paired with bond buybacks/issues to adjust how much of their funding is from stocks vs bonds, in order to maximize expected earnings per share. That creates a transmission mechanism between bonds and stocks, and is the main thing I'd think about for the sorts of stuff you're talking about. More generally, I'm on board with Cochrane's money as stock theory, although I think he doesn't implement it quite right - the assets backing dollar value on a day-to-day basis are the SOMA portfolio, not the whole government's assets and cash flows.