5 money moves a Fed follower is making now

SAN FRANCISCO (MarketWatch) � There�s a heaviness in James Bianco�s voice when he talks about the U.S. economy and the investing climate. It�s the tone of someone who is dismayed by current conditions but is resigned to them.

James Bianco

Bianco, president of Bianco Research LLC, provides top-down economic and market research that influences the buy and sell decisions of many large institutional investors. What is his view of the U.S. economy today? Corporate executives are passengers, and government policy makers, starting with Federal Reserve Chairman Ben Bernanke, are driving the ship.

Or to put it bluntly: It�s Ben�s world, and we�re just investing in it.

�Stock picking is a dead art,� Bianco said in a recent telephone interview. �The most important man in investing decisions is Ben Bernanke. It shouldn�t be, but it is. We are in a post-crisis environment where the Fed is running the most extreme policy it�s ever run; Europe is even more extreme. That affects all investment decisions.�

Moreover, Bianco added, investors can either follow the Fed using short-term tactics that anticipate policy makers� moves, or fight the Fed with a longer-term, defensive stance. Neither choice is particularly attractive, he said.

So Bianco is straddling both sides. Investors can expect �some version� of additional quantitative easing from the Fed, or �QE3,� before June, he predicted. That will lift stock prices, but absent economic improvement, these gains will be fleeting.

Then, Bianco said, defense will be in order.

1. Go light on stocks

Bianco isn�t a big fan of stocks. Investors need robust corporate earnings growth to justify buying equities, and, Bianco said, �there isn�t any.�

Instead, stocks have soared on the back of quantitative easing, �Operation Twist� and other Fed actions geared to boost an anemic economy � but fundamentals remain weak, Bianco added.

Click to Play U.S. consumers open their wallets

High gasoline prices and inadequate savings were supposed to drive American consumer spending onto the rocks. So much for that. Photo: AP.

�I�m worried that the stock market has been manipulated higher,� he said. �We have had a rally produced by policy out of the Federal Reserve.�

More disturbing, Bianco said, is that the U.S. market rally hasn�t created a wealth effect that fills corporate coffers and encourages retail investors to buy stocks through mutual funds and other avenues.

�If Bernanke really wants to instill confidence, he needs to tell us in clear and precise language how the Fed intends to get out of this,� Bianco said. �I get it that you�ve put us on this �sugar high,� rammed interest rates down and stock prices up. But tell me how you�re going to stop, so this is not going to wind up like the fall of 2008 or the summer of 1979 with inflation.�

�He can�t,� Bianco said of Bernanke. �I don�t know how we get out of it without it being ugly, and he can�t tell me how.�