Wine, Steak, and the State of the U.S. Stock MarketI was recently out to dinner with a friend who manages tens of millions of dollars in private equity. While the Dow and the S&P 500 are still within two to three percent of their recent highs, my friend is not happy. In fact, he is kind of disappointed with the current trading action in the stock market.

As we move along into our discussion and dinner, I was really not surprised to hear that he was disappointed by the lack of a pullback in the stock market.

The S&P 500 was down five percent a few weeks back. At that point, I was hoping for a more sustained pullback; just like my friend, I had cash around and was ready to pounce on a buying opportunity in the stock market that subsequently really never materialized.

I could have accumulated on the five-percent adjustment, but my feeling was that there was more to come and there would be a bigger sale on Wall Street. (Read “Bull Market Not Over, but a Correction May Be on the Horizon.”)

The current 23% correction in the Nikkei 225 would be ideal here, but I doubt that will happen, as the Japanese stock market was way overextended and due for a setback.

When I asked my friend what kind of adjustment he was looking for, to my surprise, he responded that he was not really sure and would need to evaluate the situation at that time.

Yet by the time our second bottle of wine arrived, he was more open to questions; he suggested he would need to see a correction of at least 10% before making the jump.

Of course, my friend also added that a market correction of seven percent would suffice if the Federal Reserve decided to hold tight for the third quarter, beginning to ease off on its bond buying in the fourth quarter instead.

Like the rest of the investment world, while my friend was somewhat pleased with the economic renewal in the U.S., he was also less than enthused about the jobs market and was fearful that Federal Reserve Chairman Ben Bernanke would cut stimulus sooner—or at least before his third term is over at year-end.

By the time dessert had arrived, we were both on the same page and agreed that the global stock markets were clearly driven in large part by the monetary stimulus.

He also was beginning to add some hedging to his portfolio in the way of put options and was writing covered calls to generate premium income in case the stock market stalled.

It was a great dinner. And what I learned about the stock market was not a surprise; in fact, it is likely shared by many in the investment community who are running professional money.