Top value investor Ron Muhlenkamp says that stocks appear “fairly priced”, and that he expects to see equity prices becoming more volatile.

In his latest quarterly letter, Muhlenkamp says he thinks stocks have continued to climb a wall of worry in recent months because of the attractive prices that existed six months ago; the U.S. economy continuing to grow modestly; and the Federal Reserve’s latest round of quantitative easing. (A tip of the cap to GuruFocus.com for highlighting Muhlenkamp’s letter.)

“The first two causes were fundamental,” Muhlenkamp writes. “Quantitative Easing is simply pouring money into the market. We fear the effect is likely to be temporary and may, in fact, be detrimental in the longer term. Our response in the past six months has been to be nearly fully invested in companies with strong balance sheets and strong income streams. With stocks, on average, now appearing fairly priced, we suspect that prices will be even more volatile going forward.”

Muhlenkamp also says that he is concerned the Fed’s money-printing binge will lead to inflation, and that we may already be in the early stages of that inflation. “We are actively monitoring the velocity of money, among other indicators, in an effort to determine if pricing pressures are accelerating inside the real economy,” he writes in the question & answer portion of his commentary. “In terms of timing, it may be beginning right about now.”

Muhlenkamp also offers some interesting data on ownership of U.S. equities. “Many who want to raise taxes on corporations believe that corporate stocks and bonds are owned by ‘the rich.’ In fact, much of corporate stocks and bonds are owned by pension funds,” he says. Instead of budget and tax debates being an “us vs. them” argument against corporations, he says, they are really becoming an “us vs. us” situation.