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Michael Steinhardt of WisdomTree Investments, Inc. (NASDAQ:WETF) says that it is in your best interest to dump bonds and stick with high yielding stocks. In addition, Steinhardt, 71, believes the Federal Reserve should reconsider its current low interest rate policy. Steinhardt’s WisdomTree hedge fund has given investors 20% a year for almost the past three decades. Steinhardt is now chairman of WisdomTree Investments, Inc. (NASDAQ:WETF) which is located in New York.

In an interview with Bloomberg, the hedge fund manager said that equities were cheap, historically and that there are better opportunities in dividend stocks than in bonds.

In the interview, Steinhardt also blamed low interest rates for the slow recovering economy. He believes that the Fed’s policy of “low rates are good and high rates are not so good” is not giving the economy a kick start needed to get the growth numbers that everyone wants.

A lot of prominent investors have been coming out and telling us that bonds are an unsafe place to be and have stated that equities are a much better place for investors to be. Michael Steinhardt is one and Pimco’s Bill Gross isanother example.

While we never give investment advice, we are inclined to agree with these two investing legends because you can get equities with yields higher than bonds. You can find a stock that pays a much higher yield than what you would get from a Treasury bond. In addition, as Steinhardt mentioned, equities are cheap by historical means which is another bump in equity’s favor.

That being said, I am a little bearish in the short term for equities. The troubles in Europe are starting to revive and threatening the European economy which has US investors trembling.

It appears that Spain is the new epicenter for the debt crisis and one must ask how much more EU nations and the European Central Bank can give to aid these countries that need it.

Spain has been asking the ECB to buy some government bonds but the ECB is already overstretched itself in providing funding. This could turn into a disaster if we are not careful.

The other threat to the rallying US equities is falling margins. This week coming up is a huge earnings week and we should be able to tell if falling margins  are as big of a threat as everyone thought.

If they are as bad as pundits are suggesting, we believe it is a no brainer that the correction will start because there is a lot of potential for bad events to occur and that has investors uneasy.