Thursday, October 23, 2014 09:49am
North Adams, MA now: 43 °   
Send news, tips, press releases and questions to info@iBerkshires.com
The Berkshires online guide to events, news and Berkshire County community information.
SIGN IN | REGISTER NOW   

Home About Archives RSS Feed
The Independent Investor: The Fed Turns Off the Spigot
By Bill Schmick On: 06:15PM / Thursday July 10, 2014
Important
0
Interesting
1
Funny
0
Awesome
0
Infuriating
0
Ridiculous
0
The Federal Reserve Bank announced an end to their latest quantitative stimulus program on Wednesday. The markets worldwide sold off on Thursday. Was it just a coincidence?
 
It was not as if their announcement was unexpected. The Fed has been winding down its $85 billion a month purchases of bonds and mortgage-backed securities since the beginning of the year. Each month they have pared back $10 billion/month incremental purchases.
 
June's policy meeting confirmed that the last purchases would end in October.
Some investors were relieved, while others were concerned. Many believe that the longer the Fed's program continues the less impact it will have. Others disagree. That is nothing new, since, from the outset, the entire Quantitative Easing (QE) program has been mired in controversy. 
 
The initial round of QE in 2008 was intended to prevent the economy from plunging into a second Great Depression. The Fed succeeded in that desperate bid and followed the first QE with successive bouts of stimulus in 2010, 2011 and 2012.
 
Unfortunately, its goal — to jump-start the economy and return it to a healthy growth rate — has had, at best, mixed results. While unemployment has fallen from almost 10 percent to 6.1 percent in June, the economy has remained mired in a slow-growth recovery. At the same time, this unprecedented meddling in the economy has resulted in a number of distortions, some good and some not so good.
 
Keeping interest rates low was supposed to convince American investors to sell their low-yielding, safe-haven U.S. Treasury bonds and buy riskier assets such as stocks and corporate bonds. The hope was that would in turn spur an increase in lending, consumer spending and investment. Very little of that actually happened. Investors and banks alike either remained in cash or their Treasury bonds.
 
It was the stock market and rampant speculation that has been the main beneficiary of the Fed's efforts. Some argue that the gains in the stock market have only benefited a tiny portion of the population (the One Percent) and there has been precious little "Trickle Down" impact on the economy.
 
Although the unemployment rate has declined, economists argue that the numbers are deceiving. Many After years of attempting to find a job, many people have simply dropped out of the rolls thereby reducing the unemployment rate. The data also indicate that a growing number of these gains are low-paying, part-time jobs, something the Labor Department's numbers fail to account for within these trends.
 
Then there are the risks. Potential inflation heads that list. Contrary to those who have been predicting hyperinflation, the numbers do not bear that out. For the last two years inflation has been running below the Fed's target rate of 2 percent.  
 
However, that could change. If, at some point, banks begin to lend those trillions of dollars, instead of speculate with it, if corporations begin to invest in plant and equipment rather than buy back their stock or someone else's, then the story could change.
 
The multiplier effect of money begins to come into play. That is when the dollar I lend to you is used to buy a widget or two, in turn, the widget seller turns around and uses that same dollar to pay my neighbor to make more widgets and so on and so on. In that way one dollar becomes many more. That's what causes inflation. We haven’t gotten to that point yet. And the Fed says they will raise rates when and if that happens. 
 
Some say all the Fed has done is cause a gigantic bubble in financial assets. The Fed says no, markets, in their opinion, are simply fairly valued. No one, including the Fed, really knows for sure. In many ways this entire QE program has been a grand experiment and the final outcome has yet to be written.
 
So back to the stock market, if you trace the behavior of markets through these various QE programs, one thing stands out. In every instance, once investors understood that the QE program was ending, the stock market declined.  One wonders if this will happen again this time.
 
Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
 
 


0 Comments
     
News Headlines
Pittsfield Schools Review Teacher Evaluation Process
'North Adams' Added to Harriman-West Airport Name
Tri-District Search Committee Advises Interim Superintendent
BMC Awarded $3M for Health Care Center in North Adams
Pittsfield Expecting Heavy Usage at Renovated Common
Williamstown Students Celebrate Power of Words
Former Senator Bill Bradley Shares Insights at Williams
Cheshire Town Cleanup Deemed Success
North Adams License Commission OKs Transfer to V&V
Pittsfield Granted $4.5 Million To Finish North Street Reconstruction
Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



Categories:
@theMarket (148)
Independent Investor (200)
Archives:
October 2014 (6)
October 2013 (2)
September 2014 (5)
August 2014 (7)
July 2014 (2)
June 2014 (6)
May 2014 (9)
April 2014 (8)
March 2014 (6)
February 2014 (6)
January 2014 (7)
December 2013 (8)
November 2013 (7)
Tags:
Stock Market Europe Metals Economy Recession Fiscal Cliff Taxes Energy Stimulus Federal Reserve Jobs Pullback Rally Commodities Debt Currency Debt Ceiling Euro Deficit Election Greece Markets Europe Bailout Interest Rates Fed Crisis Congress Retirement Selloff Banks Oil Housing Japan Stocks
Popular Entries:
The Independent Investor: Understanding the Foreclosure Scandal
The Independent Investor: Don't Fight the Fed
The Independent Investor: Does Cash Mean Currencies?
@theMarket: QE II Supports the Markets
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Will the Municipal Bond Massacre Continue?
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: Why Are Interest Rates Rising?
Recent Entries:
@theMarket: So far, So Good
The Independent Investor: OPEC's Oil Ploy
@theMarket: Are We There Yet?
The Independent Investor: Why Is This Recovery Different?
@theMarket: October Starts Off on High Note
The Independent Investor: Money & Divorce — What You Should Know
@theMarket: Wash, Rinse and Repeat
The Independent Investor: Is Wall Street Responsible for Climate Change?
@theMarket: Waiting on the Fed
The Independent Investor: The United States of Scotland?


View All
Boys and Girls Cross Country
Boys and Girls Cross Country was held at Windsor Lake on...
Western Mass Golf
Four Berkshire County golfers qualified for the state...
Football: Franklin Tech vs...
McCann Tech holds on for the win Saturday afternoon. McCann...
Colegrove Park Elementary...
Mayor Richard Alcombright and the City Council were updated...
Boys and Girls Cross Country
Berkshire Chamber Greylock
Boys and Girls Cross Country
The Lenox boys and girls teams both cleaned up on Senior...
Volleyball: St. Joe s vs...
Taconic takes 3 from St. Joseph Tuesday night.
Ramblefest 2014
Adams residents enjoyed entertainment, food, and locally...
Girls Soccer: Hoosac Valley...
The Wahconah girls soccer team on Monday advanced to an...
Berkshire County Classic Golf
Francois Benistand, an exchange student from the south of...
Indashio Fashion Show
Fashion designer Indashio holds his second FAME Festival in...
Football: Pittsfield vs...
Senior quarterback Nick Clayton marched his team 80 yards...
Football: Lee vs Drury
FINAL: Lee Wildcats beat Drury 24 -14.
Football: Taconic vs Hoosac...
FINAL: Hoosac Valley 51-14 over Taconic.
Soccer: Mount Greylock vs...
Eric Hirsch scored twice, and Taylor Carlough played strong...
Boys and Girls Cross Country
Boys and Girls Cross Country was held at Windsor Lake on...
Western Mass Golf
Four Berkshire County golfers qualified for the state...
Football: Franklin Tech vs...
McCann Tech holds on for the win Saturday afternoon. McCann...
Colegrove Park Elementary...
Mayor Richard Alcombright and the City Council were updated...
Boys and Girls Cross Country
| Home | A & E | Business | Community News | Dining | Real Estate | Schools | Sports & Outdoors | Berkshires Weather | Weddings
Advertise | Recommend This Page | Help Contact Us | Privacy Policy| User Agreement
iBerkshires.com is owned and operated by: Boxcar Media 102 Main Street, North Adams, MA 01247 -- T. 413-663-3384 F.413-664-4251
© 2000 Boxcar Media LLC - All rights reserved