Thursday, April 02, 2015 02:32am
North Adams, MA now: 21 °   
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
@theMarket: Santa Visits Wall Street
By: Bill Schmick On: 04:14PM / Thursday December 23, 2010
Important
0
Interesting
0
Funny
0
Awesome
0
Infuriating
0
Ridiculous
0
IMG_0864_1

As markets close in this holiday-shortened week, the stock market enjoyed its annual Christmas rally with all three averages reaching new highs for the year. It was the best December for the S&P since 1991 and most forecasters believe these gains indicates an even larger move in the first half of next year.

Goldman (or should I say Government) Sachs upped its forecast for the S&P 500 Index to 1,450 for 2011. That is a 16 percent projected gain in the index and, if true, would bring us within 115 points of that average's all time high reached on Oct. 9, 2007.

Adding to the good cheer this week was the news that existing home sales gained 5.6 percent in November, which kindled hopes that the long-awaited recovery in the housing market was at hand. But in my opinion, the real Santa Claus this year came disguised as the Federal Reserve Bank and its chairman, Ben Bernanke.

Back in late August, when the first public statements from the Federal Reserve Bank surfaced on the possibility of a second quantitative easing, the stock market snapped out of its doldrums. I immediately abandoned my cautious stance and both stock and commodity prices started to move higher and have never looked back.

Most market watchers argue that QE II is a failure judging by the results in the bond market. They point to medium and long-term interest rates that have actually increased over the last two months as evidence that QE II has failed. I beg to differ. I believe the Fed's intention was focused solely on keeping short-term interest rates at a historical low level and the steepening of the yield curve (where long rates are higher than short rates) was exactly what they wanted.

In economics class, I learned that a steepening yield curve is synonymous with a growing economy, but as the economy grows so does the threat of inflation. Maybe not at first, but as time progresses, the economy grows stronger and begins to overheat. The specter of rising inflation becomes almost certain. Investors who understand this begin to demand higher yields now from the bond market, especially from those who are selling long-term bonds, say 10 to 30 years out.

Now consider those millions of risk-adverse investors who have put their money into long-term treasury bonds as the result of the recession and financial crisis. They are losing their shirt right now as their investments drop in price on almost a daily basis. Sure, they can sell and buy shorter term government maturities or CDs that promise to yield next to nothing for "an extended period of time" or they can move back into the stock market.

Most investors know that they can get a higher return in the stock market than in the bond market. But until recently, they were too frightened to risk their money in an economy and a stock market that might roll over at any moment. However, thanks to QE II, commodities (an inflation play) and stocks have been roaring back to life on the heels of progressively positive economic data that promises to just get better and better.

So with bond prices down, equity and commodity prices up, and with the Fed on record as wanting the stock market higher and you now have the ingredients guaranteed to entice even the most wary individual back into the stock market. In addition, a steeper higher yield curve is actually good for the traditional players in the bond market - pensions, endowments and insurance companies.

These entities receive constant inflows of new cash because of the nature of their businesses. Investing this money in higher long term rates makes it far easier for them to meet their future obligations. It is also great for the banks that borrow short term and lend long term. With higher long term rates, the Fed is betting that even the banks may be attracted to this higher profit spread and reconsider their present stingy policy toward lending.

So all in all, the Fed has accomplished a great deal with QE II, contrary to popular opinion. And like Santa Claus, no one actually catches the bearer of this gift even if it is sitting there, big as life, under the tree.

 

Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles 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 e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.



Tags: rally, QEII, inflation      
News Headlines
Adams-Cheshire Budget Will Be Decided at Town Meeting
Kinder Morgan Late To Respond To Cheshire's Request For A Presentation
Pittsfield Businesswoman Opens Online Travel Agency
Company Donates $4,750 To Help Pittsfield Programs
Grab Your Easter Baskets!
Bidwell House Museum Offers High School Internships
North Adams Happenings: April 1-7
North Adams Library Holding Money Smart Week Seminars
Kindergarten, Pre-K Registration Set in North Adams
BRPC: County Short On Manufacturing Sites

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 (164)
Independent Investor (221)
Archives:
March 2015 (6)
February 2015 (7)
January 2015 (9)
December 2014 (7)
November 2014 (4)
October 2014 (9)
September 2014 (5)
August 2014 (7)
July 2014 (2)
June 2014 (6)
May 2014 (9)
April 2014 (8)
Tags:
Pullback Debt Ceiling Retirement Metals Recession Fed Oil Europe Congress Taxes Currency Markets Crisis Japan Debt Stocks Housing Stimulus Bailout Fiscal Cliff Interest Rates Greece Deficit Energy Euro Federal Reserve Election Selloff Commodities Jobs Economy Rally Banks Europe Stock Market
Popular Entries:
The Independent Investor: Don't Fight the Fed
The Independent Investor: Understanding the Foreclosure Scandal
@theMarket: QE II Supports the Markets
The Independent Investor: Does Cash Mean Currencies?
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
The Independent Investor: Will the Municipal Bond Massacre Continue?
The Independent Investor: How Will Wall Street II Play on Main Street?
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: Why Are Interest Rates Rising?
Recent Entries:
@theMarket: The Fed Does It Again
The Independent Investor: Financial Challenges Facing Single Parents
@theMarket: Pay Attention to Diverging Markets
The Independent Investor: Kids & Money
@theMarket: Home on the Range
The Independent Investor: Rise of the Smoothie
@The Market: Full Steam Ahead
The Independent Investor: New Fiduciary Rule Would Benefit All of Us
The Independent Investor: How to Make the Most Out of Social Security
@theMarket: A Race to the Bottom


View All
Pittsfield Vietnam Memorial
A memorial service was held in Park Square for those killed...
Spark Event @ Sohn Gallery
Sohn Fine Art in Lenox hosts a Berkshire Creative Spark...
Hoosac Valley Does 'Grease'
The Hoosac Valley High School drama team is producing the...
North Adams Chamber @River...
The North Adams Chamber of Commerce held its monthly mixer...
Birds of Prey
Julie Anne Collier of
Berkshire Chamber Nite @ UP
The Berkshire Chamber of Commerce held its monthly...
Pitt House Series at Dottie's
The first in the Pitt House Concert Series was a sold out...
Berkshire Awards 2015
Lila Berle, Churchill Cotton and Mary Rentz were honored on...
BYP Networking at AIER
The Berkshire Young Professionals gathered at the American...
Berkshire Art Fellowship Show
The 12 Berkshire Art Association College Fellows for 2015...
Hoosac Boys Lose to Old...
The Bulldogs scored the next six points and later used a...
Hoosac Girls Drop State Final...
The Hoosac Valley girls basketball team ended its season...
Massachusetts Region I High...
Near 80 students from throughout the region met in the...
Mt. Greylock SEE Fund
Williamstown's community access television station,...
2OT, Sends Hoosac to State...
Jameson Coughlan scored on a baseline inbounds play from...
HV Win State Semi-Final
Last season, with 1 min., 30 sec. to go Bellingham was down...
Pittsfield Vietnam Memorial
A memorial service was held in Park Square for those killed...
Spark Event @ Sohn Gallery
Sohn Fine Art in Lenox hosts a Berkshire Creative Spark...
Hoosac Valley Does 'Grease'
The Hoosac Valley High School drama team is producing the...
North Adams Chamber @River...
The North Adams Chamber of Commerce held its monthly mixer...
Birds of Prey
Julie Anne Collier of
| 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