Friday, August 01, 2014 12:10pm
North Adams, MA now: 77 °   
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: Economy Sputters, Stocks Stutter
By: Bill Schmick On: 06:08PM / Friday August 27, 2010
Important
0
Interesting
0
Funny
0
Awesome
0
Infuriating
0
Ridiculous
0

The markets were so oversold by Friday that even a hint of positive news was enough to send stocks higher. The trigger was the revision downward of the nation's gross domestic product to 1.6 percent for the second quarter. The initial GDP reading had been 2.4 percent.

"Why is that good news?" asked a perplexed client from Long Island.

"The revision could have been worse," I explained.

Federal Reserve Chief Ben Bernanke also helped push stocks higher by throwing the market a few straws of reassurance. He said he would consider another large scale investment in the markets if the economy deteriorated further or if deflation became a problem. At the same time, he said it might not be necessary because he still sees the economy growing next year.

The Fed has three options to further add liquidity to the system. They could buy more government bonds and possibly mortgage backed securities and drive mortgage rates even lower than they are now. A 30-year, fixed rate mortgage is now below 4.5 percent. In this atmosphere of uncertainty, they could further clarify exactly how long they expect to keep interest rates near zero. To date, they have only said rates would be low for an "extended period."

Finally, they could cut to zero the interest rates the Fed pays banks to park their reserves at the Fed. Right now they are paying 0.25 percent. That might seem a nominal sum to most, but when you have billions of dollars sitting there, that quarter of a percent adds up. This last option, I believe, is the key to getting out of the liquidity trap we find ourselves in.

For the last year and a half, the Federal Reserve has been dumping mountains of money into the financial system, hoping that the banks and corporations will in turn lend it to consumers and use it to hire workers, build new plants and buy equipment. Instead, financial institutions have been hoarding the cash and getting paid by the Fed to do so.

Why? Given the uncertainty of the recovery, the high unemployment rate and the risk of even more bad debts coming through the door, the banks believe it is better to keep the cash then risk losing it on future bad loans or, in the case of corporations, on hiring workers that they won't need in a double-dip recession. Fear is the name of that game.

"Play it safe, after all," they say, "a 0.25 percent return is better than no return at all."

This monumental timidity in the face of 9.5 percent unemployment and a housing market that is tipping precariously back into a downward spiral should be unacceptable to all of us. So how do we get the banks to lend again?

Simple, instead of reducing the rate the Fed is paying to zero, make it minus 1 percent or 2 percent. That's right; in order to park your cash at the Fed instead of lending it out, it's going to cost you. I believe faced with losing 1 to 2 percent on their money or risking it by lending to you and I at 5 to 6 percent, fear will turn to greed. This good ole American financial system will begin to work for us again instead of against us.

In the meantime, we are bouncing around the 1,050 level on the S&P 500 Index. I still maintain that 950 is in the cards. It's simply a matter of time before that occurs. I know this five-month trading range is frustrating to investors but patience will be rewarded, possibly as soon as September. The doom and gloom is building but has not yet built to a crescendo. We may well get another bounce this coming week but once again it will be on low volume and will simply be another bear trap, so don't be fooled.



1 Comments
Tags: stocks, GDP      
News Headlines
Mary Grant Leaving MCLA for UNC Post
Cultural Pittsfield This Week: Aug. 1-7
Long Island-Based Comedy Show Comes to South County
40th Annual Adams Agricultural Fair Runs This Weekend
North Adams Auto Parts Store Sets Grand Opening Sunday
Berkshire Force Runs to Second Win in World Series Play
Clark Opens Galleries With Abstract 'Make It New'
Magic Treehouse Author Invokes Invokes Joy of Learning
Bankruptcy Court OKs BMC Bid for Northern Berkshire Healthcare Assets
North Adams Implements Higher Parking Fines
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 (140)
Independent Investor (190)
Archives:
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)
October 2013 (6)
September 2013 (6)
August 2013 (8)
Tags:
Euro Debt Ceiling Congress Jobs Europe Commodities Fiscal Cliff Selloff Markets Europe Retirement Economy Federal Reserve Crisis Banks Bailout Rally Election Pullback Recession Stimulus Metals Deficit Energy Greece Fed Debt Housing Stocks Stock Market Currency Oil Japan Taxes Interest Rates
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:
The Independent Investor: How Much Is Too Much to Spend in Retirement?
The Independent Investor: The Fed Turns Off the Spigot
The Independent Investor: Should You Pay Off Mortgage Before Retiring?
The Independent Investor: Retirement should be a part-time job
The Independent Investor: Unhappily Ever After
@theMarket: June Swoon
@theMarket: Europe Is a Good Bet
The Independent Investor: A Road to the Future
The Independent Investor: Holy Cow
@theMarket: Flirting With Record Highs Again


View All
Reading of The Gettysburg...
The Adams Historical Society held a mass reading of the...
Adams Cruz Night 2014
Classic and custom cars lined Center St. Thursday night for...
Williamstown Chamber @MadMacs
Attendees at Wednesday's Williamstown Chamber Nite at Mad...
Pittsfield Ethnic Fair 2014
North Street in Pittsfield had a double-dose of block...
LaFesta Baseball 2014
The LaFesta Baseball Exchange, celebrating 24 years, pits...
Adams Polish Picnic 2014
Adams residents enjoyed traditional Polish food and music...
Mingo's Sports Bar & Grill...
Over 50 cars packed into the Mingo's Sports Bar & Grill...
BYP Networking at Naumkeag
The Berkshire Young Professionals met at the historic...
Pittsfield Shakespeare...
Pittsfield's Shakespeare in the Park free performances at...
Lanesborough Kids Fire Camp...
Lanesborough Fire Department held its annual Kids Fire Camp...
Lanesborough Fire Drill
The Lanesborough Fire Department trains on basement fires...
Pittsfield Polish Picnic
Crowds lined up for golabki and kapusta at the annual...
North Adams Kids Emergency...
The North Adams 21st Century Community Learning Center...
Gather-in Festival 2014
The 42nd annual Gather-In festival was held at Pitt Park in...
BFAIR Mini-Golf Fundraiser
Berkshire Family and Individual Resources held its annual...
Lanesborough Seeds of Harmony...
Bradly Farm in...
Reading of The Gettysburg...
The Adams Historical Society held a mass reading of the...
Adams Cruz Night 2014
Classic and custom cars lined Center St. Thursday night for...
Williamstown Chamber @MadMacs
Attendees at Wednesday's Williamstown Chamber Nite at Mad...
Pittsfield Ethnic Fair 2014
North Street in Pittsfield had a double-dose of block...
LaFesta Baseball 2014
The LaFesta Baseball Exchange, celebrating 24 years, pits...
| 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