Saturday, April 25, 2015 04:47am
North Adams, MA now: 30 °   
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
Cheshire Gets Gas Pipeline Answers From Kinder Morgan
Pittsfield Celebrates Arbor Day, Honors Berkshire Conservation District
Retired North Adams Police Officer Turns 100
Bashevkin Receives Commissioners Leadership Award
Taconic Golf Club Building Membership, Opportunities to Play
Cultural Pittsfield This Week: April 24-30
Lanesborough Election: Nomination Papers Available
Maple Grove Civic Club Holds Candidate Forum
Williamstown Housing Trust Reviews Proposals for Land Purchase
Clarksburg Mulling Reconstruction of Horrigan Road

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 (167)
Independent Investor (223)
Archives:
April 2015 (5)
April 2014 (1)
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)
Tags:
Currency Jobs Interest Rates Federal Reserve Oil Commodities Banks Bailout Recession Debt Ceiling Pullback Euro Europe Crisis Rally Fiscal Cliff Retirement Housing Energy Election Stimulus Taxes Japan Congress Stocks Europe Economy Stock Market Selloff Greece Deficit Metals Fed Markets Debt
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?
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Why Are Interest Rates Rising?
Recent Entries:
@theMarket: Right Back Into the Range
The Independent Investor: Brazil Not For the Faint of Heart
@theMarket: Earnings on Deck
@theMarket: Will the Second Quarter Be Like the First?
The Independent Investor: How to Teach Your Kid to Become the Next Warren Buffet
@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


View All
Baseball: Westfield Voc @...
The McCann Tech baseball team hit their way to a 8-0 win...
SB: Mt Everett @ Lenox
The final score was Mount Everett 15 and Lenox 3
Berkshire County Invitational...
The boys 4-by-800 meter relay, a 3200-meter battle that...
SB: Mt Greylock @ Drury
The Drury softball team earned its first win of the season...
Touch A Truck 2015
Little kids got to play with big trucks - and school buses,...
Baseball: PHS @ Taconic
Fick finished with two strikeouts while allowing six hits...
Lacrosse: Monument @...
Sean Baruch scored four goals to lead the Pittsfield boys...
SB: Pittsfield @ Hoosac
The Pittsfield High softball team made the most of all its...
STEM, Industry Forum
U.S. Rep. Richard Neal and the Berkshire Chamber of...
BFAIR Annual Meeting 2015
BFAIR holds its annual breakfast meeting at the Williams...
3rd Thursday Events 2015
Director of Cultural Development Jen Glockner and Mayor...
Berkshire Chamber Nite @...
The Berkshire Chamber of Commerce held a networking event...
Tennis: MM Girls @ PHS
Monument Mountain girls tennis team won 5-0 over Pittsfield...
Tennis: MM Boys @ PHS
Monument Mountain boys tennis team won 4-1 over Pittsfield...
IS183 Versace Tchotchke Gala
IS183 Art School of the Berkshires' annual over-the-top...
Tennis: MG @ Lenox
Cami Sachetti and Emily Czelusnick battled to a 7-5, 6-4...
Baseball: Westfield Voc @...
The McCann Tech baseball team hit their way to a 8-0 win...
SB: Mt Everett @ Lenox
The final score was Mount Everett 15 and Lenox 3
Berkshire County Invitational...
The boys 4-by-800 meter relay, a 3200-meter battle that...
SB: Mt Greylock @ Drury
The Drury softball team earned its first win of the season...
Touch A Truck 2015
Little kids got to play with big trucks - and school buses,...
| 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