Home About Archives RSS Feed

@theMarket: Fed Passes the Ball to Congress

Bill Schmick

By now everyone knows the outcome of Ben Bernanke's speech at Jackson Hole on Friday. For those looking for a cure-all from the chairman of the Federal Reserve, his speech was a disappointment.

Overall, the markets were not nearly as disappointed as one might imagine. I suspect the smart money (see Thursday's column "Can the Fed Save the Markets") was not expecting much in the way of new programs. Of course, Chairman Bernanke promised to take another look at the economy on Sept. 20, when next the FOMC meets, but don't hold your breath.

Although the Fed still has some tools it could use if necessary, the Fed is not omnipotent when it comes to stimulating the economy. There is, of course, quite a bit that Congress, the Senate and the White House could do and the chairman made it clear that the ball was now in their court. He also warned those who are hell bent on cutting spending in congress to be careful what they vote for. He warned that the economy is as fragile as an egg shell right now.

To underscore that point, the second-quarter GDP was revised down again on Friday to only 1 percent from 1.3 percent just a few weeks ago. At that rate, we are teetering between a recession or sub-par growth. I still give a double-dip recession less than a 50 percent chance, in my opinion, but more ineptitude in Washington or a new, negative shock from Europe could tip us over the edge.

The stock market is at an extremely precarious level right now. The averages could go either way, but I believe there is still more downside risk than upside potential over the next few weeks. As a result I remain defensive and nothing that I have seen this week has changed my mind.

Some investors were encouraged when Warren Buffet announced he was taking a multibillion dollar stake in Bank of America. Yet investors should remember that Buffett is a long term investor and is not fazed if the prices of stocks he invests in subsequently go lower, in some cases, much lower, before finally rebounding. And in some cases, his investments do not pan out at all.

I would continue to use any rallies to reduce your most aggressive equity holdings and instead focus on dividend and income investments. Now, even the Fed is looking to our dysfunctional government leaders for new initiatives to reduce unemployment and increase economic growth and that does not give me a warm, fuzzy feeling.

The stock market is in the middle of a bounce right now and I expect that both volatility from Europe and additional selling pressure from concerned investors will drive the averages back to their recent lows. There is a high probability that those lows will fail to hold.

As for this weekend's arrival of Hurricane Irene on the East Coast, experts are predicting that it could cost billions in damages not to mention loss of life. Hurricane Katrina was considered one of the costliest natural disasters to hit America in years. It caused $125 billion in damages and lopped 0.05 percent off the nation's GDP. Let's hope and pray that Irene does not prove to be that bad. The last thing we need is another economic catastrophe. But as the saying goes, when it rains, it pours.

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 (toll free) or e-mail him at wschmick@fairpoint.net . Visit www.afewdollarsmore.com for more of Bill's insights.

0 Comments
Tags: Fed, recession, weather      

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Williamstown Moving Ahead With Month-to-Month Spending Plan
North County High Schools Make Graduation Plans
BCC Graduates Recognized in Remote Commencement
Crane Stationery Leaving North Adams for New York
Markey Proposes $25B Boost to Intercity Passenger Rail
Local Schools Receive Olmsted Grants from Williams College
North Adams Board of Health Authorizes Police as Health Agents
Proprietor's Lodge Given Extended Outdoor Hours
Williamstown Elementary, Mount Greylock Principals Named
Clarksburg Holds Off on Budget Review, Police Chief Salary
 


Categories:
@theMarket (331)
Independent Investor (447)
Archives:
May 2020 (8)
May 2019 (2)
April 2020 (9)
March 2020 (5)
February 2020 (7)
January 2020 (10)
December 2019 (7)
November 2019 (8)
October 2019 (9)
September 2019 (7)
August 2019 (5)
July 2019 (5)
June 2019 (8)
Tags:
Oil Federal Reserve Currency Selloff Banks Recession Interest Rates Congress Retirement Election Europe Debt Ceiling Taxes Housing Energy Debt Stimulus Crisis Commodities Fiscal Cliff Markets Euro Bailout Jobs Metals Greece Pullback Economy Japan Wall Street Stocks Europe Rally Deficit Stock Market
Popular Entries:
The Independent Investor: Don't Fight the Fed
@theMarket: QE II Supports the Markets
The Independent Investor: Understanding the Foreclosure Scandal
@theMarket: Markets Are Going Higher
The Independent Investor: Does Cash Mean Currencies?
The Independent Investor: General Motors — Back to the Future
@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?
The Independent Investor: Will the Municipal Bond Massacre Continue?
Recent Entries:
The Independent Investor: The Culling of America
@theMarket: Memorial Day Markets
The Independent Investor: Chinese Checkers
@theMarket: Something Off in Bond Versus Stock Market Outlooks
The Independent Investor: Gold, the Bug, and You
@theMarket: The Stock Market Is Not the Economy
The Independent Investor: Workers face a serious dilemma
@theMarket: Earnings Fail to Support Stock Market
The Independent Investor: If You Are Laid Off, Read This
@theMarket: Economy Craters as America Attempts to Reopen