 |
|
| Politics Forum Index » USA (Republican) Politics Forum » yep, bernanke is goosing the markets:the markets are... |
|
Page 1 of 1 |
|
| Author |
Message |
| Nickname unavailable... |
 Posted: Sat Nov 14, 2009 4:47 pm |
|
|
|
Guest
|
yep, bernanke is goosing the markets:the markets are not main
street:The Fed is forcing everyone to take risk by buying stocks
because if you don't take risk, you will be earning nothing on your
money, meanwhile, unemployment is soaring
http://finance.yahoo.com/news/ALL-BUSINESS-Can-the-stock-apf-1309839524.html?x=0
ALL BUSINESS: Can the stock market rally last?
ALL BUSINESS: Investors get giddy about stocks but can the rally
really last?
• By Rachel Beck, AP Business Writer
• On 6:42 am EST, Saturday November 14, 2009
NEW YORK (AP) -- Somebody on a bus asks a friend, "How about that
stock market?" The response: "Unbelievable." Caribbean vacationers
lounging poolside check their Blackberries for stock prices. Suburban
gym members chat about the latest market gains during their morning
workouts.
Welcome to the 2009 bull market -- or so many people think. They're
buying up shares of everything from Google Inc. to Bank of America
Corp. at a pace not seen since the 1930s. Since March, the Dow Jones
industrial average has jumped 57 percent and the Standard & Poor's 500
index has gained 62 percent.
Investors are betting on a strong economic recovery. But here's the
problem: Good news ahead could be bad news for the bull.
To understand why, consider the very thing that has boosted the
market. The U.S. government has spent nearly $1 trillion to stimulate
the economy and the Federal Reserve has maintained a policy of keeping
interest rates near zero.
Those will disappear as the economy's health improves, potentially
halting the bull market by taking away what has been its crutch --
sources of cheap and plentiful money.
"Pretty soon the easy money phase could be behind us," said Hugh
Johnson, chairman and chief investment officer of Johnson Illington
Advisors, an investment firm in Albany, N.Y.
The government has plunged big money into the marketplace, through tax
cuts, construction projects and other measures. At the same time, low
interest rates have invigorated stocks by reducing borrowing costs and
bolstering corporate profits.
The low rates have also knocked down the returns of other short-term
investments, like government bonds and money-market funds. Since
people aren't getting high returns on those investments, they're
buying stocks.
Stocks are risky because they don't guarantee a return, and the recent
bear market shows how deeply share prices can drop. From October 2007
through March, the Dow industrials lost 53 percent.
"The Fed is forcing everyone to take risk by buying stocks because if
you don't take risk, you will be earning nothing on your money," said
Ed Yardeni, president and chief investment strategist at Yardeni
Research.
Yardeni said his clients, which include pension funds and
institutional investors, feel like they don't have a choice but to buy
stocks right now. He sees lots of "fully invested bears" -- investors
who don't believe that investing in stocks makes sense right now
because of the state of the economy, but they are buying anyway
because they worry they might miss out on a bull run.
The Dow is trading above 10,000 for the first time since October 2008,
though it is still 27 percent below its peak two years ago. The S&P
500 has gone up almost 7 percent just this month.
Plenty of investors and analysts don't see an end to those gains,
especially if the economy picks up in the coming months. But a strong
economy is just what Yardeni and some others on Wall Street say could
thwart the rally should it lead to higher interest rates and waning
government stimulus.
The Fed isn't expected to act soon. The U.S. central bank has kept the
target range for its bank lending rate at zero to 0.25 percent since
December. It pledged this month to keep that rate at a record low for
an "extended period." How long that really means is anyone's guess.
The Fed said in a statement after its November meeting that economic
activity has "continued to pick up" and that the housing market has
strengthened -- a key ingredient for a sustained recovery. But a 10.2
percent unemployment rate and weak consumer spending is still plenty
worrisome to the economy's overall health.
Yardeni thinks once the Fed even begins to hint of looming changes in
its interest-rate policy it will "take the steam out of this rally,"
he said. "It won't take much to push this market back down."
In the past, higher rates didn't knock down stocks immediately. The
Fed cut its benchmark rate from 2001 through 2003 to stimulate growth,
taking it down to a low of 1 percent, where it stayed for a year. The
low rates reduced mortgage costs, feeding the housing boom, and
sparked a bull market in stocks.
The Fed started to slowly raise rates in July 2004 to slow the economy
and keep inflation in check. The housing market peaked in 2006 and the
stock market followed in 2007. After that, both headed into a free
fall.
Back in 1982, a sustained bull market began amid a deep recession, and
the gains lasted even though the Fed began to boost rates. There was
more to lure investors back to stocks then, notes David Rosenberg,
chief economist and strategist at Canadian wealth management Gluskin
Sheff.
Stock dividend yields were 6 percent then; today they are below 2
percent. That means investors had a greater potential to generate
income off their stock investments, regardless of whether prices rose
or fell. Bond yields were at double-digits and were expected to fall
in 1982; today short-term bonds pay nearing nothing and yields will
likely head higher. That could make fixed-income investments more
attractive.
Investors still should heed the potential danger signs of today's
market, before their exuberance gets the better of them.
Rachel Beck is the national business columnist for The Associated
Press. Write to her at rbeck(at)ap.org |
|
|
| Back to top |
|
|
|
|
|
All times are GMT - 5 Hours
The time now is Mon Mar 22, 2010 2:52 am
|
|