This is an end of the 1st quarter and looking forward, on the short term, things look positively peachy as long as interest rates remain depressed, unemployment high and working folks spending to replace what they need the markets will flourish in 2011. So far the domestic markets have been ignoring everything from earthquakes, nuclear meltdowns. skyrocketing oil prices, commodity price hikes and Middle East unrest. It is almost as if traders and investors are on another planet as domestic markets and corporations motor along oblivious to worldwide carnage all about them.
All the while this is going on Americans are spitting mad at our nations leaders for playing politics instead of creating jobs or incentives for jobs. On the evening news last week a freshman Congressman admitted that in his first 100 days he has yet to hear anyone of any stature in his party or the other bring up the problem of jobs, incentives to create jobs and/or reducing the rate of unemployment. In addition CBS news and other networks report that out of those first 100 days Congress was in fact in session for only 35 days with an attendance of only half of those elected.
Seventy-five percent of all Americans polled disapprove of Congress and the President and the job they are doing.
While the overall economy is slowly getting traction, the dollar continually sinks because of The Ben Bernanke buying of treasuries causing commodities to get more expensive and keeping interest rates low. We can all light an alter candle to The Fed for their historic low rates which has boosted the domestic stock market. The question is what will happen when The Fed begins to raise rates and begins draining all that money out of the economy?
Two divergent schools of thought: One, lead by PIMCO’s Bill Gross has been selling long Treasuries believing that as rate are raised ‘it will be a big event’; while BlackRock’s Rick Rieder thinks that the Fed’s exit will be more benign. ‘If rate drift up it will be modest.’ Rieder said in a WSJ interview over Easter weekend. It is no secret that Gross loves emerging market debt and has been on a tear buying all he can.
As investors we can only wait and see what happens this coming June when the Fed ceases their QE2.
Right now the cost of servicing America’s debt is lower than when it was at the height of the Clinton boom in 1998. This will end and hopefully the Fed has a plan to ease the markets into a soft landing.
The problem, dear reader, is not in the short term but in the months and years after.
Politicians, as we have seen, on both sides of the fence, have no stomach for the hard calls and to do what has to be done to reduce our debt, even with our threat of political banishment. Our hopes for elimination of the debt is in the hands of The Fed. If they are able to raise rates, drain excess liquidity, stimulate jobs creation and in doing so boost the economy to increase taxation and eliminate the debt it’ll be a trick worthy of greatest economists of any time.
Questions call Paul @ 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.
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