The market had its best week of the year closing up nearly 4%. We will take this reprieve, but aren’t breaking out the champagne just yet. Problems still remain overseas as well as here at home – we are still on guard.
This week FED Chairman Ben Bernanke testified on Capital Hill. The FED has made it clear for years that they will take action as they see necessary. You may recall the Federal Reserve has provided three rounds of Quantitative Easing: QE1 at the end of ’08 and QE2 in the Summer of ’10, and “Operation Twist” late last Summer. The calls are getting louder for the FED to implement another round of Quantitative Easing – QE3.
Quantitative Easing, is a way for the FED to ease monetary policy through asset purchases. Remember the FED has held interest rates effectively at 0% since December of 2008. It can’t go any lower. The unemployment rate remains uncomfortably high and it clearly has the attention of the FED.
The big question is: Would a QE3 have a positive impact on our economy? The “fiscal cliff” is looming and it’s a hot button issue as we head into the November election. We’ve had historically low interest rates for the past 4 years; money is cheap, but it is not getting to the areas where it is ultimately needed. So it is not clear if another round of QE would be helpful and we think it would be a bit premature at this time.
We remain defensively positioned for whatever comes our way.
Have a good weekend.
By, Mike Harris & Mike Frazier
