Wow, another week in the green!
Although investors reacted negatively to President Obama’s “cautious optimism” speech earlier in the week, Ben Bernanke’s speech concerning the financial crisis at Morehouse College seems to have allayed investors fears about the state of our financial system.
I find it amusingly ironic that Mr. Bernanke chose to speak about the mortgage crisis at “Morehouse” College, but I’d like to believe that the Fed Chairman’s stance on dealing with toxic assets did a lot to relieve the uncertainty surrounding housing and mortgage-related securities.
According to excerpts from his speech outlining Fed strategies:
The Federal Reserve will continue to take the necessary steps to unclog the credit markets and strengthen the economy. Restoring stability to the market for housing and home mortgages has been a particular area of concern. To address this problem, the Fed has employed a third type of policy tool–namely, buying securities in the open market. Buying mortgage-related securities helps to drive down the interest rates that consumers pay on mortgages, and, indeed, the rate on a traditional 30-year fixed-rate mortgage has recently fallen to less than 5 percent, the lowest level since the 1940s.
Combined with lower housing prices across the United States, I believe the lower interest rates and improved access to credit markets will stimulate current homeowners to refinance, allow first-time home buyers to qualify, and give real-estate investors the ability to buy foreclosed properties at exceptional values. All good stuff to help rebuild our economy.
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Federal Reserve Vice Chairman Donald L. Kohn said today that steadier consumer spending and home sales, together with favorable earnings results from some banks, may indicate that the U.S. economy is poised to stage a gradual recovery later this year.
If that’s true, then as an investor, it’s important to remember that the stock market is a leading indicator, and historically rebounds about six months before the economy rebounds.
If the Fed believes that the economy will recover before the end of December, 2009, then it wouldn’t be irrational to expect the stock market to recover by the end of June.
That’s just around the time that I previously predicted the markets would turn around.
Luckily, I’m fully employed now and making a decent wage. You can expect me to be investing the most I can into my retirement funds while stocks are at bargain basement prices.
Posted 21 Apr 2009 at 12:07 am ¶Post a Comment