« back
to News section
The
Markets Last
week, Bernanke and his colleagues on the Federal Open Market
Committee agreed to cut the federal funds rate and the
discount rate by one-half percent. That sent investors
scrambling to buy stocks and the Dow Jones Industrial Average
ended the day up a whopping 336 points. It was the Dow’s
largest one-day point rise in nearly five years, according
to MarketWatch.
Investors are hoping that lower interest
rates will prevent the economy from sliding into a recession.
While that’s
a worthy goal, lower interest rates may lead to side effects
such as a weaker dollar and higher inflation.
Already,
the dollar is touching new lows against the euro and
it is near parity with the Canadian dollar, according
to The Wall Street Journal. A weak dollar makes imported
goods cost more and makes foreign investment in the U.S.
less attractive. In addition, gold prices hit a 27-year
high last week while oil rose to a record high of more
than $83 per barrel, according to MarketWatch.
What does
a weaker dollar have to do with higher oil and gold prices?
According to Kathy Lien, chief strategist
at Forex Capital Markets, “A weak dollar induces
inflationary pressures, and since oil is priced in dollars,
OPEC nations have a vested interest in seeing oil prices
rise just so that they do not see a significant shortfall
in profits."
The global economy is highly interconnected.
If you make a change in one area, such as lowering interest
rates,
it tends to affect other parts of the economy, too, as
described above. As another example, when Alan Greenspan
lowered interest rates dramatically in the early 2000’s
as the stock market bubble burst, he inadvertently fostered
a new bubble in the housing market, for which we are now
paying the price in the form of a very tight credit market.
This interconnectedness makes policy
makers’ jobs
very difficult. Bernanke and his crew will be heavily scrutinized
as they try to navigate their way through the current credit
market situation.
| Returns through 09/21/07 |
1-Week |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year |
| Dow Jones Industrials |
2.8 |
10.9 |
20.1 |
10.5 |
11.9 |
5.6 |
| Nasdaq Composite |
2.7 |
10.6 |
20.4 |
11.6 |
17.7 |
4.7 |
| Standard & Poor's 500 |
2.8 |
7.6 |
16.1 |
10.6 |
12.8 |
4.8 |
Source: Yahoo! Finance, Barrons
Past performance is no guarantee of future results. Indices
are unmanaged and cannot be invested into directly. Three-,
5-, and 10-year returns are annualized. Assumes dividends
are not reinvested.
Top Headlines:
- The Fed
met this Tuesday for one of their regularly scheduled meetings, in which
they lowered both the federal funds rate and discount rate
by 0.5%, putting the rates at 4.75% and 5.25% respectively.
Stocks rallied after the decision, led by the S&P 500
which gained 2.9% on the day. (9/18)
- Gold
also rallied after
the Fed`s decision this week as it peaked at $735.50
on Tuesday, marking its highest
level since 1980. (9/19)
- The Producer
Price Index fell
1.4% in the month of August with the largest declines coming
in food and energy prices.
On the other hand core PPI saw an increase of 0.2%
led by rising drug and car prices. The
consumer price index fell 0.1% in the month of August led by declining energy
prices. Excluding food and energy prices core CPI rose
0.2% led by higher medical prices. (9/18 & 9/19)
- Chinese
markets reached record levels this week as the Shanghai
Composite finished at a record 5,421.39 on Monday.
These strong results came despite a 0.27 percentage-point
increase on deposits and loans due to inflation concerns.
(9/18)
A KEY PROVISION OF THE PENSION PROTECTION
ACT (PPA) OF 2006 likely will result in a significant increase
in 401(k) accumulations, especially for low-income workers,
according to a recent study by the Employee Benefit Research
Institute (EBRI).
The PPA allows employers automatically
to enroll workers in the company’s 401(k) plan and to
increase a worker’s
401(k) contribution to coincide with a raise or a work anniversary.
(Note, however, that the employee can decline both enrollment
and future increases.)
Scenarios modeled using data from EBRI’s
2007 Retirement Confidence Survey forecast that the automatic
escalation
feature could increase overall 401(k) accumulations between
11 and 28 percent for participants in the lowest-income
quartile, and between 5 and 12 percent for those in the highest-income
quartile.
This legislation may prevent employees
from taking the path
of least resistance and help them retire with more savings.
Do you think the changing
number of birds feeding at your birdfeeder from season
to season
reflects
changes in the environment and climate? The Cornell Lab
of Ornithology's Project FeederWatch needs your help to answer
that question. To learn more or to register, visit http://www.birds.cornell.edu/pfw or call (800) 843-2473. All ages and skill levels are welcome.
Riddle:
I begin and end with the letter
'e'
Have
eight letters, but just one letter within me.
Click here for the answer.
Best Regards,
P.S. Please feel free to forward
this newsletter to family, friends, or colleagues.
|
