Monday, April 9, 2012

Stimulus-Interuptus: Feds Take Away the Punch Bowl

The economic indicators are all signaling a stabilizing, recovering economy. However, the disappointing jobs report may indicate that we’re not quite ready to pop the Champaign. In a March meeting held by the Federal Reserve, the published minutes show the feds believe that the economy is strong enough to stand on its own. No need to intervene to help it along. In the meantime, the markets reacted in a bag way.

The market sell off last week, was a response to the Federal Reserve taking the position that the economy no longer needs their assistance, which means no “stimulus”. A Chief Market Analyst, Doug Cote, was quoted as saying that the Feds were “taking away the punch bowl, the markets don’t like these punch bowls being taken away”. You can glean from this statement that the economic punch bowls were heavily spiked over the past 4 years to get up to this point. In fact, since the beginning of the U.S. Deep Recession, the government worked feverishly to steer the economy away from the cliff it was headed for. This meant the Federal Reserve and the White House actively propping up the financial market and the economy by implementing a cocktail of fiscal and monetary policies, which included numerous rounds of stimulus packages for various faltering industries.

The Bush Administration, followed by the Obama Administration pulled out all the stops to get the Country back on solid footing with programs which included; the bailout of Banks and the big three auto makers, tax payers stimulus refund, the homeowners’ assistance and first home buyer programs, and even forgiveness of old student loans - the list goes on. Now, the market has to go “Cold turkey”, and function without a safety net. This was obviously an unpleasant reality when the news send trimmers throughout the investment community, sending the DOW and other major indices in a mild tailspin.

The next quarter will be a critical benchmark for forecasting where the economy actually is, and what that means for Main Street, and the rest of the world

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