Wednesday, March 12, 2008

Fed Actions Will Only Delay The Inevitable

When we are no longer able to change a situation, we are challenged to change ourselves. ~Victor Frankl

I must admit that I am impressed with Dr. Ben Bernanke's and the Fed's creativity in addressing the current economic issues. They are using a larger set of tools than the changing the Fed funds rate. First, in August, 2007, the Fed lowered the Fed discount rate, a largely symbolic move to give investors confidence. Yesterday, the Fed announced the would lend up to $200 billion of treasuries in exchange for mortgage backed debt to increase liquidity and help credit markets. In each case, the Fed appears to be addressing a specific economic challenge, instead of using just fed fund interest rate cuts to address all economic issues. However, I believe the Fed actions are only delaying the inevitable.

As a result, I expect the stock market will continue to be in a downward trend for most of 2008. Of course, I wish the stock market would quickly resume its upward trend of the past five years:-) While the Fed moves have provided some confidence, the stock market rebounds have been relatively short lived. Thus, it seems to me that a recession is inevitable, if we aren't already in one. Despite the gallant Fed interventions, I believe revising our financial plans to protect our savings against a recession has been the right approach. The last plan element that I am still working is identifying individual stocks to short. I hope to have to have several possible candidates chosen in the next couple weeks to short during the next rally.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

1 comment:

Kristin said...

The Fed is ready to open the vault to save the market.....I mean economy.

Actions like these send powerful signals to foreign investors and should give them faith that the Fed will do anything to hold up this sick market.