Friday, April 6, 2012

Fed to Investors: You're On Your Own

See ya!
Writing in yesterday's Financial Times, columnist James Mackintosh notes the schizophrenic mood of stock investors these days:

Here we go again.  For all the signs of economic recovery in the U.S., it turns out what investors really care about is QE3. Minutes of the Federal Reserve's policy meeting showed on Tuesday that another round of quantitative easing is somewhat less likely and the market reacted with a classic flight to quality.  The dollar and US and German bonds rose and pretty much everything else fell, notably gold and European equities.

In other words, as Mr. Mackintosh goes on to write, investors want both economic recovery and Fed stimulus - a combination that is unlikely to occur.

To me, today's relatively weak jobs report is basically confirmation of what Fed officials have been saying for the past few weeks.

Namely, while the economy is showing signs of growth, the recovery remains anemic, and unemployment will probably remain uncomfortably high for the foreseeable future.

I remain positive on stock investments, mostly because the alternatives offer such meager returns.

However, my bullish stance is not based on a new round of quantitative easing by the Fed.  I agree with what columnist Paul Krugman writes in this morning's New York Times that the political attacks on the Fed have intimated it from taking any new stimulus steps any time soon:

True, Mr. Bernanke likes to insist that he and his colleagues aren’t affected by politics. But that claim is hard to square with the Fed’s actions, or rather lack of action. As many observers have noted, the Fed’s own forecasts indicate that while things have been looking up a bit lately, it still expects low inflation and high unemployment for years to come. Given that prospect, more of the “quantitative easing” that is now the main tool of Fed policy should be a no-brainer. Yet the recently released minutes from a March 13 meeting show a Fed inclined to do nothing unless things take a turn for the worse. 

So what’s going on? I think that Fed officials, whether they admit it to themselves or not, are feeling intimidated — and that American workers are paying the price for their timidity.