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Add symbols to My PortfolioTanglinBoy... :)
You've replaced Billywows as the one to dish out the Dow goodies?... hehehe...
By the way I think we all miss him...
Investors to Fed: Thanks for nothing
The reckless are getting relief from Bernanke while the prudent are paying the price, argues Fortune's Allan Sloan.
(Fortune Magazine) -- One of the core principles of the U.S. medical profession is the Hippocratic oath, the most famous part of which is "Do no harm." It's too bad that the governors of the Federal Reserve Board don't have to take such a pledge when they assume office, because their recent interest rate cut has done a lot of harm to those of us who've managed our finances prudently.
Even though the Fed's stated reason for cutting short-term interest rates by half a point was to help keep the economy from falling into recession, anyone who's been paying attention knows that a major motivation - if not the major motivation - was to try to calm the turbulence that has been roiling the markets since August.
The players in the biggest trouble, of course, were the ones who'd taken the biggest fliers in junk mortgages, ultra-risky leveraged buyouts, and other financial esoterica that proved to be malignant.
The stock market, which had been begging for a bailout and hasn't ever seen an interest rate cut that it didn't like, responded to the Fed's half-pointer by running prices up. Ben Bernanke, the Street decided, is just what the doctor ordered.
However, if you look at the financial markets' overall reaction to the Fed move - not at just the stock market's reaction - you realize that as a result of the cut, those of us who keep score in dollars and didn't need to be bailed out are less wealthy than we were in terms of anything other than our home currency.
Why? Because the rate cut contributed heavily to the dollar's recent sharp drop in the currency markets - parity with the Canadian dollar, for God's sake! - and to the price spike in hard assets like gold, silver, copper, and oil. So our wealth, relative to these other things, has diminished.
And wait, there's more. Even though the Fed has cut short-term rates, long-term rates, which it doesn't control, have risen in reaction to the cut. So whatever economic benefits may flow from lower shortterm rates will be partly offset by the rise in long rates, which are at least as important to the economy as short rates.
Finally, consider this. Even though Bernanke's cut may mean that some junk mortgages will reset at lower rates, the cost of large, high-quality fixed-rate mortgages, which are tied to long rates, will be higher than they'd otherwise be. (Yeah, penalize the people who are prudent - way to go!)
When I talk about prudent people being penalized, I don't mean just the decline in their wealth in terms of anything other than the dollar. I'm also talking about the price paid by investors who wouldn't play the subprime mortgage game and thus got lower returns than players who took bigger risks.
The folks who didn't get carried away (and avoided huge losses) look smart today - but they looked prudish and foolish until the housing bubble finally popped.
Look, as I've said before - and will probably say again - the Fed's job is to protect the financial system. It doesn't dare let a giant financial institution fail, lest it drag down other big players and trigger cascading failures.
But if we taxpayers are going to bail out the likes of Countrywide Financial (Charts, Fortune 500), even indirectly, I'd like us to get a market return on our money. That would reward us for the risk we're taking and seriously penalize companies that so overindulge that they need Dr. Ben's Magical Money Elixir.
Let's get the Treasury to negotiate deals like Bank of America's (Charts, Fortune 500) with Countrywide in August, when the bank put up $2 billion and got a high current coupon and a below-market conversion option.
The Treasury could do what it did years ago with Chrysler and get stock-purchase warrants in return for guaranteeing loans to companies that we can't afford to let fail. The idea would be to reward U.S. taxpayers and send a message to gunslingers without risking a worldwide financial collapse.
This different way of thinking won't cure Wall Street of its "heads I win, tails I get bailed out" syndrome - but it will reduce the number of bailouts and mitigate the harm they now do to those of us who haven't overreached. If Hippocrates were in the investment business, I'm sure he'd totally approve.
Wall Street on economic watch
Futures point to tough start ahead of release of closely watched inflation reading, consumer sentiment index.
NEW YORK (CNNMoney.com) -- U.S. stock futures were weaker Friday as investors expressed nervousness ahead of a barrage of economic reports that could fan inflation and recession fears.
At 8:05 a.m. ET, futures were lower and suggesting a negative start for Wall Street. Stocks have been on a run lately, fueled by the Federal Reserve's decision to slash rates last week.
But there are concerns that the central bank may not keep lowering rates if inflation flares up. Investors will get a closer look at the inflation situation when the government releases a report on personal income and spending - which includes a key inflation reading known as the PCE deflator.
They'll also take in a number of readings on the health of the economy, including the consumer sentiment index from the University of Michigan, along with a reading on construction spending and the Chicago PMI, a regional manufacturing report.
Investors have cheered weak economic reports lately, taking them to be a sign that the Fed will keep lowering rates to juice growth. But signs of a significant slowing in the economy - especially a pullback among consumers - could raise recession fears and dampen sentiment.
David Kelly, economic adviser for Putnam Investments, said he things that investors are already looking past Friday's economic numbers to the September employment report due Oct. 5, and that is the biggest overhang on futures. The August report showed the first decline in U.S. payrolls in four years, and while economists are now forecasting a 100,000-job gain for September, Kelly said there could be another unexpected decline in this report.
"There's a lot of nervousness around it. It's probably the single biggest danager to the economy," said Kelly.
He said that the reduced risk of inflation seen in recent readings makes the core PCE deflator somewhat less important to markets than the strength of consumer spending in Friday's economic report.
In global trade, Asian markets finished mixed, while European stocks struggled to find direction in morning trading. The dollar was once again lower against the euro and the yen in early trading.
In corporate news, Wall Street investment banks including Citigroup (Charts, Fortune 500) and Credit Suisse (Charts) sold$9.4 billion in loans that will be used in the leveraged buyout of First Data Corp., according to a report in the Wall Street Journal. The sale of that debt was being closely watched as a sign of credit markets returning to normal.
Ford Motor (Charts, Fortune 500) may seek deeper cost cuts from the United Auto Workers union than those that the union granted to rival General Motors (Charts, Fortune 500) this week in the deal that ended a two-day strike, according to a report in the Detroit News. The paper said that executives at Ford, which is losing more money on its North American operations than either GM or Chrysler LLC, needs deeper cuts in labor costs to be competitive.
The union may resume contract talks with Ford and Chrysler on Monday, according to a report in the Detroit Free Press. The UAW is due to start laying out details of the tentative agreement reached with GM to local union officials Friday ahead of the start of the rank and file ratification process that starts this weekend.
Shares of both GM and Ford were lower in Frankfurt trading early Friday.
Oil prices turned higher Friday after being down in earlier trading. A barrel of U.S. light sweet crude gained 5 cents to $82.93
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