Weekly Market Commentary

More money?

The Federal Reserve kept its word last week: until they see an improvement in jobs growth and wages they simply won’t budge on their mission to keep interest rates low to stimulate borrowing and economic expansion. What this means to the markets, however, is more ambiguous.

Growth, by any measure one might apply, has been anemic this year, and has failed to exceed “nominal norms” for at least 5 years. By the standards used at the Federal Reserve, unemployment and inflation, there has been a relative improvement in each, but not sufficient enough to take their hands off the rudder completely. This doesn’t satisfy those who believe that such artificial machinations of monetary policy ultimately do more harm than good by limiting the effect of free market supply and demand, survival of the fittest.

The best measure of how the Fed’s doing would be to see if more “free money” actually filters into the pocketbooks of average citizens. In this regard the policies have been woefully inadequate.

The disconnect is not simply with Fed policy, however. We know the money is there, aggregating in corporate treasuries, savings accounts, equity markets, private finance, and tangible asset price inflation. Why, then, is there stagnant jobs and wage growth? Because, it’s more profitable to hoard the cash, than to deploy it. The missing syllable is the rotation of that cash through the system to the end-user, the consumer.

The Federal Reserve and corporate governors have dramatically increased valuations of inert securities, while creating an asset bubble of historic proportions, the ramification of which might have horrific blow-back possibilities. The two most glaring of these negative consequences is the loss of consumer confidence in the egality of financial institutions, and a soaring rate of inflation, which I believe is already quantifiable in everyday purchases.

The tools the Fed needed to combat the credit/financial crisis in 2008 are not necessarily the same tools they need to deploy to deal with our current economic quandary.

Who cares?

The bright side to this is obviously the magnificent year the equity market is having. The market becomes a default investment decision when bond interest rates don’t/can’t compete. Shaking off their concern about any net worth volatility, investors are chasing after stocks as if the train has already left the station. Such lofty heights converge equally, I believe, over a giddiness about making money, and an absolute dread that we’ve seen this mania before…and it doesn’t end well.

Recall that when the Fed first started “tapering”, or “easing”, the market failed to respond because many feared a snap-back repercussion of rates rising at the back-end of those policy initiatives.

Well, we are at the back-end of those initiatives, and cycle-phase analysis tells us that interest rates will go up. We simply don’t know, now, when. And last week didn’t make things any easier.

Do you really believe there is no inflation? Over 70 shopping items have already exceeded the “stated rate” of this year’s inflation figures, and one might extrapolate from others, such as tuition, lodging, clothing, pharmaceuticals, etc., that those reported numbers are not accurate or certainly without relevance for the average consumer.

We might be heading into self-denial which plods us along into a generally unknown, or oft-repeated, morass.

Scotty C. George

(212) 624-1147

www.dupasco.com

The information contained herein has been obtained from sources believed to be reliable but is not necessarily complete and it accuracy cannot be guaranteed. It is intended for private informational purposes only. Any opinions expressed are subject to change without notice. Du Pasquier Asset Management and its affiliated companies and/or individuals may from time to time own or have positions in the securities or contrary to the recommendation discussed herein.

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