The Federal Reserve met this week and announced their intention to keep the Fed Funds rate at “0-.25% until late 2014”, at least. Nearly free money for another 2-1/2 years, or more. Thank you, Ben Bernanke.
This is truly a remarkable economic situation the developed world finds itself in. Despite herculean efforts to provide stimulus through monetary expansion, through both money creation and ultra-low interest rates, Europe’s crisis remains unresolved, and the US still grows at sub-optimal rates. According to Grant’s Interest Rate Observer, there is now $3 Trillion in money markets, checking, and savings accounts globally, earning nothing – nada, zero, zilch. Pity the poor saver.
This reinforces, once again, the investment strategy we are pursuing. First and foremost it is to earn a return on your capital, while at the same time minimizing risk to principal and reducing volatility. 2011 gave all of us an education in how events can drive asset prices, even though underlying market fundamentals remain the same.
It is increasingly clear that Greece is going to be cut loose from the Euro. While the ruling elites of the world meet in Davos, snacking on caviar and fine wine amidst the falling snow, solving the problems of the world, the head of the IMF, the fabulous Frenchwoman Christine Lagarde, appeared at a press conference to announce the dire straits of the European Financial Rescue Fund. Unless someone ponies up another $1 Trillion in funding, the world was headed for “significant consequence.” Brother, can you spare a Trillion?
No wonder the Germans continue to say, Nein! The elites have done little to actually address the long-term fiscal gaps and growth-squelching policies of the most profligate of borrowers. Thus, the recent pleas by the IMF chief for manna from heaven, or anywhere, will continue. It is amazing that matters have come to this.
The good news for the US is that our banking system has been re-capitalized and is reasonably insulated from old Europe’s woes, Asia continues to expand, and our economy is on a weak, but upward trajectory. And Greece really is a small piece of the puzzle.
The recent market recovery has been most welcome. We expect the rest of the year to be sideways to slightly up, with our continuing emphasis on cash income, and securing some of the recent gains.
