Created in 1913 with the enactment of the Federal Reserve Act, the Federal Reserve (the Fed) is the central banking system of the U.S. The Fed functions as the bank of the U.S. government, overseeing the nation’s financial institutions. As the central bank, the Fed safeguards and manages the U.S. economy and its money supply with its economic and monetary policies, which makes it a very powerful global player. Ben Bernanke is the current chairman of the Federal Reserve.
The convulsions taking place in the Japanese capital markets are emblematic of the monetary exuberance that both captivates investor sentiment and distorts its reality.
It’s a trader’s paradise with such volatility, based not on Main Street fundamentals, but on the ability and willingness of policymakers to puppeteer capital markets.
While liquidity and certainty are hugely important to investor sentiment, all the financial engineering should soon produce its own blowback. Investment risk in capital markets remains high.
Investor sentiment among institutional investors in U.S. equities still has strength to carry this market higher if corporations perform.
Corporate earnings are managed, but that’s how the system works. There’s been a paring down of earnings estimates for the second quarter.
E. I. du Pont de Nemours and Company (NYSE/DD), or simply DuPont, reduced its expectations for its first half of operating profits due to the weather (the wettest spring in almost 120 years in the farmbelt states). The company said full-year earnings per share will be at the low end of its forecast, between $3.85 and $4.05. Agriculture is the company’s most important operating division. (See “Why DuPont’s Earnings Results Are So Typical for This Stock Market.”)
Capital markets, especially the equity market, are looking for catalysts. From what I read, there are still great expectations for the Japanese equity market. Unscientific investor sentiment among fund managers maintains an outlook of perpetual volatility in that market.
Getting back to the U.S. market, economic news is not robust, but there … Read More
Finally, some good economic news is coming to the U.S. economy…
The U.S. Census Bureau has reported that retail and food services sales for the month of May, adjusted for seasonal effects, increased 0.6% from April and 4.3% from the same period a year ago.(Source: U.S. Census Bureau, June 13, 2013.) This is the first report I’ve seen in a long time that shows increasing consumer spending in the U.S. economy.
And the Thomson Reuters/University of Michigan Consumer Confidence Index for May showed consumer spending increasing as well. The index registered at 84.5 in May, improving from 76.4 in April. (Source: Bloomberg, May 31, 2013.) This was the highest level the index has been at since July of 2007.
While this is all good news, my concerns about the U.S. economy remain…
Since the financial crisis in the U.S. economy, the Federal Reserve has been increasing the size of its balance sheet (printing trillions of dollars in new money) and the U.S. government has been spending rigorously, all for the sake of spurring economic growth. Consumer spending in the U.S. economy makes up 70% of our gross domestic product (GDP); hence, it’s vitally important that consumer spending rises if we are to have a sustainable economic recovery.
As it stands, the Federal Reserve is still creating $85.0 billion a month in new money to purchase government bonds and mortgage-backed securities. This may be the biggest reason why economic numbers like May’s retail sales are looking better.
But the unemployment rate in the U.S. economy is still staggeringly high. According to the most recent jobs market report, there … Read More
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