If you haven’t noticed, the Federal Reserve has been very quick to try to appease the equity markets. I can’t remember a time when the central bank acted so quickly to feed the needs of stock market investors.
The Fed has to be careful that it does not, in a sense, become the investor of last resort, like the banker of last resort. It also has to be careful not to expand the money supply at too quick a rate, or risk stoking higher inflation for the long term.
As I wrote earlier this year, 2007 has been all about the Fed. Not that I anticipated a credit crunch in the subprime mortgage business, but purely from an investor’s point of view.
The last quarter of 2006 was an extremely strong quarter for stock prices. This trend carried into the first half of this year, but has since broken down due to the credit crunch, slower growth, and anticipation of slower growth in the quarters to come. It will be very interesting to see if the main stock market averages can recover going into 2008.
The Federal Reserve seems to be in the business of making people “feel” better of late. I’m still uneasy about the stock market over the near term and, like many Street analysts, I don’t have a defined view as to where stock prices are headed over the next few months.
Investment risk still remains high right now for investors. These are the cards that we’ve been dealt and we have to play them. That’s the equity speculation business.
It’s my hope that the Fed’s upcoming meeting won’t just produce a “feel-good” monetary policy for equity investors. Rather, I’d like to see a concrete, articulated policy that tries to address the multitude of issues facing the current economy. I want to see words that show that the central bankers are thinking about the long-run health of the economy, and not just the short-run needs of speculators.