Click HERE to read an article written by Steve Schou in the Rockford Register Star Newspaper titled “What about the Social Security Fiscal Cliff?”
Click HERE to watch our VIDEO OF THE WEEK: Do You Feel Lucky?
The US markets were up again last week with the Dow closing at 13,648 and the S&P 500 closing at a 5 year high of 1,486. Trading volume was fairly heavy last week indicating that institutions are getting behind the New Year’s rally.
The Federal Reserve Chairman Ben Bernanke spoke on Monday of last week at the University of Michigan regarding monetary policy and the US economy. Bernanke commented on the fiscal cliff during his speech saying that sustainability is the key item in the long-run but that the recovery should not be stalled. He also commented on the New Year’s deal that was made by Congress and the President to avoid “falling off the fiscal cliff”. He stated that the “deal” averted some negative impacts but that we are far from “out of the woods”. He expects there to be heated debates on Capitol Hill leading up to February 28th, 2013 (deadline to find an agreement on spending cuts and the debt ceiling). Bernanke sees raising the US debt ceiling as an important item in sustaining the US economic recovery but would not get specific on what spending cuts there should be. Regarding the FED’s monetary policy and recent balance sheet moves, Bernanke sees quantitative easing to have had a positive impact on the economy. He is not worried about excessive inflation as related to quantitative easing since he said the FED has the tools to unwind the policies as needed.
Many analysts and economists (including those of us at Klaas Financial) are concerned about the size of the FED’s balance sheet (nearly $4 trillion) and their ability to “unwind” the “easy money” policies they have created. Bernanke has been adamant about his ability to do this and the “resources” they have available but many economists are not sure what he is referencing. While inflation has been fairly muted over the past few years (with some exceptions like gas and food), whenever you add $4 trillion dollars to an economy it means that more dollars are chasing fewer goods and services (thereby eventually driving up costs). Only time will tell if Bernanke and the other Federal Reserve personnel have the ability to “unwind” their policies as stated to avoid rampant inflation.
Housing continued its recovery last week as the homebuilder Lennar’s quarterly profits beat expectations (This is NOT meant as a recommendation to buy or sell the stock). Lennar reported its 7th straight jump in new home orders while also seeing a 7% rise in the price of their average home along with a 42% jump in total revenue.
Q4 2012 earnings season is now well underway and analysts have been mostly pleased with the numbers they are seeing so far. We still have a lot of earnings reports to go before analysts can make comments about the overall trend of US corporate earnings but “so far so good”.
This is for illustrative purposes only and is not indicative of any investments. Investment value will fluctuate with market conditions. Past performance is no guarantee of future results.
(Sources: www.bloomberg.com, www.wsj.com, www.economy.com, www.ltam.com)
