Market Minute Sept 17, 2012

What are the financial barometers appearing to portray after the Fed’s recently announced open-ended $40 billion per month MBS purchasing program? Risk assets (equities, commodities and precious metals) have rallied noticeably on the announcement, as the U.S. dollar and longer dated bonds declined. The question of the durability of the advance will be determined in due course. Last Thursday, Ben Bernanke extended his near zero interest rate policy thru mid-2015; the board of fed governors’ deem this necessary to achieve its congressional dual mandate of price stability and full employment. Afterwards, Merrill Lynch said it expects further stimulus later in the year and for the Fed to increase its balance sheet from $2.6 trillion to over $5 trillion (this is not an insubstantial amount of additional quantitative easing); it is unclear that an abundance of excess liquidity and rock bottom interest rates are the formula to fix our economic woes. In my view, the market’s assumed temporary problems that stem from consumer credit contraction and austerity at both the local, state and federal government are structural and need meaningful reform. In the upcoming weeks, I will try crafting steps that may improve the trajectory of growth and fiscal stability of our nation; my position will remain apolitical.