Wednesday, August 8, 2007

Keeping an Eye on Long Term Trends

As anticipated on Tuesday, the Federal Reserve left interest rates alone, didn't change their outlook on inflation being their primary concern and predicted moderate economic growth going forward. After the gains of Monday and Tuesday this week the Dow is halfway to 14,000 again. A little volatility now and then never hurts, and it keeps the speculators at bay.

Corporate earnings have been mixed, but overall positive, which continues to draw money into stocks. It is hard to sit in cash when the markets provide so much drama and a usually higher return to boot. For the long term investor, the daily business news reports take on an air of entertainment, as they put so much emphasis information with little or no long term significance. Sifting through this fodder for useful long term trends is my major goal.

One of those long term trends, which I have been warning about since early 2006 is housing and subsequently the credit markets. As the credit markets tighten, due to the mess created by lax lending standards during the specuative housing boom, there is a great deal of pain being felt. Containing the damage is critical, which is why the Fed is holding rates steady and not lowering them. Lower rates now would only create more liquidity, which in turn would provide reinforcement for exactly the kind of behaviors the Fed is trying to curb.

John Kaighn

Jersey Benefits Advisors

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