Hawks and Doves

The U.S. central bank as expected kept interest rates near zero and continued to commit to keeping rates exceptionally low for an "extended period" of time due to concerns that the economy is not yet strong enough to stand on its own without government support. Stock market investors were so pleased with this news that they bid the market right through the S&P 500 resistance level of 1151. No double top!

The near-depression was avoided early last year, through massive monetary and financial stimulus. Today we are keeping cheap money available at these low rates at the cost of doubling the public debt. Now the main worry should be runaway fiscal deficits. But only one voting member of the FOMC, expressed concerns about that today.

Exit policies pose a dilemma for the Fed, as withdrawing stimulus too soon could push the economy back into a recession, while leaving it too long will push the soaring deficits even higher. Today the Fed decided that the risk of the US economy going through a double-dip recession posed too much risk, and the announcement sounded similar to the past several announcements – status quo.

One hawk and many doves make up the Fed currently, but market participants love zero interest rates. Borrow all you can, live for today, and debt tomorrow be damned. At least that is the reading I get as I observe the market’s reaction to the spiked punchbowl effect of low rates and government stimulus.

There was some other news. EU finance ministers have essentially agreed to a blueprint on financial aid for Greece, if it is needed, however the details continue to be a mystery. Remember the old saying – the devil is in the details, but who cares what those details are apparently. The market wants us to believe the problem has been solved and we should all just gleefully move on and Greece just like Dubai before it, is just an isolated incident.

The sector that most befuddles me is that of homebuilders and REIT’s (real estate investment trusts). They are both doing great! I just don’t have the courage to buy them as they continue their ascent. I guess I don’t get it. I just read a local article this morning about a relatively new and large office complex being returned to the lender by one the county’s largest office owners. While the building is mostly full, the owner opted to not make any more debt payments due to the fact that the value has been cut in half over the last couple years and is worth a lot less than what is owed. This problem persists nationwide. I wrongly assume all this bad news is what is driving the real estate sector higher. I am reminded of the old adage that states, “better to be lucky than good.” Go figure!