Zero Interest in Zero Rates!
The recent moves of the Federal Reserve to lower interest rates to zero percent floating from .25% is historical in the sense that it is the first time in modern history that the United States of America succombs to a Japanese type policy. The issue is how does Japan react, the yen, Euro, England, Swiss Franc, Canada, Hong Kong, The Rand, the dollar? These are some of the places, things that come to mind. All will have a profound effect on one another that only time is able to tell.
The difficult process of this recession/depression/correction is that it has different consequences. As in the past blogs, I covered the end of the “Finance Based Economy.” This is a real problem for the short term investor/American/Global citizenry, because it was ended so abruptly. No one can argue the fact that the assembly line of financial products that were carefully assembled from various loans, packaged into neat tranches, rated by credit agencies, and sold in the open market to a readily available money manger of some sort, pension/insurance/hedge fund/sovereign wealth fund/mutual fund, etc. They got burned. And the system developed, taught the masses to shift their money management over to professionals. For the lucky ones they found prudent managers, however, the vast majority of us chose to make money on top of money. That takes risk and it became the predominant theme of the developed world. So much so that we introduced it to the developing world at precisely the time we had assumed the factory of finance was working at 100% capacity. Unfortunately, the system had run so long without maintainance shut downs (i.e. recessions) that the machine collapsed under excessive use and abuse.
The shocking fact is that we all seem to be in shock. Some people are reacting and they are buying governement bonds backed by the US government. Others are holding on to the tried and true fact that investments will come back and the market will return historical yields (post 1981 yields). We believe a little of both will happen. The beginning of January sets the stage for the markets historically within the first five trading days. Happy New Year and good by 2008!
"Greg Gilbert and James Simos" are registered representatives of FINRA member firm, "Infinity Financial Services."
