By: Daryl Montgomery
1. Problems in Greece and Europe are still impacting the market negatively with the seeming never ending on again, off-again possible bailout and a market that will stay erratic.
2. FYI – Sideways trading (also known a basing) shouldn’t surprise Investors. It is the norm and not the exception. Most of the time markets are trendless and you need to be a short-term trader and willing to enter and exit your positions quickly to make money under these circumstances. Trends up or down are where the money is really made. You cant make them happen however, you have to watch and wait. You need to know what you are doing as you don’t want to lose your money.
3. At the conclusion of the meeting the Fed stated that it will keep rates near zero “for an extended period of time”, so no rate increase should be expected for at least several more months. Examining how the Fed reacted to past recessions can provide investors with some insight into when the Fed will actually change to a more restrictive interest rate policy this time around.
According to the official record, one of the previous U.S. recessions took place between March 2001 and November 2001. This recession was unique in that it is the only one in U.S. history where consumer spending didn’t drop and it was also one of the mildest recessions on record. Fed funds bottomed at 1.00% in June 2003 – 19 months after the recession was supposedly over. The backdrop was very low inflation.
New reports of a jobless recovery were common even in the fall of 2003 and there was great concern at the time because the unemployment rate was at the 6% level (as opposed to approximately 10% today). Fed funds remained at a low point for 11 months.
So the Fed started raising its funds rate 30 months after the recession officially ended. If we optimistically assume that the current recession ended in July 2009 because GDP turned positive in the third quarter of the year, this would imply Fed funds would start rising around January 2012.
