Tag Archives | federal reserve board

Economic Trends for 2013

Today I attended a presentation by BBVA Research’s Chief US Economist, Nathaniel Kerp, in which he discussed economic trends in the US for 2013.

The overall theme is that the Federal Reserve is trying to convince the public to take risks. I am not sure that is a good idea. Warren Buffet has said that most people borrow money in the good times and try to pay it back in the bad times when their income is reduced. He says you should do the opposite. Borrow money when times are bad and pay it back as the economy recovers. My question is have we missed the window for the time to borrow?

Below are some other interesting economic trends:
* US exports are greater than US investments.
* The top three concerns for small business is Taxes, Regulation and Sales, in that order.
* The US Personal Debt to Income Ratio is back to it’s long term trend line.
* Can’t have inflation with high unemployment and limited wage growth. ( no surprise there, but, good to be reminded.
* The Federal Reserve should start raising the fed fund rate in July 2015
* therefore. Lower interest rates for 2013 and 2014
* according to the World Economic Forum the US has dropped in it’s Global Competition Ranking from 2nd in 2009 to 7th in 2012.

My final comment, Is this the time to invest in the stock market? If the Fed’s liquidity drives stock prices up , then when they reverse direction ( which they will) will stocks drop?

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Fed Open to Raising Rates….

Fed Chief Ben Bernanke recently stated that the Fed might raise rates to cut off future financial asset bubbles, but mounted a defense against critics who claim that the Fed’s failure to do so led to the most recent financial asset bubble.

I think this belies the dichotomy present in the mandate put to the Fed by Congress. Per the Humphrey-Hawkins Full Employment Act, the Fed is to pursue actions which promote….full employment, with low inflation and economic growth.

That seems like a recipe for financial asset bubbles.

While the Congress debates auditing the Federal Reserve, perhaps it should reconsider the mandate it has placed on the Fed.

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Bernanke sees low rates, sluggish growth ahead

Federal Reserve Chairman Ben Bernanke stated today that he expects interest rates to remain low for an “extended period” while the economy struggles out of the recession, given high unemployment and tight credit. He expects rates to remain low as, according to him, inflation is under control. Is your company prepared to face an extended, slow recovery? Have you factored this into your projections? Do you maintain monthly financial projections, complete with a cash flow forecast, and update those with actuals?

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FASB Chief to Propose Accounting Rule Change

The Chairman of FASB is set to propose that bank regulators be allowed to make adjustments to the financial statements of banks in order to determine whether those banks have met capital requirements, while requiring that those banks report to the investing public according to GAAP.

Naturally, the banks are in favor of this, yet investors should pay attention to the financial statements and not the pronouncement of regulators that a given bank has met its capital requirements through some “adjustments” to its loan portfolio.

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Bernanke Predicts the Future!

Fed Chairman Ben Bernanke described the future in a opinion article in The Wall Street Journal today. Mr. Bernanke goes to some detail explaining how he is going to suck out the liquidity sloshing around in the economy. It makes quite a bit of sense. I can see how the next phase of the economy might play out.

The bottom line of the Fed’s exit strategy is that interest rates are going to start rising as they remove the liquidity from the financial system. Just as low interest rates are in effect right now, so will higher interest rates once the cash is removed from the banking system.

Entrepreneurs and CFO’s should be projecting every increasing interest rates over the next three to five years. When structuring partnerships or equity arrangements allow for much higher interest rates to be in effect. You might consider putting a ceiling and floor on interest rates with lenders or investors.

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