The stock market is based on free enterprise, right? It is a place where one party can sell and one party can buy based on free will and personal knowledge. It is the exchange of value for money and a place to raise and disburse money. It is the core of our economy; it is how our free market works as a free market.
I am sorry to inform you, it is not anything like that, and it is a manipulated market and a market that is opposite of how a free market operates. Who manipulates it? Actually there are two sources: Wall Street itself and the biggest manipulator of all, The Federal Reserve.
Beginning with the Bush Administration and carried on with the Obama administration, the Federal Reserve is bulling the stock market. Each month they buy $85 billion of US Treasuries which keeps the interest rates at an all-time low. Because of the very low yield on interest bearing options, money has flooded back into the stock market. Once the Federal Reserve slows or stops their Treasury buying spree, money will flow from the stock market and back into interest bearing vehicles. Money flows based the risk/yield principle and if investors can receive a reasonable yield without accepting risk, the funds will flow.
The stock market is rising to record highs after Federal Reserve Chairman Ben Bernanke said the central bank would continue to support the U.S. economy. Investors also bought bonds after being reassured that the Fed was not in a hurry to pull back on its huge bond-buying program.
The program the Federal reserve is using is called Quantitative easing, there have been 3 levels, QE1, QE2 and the current QE3. Many high ranking people feel the QE3 should stop such as Bill Isaac, former chairman of the FDIC, says it’s high time for the Fed to start tapering its quantitative easing: “I’ve never liked QE. It’s been very harmful to the economy and normalizing things.”
What should you do as an investor or a depositor? How about moving to a no risk approach and living with the yields. Banks, US Treasuries and insurance company annuities all offer risk free vehicles. Maybe you should invest in all three and average your overall yield, that would be diversification.
Latest posts by Bill Broich (see all)
- Use Golf to Understand Bonds - March 3, 2014
- Should You Choose an Annuity or a Bank Certificates of Deposit? - February 28, 2014
- Bonds and the Benefits they Provide to Themselves - February 27, 2014
- Chickens, Pigs, Bulls and Bears: The Stock Market is a Barnyard - January 28, 2014
- Rich Get Richer, Poor Get Poorer – What about the Middle Class? - January 21, 2014