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KC Fed President Warns of Looming Bubbles

From: Uncommon Wisdom (eletter@e.uncommonwisdomdaily.com) Sent: Wed 3/20/13 9:53 PM To: emiliortiz1@hotmail.com

March 20, 2013

Fed, Markets Stay the Course ... KC Fed President Warns of Looming Bubbles ... Consumers Still Love BlackBerry ... Starbucks Buys Coffee Farm
Dear Emilio, The Federal Reserve wrapped up two days of meetings today. Follow-up comments from the Federal Open Market Committee show were in for more of the same: The Fed will continue its $85 billion in monthly debt purchases for the foreseeable future.

MARKET UPDATE
Index Dow NASDAQ S&P Gold Oil Price Chg %

14,511 55.98 0.39% 3,254 25.09 0.78% 1,558 10.37 0.67% 1,606 93.24 4.8 0.30% 1.08 1.17%

The Fed left interest rates unchanged, as they have done since 2008, and will until unemployment rate drops to 6.5% and inflation rises to 2.5%. (The current unemployment rate is 7.7% while last months inflation rate was 2.0%.) For markets intent on charging higher, this was a good enough reason to stay the course as well that is, to resume their upward march. The Dow, S&P and Nasdaq all ended the day in-the-green. Also holding steady was Kansas City Fed President Esther Georges concern that keeping interest rates near zero for an extended period introduces the risk of bubbles. (She was the sole dissenter during the January meeting as well.) George argued that the Feds current course produces financial instability. She cited the prices of bonds, agricultural land and high-yield loans as signaling market imbalances, as they are all at historically high levels. That may be true. But famed buy-and-hold-forever investor Warren Buffett says it will be a very interesting day when the central banks reverse their current course because when the extra money from the Fed dries up, money managers will start selling in earnest.

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In the meantime, while the rates are held near zero by the Fed, theres a lot of money to be made in the markets. And investors would be wise to keep taking advantage. Low interest rates have been good to gold throughout the Feds QE program so far. With interest rates so low, investors arent getting worthwhile returns on their investments in bonds or savings accounts. The lack of solid returns in traditionally safe assets has driven investors to gold, who view it as a better alternative. As the Fed prints more money, further devaluing the dollar and creating future inflation concerns, investors will seek an alternative investment to fiat currencies, and gold is always their first choice. Watch my latest video on gold. Other Market News: To show that Chairman Ben Bernanke isnt completely out-of-touch with the world around him, he said that I dont think the impact (of Cyprus) has been enormous on the markets. The Dow Jones Industrial Average hit a fresh intraday all-time high of 14,546.82 as investors moved their attention away from Cyprus after two days of selling pressure. The S&P 500 traded within 10 points of its all-time high reached in 2007. FedEx (FDX) slipped 6.89%, to $99.13, after cutting its 2013 earnings forecast due to increasing competition from cheaper international services. The company now expects earnings for the fiscal year to be between $6 and $6.20 per share, down from earlier projections of $6.60 per share. FedEx also announced plans to trim capacity in Asia in response to weakening revenue in the region and will also consider grounding some planes. Shares of Research In Motion (BBRY) jumped 6.45% to $16 following an upgrade to Buy by Morgan Stanley. Morgan Stanley is confident the release of the BlackBerry Z10 this Friday on AT&T s (T) network will give the company a boost. The Z10 will be available for Verizon Wireless customers next week. T-Mobile is scheduled to carry the phone but no date has been announced. Starbucks (SBUX) just bought a 600-acre coffee farm in Costa Rica, where it will develop new coffee. This move probably wont make the price of a tall any smaller, although shares gained 1% (to $57.43) in todays trading. But it should help the company serve its thirsty customers in the U.S. and its soon-tobe-second-largest market, China. Good Luck and Happy Investing, Brad Hoppman Publisher Uncommon Wisdom Daily

About Uncommon Wisdom For more information and archived issues, visit http://www.uncommonwisdomdaily.com

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