FLASH GAGE – Fed Chair Muses On The Fed Investing in Corporate Assets

Flash Gage - News Headlines that Impact precious metals as they happen.

Fed Chair Janet Yellen said yesterday that the Federal Reserve might be able to help the U.S. economy in a future downturn if it could buy stocks and corporate bonds.

Right now the Federal Reserve is not allowed (by law), to invest in corporate assets.

She said, “The Fed’s arsenal might be insufficient in an economic downturn if we were to reach the limits in terms of purchasing safe assets like longer term government Bonds. It could be useful to be able to intervene directly in assets where prices have a more direct link to spending decisions.”

Huumm, let me see. Currently central banks own 25 trillion in financial assets. The question I ask is, are all these investments distorting market values and creating a bubble in our equity markets? Are zero interest rates to blame? Or is it just a reflection of the world’s poor economic condition?

One must be concerned about the European banking system where this morning Deutsche Bank’s shares lost one point 10 percent of their value. Some European economists are saying if one big European bank were to fail, the fall out would be a global disaster for all the banks around the world. But the stock turned around after hearing from Chief Executive John Cryan that the bank has strong fundamentals. I kind of remember hearing the same response from chief executives back in 2008 just before things went terribly wrong on our shores.

After that scare this morning, all the equity markets have had a strong rebound.

The next question that comes to mind is, will the ECB be able to step in and bail out Deutsche bank (who by the way is seriously undercapitalized), or is this the tip of the iceberg where history will repeat itself?

Let’s see, just look at the landscape:

Everyone from foreign governments to the poor senior citizens here in our country are looking for any type of yield on their investments and it seems that everyone is chasing the same thing. Will our equity markets ever see this kind of world investment into what the world thinks are safe investments here?

I’m worried. How about you?

Enjoy the rest of your day.

Disclaimer: This editorial has been prepared by Walter Pehowich of Dillon Gage Metals. This document is for information and thought-provoking purposes only and does not purport to predict or forecast actual results. It is not, and should not be regarded as investment advice or as a recommendation regarding any particular security, commodity or course of action. Opinions expressed herein are current opinions as of the date appearing in this editorial only and are subject to change without notice and cannot be attributable to Dillon Gage. Reasonable people may disagree about the opinions expressed herein. In the event any of the assumptions used herein do not come to fruition, results are likely to vary substantially. All investments entail risks. There is no guarantee that investment strategies will achieve the desired results under all market conditions and each investor should evaluate its ability to invest for a long term especially during periods of a market downturn. No part of this editorial may be reproduced in any manner, in whole or in part, without the prior written permission of Dillon Gage Metals. This information is provided with the understanding that with respect to the opinions provided herein, that you will make your own independent decision with respect to any course of action in connection herewith and as to whether such course of action is appropriate or proper based on your own judgment, and that you are capable of understanding and assessing the merits of a course of action. You may not rely on the statements contained herein. Dillon Gage Metals shall not have any liability for any damages of any kind whatsoever relating to this editorial. You should consult your advisors with respect to these areas. By posting this editorial, you acknowledge, understand and accept this disclaimer.