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6/21/2012

Did the Fed actually admit to bubble policy?

Yesterday all eyes, or should we say ears, were on the FOMC for their comments regarding the state of the economy.  It was pretty much the same old story with interesting blerbs regarding the reduction in estimates for growth for 2012, continuation of project twist, but the hot news that much of the market were really interested in (e.g an initiation of QE3) did not come. 

One section of comments that may not have gotten big play however were the descriptions of the factors that were providing headwinds for the economy.  Issues cited that kept the economy sputtering were factors that continued to subdue the real estate market and factors that kept stock prices from rising further.  It was noted that consumers rely on real estate values to spur their consumption.  Despite the reality of this scenario (e.g higher stock and housing prices spurring increased consumption), the reliance of these to spur economic growth is quite disturbing.

What the US continues to lack at this juncture are policies to generate long term quality employment and growth.  Short term fixes that rely on pumping up the value of financial assets to spur growth simply end up failing at some point and many times exacerbate the problems they are attempting to fix.

The bottom line at this juncture is that despite the troubled state of the global economy, values of some market assets may oddly appreciate but underlying risk remains alarming.

 

Stephan Kudyba (MBA, PhD)                      THE MARKET DOCTOR

 

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