@theMarket: The Fed Walks a Tightrope.By Bill Schmick,
04:15PM / Friday, March 24, 2023 | |
In the face of uncertainty over the fate of regional banks, the U.S. central bank hiked interest rates and said they would continue with their program of quantitative tightening.
Stocks fell and bonds rose after the FOMC meeting on Wednesday, however, the real drama was elsewhere. U.S. Treasury Secretary Janet Yellen was testifying before a Senate Appropriations subcommittee at the same time as the Fed meeting. She told lawmakers that she has not considered or discussed "blanket insurance" for U.S. banking deposits without approval by Congress.
Many traders in the markets had just assumed that since the government had made all depositors whole in 0 Comments
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The Retired Investor: Gold as a Safe HavenBy Bill Schmick,
05:55PM / Thursday, March 23, 2023 | |
This week, gold briefly climbed above $2,000 per ounce. The precious metal is commonly thought of as an inflation hedge, but also serves a different function in times of financial stress. Gold can be a safety trade.
Gold is a highly speculative asset in the best of times. But, unlike bonds and stocks, it has one redeeming factor in times of economic slowdown, financial instability, and geopolitical tension. It does not carry the risk of an issuing entity collapsing, such as a bank or a government. There have been many examples of this throughout history.
The latest example was back in February 2022, during Russia's invasion of Ukraine. Gold spiked to 0 Comments
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@theMarket: Financial Contagion Spooks MarketsBy Bill Schmick,
04:04PM / Friday, March 17, 2023 | |
The global banking sector took center stage as three U.S. banks bit the dust and a fourth large bank in Europe floundered. This puts the Fed between a rock and a hard place.
The Federal Open Market Committee meets this coming Wednesday and, before the collapse of the Silicon Valley Bank, was expected to raise interest rates by 25 to 50 basis points. Today, expectations are split between no rate hikes at all, and maybe one more hike of 25 basis points and then a pause.
Investors large and small held their breath last weekend in the wake of three bank failures. Fears of financial contagion swept the country throughout the week. Regulators acted on several 0 Comments
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The Retired Investor: U.S. Treasuries Not Risk FreeBy Bill Schmick,
04:11PM / Thursday, March 16, 2023 | |
The recent calamity in the banking sector is complicated, but one issue stands out. Even the safest of investments have risk.
Understanding the relationship between bond prices and interest rates is extremely important. Bonds, overall, are considered safer investments than stocks and history indicates that bonds have been less volatile than stocks most of the time. However, when interest rates rise, bonds can get hurt for a variety of reasons, and credit risk is at the top of the list.
Credit risk refers to the possibility that a corporation (or a government entity) could default on a bond they have issued. That happens when the issuer fails to pay back the 0 Comments
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@theMarket: Banks Hammer the MarketsBy Bill Schmick,
04:05PM / Friday, March 10, 2023 | |
Stocks fell this week as investors turned more bearish. You can blame Fed Chairman Jerome Powell for that as well as troubles in the banking sector.
"Higher for Longer" may be finally sinking in. Powell's two-day testimony in front of the House and the Senate this week was decidedly hawkish. In retrospect, there was nothing new in his statements, but for some reason the financial markets were willing to listen. Congress heard his message as well: inflation is still a problem, the jobs market needs to weaken, and if higher interest rates mean a recession, then so be it.
Those who had been confident that the Fed would raise the Fed funds rate by 0 Comments
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