Wall Street’s White Knight

Sam Stovall, chief investment strategist for Standard & Poors, was just on CNBC giving his 2008 projections. Stovall sees a slim chance the U.S. will be in a recession as he believes that the Federal Reserve will continue to come to the rescue by lowering interest rates, which he sees at 3.5% by summer.

Statistics show that while the Fed has been Wall Street’s white knight in keeping the stockmarket propped up, its actions have not benefitted any other segment of America. Last week the Mortgage Bankers Association reported that the average 30 year fixed mortgage rate was 6.17% - exactly where it was on April 4, 2007. A 1 year ARM is 5.53%, slightly higher than the April 4 rate of 5.44% - despite the Fed’s three rate cuts since September!

Another year ends and Wall Street passes out bonuses. The rest of us subsidize the Street with higher interest rates, lower savings rates, and inflation. It’s easy for the Street people to say there’s no inflation when you’re compensated so well and the Fed acts as your enabler by “core-ing” out everything. It’s not just higher food prices that will adversely impact the cost of celebrating New Year’s Eve tonight. ABC’s World News Tonight did a segment a couple days ago about higher helium prices raising the cost of balloons.

I have previously stated that the Fed’s low interest rates with easy Al at the helm, and the government choosing to look the other way, as the drivers of the real estate/mortgage meltdown. Today’s Wall Street Journal
has an excellent article about how Ameriquest, Citigroup, Countrywide, Wells Fargo, and the Mortgage Bankers Association successfully lobbied state politicians every time their legislatures were about to enact laws reigning in subprime loans.

Yes, it’s government by the Street and for the Street.

No comments: