Municipal Strategy Report - October 2011

"Fed's Homeopathic Medicine is 'Help that we don't Really Need"

In our October issue, we address the severe problem that the current environment and the Federal Reserve’s response to it is causing individuals who live off of fixed income portfolios.  Savers have been facing a huge “wealth transfer” to borrowers that the Fed is exacerbating through the new “Operation Twist.” The efforts to stimulate borrowing activity have been less than successful as homeowners are not (or cannot) borrow and corporations are borrowing and keeping the cash on their balance sheet.

Municipal Strategy Report - October 2011 (PDF) »

The cumulative effect of the Fed's monetary policies -- a long-time commitment to a zero funds rate and a long bond-purchasing program may, with hindsight, prove to be the medicine that the economy needs.  In the meantime, what is certain is that the medicine -- this giant interest rate manipulation scheme -- is killing investors and retirees. 

Publication Highlights:

•  Our new interest rate forecast relies on four basic premises:

1. The economy will continue to sputter along without a recession
2. Steady inflation at around 2% will limit the Fed’s flexibility.  Bernanke has sought more federal stimulus from Capitol Hill that is not likely to be forthcoming
3. Manufacturing surveys have improved, consumer sentiment has advanced in September and the ADS Business Conditions Index indicates that the economy is close to trend growth
4. The European debt crisis continues to threaten the financial system and , with it, the global economy

• We offer a one year anniversary retrospective on the Meredith Whitney episode.
• We include short articles on public university privatization activity and on the importance of the timing of Pension Obligation Bond issuances.
• Finally, we are proud to say that the group has been recognized as the “First Team Strategist” for 2011 by the annual polling of buy side accounts by Smith’s Research and Gradings!