NO THANKEE, DR. BERNANKE
by Mark Scheinbaum
American Reporter Correspondent
Boca Raton, Fla.
BOCA RATON, Fla., Mar. 28, 2006 -- New Federal Reserve Chairman Ben Bernanke didn't waste any time proving that he is just as disconnected from real, live, working Americans as his decrepit predecessor Alan Greenspan.
Bernanke and the Fed's Open Market Committee Tuesday raised short-term interest rates for the 15th time in a row, up to 4.75% for a 25 basis point (quarter of one percentage point) rise. The news killed off an important technical rally on Wall Street, and made one tv "talking head," former Fed member Wayne Angell predict that raises number 16, 17, 18 could be on the way.
The economic purists believe that an orderly rise in short term rates will return the "yield curve" to historic normalcy. This would mean a return to the days when a 10 year Certificate of Deposit would pay investors lots more than a one year or five-year C.D.; longer maturity bonds would more handsomely reward individuals and institutions willing to wait for their money, and so forth.
But the un-pure reality in the age of adjustable, variable, and interest-free mortgages and credit card rates is that millions of Americans with no increase foreseeable in their paychecks will get clobbered with higher monthly payments for lots of things they need, used to need, or thought they needed.
If there is a rhinestone of light in this debt mess it could be for the new car buyer who will find comatose U.S. manufacturers fighting for every unit in sales and still offering rebates and low and now interest financing on the ugliest and least fuel efficient models.
For those of us who live with the minute-to-minute reality of the Fed action, here's the real deal:
Depending on the day, I usually have about 189 stocks, currency, or options derivatives on my computer screens. Less then two hours after the Fed rate hike, virtually everything green had turned to red.
It's easy to rationalize anything positive on a day in which the Dow, Nasdaq, and S&P 500 were all down, but these are the items on my screen which stayed in the plus column at the end of the day, and my handicapper's rationale:
Ford (F: NYSE) closed up 7 cents at $8.13 per share, probably for the reason stated above;
Swiss Franc closed up slightly in spot and future trading, as it often does when the U.S. economy looks anemic;
Euro, after a strong day, weakened on the dollar's strength fueled by the hope that international investors would flock to the U.S. for higher returns on their money, but the Euro currency still squeezed out a tiny fractional gain;
Southwest Airlines (LUV: NYSE), up 7 cents on news that they might finally get to fly into a real airport at their Dallas-Fort Worth headquarters hub;
Amazon, Ebay, and SunMicro, all up on news and/or contrarian technology sector plays;
EDO Corp. (EDO:NYSE), up three pennies on news that the security technology company had sold a radar system to the U.S. Coast Guard;
BP Amoco (BP:NYSE) closed up just .17 percent, slightly off the highs of the day on surging oil prices, once again;
Google (GOOG:OTC), up another 2 percent in the work-up to inclusion in the S&P 500 Index, which causes mandatory index-fund buying;
Scudder New Asia Fund (SAF:NYSE). the closed-end Pacific Rim fund, was up 7 cents; most of its holdings closed up the day before the Fed announcement;
Werner Enterprises (WERN:OTC), the trucker and transport company, up almost 1 percent as trains, shipping, and even efficient trucking companies get consolidation business from shippers looking to cut fuel costs;
Las Vegas Sands (LVS:NYSE), up almost 1 percent as global and, specifically, Asian expansion of Las Vegas-style casinos keeps attracting media and investor attention.
Lest you read anything into the sparse positive stocks on my screens today, I do not own a single share of any of them, but in some cases our clients do.
Also, some of today's "winners" are tracked as much for negative indications of market sentiment as positive, so don't infer any recommendations because of the names on the list. It's just that on certain days in certain news environments they might do well for fundamental reasons. For the stocks which were up small fractions of a percentage point, the green on the screen can often be a numerical fluke caused by an uptick at the moment the markets close.
Higher interest rates supposedly take the "froth," or as Greenspan once put it, the "irrational exuberance" out of the equity markets. No one expected five- or six-percent fixed mortgages forever, but if the rocket scientists working for the Fed don't crunch their numbers a bit more carefully, they might find increases 16 or 17 timed to meet the coming recession.