Federal Reserve
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The Eurozone Bailout: Prepare for What's Next
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Why to Buy Dividend Stocks Now
Before the financial crisis, prudent investors counted on CDs, U.S. Treasuries and savings accounts to provide them with decent interest income for their retirement.
But thanks to Federal Reserve Chairman Ben Bernanke's zero interest rate policy, prudence has become a tough way to fund your golden years.
With few places to find refuge and income, these cautious investors have been forced to look elsewhere-namely at dividend stocks.
Dividends, long used to pad portfolios with income, are no longer a risk-on or a boring way to invest.
Not only do dividends add value, but with a careful selection across several sectors, an investor can build a nice portfolio covering a broad range of industries.
What's more, dividend-paying stocks provide reliable returns at regular intervals, offer growth potential, and are not typically as economically sensitive as other high-beta and volatile companies.
Another bonus is that when the economy wanes and stock markets fall, dividend stocks pay investors to wait it out until things improve.
And since cash dividends are paid from a corporation's current earnings and profits, dividend investors have the added prospect that they may see their dividend payments raised as things improve.
That's why dividend stocks have been a long-term bright spot with investors clamoring for higher yields.
Nick Lawson, head of synthetics, macro and cross-selling for Deutsche Bank, told the Financial Times, "We've had a lot of people from fixed income coming into equities. I think it is straight yield. We have all been forced up the yield curve."
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U.S. Economy Showdown: Krugman vs. Bernanke
Nobel Prize winning economist Paul Krugman has some critical words for how Team Bernanke is handling the U.S. economy.
The Princeton University professor suggested on Bloomberg Television's "Street Smart" program Monday that U.S. Federal Reserve policy makers, under the guidance of Chairman Ben Bernanke, are "reckless" for refusing to pursue inflation.
Krugman argues that higher inflation could lower the staggering U.S. employment rate that has lingered for more than four years.
"The reckless thing is to allow mass unemployment to continue," Krugman said Monday. "We have had a massive failure of our political system that has come to accept that 8% unemployment is the new normal and there is nothing that can be done. We're in a low-key version of the Great Depression."
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Today's FOMC Meeting To Bring Little Change
While the U.S. Federal Reserve will have an abundance to say about the economy today (Wednesday) when it concludes its two-day FOMC meeting, little is expected in the way of change.
The Federal Open Market Committee meeting will conclude Wednesday afternoon with a statement, revised forecasts and Chairman Ben Bernanke's news conference. The Fed will most likely reiterate that it will keep short-term interest rates at record-low levels through 2014. The Fed is not expected to commence any new program to lower longer-term rates unless the economy weakens.
That would diverge from the Fed's stance just three months ago when the January FOMC meeting ended with indications that Team Bernanke was leaning toward a third round of bond buying (QE3) to pump more cash into the troubled economy. More Fed bond purchases have been proposed as a means to drive down long-term rates to encourage borrowing and spending.
Since then, data on the U.S. economy has indicated a gradual strengthening, and the ongoing European sovereign debt crisis appears less ominous than it looked at the start of the year. Those developments argue against additional Fed bond buying.
"This will be a wait-and-watch meeting," David Jones, chief economist at DMJ Advisors, told the Associated Press. "Despite all the theatrics with a Bernanke press conference and new economic forecast, I think we will get a very predictable outcome-no change in policy."
That portends the Fed will retain its plans to keep its benchmark interest rate, the federal fund rate, at record lows until at least late 2014. The Fed planted that expectation at its January meeting and said nothing to change that hope when it met in March.
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Bank Stress Tests and the All-Clear-to-Rally Signal
Earlier this week I repeated that I've been cautiously bullish (too cautious, I also said) since October.
I also told you I was optimistic that all the major indexes would break through the important psychological, headline, and large-round-number resistance levels they started flirting with two weeks ago.
Boy, was that an understatement.
On Tuesday, markets blew the lid off of any impediments in their way.
In fact, the price action was so fast and furious you'd have thought the Federal Reserve said something about keeping interest rates low, or maybe that some good news about bank stress tests had leaked out.
And to think, only one week earlier, markets had a steep fall from grace on account of Fed Chairman Ben Bernanke not saying anything about another round of quantitative easing.
What a difference a week makes.
In case you missed the psychology of the market, it went like this...
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Did Federal Reserve Bank Stress Tests Fuel Too Much Confidence?
The Federal Reserve released the results of its third round of bank stress tests yesterday (Tuesday), determining 15 of the 19 tested banks were in good enough shape to withstand a severe recession.
The Fed tested whether banks have enough capital to survive an unemployment rate of 13%, a 21% drop in home prices, slowing economic growth in Europe and Asia, and a 50% drop in stock prices.
The tests assumed that banks would face $534 billion in losses in just over two years, and measured how much capital remained. The Fed earmarked $341 billion of those losses for loan portfolios.
The results of the bank stress tests show how institutions have worked to shore up balance sheets in the wake of a crisis - but can simulations really prove that banks won't fail?
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You Asked, He Answered: Shah Gilani on China, Ben Bernanke, the Fed and Much More…
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Bernanke Testimony to Congress: The World According to the Federal Reserve
The U.S. Federal Reserve Chairman Ben Bernanke testimony to Congress ended ahead of schedule today (Thursday) in the Senate, reiterating the same tame message he communicated to the House yesterday: The Fed thinks the economy will grow modestly.
"We don't see at this point that the very severe recession has permanently affected the growth potential of the U.S. economy," Bernanke told the Senate Banking Committee in his twice annual economic testimony to Congress.
Here's a look at what Team Bernanke does see in the economy:
Bernanke Testimony to Congress
No Additional Stimulus
Bernanke said elevated unemployment and subdued inflationary pressures support low interest rates into 2014, but did not give a hint of any additional stimulus measures.
Bernanke also defended previous stimulus measures, which have drawn criticism for not being worth their hefty price tags.
"If you look back at Quantitative Easing 2, so called, in November 2010, concerns at the time were that it would be a high inflationary environment, it would hurt the dollar, it would not have much effect on growth, etcetera," said Bernanke. "But since November 2010, we have had since then the QE2 and the so-called Operation Twist, we have had about 2-1/2 million jobs created, we have seen big gains in stock prices, we have seen big improvements in credit markets, the dollar is about flat, commodity prices excluding oil are not much changed, inflation is doing well in the sense that we are looking for about a 2 percent inflation rate this year."
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