The Curious Investor

Quiet week in the markets. As mentioned last week, I believe the markets are entering a testing period. We’ve had our correction and now we’re trying to figure out where to go from here. We’re between earnings cycles and there isn’t a lot of major economic data on the horizon so there are no big catalysts for broad market movement. It seems that people are done screaming about subprime and I believe that the Fed and its counterparts around the globe have done a good job of holding up the credit markets in the face of financial turmoil.

This week was not without note, however. Early in the week, we found that housing markets look as though they are very far from bottoming. Single family inventories home are up another 2% yoy to 4 million units while sales and prices dipped to a five-year low. Jobless claims were up this week in direct contradiction of expectations and it does seem that, at least domestically, we’re going to see a bit of a economic slow down. If you’re looking for new investments, look towards companies which are exposed globally and not just within the United States. As far as domestic retailers go, I would continue to steer towards quality and value and most definitely away from mass market and discount retailers as it would seem that most consumption troubles are stemming from the lower end of the consumer spectrum.

In the spotlight today was Ben Bernanke’s speech which marked the first time that the Fed truly acknowledged financial turmoil and seems to have shifted its focus, at least in the near term, towards smoothing out financial turmoil and weight near term developments a little heavier than it would normally. I think he’s played the game quite well over the last month and I am glad that he did reiterate his belief that the Fed is not meant for bailing out poor financial decisions but instead to act in support of the broader economy. And, believe me, there are broader implications to a rate cut than boosting stock prices and saving a few borrowers. If and when the housing market bottoms and the American economy starts chugging along again, you’ll be thanking Bernanke for not getting trigger happy and cutting rates and ushering in scary levels of inflation. For those worried about their homes and subprime mortages, President Bush and the Federal Government are planning on answering the call and it is from the perspective of fiscal policy that the subprime meltdown should be dealt with. I’m liking this two pronged - fiscal and monetary policy - approach very much and, for once, I’m voicing my support of how both the George Bush (read: Hank Paulson) and Ben Bernanke are handling the subprime situation. As shown by the rally today, I think investors agree as well. For those looking for advanced notice of how effective these two parties have been in soothing the markets, a good thing to keep an eye on is shifting investor and consumer confidence over the next few months.

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