本文发表在 rolia.net 枫下论坛Weekly Market Review —3/17/2008
By Dr. Jerry Webman, Chief Economist, Senior Investment Officer, OppenheimerFunds, Inc.
Credit Pressures to Persist Despite Fed’s Efforts
Faced with mounting credit concerns, the U.S. Federal Reserve Board displayed a growing willingness to act aggressively to shore up the financial system. Reactions were mixed to the Federal Reserve’s unveiling last week of a new policy tool, the Term Securities Lending Facility (TSLF). The move was designed to help break the logjam in the credit markets, and it signaled an acknowledgement of the limitations of traditional, interest rate-based monetary policy. These limitations were highlighted on Friday with the news that Bear Stearns, the nation’s second-biggest underwriter of U.S. mortgage bonds, was teetering on the brink of collapse.
The Fed responded this weekend by not only helping to orchestrate JPMorgan Chase’s fire-sale takeover of Bear Stearns, but also with the broadest expansions of its lending authority since the Great Depression. For the first time, the Fed opened the discount window to securities dealers, allowing brokerages and investment banks to borrow from the Fed on similar terms as commercial banks. The Fed also lowered the discount rate to 3.25% and extended the maximum term to 90 days.
Before these latest moves, Fed easing had only increased inflation fears while failing to prevent the forced selling of complex assets by banks and brokers. Thus the introduction of the TSLF and the bail-out of Bear Stearns do not change my outlook significantly, but they do suggest that the Fed is expanding its policy options and will act aggressively to stabilize the financial system. Doing so should help to eliminate some of the negatives in the market, such as the continued downward pressure on asset prices.
As of press time, financial sector credit spreads appear to be stabilizing while Bear Stearns’ spread over U.S. Treasuries has narrowed significantly. These are positive signs but not necessarily indications that the crisis is behind us. There is no quick-fix solution to the core issue: a breakdown in trust within the financial system. As a result, I believe we may be in for a prolonged period of sluggish growth as the financial system slowly evolves back to a more traditional lending environment.
For the week, the Dow Jones Industrial Average gained 0.55%, while the S&P 500 fell -0.36% and the Nasdaq remained neutral. Year to date, the Dow is down -9.37%, the S&P 500 is off -11.86 % and the Nasdaq has fallen -16.58%.1
A closer look at the Fed’s new tools
The TSLF is essentially a $200 billion program of 28-day loans that lets dealers and banks swap highly-rated “private-label” (non-government guaranteed) mortgage-backed securities for Treasuries, which they can then post as collateral to borrow money. This should help ease primary dealers’ balance sheet concerns by allowing them to stop selling difficult-to-value assets at fire sale prices and depleting their capital. In assuming the role of “market maker of last resort,” the Fed is trying to reduce the downward pressure the forced selling has been causing in the mortgage market. The Fed may also be attempting to address inflation concerns by taking action apart from continuing interest rate cuts.
However, the plan is limited in scope. In particular, the Fed is not increasing the size of its $900 billion balance sheet, so it’s not simply printing money. In addition, the credit risk ultimately remains with the banks and the dealers. We believe pressures are going to remain in the credit markets as long as high foreclosure rates persist and can’t be readily forecast.
The Fed, and the federal government in general, have limited options at this point to help mitigate the credit crisis. Opening the discount window to securities dealers may go a long way in preventing another potential run on an investment bank, but the Fed’s mandate only includes financial institutions. Government action on the underlying mortgage credit problem might be around the corner. One suggestion making the rounds is to use the Federal Housing Administration—meaning you, me and every other U.S. taxpayer—to bail out subprime mortgages after banks have written down some portion of the value of these loans. Of course, in an election year, this may be easier said than done.
Consumer prices stabilize—for now
The Consumer Price Index (CPI), a key measure of consumer inflation, was unexpectedly flat in February, as energy prices temporarily pulled back. However, prices for crude oil and gasoline hit record highs since the reading, so the relief may be short-lived. Inflation is a lagging indicator and historically moderates as recessions take hold. I expect inflation to moderate as economic conditions slow, but the current deteriorating of the dollar is particularly disconcerting. Prospects for further Fed action and the potential for a government engineered bail-out attempt may further debase the greenback, and create near-term pricing pressures as the credit crisis evolves.
Retail sales sink as consumers feel pinch
Retail sales fell a worse-than-expected -0.6% overall in February as a weakening job market and the housing crisis continued to pressure U.S. consumers. Generally stronger sales at gas stations, driven by rising oil prices, have been skewing overall sales figures higher, but climbing fuel costs are likely to add yet another layer of pressure onto consumers’ purchasing power.更多精彩文章及讨论，请光临枫下论坛 rolia.net