http://finance.yahoo.com/news/Dow-closes-above-11000-for-apf-3699233512.html?x=0
Business writer, Stephen Bernard talks about how the Dow Jones finished above 11,000. The Federal Reserve want the economy to get back on track. Since more people became unemployed, it gave the Fed "the window of opportunity to take action."
In this link, the Fed's want to get the economy back on track by:
"The Fed's goal, if it starts buying bonds again, would be to drive interest rates down further from their already low levels and spark borrowing and spending. Lower rates could also eventually drive investors into riskier assets like stocks or into currencies in countries with more attractive interest rates."
This goal of the Fed's seems to be realistic because if the interest rates keep on decreasing than the chances of starting the spending and borrowing will increase. There is potential in their goal because the Fed's motive could be appealing the the public. A problem that could occur is that if the investor actually does get stocks and has a huge risk that he could lose it all.
What does everyone think about the Fed's goal? Do you feel that it is the right thing to do?
I think that the Fed's Goal is a risk worth taking . The logic behind the plan is very much realistic and with this plan there is a chance to impact the economy positively and set it back on track. In my opinion the Fed's goal is the right thing to do despite the risks of individual investors "losing it all" by investing on stocks.
ReplyDeleteI think the Fed is failing to realize that the investors are human and are not always rational. Investors remember how it felt to lose everything in the recent recession and many will be very apprehensive to trade again even with such low interest rates. They figure that making very low-risk transactions will cause less of a catastrophe for them when (not if) the next recession happens. I think that the Fed's plan is logical in theory, but theory often fails to take human psychology and memory into effect.
ReplyDeleteAlthough I agree that people will be very skeptic and apprehensive to begin putting any of their money at risk after the painful nightmare that for many investors has been the last three years. Yet the Fed needs to start taking some risks on its own. I think this is a good, but risky plan. Hopefully this will add in reviving the economy, but of course, it is still not at all stable and further drops could hurt very, very badly. Hopefully investors will see that it is logical, and will eventually pay off to start putting more money into the stock market. Although the stock market isn't stable yet, I think plans like this to try to resuscitate the economy are very vital to its success.
ReplyDeleteI think lowering the interest rates may produce higher activity in investing but it will not make a big impact that will boost the economy greatly. Sure, they may seem more attractive, but the concerns that most people possess is the fear of losing it all in this somewhat unpredictable market. This may have a negative effect if people invest in riskier stocks (due to lower interest rates) and lose all of their money. We must consider the consequences of this action if the stock fails.
ReplyDeleteDoes anyone agree that lowering the interest rate may cause an effect that was opposite of the goal?
Even though this seems very good in theory, in application it my prove that the risks out weigh the reward. Like Benjiman said, we are all just human. We dont make perfect choices and most of us do not want to risk our money for a "potential" bounce back. Like Eddie said, we are all very skeptical when it comes to cash. Yes the Fed's goal is justified and realistic and in theory it should get the economy back on track, but the stock market is never stable and the risks are or seem too great. I dont think you can predict something this big.
ReplyDeleteIn response to some of the comments, I should note that investing in stocks is not as bad as I think some of you are making it out to be. Yes, if an investor owns only ONE company and that company goes under, the initial investment will go to zero. And yes, if the investor does not know basic fundamentals of the invested-in companies, arguably, that investor is more likely to lose money.
ReplyDeleteTo Eddie’s remark about the recent stock market crash being a painful nightmare – on the contrary, this recent crash could have been considered one of the best buying opportunities of a lifetime, at least for the investors familiar with their companies’ valuations. Also, those who did not sell their positions in the midst of the crash (assuming they had a diversified portfolio) did not lose all of their money; and the investors who saw opportunity and added more money to their positions, made a substantial amount of money.
There is a difference between panicking and as a result, cashing out for the wrong reasons and cashing out of your positions because the fundamentals literally have changed. Take Blockbuster recently filing for bankruptcy, for example. If those Blockbuster shareholders were at all cognizant of Netflix, they might have moved money out of Blockbuster and into Netflix, knowing Netflix clearly has the better business model and competitive advantage – and in this situation, those who have done so made substantial money.
Obviously I don't know as much as you do (Mr.Walker), but for the sake of discussion and my understanding, I disagree.
ReplyDeleteThere were many times when there was no way of making money in the economy, and even when you thought there was it very easily could drop rapidly. The main reason (based on what I understand) that this economy hurt so much was because it was so unpredictable. Lots of smart and experienced investors lost lots of money because of the fast and long lasting drop. Not all information was fully disclosed by companies, and many people exploded the system, finding loop holes and profiting of them, knowing full well that it could cause such a dramatic drop. From the news I have heard and my personal conversations with people, the majority of people lost a substantial amount of wealth to the drop and are still feeling the shocks. This recession has hit hard and has caused people thousands in savings.
From what I know about the crash, I still feel this can easily be viewed as a nightmare for the most of us.
I do agree with Eddie on this one. Yes people could have made money on the stocks and investments during the crash, but the damage is far worse then the reward. Even today i see people who are still losing money, their homes, their businesses, and life savings and companies are still going bankrupt. Many of people's lives were ruined because of the sudden drop, not to mention how much money people and companies lost due to the market being so unstable.
ReplyDeleteFrom what Eddie and I can see, the economic crash was definitely a big, unfortunate event, that has touched a lot of people, and not in a good way.
Eddie, the purpose of my response is simply to bring a different perspective to the table – what makes a market. There will always be a buyer and a seller – one who thinks Company A is worth X and one who thinks Company A is worth Y. There are investors that will not touch BP, to give an example, and other investors that think it can be a great component to a deep value portfolio.
ReplyDeleteWith the recent financial crisis, yes, most did not predict the near collapse of our nation’s financial system – nevertheless, on the contrary, some individuals did think that real estate prices were overly inflated and after analyzing how intertwined the financial sector was (and still is) to the housing market, thought there could be major problems ahead. Those who thought so, stated their thesis and designed their portfolios accordingly. Also, financial innovation will always be ahead of rating and regulatory agencies – this statement may relate to your comment about companies not disclosing some information. Transparency will always be an ongoing topic to discuss...
I understand the broader impacts of the recession – any recession(s). It is fair to say that virtually everybody has felt the impacts of this recent one directly, and if not, indirectly to say the least. Unfortunately, there will always be companies that file for bankruptcy in non-recessionary periods and there will still be hundreds and thousands of workers that lose their jobs during periods of economic growth.
At the end of the day, it comes down to individuals contemplating what their risk tolerance is. Such risks that are out there include market and liquidity risk, to name a few. Due to these risks, investors demand a given return for making such an investment over a given time period. Over a long term time horizon, however, equities have performed well for investors, generally speaking. With that said, it is fair to make such statements.