Money & Investing - Banks.com

For several years, analysts have looked to the “January Effect.” The idea is that normally, the stock market gains in January — and sets the tone for the entire year. If that’s the case this year, we could be in trouble (or presented with some great buying opportunities, depending on how you look at it). The numbers are in on the last trading day of January, and the verdict is that this is the worst January on record.

Even though it looked as though the Dow might break through the 8,000 level, it didn’t happen. Instead, the Dow managed to stay just above. This is important, since psychologically the 8,000 level is a Big Deal for many investors right now. At any rate, the dismal ending for a dismal month once again proves that there is just no way of instilling confidence in investors.

Earnings and economic news trump plans for stimulus

Even though the House passed an economic stimulus bill this week aimed at helping the economy — and Wall Street — the confidence just isn’t there. For one thing, earnings news has just been relatively bleak. Companies had a pretty bad Quarter 4, and overall earnings on an annual basis were pretty lackluster. (The exception — as usual — was Exxon Mobil, which managed to gain a record profit in 2008, breaking the company’s own record as biggest U.S. corporate profit.)

The other issue is the economic news. Even the prospect of an economic stimulus package can’t change the fact that unemployment keeps rising and the GDP is contracting. The economic stimulus bill may help when it is passed, but for now there is nothing really giving the economy a boost.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

Yesterday afternoon, the House of Representatives passed an economic stimulus bill. This is Big News. However, not big enough to help the stock market. Instead, the stock market is down today, as the prospect of stimulus spending can’t seem to overcome the poor economic data and the earnings reports. Indeed, Wall Street probably wants more, more, more.

Honestly, this whole thing would be on it’s probably way to recovery (and for a lot less) if instead of bailing out banks, the government had concentrated its resources on bailing out individuals. Give every household a one-off big payment, let the regular folks get their affairs in order, and then watch as the money trickled up to the banks. If you get $50,000, you are more likely to be able to stave off foreclosure than if you try to get the bank to give you a loan modification and you get a $1,000 tax credit over two years.

Anyway, the economic stimulus package still has to make it through the Senate (where more is being added) and then reconciled with the House version. But here’s what we’ve got so far:

• Tax cuts. This was supposed to make the GOP happy. None of them thought the cuts were big enough, so none of them voted for it. Over two years, Americans will get a tax cut of either $500 or $1,000. Additionally, there is a true $7,500 tax credit for first time homebuyers.
• Infrastructure spending. Money for bridges, power grid and roads.
• State aid for local programs.
• Help for education.
• Focus on renewable energy.

There is a lot in here that also can’t really be parsed out into easy categories. Spending for a supercomputer and for STD education is included. Also, it is worth pointing out that even though “bank rescue” isn’t explicitly in there, chances are there will be plenty more money spent to bailout banks down the road. Honestly, this whole economic stimulus thing just keeps getting more expensive — without accomplishing many of its goals.

Today the Federal Open Market Committee (FOMC) — a part of the Federal Reserve — had it’s regular meeting. With interest rates already set between 0% and 0.25%, there really weren’t any expectations of a new interest rate decision. However, the FOMC strives to remain relevant, and will do so through offering economic commentary. And by taking various actions to help with economic stimulus.

So, today, it is no surprise that the FOMC made an announcement that *gasp* as economic stimulus works its way through the financial system, there will be inflation. This is not a huge surprise; an increase in the money supply –  like we will be seeing with the eocnomic stimulus package — will, in fact, result in inflation. (Get your investments ready for inflation — TIPS could be a good idea while they’re cheap.)

Here are some of the actions that the Fed says it stands ready to engage in:

• Purchase long term Treasuries.
• Extend TARP to include funding for households and small businesses.
• Increase its purchase of short-term debt and mortgage backed securities.

These actions are all things that the Federal Reserve can do in an effort to get money flowing through our financial system. This action proves that the FOMC is still relevant — even without the ability to continue with interest rate cuts — and that it maintains some influence.

Of course, all of these actions will serve to contribute to future inflation, so now is a good time to be thinking about what you can do in terms of preserving your principal with carefully chosen investments.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.