Adriene Hill: Investors are shifting their attention to the Fed, wishing they could read the mind of Bernanke ahead of a Friday speech in Jackson Hole, Wyoming. They’re rumors that he might announce new plans to goose the economy.
On Mondays we normally talk to BNP Paribas economist Julia Coronado. But she’s out, so we’re joined by Bill Stone, chief investment strategist for PNC Wealth management. Good morning, Bill.
Bill Stone: Good morning.
Hill: So, optimism in these markets seems to be the theme this morning. Is it Libya? Is it Bernanke? Or is it something else?
Stone: You know I think it’s a little bit of something else in terms of just a lot of negative news being priced into the markets. We’ve been beaten down pretty far, so I do think we were — what they call it — due for a bounce. Certainly the Libya part I think has helped as well, just giving us at least one more positive news. And there’s certainly some optimism out there regarding what Bernanke might talk about at Jackson Hole.
Hill: What options does Bernanke have? We’ve talked a lot about what he can’t do — what tools does he have?
Stone: Well, I think, you know, he’s already laid out that being more explicit about the extended period of low rates. He could be more explicit about how long they may continue to re-invest the assets that the Fed has. He could talk about changing the composition of the portfolio to some extent. What type of bonds, maybe the maturity of those bonds. And lastly, he could discuss more purchases.
Hill: Now we also found out today that the Fed quietly, during the financial crisis of 2008, basically secretly loaned more than a trillion dollars to banks. What do you make of that?
Stone: You know, I think it gives you just more evidence of the severity of the liquidity crunch that we had going on during that time. You know, I believe all of those were really collateral-ized loans, so it really shows you that even though a lot of the financial companies may have in fact had collateral, no one was willing to step in and lend to them except for maybe the Fed.
Hill: Bill Stone is the chief investment strategist for PNC Wealth Management. Thanks Bill.
Stone: Thank you.
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