Monday, September 26, 2011


Excerpts from a great article in this week's Barron's Previews (I've been beating this drum via my book and talks for nearly 3 years):
One of the Fed's mandates is employment, but based on its actions since the global financial crisis, you wouldn't know that.
So say economists from the American Institute for Economic Research in Great Barrington, Mass. Their analysis shows that the central bank's efforts at monetary stimulus through quantitative easing have cost the economy as much as $587 billion of spending and as many as 4.6 million jobs.
"The effect on the depressed income of savers is something nobody talks about," says Polina Vlasenko, who co-wrote the study with Visiting Research Fellow William Ford, a former president of the Atlanta Fed. She says the pair examined the effect of low interest rates on the $10 trillion of assets that U.S. households hold in instruments such as Treasuries, time and savings deposits, certificates of deposit, money-market funds and municipal bonds.
Next they looked at data going back to 1952 on interest rates one year into a recovery, and found that the interest-rate spread was an average of nearly five percentage points higher than in the second quarter of 2010. Based on the interest-rate differential on $10 trillion, and assuming an average tax rate of 25%, they calculated that spending would have been at least $256 billion. They also calculated the losses in consumption and jobs, They found that, for every one percentage point of interest lost, nearly a half-million jobs and $52 billion of consumption went out the window. The higher numbers included rate-sensitive holdings of pension funds and insurers.
"With the additional jobs that might have been created…the unemployment rate could fall to 6.8%," they said.
Although I believe we'll have at least another test of the lows before any serious rally into yearend, so far the DITM has sailed through quite well, although, fearing the worst, especially in energy (oil) and defense (NOC) I did take my fourth loss in 2 1/2 years (first in 1 1/2) with BTE, which is probably now a buying opportunity - Crisis = Opportunity.
Also called away, but looking good now XLU, which is UP 6 1/2% this year. Barron's dividend column mentioned S&P's Stovall picks of: GIS,UGI,CVX - which I rolled the call forward this month)-HRS and TRV. MSFT has also raised its dividend to the 3% area.
Were I not slimming down for a vacation (I wish), I would be entering these.
NOTA BENE: When I return from So.Cal. I am meeting with my Schwab F/A about starting a Fund based on DITM, for people who either cannot have option approval, or just do not want to hassle the activity of doing it oneself. Estimating a high single-digit return with the safety net, it should definitely beat the above short term interest rate over time!

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