Federal Reserve Stays Friendly

The slower pace of job destruction is good news,says Paul McCulley,Managing Director at PIMCO,but the rate north of 10 bakes in the cake that the Federal Reserve is gonna be friendly for a very extended period of time,which is very good for price-to-earnings values.The recent employment data reinforce the idea that the recovery will be slow.
We're gonna see the extension of various government programs,Mr.McCulley predicts,not a mega-package.If the unemployment rate continues to go up,however,we will see a mega-package in the next 6-12 months.The Fed can be incredibly patient and nurturing of this economy.It is being responsible in being accommodating.Money is being horded,given the 10% unemployment rate,which prevents inflation.
Bonds have had an amazing run,Mr.McCulley observed.Investors should start harvesting gains.The train has not only left the station;it's at the next station,in Paul McCulley's opinion.
The stock market surged this morning,apparently as comfortable with Federal Reserve policy as Mr.McCulley.

A Cascade Of Caution

As the hills of Malibu burn,investors are facing their own persistent hazards-many of them so obscure that even the elite are puzzled.John Mack,CEO of Morgan Stanley(MS),says it will take 6-9 months to figure out what the losses are.We are not out of the woods yet.The credit market has improved,but mortgage securities will take a long time to work through.What is the collateral behind these packaged mortgages? That is the challenge.Treasury Secretary Hank Paulson calls for an aggressive response to the housing crisis.It is a significant threat to the U.S. economy,and is still unfolding.The longer housing prices are stagnant or fall,ther greater the penalty on our economy.Scott Sperling of Thomas H. Lee Partners,a private equity firm,says it is a very dangerous time for his business.It is a time for great caution.We haven't seen the last of the troubles.We have improved a little,notes Paul McCulley of Pimco,but the mortgage area is very restricted.There is a lot of downside on the economy.The equity market is a call option.Asset-backed commercial paper remains a problem,and structured investment vehicles still need to be unwound.To Carter Worth of Oppenheimer,it seems we will go back down to where we were before the Federal Reserve cut interest rates on 9-18.The market is wobbly and increasingly thin,so why rush to buy? Jeffrey Saut of Raymond James notes a big uptick in credit card debt.That suggests the peak of a credit cycle,and a slowdown to follow.To prepare,some investors are looking to the Vanguard Total Bond Fund(BND) for their protection.Others are buying shares of General Electric(GE),which is relatively cheap at this time,pays a dividend and has an international presence.