Fed Moves May Not Hold

Many Wall Street thinkers continue to be troubled by financial conditions,in spite of recent attempts by the Federal Reserve to calm the markets.The credit problems are so complex and widespread,that recession seems more likely.Investors should contemplate the possibility of an extended bear market.As Brian Wesburg of First Trust Advisors sees it,the Federal Reserve actions do not resolve the long term policy issues of housing,housing finance,and the debt tied to it.Housing is 10% of the economy,yet with the leverage attached to it,it is 50-60% more significant.The credit issue will not go away overnight.We have seen early week rallies followed by sell-offs.Lyle Gramley of the Stanford Washington Research Group notes that the mortgage and mortgage securities markets have seized up,increasing the odds of a recession to 50-50.Richard Bove of Punk Ziegel sees serious systemic problems that will not go away.The bad loans are still out there and must be repaid.The deal market won't soar again,and loans won't be paid off.To Liz Ann Sonders of Charles Schwab,the credit market's seizing up calls economic growth into question.The economy is sound right now,but recessions usually start while rosy numbers are posted,as these figures are lagging indicators.The iShares Lehman Brothers treasury funds,such as SHY,TIP and TLT,are attractive to many of those who are seeking higher ground.

Analysts See Red

Despite the euphoria which earnings season can spark,many analysts see trouble around the bend.Bill Fleckenstein of Fleckenstein Capital says he is on red alert.Turmoil in the junk bond market may halt the buyout boom and hurt stocks.Richard Bove of Punk Ziegel is sure of his bearish scenario.The underwriting of both corporate bonds and mortgages has been very poor.This definitely trickles down to buyout bonds.With banks only willing to loan 60-70% of buyout costs,rather than 90% as formerly,deals will have to be pulled.They will slow to a trickle,and so will the boost they give to stocks.Phillip Roth of Miller Tabak sees a ragged,maturing trend in this cyclical bull market.A stock market decline will ultimately come because of higher interest rates.The tip-off will be an unexpected financial event.Zachary Oxman of Wisdom Tree Investments would avoid large equity allocations.He sees the subprime mortgage crisis peaking in late 2007-2008.Tech stalwarts such as IBM and Intel(INTC) are still worth considering,as are industrials such as Honeywell(HON) and General Electric(GE).Their global exposure makes them better prospects than companies strictly tied to U.S. consumption.