Responding To Rough Markets

In recent congressional testimony,Ben Bernanke,chairman of the Federal Reserve,said financial markets are stressed,but central bank efforts have helped.The Federal Reserve will act in a timely manner to support growth.Commodity prices and the housing market will weigh on the economy in coming quarters.It is important to recognize that downside risks to growth remain.Inflation could go higher because of energy,food and the weak dollar.Commodity price gains and price rises suggest the upside risk of inflation.The economic situation has become distinctly less favorable.The economy took a significant turn for the worse in early January.Credit conditions may tighten considerably further.The federal deficit is bigger and more threatening than it was in 2001.We're in a worse position to respond to a crisis.The unemployment rate is likely to go higher.The decline in home prices is creating a broad set of issues.Nonetheless,the former professor doesn't think foreign investors have lost confidence in the U.S..U.S. banks should take steps to raise more capital.Some bank failures could take place.The capital ratios of the largest banks remain good.Sheila Bair,chairman of the Federal Deposit Insurance Corporation,agrees.She says 99% of banks are well-capitalized.About 76 banks are on the troubled list,representing around 22 billion dollars U.S. in assets.We're in a challenging environmment,but we have a 52 billion insurance fund.There will be a bit of an uptick in bank failures this year.To handle this,the FDIC wants to bring back 25 retired bank examiners.There are 1200 FDIC employees working in bank receivership.Senator Evan Bayh(D-Indiana) has just returned from a trip to the Middle East.There he met with heads of sovereign wealth funds who are helping U.S. firms such as Citigroup(C) by infusing capital.Senator Bayh said he was reassured by the officials in Abu Dhabi,Qatar and Saudi Arabia.They want to do the right thing.They are eager to meet any U.S. standards.Saudi Arabia's fund is 300 billion,Qatar's is 50 billion,and Abu Dhabi's is the largest in the world at 550-900 billion dollars.To increase their wealth,many retail investors are looking to exchange-traded funds such as the PowerShares Builders Europe 100(ADRU),which is yielding 7.33%,or the SPDR KBW Regional Banking ETF,which yields 6.13%.