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John Whitefoot
A quick recap...back in October 2005, President Bush nominated Ben Bernanke to succeed Alan Greenspan as the next chairman of the Federal Reserve when he stepped down on February 1, 2006. When he took over as Fed chair, Ben Bernanke said he hoped to provide clearer and more transparent guidance to financial markets than his predecessor, Alan Greenspan. Arguably, being the chairman of the Federal Reserve means taking the reigns of the world’s most influential economic policy. Not an easy task...especially when every single word you utter (in private and public) is scrutinized. In fact, you may even want to choose your words wisely. Bernanke’s comments sparked a strong rally in the stock markets last Wednesday when he suggested to the Senate Banking Committee that a slowing economy might soon replace regular interest rate hikes in taming inflation. The Federal chairman was careful to avoid any comment the following day about the big stock market rally. The cautious stance came after Bernanke, who’s been helming the Fed for less than six months, was sorely criticized over a comment he made about the markets last spring. The chairman told the Joint Economic Committee of Congress in late April that further interest-rate hikes would be dependent on economic data, and that the central bank might pause in its rate-hike campaign. His remarks sent stocks higher. Interestingly, he told Maria Bartiromo later that week at the White House correspondents’ dinner that he was worried investors had misunderstood him. And that he had not meant to imply that the Fed was done raising interest rates. When the CNBC report aired the news, stocks sank as investors bet that the central bank was not as close to pausing after nearly two years of increases. Now back to last weeks comments. Bernanke noted that inflation was higher than the central bank had expected, mostly due to rising energy prices, but was expected to cool as economic growth slows. A slowing economy is not exactly the kind of news to excite penny stock investors. But in the wooly world of finance, bad news can (sometimes) be good news. In this case, penny stock investors have been worried that more than two years of rate hikes by the Fed along with higher energy prices could seriously impact corporate earnings. In a nutshell...the U.S economy is winding down after three years of rapid growth. Consumer spending is slowing and the once red-hot housing market is starting to cool. If this scenario plays out as expected, the Fed won’t have to control inflation with rate hikes and can rely on weaker demand to naturally keep a lid on prices. This kind of scenario can lead to market mood swings and that means the market’s direction remains, for now at least, more of a gamble than normal. Fortunately, a moody market also means there is a raft of great companies out there trading far below their potential. And picking up great penny stocks on the cheap...is something worth celebrating. A seasoned investor with a keen interest in international business and current affairs, John Whitefoot has been working alongside Peter Leeds for the last several years. With over ten years experience in the investing community, Whitefoot is devoted to uncovering the news, trends and ideas that shape penny stocks on a daily basis. Article Directory: Article Dashboard Other articles from Stock Market... |
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