Exceptional Action for Extraordinary Times
By: Dr. Charles Lieberman
Date: 10/8/2008
Guarantees for money market funds, increased bank deposit insurance, $700 billion for purchases of securities that are difficult to trade, a globally coordinated interest rate cut that lowers the U.S. Fed funds rate by 50 basis points, should turn confidence, which is currently dismal.
In the U.K., the government will purchase about $87 billion (50 million pounds) in preference shares to add capital to their banking system and also guarantee 250 billion pounds of bonds to help banks refinance their debt. The government will also continue to supply massive liquidity to the system. In return, the U.K. government is asking the banks to remain committed to providing credit to small businesses and home buyers. It has been an amazing period of rapid fire, substantial policy action, all designed to restore market confidence, which is sorely lacking there, as well.
It remains impossible to judge when confidence in the workings of the financial system will be restored. But that's precisely the aim of all the government action around the world. So, policy actions will continue until they get the response that is needed.
In the U.S., mechanisms are being put into place very rapidly to buy illiquid financial assets. Fannie and Freddie are already being used for this purpose and the $700 billion TARP will start making purchases by early next week. The reduction in the funds rate is effective immediately.
Policy action is unfolding at a breathtaking pace. The markets are extraordinarily volatile, which is sure to continue. In time, investors will regain their confidence and markets will regain their footing, but it remains impossible to determine when that might occur. But that's precisely the mission of central banks and governments around the world and they are taking whatever actions they deem necessary to achieve a turnaround. The presumption should be that they will succeed. Download this article in PDF Format
About Advisors Capital Management, LLC
Advisors Capital Management, LLC (ACM) is a provider of managed portfolios and financial services for industry professionals and their clients. As investment strategist, Dr. Lieberman oversees the company's "Portfolio Partners" investment program. Additionally, he provides guidance to the ACM Wealth Coordinators who integrate the work of financial advisors, financial planning, tax, estate and portfolio management professionals to build, protect, and maintain clients' wealth. Although the information included in this report has been obtained from sources Advisors Capital Management, LLC believes to be reliable; we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.
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