Last week’s bear market rally sure was a fun memory after the 5%+ drop we saw this week!
So, what drove the market down this week?
- The Fed Statement: The Federal Reserve announced this week that it will being purchasing longer-dated securities in an effort to lower longer term interest rates. The Fed also announced that it will begin purchasing mortgage-backed securities again. It finally reaffirmed that it intends to keep interest rates at these levels through mid-2013. This last statement really spooked the markets because it highlighted that the Fed believes the economy will remain soft until at least 2013. This was affirmed through its statement that it believes there are significant downside risks right now, especially in the labor market.
The College Investor’s Thoughts:
- Free money is continuing to flow for those who have capital! If you are looking to get a cheap loan, now is going to be the time. Really consider looking at refinancing your mortgage to capitalize on these lower rates.
- Agency Bonds: This market may begin to be resuscitated with the new actions by the Fed. As a result, there may be more capital inflows to Agency REITs. Beyond the great dividends these funds pay, there may be some capital appreciation coming as well.
- Dividend Paying-Stocks: Dividend paying stocks look more attractive than ever. These companies offer higher yields than any savings accounts, and they may be able to utilizing cheap money to grow their companies. Look for high quality companies that can generate growth in this challenging environment.
Readers, what are your thoughts this week?
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This post was written by...
Robert – who has written 317 posts on The College Investor.
Robert is the founder and editor of The College Investor, a personal finance site dedicated to young adult and college student finances. You can learn more about him here and connect with him on Twitter or Facebook.
{ 6 comments… read them below or add one }
I am thinking a lot like you. First, I will be looking into refinancing my mortgage between now and the end of this year. I also want to look into refinancing the mortgage on some rental real estate. I have also recently purchased Intel stock as a dividend play and will be doing more of the same in coming months.
Good call. I’m moving mine from a 30-year to a 15-year fixed for such a minimal change in payment. It should work out nice.
Over the last year I’ve just been buying more stocks and ounces of precious metals. This is a great time to have a good income.
Btw, Robert, do you think your MBA was worth the time? I’m still in college, but am still thinking about grad school. Either no grad school, MA in ec, or MBA. Still have a year or so to plan it.
-Shaun
Shawn, hope you didn’t take too much of a beating this week in gold.
As for my MBA, I wouldn’t have done it if my employer didn’t pay for it. It is very expensive and it really doesn’t become value-added until you are in a business role where you will utilize the business making and leadership skills taught.
I am looking for dividend stocks to try and hedge against these insane drops. It almost seems like the Fed is handcuffed. He implemented Operation Twist, but his final statement reaffirmed the bad outlook till 2013, look out below! Double dip on the way?
Professional money managers and quantitative trading programs are selling stocks and buying treasuries to protect their short term track records. Incentives are there to sell down stocks, oversell stocks for non economy and fundamental reasons. I think we are approaching a good time to buy for the long term investor.