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The Fed Stands Still

In this issue of Money and Markets, Mike Larson discusses how the Federal Reserve is still not doing anything about inflation and the falling dollar. Mr. Larson takes a closer look at how other sectors are performing and other markets are adapting to global inflation.

Recently, investors were looking for a strong Fed statement because they believed it would support the dollar and end the recent surge in commodities prices. But instead of reassuring Wall Street and giving investors an excuse to drive stocks higher, Federal Reserve Chairman Ben Bernanke did neither. Investors expressed their disapproval by responding with a strong statement of their own.

"The Fed is talking tough about inflation, but making it clear it isn't going to do anything about it. "

The U.S. Fed is standing still while central banks in other countries are raising their rates, making the dollar a less attractive destination for international funds.

-    India raised rates by a half-point the last week of June;

-    Norway raised rates by a quarter-point;

-    Brazil raised rates by half a percentage point to 12.25% earlier in June; and

-    The European Central Bank has strongly suggested it will do so soon.

Even the Bank of England, whose country is also getting hammered by credit losses and a housing slump, has gone nowhere near as far as the Fed. It has lowered rates just 75 basis points since last fall versus the 325 basis points here in the U.S. The Fed's refusal to raise rates is accommodating the increase in commodities prices and causing the dollar to slump even further.

After the Fed news came out, the dollar index dropped by more than 100 basis points. The euro is once again closing in on its late April high of 1.6018. The Australian dollar is close to reaching a new high. And the Brazilian real is heading steadily higher, trading at its highest level against the dollar since January 1999.

Also, gold jumped more than $30 on June 26 and looks ready to head even higher. Crude oil dropped just below $132 a barrel before the Fed news hit. After the news, crude started rallying back. It then added another $5.09 on June 26 to close at $139.64, an all-time high.

"The financial and real estate sectors were all poised to rally on the assumption the Fed would put a knife through the heart of commodities. It didn't. That caused most financial stocks to give up their pre-Fed rally on Wednesday June 25, and then sell off even harder on Thursday. As for the Dow Jones Industrial Average, it's hanging on by its fingernails in the 11,600-11,800 range. This area corresponds to the double bottoms made in late January and mid-March. If the Dow goes over Niagara Falls like the financials already have, unprepared U.S. investors are in for a world of trouble," Larson states.

To read this issue online, please visit:

http://www.moneyandmarkets.com/Issues.aspxFed-Blows-It-Wall-Street-Pounded-1913

About Mike Larson and Money and Markets

Mike Larson joined the company in 2001, and has more than 10 years of experience researching and writing about personal finance, investing, and the housing and mortgage industry. In 2003, Mr. Larson was named associate editor of the company's monthly Safe Money Report. In this role, he is responsible for writing and editing as well as analyzing trading opportunities for clients. Mr. Larson is also a regular contributor to the company's daily e-letter, Money and Markets.

Before joining Weiss Research, Mr. Larson was a personal finance reporter for Bankrate.com where he wrote extensively on mortgage lending, banking, residential real estate, and Federal Reserve Board policy. His responsibilities included analyzing economic data and interest rate trends for a weekly column and developing rate forecasts for a regular index feature. Previously, Mr. Larson held positions at Bloomberg News and the Boston Herald.

Recognized as an interest rate and mortgage market expert, Mr. Larson's views have been quoted in the Washington Post, Chicago Tribune, Dow Jones Newswires, Reuters, Sun-Sentinel and the Palm Beach Post. He has also appeared as an investment expert to discuss the housing market on CNBC, CNN, and Bloomberg Television. His writing has been acknowledged by both the National Association of Real Estate Editors and the Massachusetts Press Association.

Among the first analysts to call the housing slide, Mr. Larson's new policy paper, "How Federal Regulators, Lenders and Wall Street Created America's Housing Crisis: Nine Proposals for a Long-Term Recovery" has received broad media coverage following its July 2007 submission to the Federal Reserve and FDIC. Mr. Larson holds B.A. and B.S. degrees from Boston University.

Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.

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