Editor’s note: Marc Leavy,CFP? is a regular financial columnist for Business Reform Magazine, the leading Christian business magazine with over 100,000 readers. Each issue features practical advice on operating successfully in business while glorifying God.
Although the economy offered up plenty of bad news this week, the market managed to gain more ground. The days the market did move downward, there was a lack of volume signaling that stocks were drifting downward instead of upward with heavy selling.
Consumer prices had the biggest drop in eighteen months. These falling prices continue to raise the specter of deflation – where prices continue to fall, making it hard for companies to garner profits, thereby hurting stock prices. This decline was lead by oil prices after the war; however, prices for cars, clothes, and food also went down. If we strip out energy and food prices, which can swing widely from month to month, the “core” rate of inflation was flat for the second straight month
The Federal Reserve is on guard for any signs of deflation but say the chances of deflation cropping up are remote. Deflation does make for an interesting story, so be prepared to hear more about it on the news. Last week the Fed signaled that they were ready to act, just in case, by lowering interest rates once again. It now looks probable the Fed will lower the rates next month which are already at a 41-year low of 1.25 percent.
Shares in family values cable network, PAX, (PAX, NYSE) soared this week after Goldman Sachs upgraded the stock. Goldman analyst, Richard Rosenstein, wrote in a research report: “The strategic value of Paxson’s assets is likely far greater than that implied by its $2.2 billion enterprise value, especially in the context of the media regulatory backdrop.” “Paxson’s station distribution is the company’s most coveted asset, with 65 full-power stations present in all of the top 20 and 40 of the top 50 markets, of which 90% are owned and operated by Paxson.” Rosenstein states he does not own shares of Paxson, and Goldman Sachs does not have an investment-banking relationship with the company.
A drooping dollar had made gold more attractive and will probably continue to do so. I wonder, does a weak dollar really matter with lurking deflation and a stagnant economy? A weak dollar makes our goods sell quicker overseas. Our manufacturing base is strengthened with a weak dollar because companies no longer have to move off shore or overseas. The trade imbalance disappears. When the dollar is off compared to the Euro, people in Germany buy Fords over Volkswagens. Of course, our currency is dumped into the market by overseas governments and institutions; but isn’t the Fed doing the same thing by lowering interest rates? The Fed lowers interest rates, devaluing our currency and, coupled with our already low interest rates, investors trade dollars for gold or Euros. I wonder if many Americans aren’t unknowingly, or perhaps secretly, hoping for a weak dollar.
Marc Leavy, CFP? is a Certified Financial Planner. Principled Investing teaches Solomon’s principles of investing and offers wisdom regarding comprehensive financial planning. You may contact Marc at [email protected] or visit www.principledinvesting.org.
