Juggling Dynamite

Edward Dempsey chief investment officer at Pension Partners talks with Aaron Task about the big costs of QE and why investors should still resist the Fed’s prod to buy dividend paying stocks today: “We are approaching zero yield,” he says. “It’s devastating on retirees, its devastating on pensions and endowments” – his main focus of investing. Many pundits, including Jim Cramer, have been pushing dividend-yielding blue chips as a wise investment for those looking for income in their portfolio.

But “I would be very uncomfortable placing my capital at risk for a 2 or 3% yield,” Dempsey says. As discussed in this previous clip, he’s worried the ‘summer crash’ isn’t over just yet.

In the meantime, savers will continue to be penalized until hopefully, the economy recovers to a point the Fed feels comfortable raising rates to forgotten “normal” levels of 1% or higher.

Wall Street Journal reporter Jon Hilsenrath is said to be the Fed’s mouth on Wall Street, so it is with interest that we read his latest article this morning: For Bernanke, no summer fun at Jackson Hole. He asserts the Bernak is likely to use the Jackson Hole speech to explain his extended low rates to 2013 policy, and outline other “stimulant” doors still open to the Fed for the future as the economy weakens, but for this meeting at least, that is about all we should expect:

“The nagging worry that inflation might take root, despite the weak economy, is one reason why Mr. Bernanke and his colleagues might choose a cautious path in the months ahead.

At Jackson Hole last August, Mr. Bernanke heralded a second round of bond-buying aimed at propelling the economy known as quantitative easing, or QE2. The Fed’s recent declaration that it’s prepared to take other measures to promote the recovery clearly opened the door to QE3. But don’t expect the Fed chairman to rush through that door on Friday.”

We shall see…

Dallas Fed President Richard Fisher, believes that the Fed has done its job of providing liquidity, it is now up to Congress to get the economy incented toward growth: “You can’t have a recovery unless we have employment go up [and] unemployment go down,” Fisher told Kudlow. “We won’t have that unless people decide to expand and right now there is almost no incentive to expand.”

He believes that holding interest rates near zero is actually counter-productive as businesses will wait to borrow since they now know the rates will be locked in at very low levels for two years. Meanwhile savers and investors take the brunt of the pain with low and negative returns on their capital.