-- Posted Wednesday, 8 October 2008 | Digg This Article | Source: GoldSeek.com
The US Federal Reserve along with the Bank of Canada, Bank of England, the European Central Bank, Sweden Riksbank and the Swiss National Bank acted in concert to reduce short term lending rates in pre-market hours this morning.
By a unanimous decision the Fed lowered its target rate for the federal funds rate by 50 basis points to 1.5% and reduced the discount rate by an equal measure to 1.75%. While it is certain that the FOMC did not respond to the overnight deterioration in interbank markets, the move comes at a crucial time and almost certainly was taken in support of the series of unprecedented moves taken in recent days by the Fed and its global partners.
We have made the case in recent days that a global central rate cut was in the offing and we do think that the steps taken by the Fed, the Treasury and the Congress should facilitate the movement in overnight and short term lending. Should this occur, holders of adjustable rate mortgages that reset based against the six month Libor rate, which has increased over 100 basis points over the past month, should see some relief. This small, but crucial point should prevent further deterioration in the value of the illiquid mortgage assets held throughout the global banking system.
In recent weeks we have observed a trend in the macroeconomic data, which indicated a clear decline in industrial production, wholesale-retail sales and expect a reduction in demand from the external sector. While, some measure of inflation is embedded in the economy, the deflation in the residential real estate sector and the clear decline in the cost of energy and commodities paved the way for the Fed to take what may be the next in a series of continuing steps to stem the crisis in financial markets. Moreover, when we plug in the likely fall in the core rate of inflation and the increase in the rate of unemployment into our Taylor Rule model, the Fed is getting out ahead of the curve and moving towards the point where rates are neutral.
Given the near meltdown of the domestic system of finance we think that the Fed needs to compel banks to come clean regarding the wreckage littering their balance sheets, provide a temporary guarantee of the payment clearing system and in the near term move to inject capital into the banks. The conditions have been created where by those steps can be taken.
- Joseph Brusuelas, Merk Investments
-- Posted Wednesday, 8 October 2008 | Digg This Article | Source: GoldSeek.com
The Merk Hard Currency Fund is a no-load mutual fund that invests in a basket of hard currencies from countries with strong monetary policies assembled to protect against the depreciation of the U.S. dollar relative to other currencies. The Fund may serve as a valuable diversification component as it seeks to protect against a decline in the dollar while potentially mitigating stock market, credit and interest risks—with the ease of investing in a mutual fund.
The Fund may be appropriate for you if you are pursuing a long-term goal with a hard currency component to your portfolio; are willing to tolerate the risks associated with investments in foreign currencies; or are looking for a way to potentially mitigate downside risk in or profit from a secular bear market. For more information on the Fund and to download a prospectus, please visit www.merkfund.com.
Investors should consider the investment objectives, risks and charges and expenses of the Merk Hard Currency Fund carefully before investing. This and other information is in the prospectus, a copy of which may be obtained by visiting the Fund's website at www.merkfund.com or calling 866-MERK FUND. Please read the prospectus carefully before you invest.
The Fund primarily invests in foreign currencies and as such, changes in currency exchange rates will affect the value of what the Fund owns and the price of the Fund’s shares. Investing in foreign instruments bears a greater risk than investing in domestic instruments for reasons such as volatility of currency exchange rates and, in some cases, limited geographic focus, political and economic instability, and relatively illiquid markets. The Fund is subject to interest rate risk which is the risk that debt securities in the Fund’s portfolio will decline in value because of increases in market interest rates. As a non-diversified fund, the Fund will be subject to more investment risk and potential for volatility than a diversified fund because its portfolio may, at times, focus on a limited number of issuers. The Fund may also invest in derivative securities which can be volatile and involve various types and degrees of risk. For a more complete discussion of these and other Fund risks please refer to the Fund’s prospectus. Foreside Fund Services, LLC, distributor.
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Global Coordinated Rate Cut
