The Web Tycoon’s blog

Earning money too easily has its own risks. First fed the real-state bubble, now, despite what we could think, could be cheapening the economic recovery.

When reducing the interest rates to almost 0, the Federal Reserve helped to prevent an economic collapse. However, in front of a weak recovery, many thing than the Federal Reserve is creating deflation.

The question of the million is why banks aren’t spreading credit, specially to small companies who are the motors of economy. One of the answers is that there isn’t demand of credit, but the lack of supply has his role too.

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The Federal Reserve repeated the same speech from last months when keeping interest rates in a historical minimum, between the 0% and the 0.25%, and return to show that is willing to keep it during a “period of time”. The Federal Reserve also noted that in the last month the economy has been getting stronger.

The Federal Reserve hasn’t changed any coma of his habitual speech, at the end of the meeting began yesterday, the Federal reserve decided to keep the price of money steady in his historical minimum one more month. Since December of 2008, the interest rates of the United States remained between 0% and 0.25%.

Furthermore, the Federal Reserve reiterated that interest rates will remain in a low level “during a period of time”, repeating the same words that some are voices are demanding to be suppressed from communicates. However, the members of the open committee of the Federal Reserve are defending that the forecasts point that these measures are necessary to help promote the economic and labor recovery, so as price stabilization.

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The beginning of the meetings with the European Union and the international monetary fund, didn’t prevent a new record on the price of defaulting insurances of Greek debt. The fears are getting bigger until the point of boosting the interest rate of the 10 years Greek debt to 8.28%, with 500 basic points of difference from Germany. Spain also increased the interest rate of hist debt to 80 basic points.

Investors of public debt are fairly opting to reduce its risk profile. The German debt becomes winner in a tendency that affect the surrounding markets.

credit default swaps (CDS) to 5 years of Greek debt also reached a new maximum of 489 basic points, what means that the cost of insurance $10milion grows to $489,000.

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There Junk bonds succeeded in the beginning of the 80’s in the market of the United States thanks to Michael Milken, who inspired a character in a film by Gordon Gekko, the mad in the film of Wall Street.

These Junk bonds are in his best rally since 1996, after having positive profitavilities during 14 consecutive months, due to the growing hunger from investors to the risk in the middle of an scenario of low interest rates. In the year, they won a 4.74% according the index Bank of America Merrill Lynch US High Yield Master II.

The Junk bonds had one of the bests behaviors in the industry. The category grew by an average of

47,29% I the lest 12 months, by 6,9% during the first quarter of 2010 and by 3,01% in March, according figures from Interactive Data.

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Both the Federal Reserve and the Bank of Japan have decided to postpone a increase of interest rates. The answer in the currency market is a brake for the dollar and the Yen, and a higher increase for the most punished currency last months: the pound.

The activity began past Wednesday when the meeting of the Federal Reserve ended. The Federal reserve did not change his speech, and although the weak signals of recovery, is still likely to keep interest rates between 0% and 0.25% during a long period of time.

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The Chief economist from the Bank of America in New York, Mickey Levy, believes that the decision adopted by the Federal Reserve two days ago, when increasing the discount interest rate, shows that “the financial crisis ended, in great part”.

In declarations took by Bloomberg, Levy estimates that “it is time to normalize things”, after the Federal Reserve began to trim the interest rates when lending money to the banks in the beginning of the financial crisis at the end of 2007. The economist points that this movement “doesn’t represent too much, because any bank in a situation without crisis will go to the discount office if doesn’t have problems”.

On Thursday, the Federal Reserve increased for first time since June 2006 the discount interest rates given to the banks with need of liquidity to obtain short therm financement by an increase of 0.25% to the rate of 0.75%.

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The members of the ECB’s Observatori, a committee of experts, believe that its necessary to keep the interest rate at 1% and will say it in the meeting that will be hold tomorrow.

However, there isn’t consensus on the way the emergency measures taken because of the crisis should be lifted, the committee believes that the support given to the banks should be gradually retreated.

The recent Crisis of Dubai, Whose government asked for a moratorium to pay part of the public company , Dubai World, triggered the divergence of opinions. ”the panic generated by Dubai is the best test to reach a conclusion about the financial crisis, this case mirrors a trust crisis that is far of being solved”

Explains José Luis Martinez, strategist in Spain of Citi ”’the Central Banks must continue spreading liquidity and adecuated credit conditions to normalizethe markets”,

added. Nowadays banks can get money at a low interest rate an lend it very expensive.

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Ben Bernanke, has stated that the federal Reserve follows very closely the evolution of the dollar, after the considerable depreciation this currency suffered in the last weeks against other currencies. However, Bernanke, highlighted that the interest rates will continue low as the economy continues weak and the employment high. Ben Bernanke participated in a talk at the Economic Club of New York, where repeated the same speech about what will do the Federal reserve in the following months.

The president of the Federal Reserve, reiterated that although the economy has returned to the growth, ” the interest rates will continue low during a long period of time”.

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The interest rate in Europe is not likely to rise, October has been  the month of the 5th negative strike of the inflation rate in the European Union. However, this time,it was just by -0.1%, due to a increase by 0,25 in the interbank market, The Euribor set this historical minimum at 1,222%.

According the analyst’s forecasts, the prizes in the Eurozone, could recover his positive values this month itself, and make the interest rates end to fall, according the analyst’s forecasts. They also predicted a monthly growth of 0,3% in October, but this became just 0.2%.

The Inflation rate in the Eurozone is keeping too far from the limit objective ( point where the interest rate should be increased) of 2% set by the European Central Bank (ECB). The analysts forecasts continue postponing the increase of interest rates in the Eurozone until the 2010.

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This week we are seeing the shadow of a new recession. Although the GDP growth in the US is being higher than the expected, today, the Dow had a day in red and felt by 0.31% to 9712 points. But there Isn’t motive to alarm, this week we had many macroeconomic news.

We must be optimistic, according to the Inflation record in the European Union of the 16 , the Eurozone inflation felt more than expected by a 0.3 per cent year on year in September. This means that the ECB will not have to raise interests in order to contain the inflation, and the European economy will continue be boosted at least the whole 2010.

In despite of these good news, there are some black clouds in the skyline. The PMI of Chicago has been unexpectedly low this month, 46.1 points versus the 50 points of August. This means that central United States are destroying economic activity, and if we sum that this month the market lost 254.000 jobs instead of the expected 210.000, it’s not difficult to understand why many people is opting for sell their risky assets.

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