Financial News Friday – March 15, 2013

S&P 500 Takes Its Own Shot

Yesterday the S&P 500 closed just shy of its all time closing high of 1565.

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Federal Worker Pay Freeze Likely to be Extended

Congress may extend the pay freeze that has beleaguered federal workers for the past two years. Despite the President’s order to increase salaries by 0.5%, Congress may decide that continue the freeze until December 31.

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Consumer Prices Gassed Up but Inflation in Check

The consumer price index (CPI) increased by 0.7% last month, while economists had expected an increase of 0.5%.

The culprit: gas prices.

The price of gasoline increased by 9.1% in February, which I’m sure many of you have noticed.

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Is The Current Fed Policy Appropriate?

This article is from an economist in the Austrian school of economics (vs the Keynesian).  It states that a loose money policy leads to the misallocation of funds to non-productive bubble activities.  The article goes on to argue that bubble activities divert money away from wealth generating activities and cause stagnation in the true growth of the economy.

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Inflation Is *Not* What We Should Be Worried About

This article is somewhat of a counterpoint to the other article.  The author argues that we should not be worried about increases in the CPI and instead should be paying close attention to personal consumption expenditures (PCE).  PCE has not increased substantially, therefore we should not be worried about hidden inflation in our goods.  The author continues that the Fed should continue its policy until unemployment has lowered.

I don’t believe that this is the most prudent course, but we’ll have to wait and see.  For now, the best course may be to embrace the market as it’s rising, yet take the proper risk management precautions to prevent excess risk in a portfolio, should the markets begin to fall.

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