QE3: Risking Inflation or Creating Growth?

by Blair Urish 25. September 2012 08:34
  The Federal Reserve announced that they would start a third round of quantitative easing (QE3) recently.  The Federal Reserve has had two previous rounds of quantitative easing in an effort to manage their duel mandate to: 1. Maintain price stability (low inflation) and 2. Maintain low unemployment. The Fed explained that they would buy mortgage-backed securities (MBS) at a pace of $40 billion per month (on top of the $45 billion per month currently being spent for “Operation Twist”) in an effort to jumpstart the stalled unemployment rate and improve economic growth.  To accomplish this, the Fed is trying to maintain low interest rates and inflation while at the same time pump money into the economy by purchasing bonds.  The increase in the demand for bonds pushes yields down so that there are more attractive interest rate and loan opportunities for potential borrowers and lenders thus stimulating demand for money and new projects and businesses. What is the issue?  The exit strategy (selling of the debt securities) for Mr. Bernake’s QE3 is both precarious and unclear.  The Fed will ultimately have to sell the bonds or let them mature, leaving the government and the MBS market without a perpetual buyer of their paper. The risk of selling a trillion dollars of Treasury bonds on the market is that it will possibly drive up interest rates, which will erode purchasing power by potentially leading to inflation. Keep in mind that “every 1% increase in federal borrowing costs adds $100 billion to the annual budget deficit.”  This will put additional pressures on companies, state, and local government’s ability to refinance bonds that come due. Sooner or later the economy will improve, banks will begin to lend and the money supply will expand. Inflationary pressures will build rapidly if the Fed does not respond by reducing its balance sheet. Once inflationary signs pickup, I hope that Mr. Bernake, or the current fed chairman after the upcoming election, will come through, keep inflation expectations anchored and not squander the great credibility that has been built up over the past 30 years.  Based on comments in the article researched for this blog listed in the link above, it looks likely that once you let Pandora out of the box, it is very hard to put it back in, particularly in such a divisive and charged political climate.  Investors and businesses may be wary of inflation and take precautionary measures in their investments.  See Urish Popeck's Wealth Management Group for additional information.  
Categories: Advisory

Bonus Depreciation Introduced by House Democrats

by Tom Guappone 26. June 2012 10:41
Democrats on the House Ways and Means Committee introduced the Invest in America Now Bill of 2012 on June 20.  The bill includes legislation that would extend 100% bonus depreciation through 2012. The House Democratic bill is targeting businesses that would immediately benefit from the accelerated depreciation on the investments for machinery & equipment, computer software and other property.  Work on the bill is projected to begin the week of June 25. This should be the first of many bills that will be discussed to help the economy rebound through a comprehensive tax reform. For more information, please see the full article by the CCH News Staff. 
Categories: Tax

Hiring May Slow During Second Quarter of 2012

by Michael Popeck 13. June 2012 15:00
  In a recent survey conducted by the AICPA, business executives responded with more guarded views this quarter versus last quarter about the 12-month outlook for the U.S. economy.  However, most executives viewed their own companies with a better outlook than the U.S. economy as a whole. The CPA Outlook Index, which is a comprehensive gauge of executive sentiment within the survey, decreased 2 points after 2 consecutive quarters of growth.   The survey also included findings on hiring, industry views, business expansion, and challenges over the past three quarters.  Visit the AICPA’s Survey summary for the article and to read more about the findings in the survey.  
Categories: Advisory

Fierce Competition in the Technology Industry, Companies Look Towards Positive Long-Term Goals

by Joe Clark 3. April 2012 10:45
With mixed news about the U.S. marketplace painting an uncertain picture of where the economy is headed, technologies companies are focusing on long-term goals, working to grow their bottom lines, acquire intellectual property assets, and increase headcount through strategic transactions.   BDO conducted its fifth annual survey of 100 chief financial officers at U.S. technology companies. Overall, the CFOs projected more modest 2.6 percent revenues than last year’s 10.4 percent rise. To raise funds, 55 percent of the CFOs would use public and private debt, the first time in the five year history of the survey that debt was chosen over private equity.   To read the rest of the BDO Technology Survey and review the other questions that were directed to the CFOs and their answers, please see the 2012 BDO Technology Outlook.
Categories: Advisory