Market Commentary

Financial Stability Report

interest rates

For the first time ever the Federal Reserve has put out the Financial Stability Report. They plan on producing it twice a year. It is supposed to cover the major financial issues, good and bad of the economy.

This first report covered a concern about corporate debt and other forms of risky debt, junk bonds and leveraged loans. They pointed out that the banks have plenty of liquidity and said that equity prices were somewhat high relative to forecast earnings, stating that the forward P/E ratio of the S&P 500 remains above its median value over the past 30 years.

It is not what the report said that I find strange but what it didn’t say. They spoke of risks to the economy focusing on geopolitical tensions and the economic slowdown in Europe, the Brexit and the

China trade with the U.S. However, they did not mention at all, two major dangers which are; their own insistence on increasing interest rates, and the dangers that engenders, as well as the U.S. debt that continues to build. If they ignore two major issues regarding stability in our system then I have to wonder what good is the Financial Stability Report. What else are they leaving out?

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