This week's financial and economic calendar culminates Friday with Federal Reserve Chairman Ben Bernanke's policy speech at the Fed's annual summer getaway in Jackson Hole, Wy.
Will he or won't he announce another round of quantitative easing? That's the big issue facing financial markets.
It was at this same conference last August that Bernanke cued in the markets about the second round of quantitative easing, which resulted in the Fed buying $600 billion of Treasury bonds between November 2010 and June of this year. In the first round of QE between Dec. 2008 and March 2010 - the Fed bought $1.7 trillion of debt, mostly mortgage securities.
I'm sure the Feds have "QE3 through 30 queued up and ready," says Edward Dempsey chief investment officer at Pension Partners. "However, I don't know how effective it'll be."
Though markets ticked higher after the Fed's August 9 announcement that it would keep rates "exceptionally" low through mid-2013, it's done little to quell the volatility and nerves.
Traders and 401(k)s may benefit from more Fed action as it may generate asset reflation, but Dempsey says QE3 is unlikely to relieve stress in the real economy, citing the impact of two QEs to date. "It has not done anything for house prices, it has not done anything for wage growth. It hasn't done anything for employment."
In fact, Dempsey is unclear if it's benefited anyone. "We are approaching zero yield," he says. "It's devastating on retirees, it's devastating on pensions and endowments" - his main focus of investing. Many pundits, including Jim Cramer, have been pushing dividend-yielding blue chips as a wise investment for those looking for income in their portfolio.
But "I would be very uncomfortable placing my capital at risk for a 2 or 3% yield," Dempsey says. As discussed in this previous clip, he's worried the 'summer crash' isn't over just yet.
In the meantime, savers will continue to be penalized until hopefully, the economy recovers to a point the Fed feels comfortable raising rates to forgotten "normal" levels of 1% or higher.
- Federal Reserve Chairman
- quantitative easing