Belly up to the bar because the Fed isn't done yet. In a move that surprised most everyone, the Federal Reserve announced today that it was not tapering its current quantitative easing program this month and may not anytime this year.  It was a shocking announcement in many respects.  First, Ben Bernanke had indicated several months ago, and reiterated several times since, that tapering of the program would begin in the fall and most expected some amount of tapering in September.  Second, it is a stunning admission by the Fed that despite many headlines of a growing economy, it is obviously very concerned that the current economy is not strong enough to stand on its own.  And third, Bernanke admitted that the current program could go on well into next year.  Today's announcement came on the heels of Larry Summers' abrupt exit earlier this week from consideration as a replacement for Bernanke.  The market swelled when Summers' stepped aside and then exploded to the upside yesterday with the Fed's announcement.  So what does all this mean?   Many regarded Larry Summers as a wild card with regards to the Fed's current programs and worried that he would rein them in too quickly.  Janet Yellen, the other likely candidate and now the frontrunner, is viewed as much more likely to continue the Fed's policy.  In fact, today's announcement could very well be related and could mark the start of her term as the first chairwoman of the Fed.  Bernanke's remarks indicate that the Fed is in no hurry to take away the punch bowl that has fueled this market for over 4 years.    

An aside - many have asked what exactly is quantitative easing and how does it affect the stock market?  In very general terms, the Federal Reserve has been purchasing treasury bonds and mortgage securities ($85 billion per month in the recent easing policy).  By buying these securities the Fed (government) is artificially keeping interest rates low pushing would be buyers of treasuries (those seeking returns on their money) into buying stocks in order to generate the yield on their investments that they need.  Additionally, with interest rates low, the cost of money to banks has been lessened and, therefore, allows them to loan money out to businesses and individuals at lower rates with the idea of spurring economic growth.  A more exhaustive definition can be found here or here.

WHERE WE ARE HEADED 

HOW WE ARE DOING

Sunday night - really, early morning this Monday, Kelly and I received the dreaded call at 4 am.  Carter, who has been at UT all of 4 weeks called and said he had been throwing up for several hours and had severe abdominal pain and thought he needed to go to the emergency room.  Carter has never been one to want to go to the doctor so we knew to take him seriously and after ensuring that he was okay to drive told him to head to UT Medical Center.  After a morphine drip and a cat scan, Carter texted back that he had appendicitis and surgery was scheduled in an hour.  It was 6 am Nashville time and Kelly was already on the road.  The surgery went well and Carter left the hospital late Monday.  Kelly has been with him all week and, fortunately, my sister Dana has been an incredibly gracious host.   I guess as far as 4 am calls go, it could have been much worse!  Carter is on the way to recovery and Kelly should be home late tonight.  Not a moment too soon as I exhausted my cooking and other domestic skills a couple of days ago!

Vols update - never mind.

We hope you are enjoying the cooler days and the onset of fall.

Sam and Bo

We continue to make posts to our blog throughout the week so check it regularly if you want to see our thoughts.  You can access it by following the link below. 

THE GREATEST COMPLIMENT

In these uncertain times, a trusted financial adviser is more important than ever.  Whatever comes over the upcoming months and quarters, the markets are certain to have lots of volatility and wild swings.  Europe, the US economy and dysfunction in Washington, and continued trouble in Iran and the Middle East to name just a few.  If you have family, friends and neighbors that may benefit from our services, would you please forward this email and/or provide our contact information to them.  We purposefully do not spend time marketing our services so that we can devote all of our resources to managing your assets.  Thank you to all who have provided us referrals - it truly is the greatest compliment you can give us.      

Remember to visit our blog for market comments and observations in between newsletters.  We try to provide a few comments in between newsletters and certainly when there is a particularly interesting market day.  You can access it by clicking here. 

Published by Sam C. Bills, Jr.  Copyright � 2008 Bills Asset Management.  All rights reserved.

BAM Market Wrap is produced and distributed regularly via email by Sam C. Bills, Jr. of Bills Asset Management  3001 Flagstone Drive, Franklin, TN 37069 Phone (615) 371-5928 Fax (615) 250-4903 - www.Billsasset.com

Bills Asset Management  is an independent registered investment advisor (RIA) not associated with any financial institution.  Data used in this publication is gathered from reliable sources, although completeness and accuracy cannot be guaranteed.  Performance results do not take into account any tax consequences and are not predictive of future results.  This publication does not give any specific investment advice, does not provide financial planning services, or consider any individual's financial situation, needs or goals.  This publication may not be reproduced or retransmitted in whole or in part without the consent of the author, Sam C. Bills, Jr.

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