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Friday, August 11, 2006

What's Good and What's Bad

From Ticker Sense

After falling for four consecutive days on fears of a weakening economy, the Dow Jones Industrial Average finally rebounded -- despite news of an extensive new terrorist plot.

Some professional investors professed amazement that U.S. stocks would fall on good news -- the end to Federal Reserve interest-rate increases -- and then rebound on bad news. - WSJ 08/11/06

After reading this morning's opening paragraphs to The Wall Street Journal’s “Thursday’s Markets” article (reproduced above) we are reminded that every once in awhile investors must take a step back and think about what certain events in the market actually mean.

Is the fact that the Fed stopped raising rates a good thing? In order to answer that question, one needs to ask why the Fed raises rates in the first place. Generally speaking, when the Fed raises rates they are trying to keep a strong economy from growing too fast. Therefore, if they stop raising rates, this implies that they no longer see the economy being as robust as it has been in the past. Is that such a good thing?

Thursday morning, we awoke to the fact that UK authorities had arrested several individuals involved in a plot to blow up planes bound for the US. In addition to the potential amount of lives saved, had the arrests not been made, who knows what the damage would have been to the global economy. But instead, the attack never happened. While it’s true, that there may be others out there, it's hard to imagine a foiled terror attack being anything but a good thing.

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