For those who haven’t already seen the headlines in the local paper, Bear Stearns agreed this weekend to be acquired by JP Morgan for $236 million or about $2 a share, a sharp contrast to its 52 week high of $159. In addition, on Sunday the mortgage-bond fund Carlyle Capital decided to close up shop. Many people believe that this is only the beginning of the financial melt down. How will the Fed respond to these recent events at their meeting today?
The Fed will likely lower the key interest rates yet again, anywhere between .5 to a full point. Most traders will welcome as large a rate drop as Bernanke will give after the hammering the markets took this past week, but people who have their savings held in dollars might have other thoughts.
I know that I’ve been pounding this point home a lot lately, but the Fed is destroying the value of the dollar. I can’t imagine that it will be much longer before any foreign countries buying up U.S. treasuries start to think twice. What will happen then? The U.S. is funding its enormous debt by issuing more debt, and if that option gets reduced or eliminated there will be serious consequences. The options come down to printing more money (and further deflating the dollar) or default, and neither scenario would end well.
I’ve said it over and over again, but if you aren’t already diversifying out of the dollar, do it now. It is ok to keep some savings in dollars, but people really need to start looking at a basket of currencies. EverBank offers a product called a foreign currency CD which will pay interest on your money and also allow you to easily diversify into other currencies. They even offer various baskets of currencies to aid with diversification. EverBank also offers silver and gold CD’s, which is a simple way to diversify into the precious metals market.