5i Research Blog

Jan 25, 2012 The FED Backstop

By Peter Hodson

The FED came out with the January statement today. Let’s see what they said (we will put it in English for you):

Rates are going to stay low for three more years at least.

Longer-term rates are going to move down, as the FED extends the maturity date of its $2.6 trillion portfolio.

Economic growth will continue at a modest pace.

Basically, the FED is saying it is safe to invest. They will backstop the US economy for you. They will keep interest rates low. They will make it easier for companies to expand. 

So, we have low rates, OK growth, a government willing to keep rates low almost forever (going on five years now); high dividends, growing dividends, and great corporate balance sheets. 

Gennum (GND) was taken over yesterday at a 120% premium to its share price. Today, a bidding war is developing over diagnostic company Illumina (ILMN). 

This is not a short term market call. Like the FED said last year, it will continue to support the economy, until the economy improves. Not sure why anyone would bet against this scenario.

Invest wisely. Invest in good companies. For the long term. The time to be scared may be over.

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