Newsmax's Hyman: Stock Pullback Is Political Suicide for Obama

Friday, 24 Aug 2012 08:55 AM

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The Federal Reserve will stimulate the economy and pump up stock prices because not acting will send equities falling and hurt President Barack Obama's re-election chances, said Sean Hyman, editor of Newsmax's Ultimate Wealth Report newsletter and a Moneynews.com contributor.

Since the Great Recession, the Fed has twice stimulated the economy by buying Treasury holdings and mortgage-backed securities held by banks, a monetary-policy tool known as quantitative easing that pumps liquidity into the economy to encourage investing and hiring.

As a side-effect to such action, stock prices rise. So expect the Fed to soon return with a third round of quantitative easing, a policy that many economists oppose on the grounds that it plants the seeds for inflation down the road.

Editor’s Note: See Sean Hyman and Steve Forbes Discuss 'Currency Wars' in This Interview

Stock prices have been gaining in recent weeks, with the S&P 500 hitting a four-year high recently in anticipation of more stimulus. Expect that rally to continue if the Fed acts.

"I think that markets will continue to go higher," Hyman told CNBC.

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"Certainly we've been overbought for a while, so we could see a pullback in the near term, I am not saying that can't happen but still, countries around the world are stimulating," Hyman said.

Other central banks will take steps to stimulate their economies as well, including the European Central Bank (ECB) and the People's Bank of China.

"The ECB is going to stimulate, China is going to stimulate and the U.S., of some sort, is going to stimulate, so I think that's bullish for stocks."

At the Fed's two-day policy meeting that began July 31, several board members expressed a willingness to stimulate the economy if it doesn't show marked signs of improvement going forward.

Since that meeting, however, retail sales have beaten expectations, as have consumer-sentiment figures and industrial-production numbers. Some Fed officials have said more stimulus measures may not be necessary.

Still, expect the Fed to act in order to support its ideological ally in the White House.

"If there was no stimulation from the market, I do believe you would see a stock-market pullback, but that's a huge gamble," Hyman said. "If you have stocks pull back, politically that's going to be suicide for Obama, who is trying to get re-elected."

Editor’s Note: See Sean Hyman and Steve Forbes Discuss 'Currency Wars' in This Interview

GOP presidential hopeful Mitt Romney has said he would replace Fed Chairman Ben Bernanke if elected. Monetary-stimulus measures weaken the dollar in order to jolt the economy, which Romney opposes.

"I would like to select ... a new person to that chairman position, someone who shared my economic views, someone that I thought was sympathetic to the needs of our nation and I want to make sure that the Federal Reserve focuses on maintaining the monetary stability that leads to a strong dollar, and confidence that America is not going to go down the road that other nations have gone down to their peril," Romney said, according to Fox Business Network.

About: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Ultimate Wealth Report. Discover more by Clicking Here Now.

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