Planmark Capital Management

Last week, Bernanke and his colleagues on the Federal Open Market Committee agreed to cut the federal funds rate and the discount rate by one-half percent. That sent investors scrambling to buy stocks and the Dow Jones Industrial Average ended the day up a whopping 336 points. It was the Dow’s largest one-day point rise in nearly five years, according to MarketWatch.

Investors are hoping that lower interest rates will prevent the economy from sliding into a recession. While that’s a worthy goal, lower interest rates may lead to side effects such as a weaker dollar and higher inflation.

Already, the dollar is touching new lows against the euro and it is near parity with the Canadian dollar, according to The Wall Street Journal. A weak dollar makes imported goods cost more and makes foreign investment in the U.S. less attractive. In addition, gold prices hit a 27-year high last week while oil rose to a record high of more than $83 per barrel, according to MarketWatch.

What does a weaker dollar have to do with higher oil and gold prices? According to Kathy Lien, chief strategist at Forex Capital Markets, “A weak dollar induces inflationary pressures, and since oil is priced in dollars, OPEC nations have a vested interest in seeing oil prices rise just so that they do not see a significant shortfall in profits."

The global economy is highly interconnected. If you make a change in one area, such as lowering interest rates, it tends to affect other parts of the economy, too, as described above. As another example, when Alan Greenspan lowered interest rates dramatically in the early 2000’s as the stock market bubble burst, he inadvertently fostered a new bubble in the housing market, for which we are now paying the price in the form of a very tight credit market.

This interconnectedness makes policy makers’ jobs very difficult. Bernanke and his crew will be heavily scrutinized as they try to navigate their way through the current credit market situation. If the aftermath of last week’s decision to cut interest rates is any indication, it appears that investors are giving Bernanke an “A+”—so far.

Returns through 9/21/07	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Dow Jones Industrials	2.8	10.9	20.1	10.5	11.9	5.6
Nasdaq Composite	2.7	10.6	20.4	11.6	17.7	4.7
Standard & Poor's 500	2.8	7.6	16.1	10.6	12.8	4.8

Source: Yahoo! Finance, Barron’s past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three-, 5-, and 10-year returns are annualized. Assumes dividends are not reinvested.

A KEY PROVISION OF THE PENSION PROTECTION ACT (PPA) OF 2006 likely will result in a significant increase in 401(k) accumulations, especially for low-income workers, according to a recent study by the Employee Benefit Research Institute (EBRI).

The PPA allows employers automatically to enroll workers in the company’s 401(k) plan and to increase a worker’s 401(k) contribution to coincide with a raise or a work anniversary. (Note, however, that the employee can decline both enrollment and future increases.)

Scenarios modeled using data from EBRI’s 2007 Retirement Confidence Survey forecast that the automatic escalation feature could increase overall 401(k) accumulations between 11 and 28 percent for participants in the lowest-income quartile, and between 5 and 12 percent for those in the highest-income quartile.

This legislation may prevent employees from taking the path of least resistance and help them retire with more savings.

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* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

* The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.

* The Nasdaq Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

Brain Teaser Answer: It contains the numbers one to nine, in alphabetical order.