Think you figured out the Fed? Spare us

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Recapping the day's news and newsmakers through the lens of CNBC.

Experts say Fed effects are widely misunderstood


Stocks have had a few bad days, with many analysts blaming fears of Fed tapering—quite an original rationale for a selloff. In fact, maybe that still-to-be-scheduled process, a reduction of the Federal Reserve's bond purchases that have kept interest rates low, has been made into more of a bogeyman than it ought to be.

Some experts argue that fear of tapering involves some misconceptions about how the banking system works: Fed bond purchases result in bigger bank reserves, which give the banks more to lend. Reversing the process can cause a world of hurt. Or so the argument goes.

The truth is, reserves remain reserves, so a change in Fed bond purchase levels should not be the shock to the system that Nervous Nellies fear. And some experts point out that any harm done by tapering would likely be offset by the increased economic growth that made tapering possible.

A simpler view of stocks' recent behavior focuses on the fact that the bull market is just getting a tad long in the tooth. Market leaders like transports and biotech stocks are weary after a good run. Among individual stocks, the number of new highs has been declining despite record highs for the S&P 500. And volatility is near a six-year low, suggesting investors have become complacent, which is often a warning sign.


"Indeed, in most systems, deposits at the central bank can only be held by banks, thus they are never lent 'out' of the banking system. Consequently, the notion that the quantity of bank reserves somehow constrains lending in a fiat money world is completely erroneous."—Peter Stella, director of Stellar Consulting

"We are so used to the markets going up that a brief pause is being met with the usual hand-wringing. ... Remember: the S&P 500 is stretched, better than 10 percent above its 200-day moving average."—CNBC's Bob Pisani

"I think the market will be in a waiting mode for a long time."—Wharton School finance professor Jeremy Siegel

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IT profits rise as client demands change


If you're inclined to read the tea leaves—and who isn't?—there have been some welcome developments in the information-technology industry, which in recent years suffered from tight corporate spending.

In the current earnings season, IT outsourcing firms such as Infosys, WiPro, Tata Consultancy Services and Cognizant have beaten analysts' earning expectations.

(Read more: What your office redesign should look like)

Corporate spending on outside IT services offers hints about how firms see the future. In recent years, much IT spending was aimed at cost-cutting. Now IT firms are finding a greater demand for consulting services, which often means clients are looking for new ways to grow—a shift from pessimism to optimism.


"There is a fundamental change in what our customers are looking for. Clients are not only looking for help on how to run operations better, they are also looking to run their operations differently."—Cognizant President Gordon Coburn

Boring is best


Investors are always looking for the next new thing—some medical breakthrough or cool technology. But sometimes it pays to take another look at the tried and true.

Like food.

A number of food-related stocks have hit new highs this week, including Hershey, J.M. Smucker, Tyson Foods and Hormel. Others in the sector set records earlier. Food stocks are up about 30 percent this year.

(Read more: Meet the waffle taco)

So what's the big attraction? Relatively small risk and big dividends.

Overall, growth in food sales is driven by population growth, so investors have to pick and choose to find promising stocks. Sometimes that means finding a hot newcomer, but often the best bets are firms with well-known brands, good advertising and opportunities for international growth. Of course, the big danger for investors now is getting in too late.


"We still see some attractive characteristics to food stocks, including the stability of revenue growth as well as the dividend yield and some potential for long-term above average growth from emerging overseas markets."—S&P analyst Tom Graves

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Fuel shortages? Not for as far as the eye can see


Even if you're not old enough to remember the gas lines of the early '70s, you'll still have witnessed lots of hand-wringing over America's dependence on foreign oil. Well, we're still a net importer of crude, but when it comes to refined products we are now the exporter to the world.

The hot product? It's not gasoline, it's diesel fuel. Diesel is used extensively in cars overseas, and it has a much higher profit margin—$16 a barrel versus $8 for gasoline. Demand for diesel is growing twice as fast as demand for gasoline.

And here's another factoid for us nonexperts: One reason we refine so much crude oil is that we now have so much cheap natural gas, which is used to power many refineries. Of course, our growing domestic crude supplies are a factor, too. With all the demand, refiners are working overtime to increase capacity.


"All these companies are expanding their export terminals—Valero, Shell, Marathon Petroleum, all of them. Any companies with refining assets on the Gulf Coast are expanding their export terminals.—Fadel Gheit, senior energy analyst at Oppenheimer

Can we live without Fannie and Freddie?


Don't hold your breath, but Washington is starting to talk, again, about how to reduce the government's role in mortgage lending.

Most believers in free markets would just as soon see the mortgage-guarantee firms wound down, especially as they are now government owned after a $187 billion bailout. But what could replace them? After all, they back nearly 90 percent of new mortgages.

(Read more: What you need to know if Fannie and Freddie go away)

Different bills in the House and Senate would phase the firms out over five years, and President Barack Obama says he too wants to reduce the government's role. But some mortgage experts warn that replacing Fannie and Freddie would cause mortgage rates to rise, as lenders would pass on greater risks after losing government guarantees.

The bill by House Republicans would virtually privatize mortgage lending. Obama's views are closer to those in a bipartisan Senate bill to reduce the government's role but not eliminate it. According to one estimate, the House bill would raise monthly costs on a $200,000 loan by $135, the Senate's by $75.


"For too long these companies were allowed to make huge profits buying mortgages, knowing that if their bets went bad, taxpayers would be left holding the bag. It was 'heads we win, tails you lose,' and it was wrong. The good news is right now there's a bipartisan group of senators working to end Fannie and Freddie as we know them."—President Obama

"It will mean higher mortgage rates. The question is how much higher."—Mark Zandi, chief economist at Moody's Analytics

"You have to assume that almost in any future model being drafted, loans will be more expensive."—David Stevens, CEO of the Mortgage Bankers Association

—By Jeff Brown, special to