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By Mike Comerford | Daily Herald Business Writer

Alexander Paris Sr. of Barrington Hills is president of Barrington Asset Management, Chicago


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Published: 3/29/2008 11:36 PM

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Alexander Paris Sr. of Barrington Hills is president of Barrington Asset Management, Chicago

What moved the markets last week?

"There was kind of an about face; the market started celebrating the (Federal Reserve Bank's) big rate cut, along with other stimulating moves. And that continued into Monday and into Tuesday morning. Then the market began to focus again at the actual economic numbers that were coming out. And it was a reasonably bad week for economic news. And that pretty much drove the market for the rest of the week."

How did the Fed's bailout of Bear Stearns influence markets?

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"That was more effective in the previous week. That was generally accepted positively by the market as just more evidence that the Fed will do what it has to do, it is fully committed, to stabilizing the financial markets, as it promised. And they'll worry about inflationary impact (later)."

Is the easing of the Fed's discount rate restrictions helping ease credit markets?

"The Fed not only bailed out Bear Stearns but for the first time in history is opening the discount rate so that big brokers, who are primary dealers, can borrow directly from the Fed. They have been doing that, I think, by about $28 billion since that ruling went into affect last Monday."

So if credit and liquidity are cheaper, what about mortgages?

"They did come down a bit … One of the reasons the 30-year-fixed rate isn't coming down as much as you would expect is because every time the Fed cuts rates they are really raising the money supply. And the money supply, M2, has skyrocketed over the last month or so and that gets people worried about inflation … Banks worried about that inflationary risk respond by raising long term rates."

What about shorter-term mortgage rates?

"The short-term rates have been reflecting, a little bit more, the Fed's easing moves … If you talk about refinancing, there was a huge increase just last week, an 82 percent increase in mortgage refinancings as rates did come down."

What might move markets this week?

"The Fed will be less of a factor, as we are between (Fed interest rate) meetings … (Even though it isn't earnings season yet), earnings estimates are slowly being reduced in the first quarter and also in the second quarter. So it looks like first quarter earnings are going to be down again, and that would be the third quarter in a row. And they are looking to be down in the second quarter also, and that would be four in a row. So the big factor is economics this week."