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By Christine Benz and Jeremy Glaser | 07-10-2014 05:00 PM

The Friday Five

This week: The Fed discloses an end to the taper, eurozone concerns resurface, and a cupcake firm crumbles.

Christine Benz: Hi, I'm Christine Benz for Morningstar.com and welcome to The Friday Five. Joining us as always to share five events of the past week is Morningstar markets editor Jeremy Glaser. Jeremy, thank you so much for being here.

Jeremy Glaser: You're welcome, Christine.

Benz: Jeremy, let's start with the Fed minutes released this week. Let's talk about what inventors took away from them?

Glaser: The big news was that we finally got a confirmation that the taper is planned to end in October. You can kind of back out what we've seen so far, and that seemed to be the end date. But we've heard the Fed governors say, this is absolutely going to be done by October.  In November, we're not going to be buying new bonds anymore. Again, this isn't a surprise given that the jobless numbers have looked much better over the last couple of months, even as the economy has gone through some growth issues, particularly through the winter and last quarter with the poor weather.

I think investors are now going to start to focus on when rates are going to rise. When will we see that hike to short-term rates? It could be as soon as 2015, but I don't think it should be something that really keeps you up at night. The Fed isn't going to start going down that road until the economy will looks strong enough to actually handle it. I think that the Fed, if they've shown nothing else throughout the crisis is how flexible they're willing to be or going to be in order to support the economy, getting rid of this unconventional program with something that was definitely going to happen. But in terms of those conventional monetary policy moves, I think we're not going to see it until we see serious signs of inflation, which is not the case yet, or until the economy is looking much stronger and they feel like [an increase in rates] could be done safely.

Benz: How did the markets react, Jeremy, when this news came out of the Fed minutes? Did everybody sort of shrug and say "This is what we expected?"

Glaser: Yes, for the most part. Shares kind of traded down a little bit and then up a little bit. But it's one of these situations where, again, when you kind of backed out, if we kept losing about $10 billion a month of these purchases, that kind of October-November time frame is where that takes you.

Benz: Europe provided bad flashbacks from a couple of years ago. Portugal was in the news this week, let's talk about what's going on in Portugal's banking sector.

Glaser: Yes, it was like all of a sudden investors remembered that the European banks really aren't in great shape, and that didn't magically change, just with the passing of time necessarily. We have seen a lot of big recapitalizations in the European banking space, but they still are far behind in many ways from, say, the American banks that were much more aggressive in raising capital and kind of cleaning up their balance sheets in the wake of the financial crisis.

This week, Banco Espirito Santo, which is a large Portuguese lender, their parent company ran into some issues, delaying some coupon payments, some short-term bonds that they have. There have been some other financial irregularities and some other concerns about this conglomerate over the past couple of weeks, and this really kind of crystallized it, I think, in a lot of people's minds.

Does this particular bank or the particular issues here pose some huge systemic risk? Are we back to kind of those bad old days of the eurozone crisis? No. It's nothing quite that serious yet, but I think it is a reminder again that these banks probably are going to still need a lot more time probably to raise more capital to really become a much more stable, and that as these banks continue to work through these issues, it's going to have an impact on growth. Bank lending is an important part of what drives European business. If these banks really aren't quite strong enough to be doing that lending, it poses a challenge to really get that growth going again.

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