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September 14, 2012
Yesterday, Fed Chairman Bernanke announced that the Fed would:
1.. Extend the Zero Interest Rate Policy (ZRIP) until mid 2015
2. Continue the $45 billion per month Twist program (to keep long-term interest rates low)
3. Start buying $40 billion per month of Mortgage Backed Securities until employment improves (does that mean in perpetuity?) He will even add more money if the labor market does not improve.
The market has been expecting this for more than a year. The surprise was that the amount to be purchased was open-ended. That is really kicking the can. Chairman Bernanke also revised his GDP growth number down to 1.7-2. from 1.9-2.4. He must be very nervous because he seems to make downward revisions after each meeting.
Where will all this money go? To the banks of course! They will be able to get damaged bonds off their books at a good price and then use the money to beef up their balance sheets by investing the money in stocks and bonds here and abroad. It may not do much for employment but it should be good for the markets, at least for a while. But sooner or later we will have to pay for it with a deeper recession or inflation.
What went up in price on the announcement? For example: Gold, Silver, Equities, and Oil. What went down? For example: Bond prices and the Dollar.
Oh, Paul Krugman, Nobel-Prize winning economist and professor, again, does not think The Fed is spending enough.
Monday, September 24, 2012
Summer Ends and the Volatility Season Begins
August 20, 2012
As the low summer volume is about to end and the aggressive Presidential campaigns start spending their billions in campaign funds begin; we are about to get some serious volatility over the next six months Maybe sudden sharp drops followed by "clarifications" and short-covering, changing and conflicting poll numbers and then more clarifications again and again.
We are facing a number of serious issues between now and the "State of the Union" speech in late January. For example:
1. The overly optimistic, but constantly being revised downward, GDP, revenues, and profit numbers being forecast for the third and fourth quarters,
2. The debate in Europe (or press releases that levitate the markets until the data is fact checked) about how countries with almost no growth and no way to pay the interest on past debt can increase their debt so they can solve their problems (our economy and markets are correlated with Europe),
3. The end of the "Bush" tax cuts on December 31 which if not extended will increase Government revenues but lower revenues and spending by taxpayers and lower GDP,
4. The debt ceiling (again) will have to be increased by October (a guess) or the government will not be able to pay bills its now obligated to pay (and what about the threat of another credit rating downgrade),
5. The Federal Budget (or some temporary agreement to fund the government) needs to be approved by Fiscal year-end September 30. Even though Congress is obligated to do so, we haven't had a budget in four years, just continuing resolutions,
6. The 3% or $4 trillion dollar cuts the budget (Discretionary and Defense) that are suppose to take effect on January 1 that both sides now claim can't be done in this difficult economic environment (is that the same as "Recovery"). Maybe that's why they kicked the ball into 2013 because there is no willingness to cut anything.
7. The 21 new tax increases and many new requirements of ObamaCare that begin in January. Will they be implemented or rescinded by the election?
That's enough to give you the idea that all of these issues, plus the political rhetoric and the daily polls, will make each day a new adventure. Also, since we have moved from an entrepreneurial to a centrally-planned economy over the years, all we can do is react to what the central planners propose and do.
This increase in volatility with no way to predict the market direction on any given day means we have to look at an investment strategy that will protect our capital during this volatile period; and for more aggressive investors, offer ways to capitalize on this volatility. Call your investment advisor and discuss how to get through this upcoming volatile period.
As the low summer volume is about to end and the aggressive Presidential campaigns start spending their billions in campaign funds begin; we are about to get some serious volatility over the next six months Maybe sudden sharp drops followed by "clarifications" and short-covering, changing and conflicting poll numbers and then more clarifications again and again.
We are facing a number of serious issues between now and the "State of the Union" speech in late January. For example:
1. The overly optimistic, but constantly being revised downward, GDP, revenues, and profit numbers being forecast for the third and fourth quarters,
2. The debate in Europe (or press releases that levitate the markets until the data is fact checked) about how countries with almost no growth and no way to pay the interest on past debt can increase their debt so they can solve their problems (our economy and markets are correlated with Europe),
3. The end of the "Bush" tax cuts on December 31 which if not extended will increase Government revenues but lower revenues and spending by taxpayers and lower GDP,
4. The debt ceiling (again) will have to be increased by October (a guess) or the government will not be able to pay bills its now obligated to pay (and what about the threat of another credit rating downgrade),
5. The Federal Budget (or some temporary agreement to fund the government) needs to be approved by Fiscal year-end September 30. Even though Congress is obligated to do so, we haven't had a budget in four years, just continuing resolutions,
6. The 3% or $4 trillion dollar cuts the budget (Discretionary and Defense) that are suppose to take effect on January 1 that both sides now claim can't be done in this difficult economic environment (is that the same as "Recovery"). Maybe that's why they kicked the ball into 2013 because there is no willingness to cut anything.
7. The 21 new tax increases and many new requirements of ObamaCare that begin in January. Will they be implemented or rescinded by the election?
That's enough to give you the idea that all of these issues, plus the political rhetoric and the daily polls, will make each day a new adventure. Also, since we have moved from an entrepreneurial to a centrally-planned economy over the years, all we can do is react to what the central planners propose and do.
This increase in volatility with no way to predict the market direction on any given day means we have to look at an investment strategy that will protect our capital during this volatile period; and for more aggressive investors, offer ways to capitalize on this volatility. Call your investment advisor and discuss how to get through this upcoming volatile period.
The Market May Be Saying the Fed Will Move Next Week
July 25, 2012
It looks like the Fed may be ready to move next week (meeting is July 31-August 1) on a new Quantitative Easing Program or QE3 (translation: money printing.) Jon Hilsenrath of the Wall Street Journal mentioned that the Fed may or may not move at their next meeting as the economy has continued to weaken. This "leak" helped move the market up (but still closed down) in the last half-hour yesterday. Today, comments by Steven Roach and others indicate that the Fed will move at the August 1 meeting.
I have been predicting that the Fed would inject more money into the system for some time. It is the only thing they know how to do and they can't escape their Keynesian thought model. However, I thought they would have acted sooner because we haven't solved the problems that created this recession and both parties want to get re-elected.
I don't know if the Fed will move next week or not. But, what you expect the market to do on learning of QE3; it is doing. From this mornings low, equities have rallied to over 100 points, the dollar is down (printing debases the dollar) and gold is up big (reduced buying power and fear of inflation.)
Will this help? Depending on size and pace of printing, etc., it could levitate the market for a short period of time (weeks to months.) But in the long term, it will not work and in fact make our problem of de-leveraging worse (more painful)
It looks like the Fed may be ready to move next week (meeting is July 31-August 1) on a new Quantitative Easing Program or QE3 (translation: money printing.) Jon Hilsenrath of the Wall Street Journal mentioned that the Fed may or may not move at their next meeting as the economy has continued to weaken. This "leak" helped move the market up (but still closed down) in the last half-hour yesterday. Today, comments by Steven Roach and others indicate that the Fed will move at the August 1 meeting.
I have been predicting that the Fed would inject more money into the system for some time. It is the only thing they know how to do and they can't escape their Keynesian thought model. However, I thought they would have acted sooner because we haven't solved the problems that created this recession and both parties want to get re-elected.
I don't know if the Fed will move next week or not. But, what you expect the market to do on learning of QE3; it is doing. From this mornings low, equities have rallied to over 100 points, the dollar is down (printing debases the dollar) and gold is up big (reduced buying power and fear of inflation.)
Will this help? Depending on size and pace of printing, etc., it could levitate the market for a short period of time (weeks to months.) But in the long term, it will not work and in fact make our problem of de-leveraging worse (more painful)
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