Take a Free Trial
Try Charles' premium stock selection services free for 7 days.
Check it out in real time!
You will get actionable advice, trading ideas and email alerts.
6/6/2012 1:49 PM
By Charles Payne, CEO & Principal Analyst
Wall Street is cheering, and the money-printing hasn't even begun yet. In fact, the ECB said it's not going to print money and hinted governments in Europe must get their act together. Nobody bought it. In fact, by the end of the week conventional wisdom believes there will be no ambiguity in money-printing on both sides of the Atlantic.
So, what's Wall Street missing from the vote in Wisconsin?
Well, Wall Street just wants to see a lot of money sloshing around and hopes it hits Main Street at some point. Meanwhile, the voters in Wisconsin and parts of California had an epiphany about how the government spends their money. They are tired of seeing it go to waste or to pay off unions. Voters love their civil servants but that's the wrong moniker when public workers make more than their private counterparts, have significantly better pensions, can't be fired and retire sooner. Voters want better stewardship of their hard earned money.
Wall Street, like Rhett Butler, doesn't give a damn. It's about pouring money around everywhere and sending the value of the dollar lower and at some point triggering massive inflation - but between now and then it's all about partying. Low rates and central bank gimmicks do not create jobs or we'd be overflowing with them but maybe Main Street benefits if that virtuous cycle ever kicks in where extra money creates extra demand which creates more jobs which creates extra demand which creates more jobs…
The main difference is Wall Street and Central banks don't care about accountability, but now it looks like voters do. I salute voters in Wisconsin, San Jose, and San Diego, and I'm not pissed at these central banks even though they are planting the wrong seeds; the true source of our scorn should be lawmakers that have no political will or common sense.
Stocks up on QE3 Hope
By Carlos Guillen
The market's strong bounce today is bringing a sigh of relief to investors that had been keenly focused on all things Europe recently. Of course, while the situation in Europe is still a mess, the hope here at home is that the Fed will become more inclined to provide some form of quantitative easing to the U.S. economy in the near future, and it is this hope that has stocks nicely higher today, with the Dow Jones Industrial Average up over 200 points so far during the trading session.
With Ben Bernanke speaking tomorrow, investors have ramped up their hopes that he will give some hints of some form of monetary intervention. As it stands, during this past month, the economy produced the weakest employment gains in a year. Moreover, equity markets have taken a beating, as investors have been in fear of the consequences of a euro zone failure. With inflation pressures subdued, it has become more apparent that the Fed has increasing room to provide monetary assistance in the short run. At the very least, Ben is likely to give strong confidence to markets tomorrow as he will surely convey that the Fed will stand ready to take strong action if need be. At the moment, the word on the Street is that while the Fed will not likely pursue another round of asset purchases, it is likely that it will extend Operation Twist, which is a program that started in September of last year to lengthen the maturities of assets already on the Fed's balance sheet and is scheduled to expire at the end of this month.
So far inflationary pressures remain low, in particular that of gasoline. This should serve to assist growth in consumer spending for the rest of the year, which represents approximately 70 percent of gross domestic product. With government and private enterprise spending at a stall, consumer spending is really all the U.S. economy has to provide economic growth this year. While the U.S. economy will likely demonstrate growth this year, evading a recession, a sub-normal growth rate of well under 2.7 percent is nothing to cheer about given that we are still in recovery mode. Nonetheless, we'll take all the growth we can get at this juncture.
Begging for the Fed
By David Urani
Wall Street is feeling good about the odds now ahead of Bernanke's speech tomorrow. They smell government intervention, and the 0.7% decline in the dollar today reflects a hint of money printing. That being said, the lower dollar could be a reflection of a higher Euro on rumors of a banking union in the EU as well. But the action in commodities looks a lot like a QE trade. The move of the day has to be silver, which is up 5.1%. It's a typical risk-on day, with the most beaten down sectors like basic materials and financials leading the way.
I'm not going to be too hopeful though because any denials of QE are liable to send the market back into a tailspin. And there are plenty of reasons why the Fed wouldn't be overly eager to turn on the money presses:
* Last Friday's jobs report was really the first piece of data to show any significant slowdown in employment. Bernanke likes to confirm trends, and this is not enough evidence to support carrying out the "dual mandate."
* Although commodities have been trending down over the past month, $85 oil is still too expensive to be a red flag for deflation.
* The Fed has no obligation to Europe and thus will not simply react to their crumbling markets.
If anything, I would expect a hint about something in the middle ground like an extension of Operation Twist, not a full-on QE. And that's probably not enough to get the markets fired up. Deep down my conscience tells me QE is a bad idea and a phony excuse for economic medicine but my superficial side, like the rest of the market, tells me we need this and it's the only thing that's going to dig us out of a bear market right now.
Add a Comment!