Morning Commentary
The Pitch in Los Cabos
President Obama, when asked about how to fix Europe (and by extension America), pitched the same economic game plan we have heard and will hear until November.
"Green economic growth that also combats climate change" struck a nerve since the focus is now on Italy, which happens to be the world's second largest solar market and last year lead the entire planet in solar growth. If this is the cure-all, what the heck is happening in Italy, which along with Spain has poured billions of taxpayer money into the dream?
"Promote growth" was uttered at least three times with respect to fixing Europe, and by now, we know it's a euphemism for taxing the rich, almost rich, and corporations; and hijacking profits generated abroad.
The economic plan Obama wants to use has been in place for decades in Europe and it is disastrous. Yesterday, there were rumors Merkel would blink and Bernanke would wink and all would be well. Any fix must be disruptive and also carry components that engender work ethic and accountability. The fix must be long term, not Band-Aids.
I'm looking for nations that need bailouts to do the right thing, embrace free markets, unleash their private sectors, and pay their bills. That should be the only way the cavalry comes to the rescue.
The Fed in Focus
By Carlos Guillen
After a rather encouraging trading session yesterday, today the suspense continues to build as everyone will be focused on what the Federal Open Market Committee (FOMC) will convey about quantitative easing. As of now, the Street's expectations are quite high that some form of liquidity will be put in place to spur economic growth in the short run; but given yesterday's gains, it seems that we are more vulnerable to the downside if the FOMC fails to give the Street what it already has built into the price of stocks.
By the end of yesterday's trading session, the Dow Jones Industrial Average managed to hold on to most of the gains achieved during the first half of the trading day; however, there was some turbulence in the index after a German official negated positive rumors of more aid becoming available for weaker euro zone nations. According to British media reports, German Chancellor Angela Merkel was poised to use Europe's dual bailout funds, the European Financial Stability Facility and the European Stability Mechanism, amounting to €750 billion, to buy debt from some weakened euro zone nations like Italy and Spain and prevent the euro from collapsing. This action was long opposed by Angela Merkel as she feared that Germany would be stuck with the bill of the weaker nations. And, as it turned out, German government officials came out later in the day and said there were no discussions at the G-20 meeting about any plans to use EU rescue funds to buy bonds of debt stricken members of the euro zone.
The news quickly brought stocks lower and left indices oscillating into the close of trading, but the Dow still finished up 95.5 points, or 0.75% from the prior closing price, with the strongest sector being Materials and Financials, up 2.0 and 1.7 percent, respectively.
Today, the FOMC will continue its two-day meeting, and all expectations are that the U.S. central bank will extend its "Operation Twist" program in an effort to drive down long-term borrowing costs and to increase liquidity in the economy. As it stands, the U.S. economy has been experiencing rather increasing headwinds, which have been resulting in lower and lower gross domestic product growth and even lower growth expectations. As such, it is understandable to assume that the Fed will move to anticipate a slowdown and provide some form of liquidity to promote economic growth. However, with the Fed funds rate already close to zero, the Fed has less ammunition to fight with, and let's not forget that while inflation is under control, it is still rather tight.
Nonetheless, the Fed still has bullets left, and the Street currently expects the FOMC to leave the Fed funds rate untouched but to announce the extension of "Operation Twist," a $400 billion bond-buying program set to expire at the end of this month, which involves swapping U.S. government bonds that had a short maturity for those with a longer maturity. The idea behind Operation Twist was to drive down the interest rate on long-term bonds, which serve as a reference in the pricing of auto loans, mortgages, and other longer-term loans to consumers and business. The question now is just how much more "Twisting" does the Fed have? And will the Fed's last weapon be to do one more quantitative easing (QE3), which is printing more dollars? Sit tight ladies and gentleman, and we'll see what the FOMC has to say later today.
Charles' Musing for Today
Will Wall Street Dance
It's all about the Fed and Wall Street whining or dancing. Thus far Operation Twist has had negligible impact on the economy, from jobs to housing, people didn't put on their dancing shoes. Today at the very least the Twist will continue, but it's unlikely to make Ben Bernanke the Chubby Checker of economics. Checker's remake of the Twist, first performed at the Rainbow Club in Wildwood, New Jersey in 1960 became a hit that still resonates five decades later. The song is credited for getting people to get on the dance floor.
Bernanke's Twist didn't create that spark to move the nation into a virtuous cycle. Admittedly, people are more concerned with the war on success and profits than ultra-low rates but the Fed has a mission and thus far cannot claim it's been accomplished. On that note, we are set up for disappointment today. Possible scenarios:
> No Action-market plunges
> More Twist with hints of further action-rally could continue
> More Twist with hints of no further action-market stumbles
> Increases asset purchases and extends timeline for low rates-market surges
The Bank of England minutes reveal a 5-4 vote against more action, but since Mervyn King was among those voting for more action, conventional wisdom holds for action next month.
What I don't understand is if these central banks are ultimately going to take action why do they wait for disaster? Surely these guys have economic models that can predict things faster than my mother who seems to know turns before the Fed does. It's really odd and speaks to how political these guys have become. They already get to message inflation data to provide cover for actions that is often too little too late.
Moreover, when it is time to unwind action, the Fed is even more deliberate. For all its power, the Fed wields it like a child with a plastic sword.
Comments |
Our un-backed currency has simply become another commodity like hog bellies and grain, and therefore subject to the same supply and demand market rules. Baffle 'em with bullshit again! Z on 6/20/2012 11:15:23 AM |
We can't expect much from the Fed because the Fed is primarily reactive, seeking to take the edge off sharp rises and falls in the economy. The real influences are systemic -- changing demographics, good and bad effects of technology, job outsourcing, free trade flows, consumer and government debt imbalances, taxes, regulations, and the cost of overweight government -- all of which affect supply and demand, which is the basis of all economic change. Changing values have an impact, too, especially on consumer expectations. It's a complex mix called "the market" and the best we can hope for are positive shifts in market equilibrium. Right now, that's barely positive. Praying might help as much as anything. Dennis Howard on 6/20/2012 3:49:44 PM |
"war on success and profits"...please. As if these guys are out to make America fail willfully (rolling eyes), as if a LACK of prosperity will get them reelected. I'm pretty sure no one is buying this kind of moronic rhetoric aside from the far right who are already brainwashed so you probably should find some new catch phrases to repeat over and over or you'll get to see Obama's smiling face another 4 years....(whispering now) its gonna take a change of strategy guys;) Jetti on 6/21/2012 4:10:54 AM |
Fed stimulus is like sugar to the stock market. Experience (charts and numbers, not opinions) from QEI and QEII say that free money to banks leads to higher stock prices. I am not seeing corresponding improvement in "the economy" in the form of proportional increases in hiring, business investment or increased appetite for risk. Why should it, when free money has no strings attached? IMO the best thing to do would be to put back the hard division between bank deposits from US citizens and "investment banking", which is really trading and investment. Reduce risk to the FDIC, no more bank bailouts would be needed and let those willing to assume risk take risk on their own. Mike on 6/21/2012 8:38:30 AM |
I'm confused...One ad on Romney states that Mass. was #1 amount of jobs & #47 in debt...whats up...some one is lying RA Behning on 6/21/2012 4:57:30 PM |
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