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  • Desperate Fed Launches Unprecedented QE3

    The Federal Reserve announced a new round of quantitative easing (QE3) last Thursday at the end of its latest policy meeting. While the announcement was widely expected, Fed Chairman Bernanke had some surprises in store. He announced that the Fed will buy $40 billion in mortgage backed bonds every month until the economy gets better. When will that happen? No one knows. So the latest round of QE is unprecedented in that no one knows how long it will last or how much money the Fed will have to print.

    To me and many others, this is a sign of desperation on the part of the Fed. Depending on how large QE3 turns out to be, it could spark the next round of inflation. Even worse, QE3 may not work just as QE1 and QE2 didn't work. Some argue that this unprecedented move by the Fed is an effort to get President Obama re-elected. Yet we are continually reminded that the Fed is non-political. What we do know is that Bernanke is out of a job if Romney wins. So one wonders.

    Today we will analyze the Fed's latest move, the logic (or lack thereof) behind it, why it is dangerous, why it is unprecedented and lastly, why QE mainly helps only the wealthy. It should be an interesting letter.

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  • Spain & Weak US Economy Dominate Markets

    Stock markets around the world have been pummeled in recent weeks amidst the growing reality that we’re in a global recession, especially in Europe. Fears that the US will also fall into recession have intensified, particularly in light of last week’s very disappointing economic reports.

    At the same time, the European debt crisis has once again raised its ugly head, this time with the spotlight on Spain. Spain’s own Prime Minister has admitted that the country is in a state of emergency, and money is gushing out of Spanish banks. Interest rates have soared once again to levels that led to the European Central Bank’s €1 trillion bailout package late last year and early this year.

    Last week, the yield on Spain’s 10-year bonds spiked to 6.7%, a whopping premium of more than 5.5% above the yield on the 10-year German bund at the time. Meanwhile, short-term rates in Germany fell to zero as new money seeks a safe haven there and in the US where 10-year Treasury-note yields fell to a post-war record low of 1.45% last Friday.

    Spain is facing a full-fledged banking crisis and knows it. Yet Spain's leaders do not want a bailout and the accompanying loss of sovereignty. They see that such bailouts in Ireland and Portugal have not gone well. Still, Spain is running out of money fast, and the country is largely shot out of the credit markets. How this plays out is uncertain, but it won't be pretty.

    Following that discussion, I will address the fact that consumer confidence is dropping like a stone in the US. This has prompted new hopes that the Fed will unleash QE3. We will know soon enough as the next Fed policy meeting is June 19-20.

    We end up today with a suggestion on my part that the current swoon in stocks is a BUYING OPPORTUNITY. No one knows where the bottom is, of course, but consider this. If the Supreme Court renders Obamacare unconstitutional later this month, and I think it will, we could see a MONSTER RALLY in stocks. The High Court's decision is scheduled to be announced on June 25. This is why I think you need to be getting back in the market now, while it's down. And I offer two excellent suggestions on just how to do that at the end.

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  • Is the Fed Now Leaning Toward QE3?

    Since late last year, the consensus has been that the Fed will not enact more quantitative easing, or QE3, since the economy is slowly improving. Yet there is new evidence which suggests that the Fed may yet implement QE3, despite the fact that QE is unpopular politically. If this is the case, and no one knows for sure, I would expect the Fed to announce QE3 no later than this summer and maybe even sooner. They don't want to do something unpopular during the election season in the last half of this year.

    Following that discussion, we turn to Europe and the fact that the European Central Bank has now made over $3 trillion in bailout loans to banks across the region. That tops even our own Fed which has $2.9 trillion on its balance sheet! Greece has reportedly completed its huge bond swap in which investors took a haircut of 70%. In return, it appears that Greece will get its much needed second bailout loan of 130 billion euros. While Greece may be off the front pages for now, it won’t be for long.

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  • On the Fed, Stocks, the Election & More on the 1%

    Today we visit several interesting topics. We begin with a look at the Fed’s latest Beige Book report that came out last week, which showed that the economy improved at least modestly in all 12 Fed Districts late last year. We also ponder the question of whether the Fed is ramping up to do another round of quantitative easing (QE3).

    Next, with everyone wondering if we’re facing another roller coaster ride in the stock market this year, I will bring you some interesting facts about what stocks have historically done in presidential election years.

    Finally, we received a great deal of response to last week’s E-Letter that focused on members of Congress and how they fare so much better than the rest of us financially speaking. Given the level of interest in this topic, I dug a little deeper over the last week to find some fascinating information on the so-called “Top 1%” of wealthiest Americans. You’re going to love this!

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