Archive for June, 2011
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Bernanke LIVE!
Eddy Elfenbein, June 22nd, 2011 at 2:15 pm -
Today’s Fed Statement
Eddy Elfenbein, June 22nd, 2011 at 12:29 pmInformation received since the Federal Open Market Committee met in April indicates that the economic recovery is continuing at a moderate pace, though somewhat more slowly than the Committee had expected. Also, recent labor market indicators have been weaker than anticipated. The slower pace of the recovery reflects in part factors that are likely to be temporary, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan. Household spending and business investment in equipment and software continue to expand. However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed. Inflation has picked up in recent months, mainly reflecting higher prices for some commodities and imported goods, as well as the recent supply chain disruptions. However, longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The unemployment rate remains elevated; however, the Committee expects the pace of recovery to pick up over coming quarters and the unemployment rate to resume its gradual decline toward levels that the Committee judges to be consistent with its dual mandate. Inflation has moved up recently, but the Committee anticipates that inflation will subside to levels at or below those consistent with the Committee’s dual mandate as the effects of past energy and other commodity price increases dissipate. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.
To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent. The Committee continues to anticipate that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate for an extended period. The Committee will complete its purchases of $600 billion of longer-term Treasury securities by the end of this month and will maintain its existing policy of reinvesting principal payments from its securities holdings. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.
The Committee will monitor the economic outlook and financial developments and will act as needed to best foster maximum employment and price stability.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen.
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Lagging Financials
Eddy Elfenbein, June 22nd, 2011 at 8:48 amHere’s a good look at the relative performance of financial stocks. This chart shows the Financial Sector ETF ($XLF) compared with the S&P 500.
We already know that financial stocks got crushed during the financial crisis, but look at what’s happened since April of last year. Financial stocks climbed during the initial part of the rally but have been noticeably subdued over the past year. It seems as if they’ve grown even weaker this year.
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Can We Make It Five Straight Up Days?
Eddy Elfenbein, June 22nd, 2011 at 8:34 amEh…probably not, but you never know. The U.S. stock market is looking to open lower today even though the Prime Minister of Greece survived his no-confidence vote today.
The main of focus of today’s trading will be the Federal Reserve’s meeting. The policy statement will come out at 12:30 and Ben Bernanke’s press conference will be at 2:15 pm. Most likely, this will be a non-event.
What’s interesting is that Bernanke’s latest comments have been directed to Congress. He wants the U.S. to clean up its fiscal mess, but not just yet; otherwise it could spoil any possible recovery. Specifically, Bernanke has said that Congressional negotiators shouldn’t use the debt limit debate as a bargaining chip to force spending cuts.
JPMorgan Chase ($JPM) said that it reached a deal with the SEC yesterday to pay a $153.6 million fine to settle charges that they misled investors.
In March and April 2007, as the housing market teetered toward collapse, J.P. Morgan senior management pressed the salespeople responsible for Squared CDO 2007-1, a complex “collateralized debt obligation” of derivatives linked to the mortgage market, to avoid permanent losses, the Securities and Exchange Commission said.
The bank was already looking at a $40 million mark-to-market loss, but decided to press forward with a marketing pitch to institutional clients instead of shutting down the deal, the SEC said, in an effort to avoid greater losses.
Let’s add some perspective: JPM has nearly four billion shares outstanding so this fine works out to less than four cents per share. Just the news of the resolution of the issue helped the stock gain 43 cents per share yesterday.
The real danger is how much the bank is exposed to future lawsuits.
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Morning News: June 22, 2011
Eddy Elfenbein, June 22nd, 2011 at 7:13 amEuropean Stock-Index Futures Fluctuate; Philips, H&M May Move
Greek Banks Feel Hostage to Debt Crisis
France Warns of Hunger as Farm Ministers Meet
China Expects Inflation to Keep Climbing for a While
Murban Crude Oil Declines Amid Signs of Extra Saudi Cargo Supply
The Entire Fate Of The Debt Ceiling Could Come Down To The Next Three Days
J.P. Morgan Knew Portfolio Had Losses, SEC Says
MetLife Pushes Reverse Mortgages as Wells Fargo, BofA Retreat
Philips Sees Weak Demand for Lighting, Consumer Electronics
Walgreen Net Up 30% But Express Scripts Loss Weighs
Adobe’s Sales Exceed Estimates on Rebound From Japan Quake
Keynesian Dismisses Crowding Out
James Altucher: The Best Trader In the World Worked for Bernie Madoff
Epicurean Dealmaker: The Blind Men and the Elephant
Stone Street: Happy First Day of Summer, or: The Relationship Between Consumer Spending & Gas Prices
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Bounce!
Eddy Elfenbein, June 21st, 2011 at 3:42 pmProbably the widest gap between what I was taught in business school and what I’ve seen in the real world is technical analysis. Every study says it’s garbage. All the respectable folks say that you’re seeing trends that really don’t exist.
I’m a skeptic, too. Still, when we bounce off the 200-DMA so clearly, it makes me wonder:
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Ford Up on Good Sales News
Eddy Elfenbein, June 21st, 2011 at 12:06 pmGood news for Ford ($F) today:
This morning, a few marginally positive words from a top executive, along with the broader rally in the stock market, are driving Ford’s shares 4% higher. General Motors, Toyota and Honda are all up about 1%.
Earlier today, Mark Fields, Ford’s head of North and South America operations, said June was “off to a good start,” according to Reuters. He thinks this month will meet May’s weak sales figures or perhaps top them.
Given all the Slow Patch chatter, Mr. Fields comments might give the economic doomsters some pause. The move in Ford’s shares also underscores how negative sentiment has become. Merely saying that things will be slightly better than horrible seems to spark intense buying pressure.
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Sorry Folks, QE3 Ain’t Coming
Eddy Elfenbein, June 21st, 2011 at 10:35 amThe Federal Reserve is beginning a two-day meeting today in Washington. There’s little doubt that the Fed will continue with its low interest rate policies. All eyes will be on the policy statement which will come out tomorrow at 12:30, and once again, Bernanke will meet the press.
The words that everyone will be looking at are “extended period.” That’s how the Fed has described its commitment to hold interest rates very low. Once the words “extended period” leave, then you know something’s up. I think it’s very likely that “extended period” will be in tomorrow’s statement, and it will probably still be there by October at least. After all, the unemployment rate is still at 9.1%.
The bond market also knows what the deal is. Consider that from February’s high to the recent low, the yield on the 10-year Treasury has plunged 85 basis points. Not to mention that the U.S. stock market had shed over $1 trillion since late April.
However, the Fed is also facing a problem of inflation. I shouldn’t say that inflation is a problem yet, but it’s at the very edge of the radar screen. The most recent inflation report showed the largest price gains in four years. In a relative sense, this isn’t a high level of inflation, but the Federal Reserve has two mandates: full employment and low inflation. Until now, the low inflation issue has been on the back burner as the Fed has tried everything to help the economy get on its feet.
Right now, I think it’s obvious that the Fed won’t touch rates for the rest of the year. At the end of this month, the Fed’s QE2 program will come to an end. Some folks are expecting a third round of bond buying. I don’t see that happening and I think the Fed has made it very clear to Wall Street that it’s not coming.
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Looking to a Strong Open
Eddy Elfenbein, June 21st, 2011 at 9:05 amIt looks like the stock market will open higher thanks to the news that the Greek Prime Minister will survive a no-confidence vote today. The very fact that we’re watching parliamentary votes in Greece looking for good is itself highly questionable news. The sad fact is that Europe’s troubles have dominated our markets recently. Last week, the S&P 500 finally shook off its six-week losing streak which was the longest downhill run in over two years.
The other big story today is that the Federal Reserve is meeting again in Washington. There’s little doubt that the Fed will continue with its current policies. As we’ve seen from the ultra-low yields in the bond market, Wall Street expects the Fed to keep its rock-bottom rates going for a few months more.
As I noted recently, the yield on the two-year Treasury bond is down to 0.38%. It’s one thing to see low yields in short-term rates, but two years isn’t so short. Investors so desire liquidity that they’re willing to forgo nearly any income.
To bring you up to speed on all things Greek, the country needed a huge cash infusion last year to avoid going under. They got it, but now they need more. This time, the European finance ministers are demanding a pound of flesh. Or more precisely, several million euros of flesh. The Greek government will need to pass some strict austerity measures. Naturally, this has caused domestic political turmoil.
The no-confidence vote will come around 5 pm ET.
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Morning News: June 21, 2011
Eddy Elfenbein, June 21st, 2011 at 7:33 amPapandreou Confidence Vote May Decide Greece’s Fate
Vote of Confidence Is Only the First Step for Greece
German Investor Morale Falls to 2009 Lows in June
Crude Oil Rises as Greek Debt Concerns Ease
Chinese Banks Falter as Slowdown, Tightening Bite
Fitch Ratings Comments on U.S. Debt
Big Banks Lose Ruling on Research
JPMorgan, RBS Sued by Federal Agency Over Mortgage Bonds
BP Rises From Six-Month Low After Weatherford Agrees on Payment
Brewing Giant SABMiller Pursuing Foster’s After $10 Billion Bid Rejected
RIM Takeover Beckons Microsoft With Cheapest Multiple
PNC to Buy R.B.C. Unit for $3.5 Billion
Japan Will Rise, and So Will the U.S.
Jeff Miller: The Super Powers of Ben Bernanke
Stone Street: Project YOKU-zuna: Downgrading to Conviction Sell (Again)
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