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Ben Bernanke

Fed To The Rescue?: 09-02-10

This past week has brought a mix of economic news, but the markets, happy to leave behind a dismal summer, took the bad ones on the chin. The strong rally that we saw yesterday was brought on by the good news on the manufacturing front: as was signaled by the ISM factory index, manufacturing in the U.S. expanded. The index itself rose to a three-month high of 56.3 (readings above 50 indicate expansion). While still positive, much of the gains stemmed from higher prices paid – a sign of inflation not growth.

Good news from Australia and China also encouraged investors to come in and buy shares. China’s purchasing managers index rose to 51.7 last month from 51.2, also signaling growth.

At the same time, the consumer slump just does not let go. Construction spending in July fell twice as much as forecast, led by a slump in homebuilding that will depress growth, Commerce Department figures showed yesterday. Consumers remain strained. The sales of both new and previously owned homes both declined to the lowest level on record in the month of July – as the demand propped up by the tax incentives ended. In the meantime, mortgage rates continue to fall. Today, Freddie Mac made it known that the average rate available for a 30-year fixed rate mortgage has declined to 4.32 percent.

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Market Update 08-30-10

Stocks lost ground for the third week in a row last week, despite a strong rally on Friday. By Wall Street’s perverse way of thinking, that day’s gain was justified since the latest reading on GDP, though down considerably from last month’s estimate, was nevertheless slightly higher than what analysts were expecting this go ‘round.

Investors also liked what they heard from Ben Bernanke last week at a gathering of economists in Wyoming. The Fed Chairman’s comments also fell in the “bad news is good news category,” in that he indicated the central bank stood ready pump more money into the banking system if the economy shows further signs of weakening.

The Fed isn’t the only central bank intent on jump-starting an economy with more money printing. After a surprise meeting yesterday the Japanese central bank said it was going to add an additional $118 billion in liquidity. The European Central Bank, which meets later this week, is also likely to buy back bonds to offset the negative effects of recently imposed austerity measures. Adding to worries here at home, President Obama stepped into Rose Garden to yesterday to tell the media that he had discussed with advisors possible additional measures to aid the anemic recovery, though he had nothing concrete to share with the press or the American public.

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Get ready to ride the QE2 08-30-10

Short-Term Key: Neutral Long-Term Key: -5 (Neutral)

For those who follow the school calendar, summer ends this week, bringing with it the start of a traditionally weak period for stock prices. October, of course, has been the worst month for market disasters, but September has statistically been the weakest month. With the uninspiring economic data that has been pouring in over the past few months, investors have every reason to be nervous.

On Friday, for example, the Commerce Dept. reported that the U.S. economy grew at a rate of just 1.6% during the second quarter. Stock prices rose on the news, simply because everyone had feared an even worse performance. Nonetheless, we see no reason to cheer the fact that the pace of economic recovery is slowing. We doubt this quarter's growth will be much better.

The other notable event that occurred on Friday was Ben Bernanke's speech to economists at the Kansas City Fed’s annual gathering in Jackson Hole. The gist of his remarks is that the Federal Reserve stands ready to intervene should there be further signs that the economy is turning down.

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Markets Outperform the Economy: 08-26-10

Most of what you need to know about the current economic environment in the U.S. can be summed in one sentence: In this economic recovery, the pace of overall growth, job creation and consumer spending are all well below the growth rates of the three previous downturns in 1981-82, 1990-91 and 2001.

The economy declined 4.1 percent in the downturn that evidently but not yet officially ended in the second quarter of 2009. This was the deepest recession of the post-World War II period. There was some historical precedence for the expectation of some that a sharp decline would lead to a robust rebound. That has not been the case, as we predicted more than a year ago.

Pretty much all of the reports on the economy this summer have come in below expectations. Leading the way this week, housing sales in July plunged to their lowest level in more than a decade, and down 25.5 percent below the July 2009 level. July was the first month that buyers could not qualify for a tax credit of up to $8,000. But the decline was almost double expectations. The number of homes on the market increased only slightly.

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Market Rally Continues Despite Soft Economy: 07-22-10

Stocks resumed their advance today thanks to some strong quarterly earnings reports and evidence of stability in Europe, and despite ongoing indications of a tepid economy in the U.S.

Federal Reserve’s Ben Bernanke said this week that the economic outlook is “unusually uncertain,” and that it has weakened "somewhat" lately. He added that the Fed would take steps to bolster the economy if the recovery remained sluggish and failed to create enough new jobs. But the Fed has no immediate plans to provide additional support to the economy just yet.

Bernanke outlined three monetary-policy options to support the economy that would be considered if necessary. First, the Fed could emphasize that it intends to keep its benchmark federal funds rate at zero to 0.25 percent for even longer than the “extended period” it has been projecting.

Second, the Fed could lower the interest rate it pays on reserves that banks keep at the central bank in excess of what they are required to. Theoretically, this would encourage more lending. That rate currently stands at 0.25 percent.

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Mid-Week Update 06-09-10

If you judged last Friday’s employment report by the market reaction to it, you would have to conclude that job creation was weak during the month of May. And you would be correct, too. Today, in his testimony on economic and financial conditions and the federal budget Fed Chairman Ben Bernanke noted that, while payroll employment rose by 431,000 in May, that figure importantly reflected an increase of 411,000 in hiring for the decennial census.

The net job increase, therefore, is significantly less than the 140,000 a month average of the past three months. “In all likelihood, however, a significant amount of time will be required to restore the nearly 8.5 million jobs that were lost over 2008 and 2009.” At this pace, that is quite an understatement.Read more...

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Bullish Sign: Investor Skepticism Reigns: 04-08-10

The stock-market uptrend remains in place despite yesterday's sell-off. This is because of generally good news on the economic front and the strong appeal of financial assets that offer growth potential and solid income, as opposed to miniscule yields for the safest savings vehicles.

Last week's critical jobs report showed signs of a modest gain in the labor market. Manufacturing and consumer spending are also picking up, as we reported last week. And the latest report on the service sector also indicated a recovery that's gathering steam. Even the housing market is showing signs of stabilizing. At the very least, home prices almost certainly are no longer declining on a national level.

Meanwhile, individual investors continue to pour money into bond mutual funds while actually withdrawing assets from U.S. equity funds. To be sure, exchange-traded funds increasingly are taking market share away from mutuals. But the overall lack of participation by individuals in the equity bull market, combined with a long stretch of relatively low trading volume, suggests a high level of skepticism. Read more...

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Headwinds and Crosswinds: 02-25-10

This week's news developments clearly illustrate the headwinds and crosswinds affecting the financial markets these days.

On the plus side, Federal Reserve chairman Ben Bernanke told Congress yesterday that the Fed won't start raising short-term interest rates anytime soon, as we've advised you for many months now.

In addition, corporate profits have been strong. While investors haven't been overly impressed, rising earnings coupled with low interest rates and somewhat lower stock prices create improving investment values.

The negative side, of course, is that the economic recovery likely will remain sluggish for quite a while, not only in the U.S. but also in the rest of the so-called developed world, as we explain below. Read more...

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Euros Say They'll Help Greece, But How?: 02-11-10

The big news, unfortunately bad, in global financial markets lately has been rising anxiety about sovereign debt, the bonds issued by deficit-bloated nations. The specific focus has been on Greece and to a lesser extent on other struggling members of the European Monetary Union.

Among other consequences, this adverse development has hurt the euro, pushed up the dollar, enhanced the appeal of U.S. Treasury securities and broadly dampened investors' willingness to take risk. A stronger dollar has resulted in unwinding of the so-called carry trade. Commodities and emerging-markets equities have been among the biggest losers.

But world markets have improved this week amid expectations that the European Union will support Greece. Today, the EU said it will provide "determined and coordinated action if needed" to preserve stability in the currency union. For now, the markets seem to believe that that the European Union will do what's necessary to support the monetary union. Yet there were few details of how and when this will occur.
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Stock Market's Wall of Worry: 01-28-10

A bull market climbs a wall of worry. But the wall of worry has just gotten taller.

Since peaking at 1150 on Jan. 19, the benchmark Standard & Poor's 500 index has dropped 6 percent in seven trading days. This has occurred despite generally positive corporate earnings.

With the decline has come a rebound in the Chicago Board Options Exchange's volatility index, or VIX. The Fear Index jumped from a low 17.5 on Jan. 19 to as high as 28 just three days later and has since been in the 23-26 range. Still, this level of volatility is only about average for the last 10 years.

Good news on corporate earnings with a poor stock-market response is a clear sign of trouble, at least in the near term. To be fair, "good" isn't good enough after the stock market has soared some 70 percent in 10 months. And the news hasn't been all good, to say the least. Read more...

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Ben Bernanke

Fed To The Rescue?: 09-02-10

Market Update 08-30-10

Get ready to ride the QE2 08-30-10

Markets Outperform the Economy: 08-26-10

Market Rally Continues Despite Soft Economy: 07-22-10

Mid-Week Update 06-09-10

Bullish Sign: Investor Skepticism Reigns: 04-08-10

Headwinds and Crosswinds: 02-25-10

Euros Say They'll Help Greece, But How?: 02-11-10

Stock Market's Wall of Worry: 01-28-10

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