Quantitative Easing

Quantitative Easing, That is certainly the conclusion of the financial markets. When Federal Reserve chairman, Ben Bernanke, failed to mention the magic words in his House Humphrey Hawkins testimony on Wednesday, risk assets were sent into a tailspin. Gold suffered a $100 move plunge in hours, the futures market seeing an almost instantaneous liquidation of $1.3 billion worth of contracts. Silver dropped 10%. Oil gave up $3 in a heartbeat.

What was truly impressive was the collapse of the Treasury bond market, which saw yields for the ten year leap from 1.92% to 2.05%. When a single order to sell 100,000 bond futures contracts worth $10 billion hit the market, many thought that a major firm had committed a grievous ‘fat finger” error. But the “cancel and correct” never came, and the trade stood. Clearly, a major hedge fund was betting that the 30 year bull market in bonds had peaked and moved to add some serious downside exposure.

The reason that I missed the extent of the serious rally in risk assets this year is that the current wave of quantitative easing was so paltry. One €500 billion tranche in December followed by a second on February 29 is only a fraction of the tsunami sized liquidity the Fed’s previous QE1 and QE2 unleashed on the markets.

In any case, most of this cash stayed in Europe, with the banks bidding up sovereign bonds in a frenzied manner to capture a massive positive carry. Italian 10-year yields collapsed from over 8% to under 5% in weeks. As expected, none of the dosh made it into the real economy where it could do some actual good. But traders have developed a Pavlovian response to the words “quantitative easing”, which instantly triggers a rush of buying of all assets everywhere, as it has done in past cycles.

How The Fed Shapes Inflation

How The Fed Shapes Inflation, Stronger hiring and higher pay and savings should support solid growth for the economy in coming months.

That was a key message that emerged Wednesday from a report on economic growth in the final three months of 2011. The economy grew at a 3 percent annual rate in the October-December quarter, up from a previous estimate of 2.8 percent, the Commerce Department said.

Most of last quarter’s growth stemmed from a jump in company restocking. That happened because businesses rebuilt inventories that had been depleted last summer. Stockpiling is expected to slow sharply this quarter. And as it slows, growth could, too.

But economists stressed that the fundamental drivers of the economy – incomes, consumer spending and business investment – are rising. They will likely sustain growth this year.

The Federal Reserve said Wednesday that all 12 of its banking districts reported some level of growth in January and the first half of February.

The Fed’s report “was surprisingly more upbeat than we’ve seen lately,” said Jennifer Lee, an economist at BMO Capital Markets. “The employment picture is certainly brighter.”

Overall economic activity increased at a “modest to moderate” pace, the Fed noted in the latest Beige Book, as the Fed report is formally known. That roughly matches the Fed’s assessment of the economy in the final weeks of 2011. And it is slightly better than the ‘slow to moderate” growth cited for October and mid-November.

The pickup in growth reported by each Fed region corresponds with stronger hiring and declining unemployment over the past three months.

Chairman Ben Bernanke told lawmakers Wednesday that the economy has performed better in recent months than the Federal Reserve had expected. If the trend continues, he said the Fed might have to reassess its outlook for a slow recovery.

Investors appeared to take Bernanke’s more optimistic tone as a signal that the Fed is less likely to adopt further steps to boost growth. It could also mean that the Fed could back off its plan to hold its key interest rate near zero until late 2014.

Analysts said Bernanke’s speech was notable for what it didn’t include: any mention of a new round of government bond-buying.

Speaking at a hearing of the House Financial Services Committee, Bernanke cautioned that the Fed doesn’t expect the sharp drops in unemployment to continue this year and it plans to stick with its policy on interest rates. Still, he said the Fed’s late-2014 target for any increase in interest rates is tied to the economy’s health and the Fed might have to adjust its target if the economic outlook improves.

Qe2

Qe2, Dame while inflation of age. Dame while inflation of age. Dame while inflation of age, is good enough for me. The Federal Reserve has changed sides! Can you believe the Federal Reserve is in favor of inflation! I mean it’s like Superman encourage the Communists. The mission of the federal “has always been to fight inflation, not create it. But that’s exactly what they are doing. Of course, the truth is that regular readers of my reports have been known for years that the Fed inflationary joined the dark side of force. The Fed wants the commodity prices to inspire economic activity begin to fear that their activity is used or lost in relation to the purchasing power of their devalued dollars. The Fed wants inflation and know how to create and can not get in the way federal agencies.

It’s like I wrote the day after the quantitative easing March 1, 2009 when he said: “I fought the Fed and the Fed won. I fought the Fed and the Fed won. Money required for some prints, I fought the Fed and the Fed cattle. “I say,” Do not underestimate how the central bank can change the market. ” Fed time of this movement to quantitative easing market still has to come to grips with the effects of short and long term on the economy and markets. The only thing that is certain is that the rules have changed. And when it comes to a knife fight and the power of the Fed, there are no rules. Someone say one, two, three, gold! In a blink of an eye the Fed, with its unlimited power to print money, you can change the dollar value of a product or its long-term trend in an instant. In creating inflation and the money nothing can reverse the trend of commodity over as we know it and drive out demons deflation that particular time. Being short commodity has become a more dangerous and the Fed has put us on notice. At any time you can run the printing press and change the destination of goods.

They do not because it created a worldwide shortage of a product or due to soaring demand. It’s because the Fed has the ammunition to do so. At the same time, the Fed’s policy of quantitative easing is the simulation for the economy as a good old-fashioned cut interest rate, but at the same time, has the potential to be more inflation (especially commodities) . And now that the Fed has opened the Pandora’s box, from markets and now have a more complex element of them. Not only that the market seemed a bit surprised by the timing of the Fed of this historic and dramatic. Not that the market was on guard for the possibility, but after an Emmy, Ben Bernanke, is winning caliber performance in 60 minutes, the idea was that this silver bullet relief would be saved for another occasion. Is there an award for best actor for a president of the Fed and a cheerful disposition in a continuing role?

I asked at that time Why QE? There are two possibilities. One is that the economy is much worse than it looks. The other is that the Fed thinks things are getting better and wanted to give a little shock and awe stimulation of this weak recovery in the hope that it will become a full blast of unbridled economic growth. Inflation may be acceptable when it comes to economic growth. Fed’s bet is that this will stimulate the economy, eliminating the risk of deflation and reduce yields for mortgage companies and moving again.

The problem is that if we grow beyond the inflation risk, you get the dreaded stagflation. The fear is that the movement of the Fed may not be sufficient or simulation will not have the desired effect. For commodities and oil, if this is just a game of inflation, this is not good. If the oil is driven more just because the Fed is printing more money compared to the improvement in demand, as the Fed can actually damage the economic recovery. If the dollar continues to fall against other major world currencies, the Fed is in the same position weak dollar, which complained about earlier in this crisis. In other words, if the inflationary effect of oil is greater than the effect of economic stimulus of lower long-term, oil drag on the U.S. economy goes to the dreaded stagflation scenario.

Stagflation is a real danger for the Fed and its endless array of money. This is the largest federal commitment. It’s like their version of the surge in Iraq. It is make or break your time. If printing money can not change the direction of this economy, then leave the wheel barrel to fill with cash and try to open your portfolio in gold. If it works and the economy starts to grow, the Fed will have to put on the breaks and raw materials will fall. If the products remain strong and recovery will not keep up, then prices will start to fall again. That is until the Fed starts printing again. Now that the Fed is getting ready to print again and QE2 may be just around the corner!

Federal Reserve

Federal Reserve, “Net-net indicates that the Fed will remain accommodative, but also ready to take additional measures to keep liquidity flowing into the market,” said Wasif Latif, vice president of equity investments at USAA.

Recovering from a fall of more than 140 points, the Dow Jones Industrial Average / quotes/comstock/10w! I: DJI / late (DJIA 10 644, -54.50, -0.51%) closed down 54.50 points, or 0.5%, to 10644.25.

Intel Corp. / quotes/comstock/15 *! INTC / quotes / nls / INTC (INTC 19.84, 0.02, 0.10%) led losses among blue chips, with chip maker’s stock, as well as non-blue chip rivals hit as analysts questioned the demand for computers and related equipment in an unstable economy.

Intel shares fell 4% while Advanced Micro Devices Inc. / quotes/comstock/13 *! Amd / quotes / nls / AMD (AMD 6.80, -0.03, -0.44%) fell 8%.

In its statement, the Federal Open Market Committee acknowledged the U.S. economy For additional help, and that it would reinvest the profits from their investments in mortgage-backed securities as they mature in Treasury bills.

The S & P 500 / quotes/comstock/21z! I1: in \ x (SPX 1121, -6.73, -0.60%) lost 6.73 points, or 0.6%, to 1121.06, heavier by the technology sector, which fell 1.2%.

The Nasdaq Composite / quotes/comstock/10y! I: comp (COMP 2277, -28.52, -1.24%) lost 28.52 points, or 1.2%, to 2277.17.

Bond prices rose and the dollar pared its advance after the Fed announced its plan to stimulate the economy. Gold futures back above 1,200 an ounce in after hours trade.

Energy stocks will coldThe energy sector weighs heavily on the broader markets as oil futures decline. Cynthia Lin MarketWatch reports.
“The Fed is certainly concerned about the lack of growth of U.S. economy and therefore it has launched what is now called” quantitative easing 2.0 ‘, “wrote Kevin Giddis, analyst at Morgan Keegan & Company Inc.

“We hope that after today, Congress will see that his action or inaction could be the difference between a slow recovery and a double-dip recession with deflation characteristics,” said Giddis.

Decliners outpaced advancers by about 3-to-1 on the New York Stock Exchange, where 980 million shares traded. Consolidated volume stood at 4.1 billion.

On Monday, the volume consolidated New York Stock Exchange was the slowest since New Year’s Eve, according to Peter Boockvar, equity strategist at Miller Tabak.

Before the Fed’s statement, U.S. stocks spent most of the session waiting to see if the central bank believes the economy needs more economic aid after reports illustrate the slowdown in growth in the country and in China.

The market decline was displaced as the feeling of speculation that the central bank and buy as much as $ 2 billion in bonds over the belief that it would take more modest measures, said John Brady, an analyst at MF Global.

China’s trade data showed a sharp slowdown in the growth rate of imports. Read more about China’s economic data.

Internally, the Labor Department reported that productivity fell 0.9% in the second quarter, the Commerce Department reported that wholesale inventories rose just 0.4% in June.

Sovereign Debt | www.usspost.com

Sovereign Debt | www.usspost.com:U.S. stocks fell more within three months of disappointing earnings, an unexpected rise in jobless claims and a growing concern that Greece, Spain and Portugal in the struggle to reduce the budget deficit.

MasterCard declined 8.6 percent after the fourth-quarter profit below analysts estimates. Kellogg lost 3.8 percent after profit fell. Boeing Co. slipped after the aircraft maker and its rival Airbus SAS expected slowdown in demand will continue at least for another two years. All 10 industry groups in the Standard & Poor’s 500 index fell 1.3 percent, at least under the weight down when the government said the unemployment rate rose to 480,000 initial claims last week.

And Standard & Poor’s 500 index fell 2.4 percent to 1,070.97 at 1:29 pm in New York, lost as much as 2.7 percent, the sharpest decline during the day since Oct. 30. In the Dow Jones industrial average sank 205.26 points, or 2 percent, to 10,065.29. MSCI World Index of stocks in 23 developed countries fell by 2.4 percent.

“People are very nervous about the issues of debt recovery in European and United States,” said Ryan Bend, portfolio manager for Federated Investors’ Beer wise Fund, which manages about $ 1.6 billion. “Companies are to achieve a decent profit, but investors are still selling. I would be cautious in possession of some of these stocks because there are many vendors in the market.”

Jobs concern

Only 15 stocks in the S & P 500 company and one day, with the Dow developed a jump in jobless claims The concern that prospects for employment growth may be overly optimistic. Average forecast in a Bloomberg survey of economists is to increase employment opportunities at the 15,000 government releases the monthly labor market report tomorrow.

Portugal, Greece and led the high cost of insurance from default of sovereign debt. The European Central Bank kept its benchmark interest rate at 1 percent, a record, and probably delayed the dismantling of any more emergency measures lending concerns about the budget deficit and the rise in unemployment.

Drag the slide on the S & P 500 below its lowest close since November. The benchmark for U.S. equities lost 3.7 percent last month as concern about sovereign debt grew, China has stepped up measures to curb lending and President Barack Obama’s proposed rules to reduce risk in the banks.

‘Certainly disappointing’

“The number of jobless claims is certainly disappointing,” said Cliff Remily, a portfolio manager in Santa Fe, New Mexico-based Thornburg Investment, which oversees $ 53 billion. “Investors are skittish. I have been looking towards recovery in 2010, which may not be as strong as expected.”

Raw material producers in the S & P 500 by 3 percent collectively as copper, gold and silver prices fell, while the dollar rose as investors fled risky assets.

Freeport McMoran Copper and Gold Inc., the world’s largest publicly traded copper producer, sank 4.8 percent to $ 67.07 on concern slowing growth will reduce demand for metals. Titanium Metals Co. lost 9.8 percent to 10.92. Slopes of limited natural resources fell 8.5 percent to 40.76.

Energy companies fell 3.1 percent, the biggest drop among 10 industry groups in the Standard & Poor’s 500. Exxon Mobil, the largest U.S. oil company, lost 2.1 to 65.22. Chevron Corp. lost 2.2 percent to 71.61. And crude oil prices tumbled more than six months, and the loss of 5 percent to 73.15 dollars per barrel.

Earnings season.

Twenty-four companies in the Standard & Poor’s 500 was scheduled to submit the outcome of today. Since January 11, about 77 percent of the index members had topped the average analyst earnings per share estimate, according to Bloomberg data.

MasterCard declined 8.6 percent to 226.34. The world’s second-largest network of payments recorded a fourth-quarter profit excluding some items $ 2.43 per share. Analysts surveyed by Bloomberg estimated average profit of $ 2.48.

Visa Inc. gained $ 2 to 85.21 percent after first-quarter profit excluding some items was $ 1.02 per share, beating the average estimate compiled by Bloomberg from 92 cents.

Kellogg fell 3.8 percent to 53.07. In the United States, the largest maker of breakfast cereal, “said fourth-quarter profit fell 1.7 percent, affected by a slump in the food service industry and the shutdown of its factory Eggo nonsense.

Boeing lost 2.6 percent to $ 59.85 after the company and Airbus, the world’s two largest planemakers, said they did not expect a decrease in demand to continue at least two more years.

‘Difficult route’

“It was a difficult route,” said Boeing Commercial Airplanes President of Marketing Randy Tinseth in an interview. “Things are better, but still able to improve a great deal more than that.”

Chief Operating Officer of Airbus, John Leahy said the market will remain slow for new applications until 2012. In the European Aeronautic Defense and Space Unit and the company expects to win between 250 and 300 applications this year, he said. That would be the third in a row, down from 1,458 the standard achieved in 2007.

Beast in all parts of the world and the company fell 20 percent to $ 13.15 for the biggest drop in the S & P 500. Recruit online for losses in the fourth quarter of 1 per cent per share, excluding some items, missing the average analyst estimate of a Bloomberg survey. Monster also said it had agreed to buy the assets of Yahoo! HotJobs, the online recruitment Web site, the Yahoo! Inc. for $ 225 million in cash.

Berkshire Hathaway by 2.1 percent and shares fell to $ 72.83. Warren Buffett and the company plans to sell $ 8 billion of unsecured senior notes to partially finance the acquisition of railroad Burlington Northern Sante Fe Corp., the company was stripped of the last AAA credit rating by Standard & Poor’s.

Cisco gains

Cisco Systems, gathered for the fourth consecutive day, rising 1 percent to 23.31 for progress only in the Dow Jones. The company topped estimates of analysts expected profit and third-quarter revenue will rise 23 percent to 26 percent from the previous year has also resumed spending customers to deal with the increase in Internet traffic.

Hotels & Resorts Worldwide, Inc. company rose 4.7 percent to $ 37.12 for the second-largest made in the Standard & Poor’s 500. Owner of the St. Regis and W hotel brands from the fourth-quarter profit excluding items more than once that beat estimates on cost-cutting and the sale of assets.

Abercrombie & Fitch Co. gained 5.9 percent to 33.85. Teen clothing stores said January same store sales advanced 8 percent.

U.S. stocks fell yesterday, as Pfizer Inc. ‘s late projections of profit and a report showed service industries expanded less than expected. And Standard & Poor’s 500 has risen 62 percent since March, governments and central banks have maintained a global level and low interest rates and committed more than $ 12 trillion to stimulate economic growth.

– Author: Michael Regan, Chris Nagi

To connect to reporters about this topic: Nikolaj Gammeltoft in New York or +1-212-617-1061 ngammeltoft@bloomberg.net

To contact the editor responsible for this story: Nick Baker +1-212-617-5919 or nbaker7@bloomberg.net.