Stock Market News & Stocks to Watch from StraightStocks » ben bernanke

According to Fed, Super-Low Rates Could Lead to a Speculative Bubble

QualityStocks — Wed, 25 Nov 2009 14:57:16 +0000

In an effort to fuel the nation’s economic recovery, super-low interest rates are not expected to be strong enough to decrease the unemployment rate, and according to the Fed, could feed a new speculative bubble. Not only could record-low interest rates lead to excessive risk-taking in the financial markets, but they could also cause consumers, [...]

11-18-09 Daily Small Cap Market News and Stock Highlights from SmallCapVoice.com

Stuart T. Smith — Wed, 18 Nov 2009 17:09:46 +0000

Stocks are lower as an unexpected drop in home construction raised concerns about the pace of the economy’s recovery The Commerce Department said construction of homes and apartments fell 10.6 percent in October to an annual rate of 529,000, well below the pace of 600,000 that economists polled by Thomson Reuters had predicted. Building permits, a key [...]

Stock Market News for November 17, 2009 – Market News

Zacks Market Commentaries — Tue, 17 Nov 2009 14:36:33 +0000

U.S. stocks surged to their 13-month highs Monday as a weaker dollar and a rebound in U.S. retail sales reinforced hopes that an economic recovery is indeed underway. Stocks also got a boost after Fed chairman Ben Bernanke reiterated Fed’s intention to keep interest rates low for an extended period.

Gold advanced 2% to fresh record highs; and the price of silver jumped 5.9%. The initial gains in the equity prices followed strength in Asian markets yesterday. Strength in Asia was partly helped by reports that said Japanese economy grew at its fastest pace in over two years, up 1.2% during the third quarter. To add to the bullish mood in the region, leaders of the Asia Pacific Economic Cooperation promised to keep the stimulus measures in place.

On Monday, the 30-stock Dow Jones industrial average rose 136.49 points, or 1.33%, to 10,406.96. The broad Standard & Poor's 500-stock index was up 15.82 points, or 1.45%, at 1,109.30. The tech-heavy Nasdaq composite index gained 29.97 points, or 1.38%, to 2,197.85. On the New York Stock Exchange, 25 stocks were higher in price for every six that declined.

Bernanke warned of threatening headwinds from rising unemployment and tight credit but added comments supporting the government’s stimulus measures. Yields on US Treasuries declined, with the yield on the 2-years touching its lowest since last January. At session's end, Meredith Whitney questioned the fundamentals of the current stock market rally, and said she expected a double-dip recession next year.

Analysts, meanwhile, raised their ratings on number of firms. Goldman Sachs (NYSE:GS) raised its rating on Nordstrom (NYSE:JWN) from "neutral" to "buy," saying the firm would be a "key beneficiary of a recovery in high-end consumer" demand. Goldman's analysts also started their coverage on Dell (NASDAQ:DELL) with a "buy" rating, saying the company would benefit from the PC upgrade cycle. JP Morgan's (NYSE:JPM) added US Steel (NYSE:X) and AK Steel (NYSE:AKS) to its focus list.

A number of key retailer results are slated for today's release, looked to for guidance on current consumer demand. Among companies reporting today are: Home Depot (NYSE:HD), Target (NYSE:TGT), TJ Maxx (NYSE:TJX), Saks (NYSE:SKS), Autodesk (NASDAQ:ADSK), and Salesforce.com (NYSE:CRM).

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Prieur’s readings (November 16, 2009)

Prieur du Plessis — Sun, 15 Nov 2009 14:46:44 +0000

This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy. Please also add the links to any other worthwhile articles you would like to share to the comments section.

The best sector for your money right now

Andrew Snyder — Wed, 11 Nov 2009 15:54:04 +0000

pBaltimore (a href="http://www.todaysfinancialnews.com" target="_blank"TFN/a): I cannot say with total certainty that duct tape has ever saved my life. But I can say it has saved the day on more than one occasion, like the time I fell feet first into a frigid river, roaring with the power of Alaska’s springtime snowmelt./p pIn the woods, you have to dry off fast or risk any number of calamities. Living in temperate rainforest, an emergency fire was a challenge. But thanks to duct tape’s inherent desire to burn, I was re-warmed in no time. /p pBut my mundane story has got nothing on the bush pilot that returned to his Piper Cub (the plane, not one of Palin’s kids) to find a pissed off grizzly had utterly#8230;/p

The Fed Stays on Easy Street – Analyst Blog

Dirk Van Dijk — Wed, 04 Nov 2009 20:43:26 +0000

The Federal Reserve decided to keep the Federal Funds rate unchanged at the meeting it concluded today, as expected. Below is the current Fed Statement along with the one from their September meeting in paragraph-by-paragraph format, with my translation and commentary interspersed.

As the graph below shows, the market is expecting the Fed to remain on hold, with Fed Funds between 0 and 25 basis points for an extended period. The graph shows the expected outcomes for the January meeting (before today’s announcement) from the Cleveland Fed. The market set the odds of anything other than standing pat at either today’s meeting or the December meeting effectively at zero.

Reading off the chart, it looks like about a 95% probability of no action in January as well. I doubt we will see the Fed raise rates before the third quarter of 2010.

The Fed is playing out exactly the script that Ben Bernanke suggested in his academic work prior to joining the Fed: keep rates near zero, promise to keep them there for an extended period of time to help bring intermediate term rates low, and if needed use quantitative easing to increase the money supply in the event of a liquidity trap.

The Fed will first stop the quantitative easing (the buying of long-term treasuries and mortgage paper) before it considers raising rates. It is done with its program of buying $300 billion of long-term T-notes, and will finish up its $1.25 billion MBS buying program by the end of the first quarter. It slightly reduced its plan to buy agency debt from $200 billion to $175 billion.

"Information received since the Federal Open Market Committee met in September suggests that economic activity has continued to pick up. Conditions in financial markets were roughly unchanged, on balance, over the intermeeting period.

"Activity in the housing sector has increased over recent months. Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth and tight credit. Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales.

"Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability."

"Information received since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn. Conditions in financial markets have improved further, and activity in the housing sector has increased.

"Household spending seems to be stabilizing, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth and tight credit. Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales.

"Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability."

The Fed sees more improvement in the economy. Most notably, it points out that household spending is increasing, rather than stabilizing as it saw in the last meeting -- although due to the all the factors it pointed to last time, it is going to be a rather sluggish pick up.

Conditions in the Financial markets, by which they mean things like the rates that banks charge each other in the overnight funding market (the TED spread) had already returned to pre-crisis levels by the time of the last meeting, so there was not a lot of room for further improvement. Business investment is still sluggish, which is not a surprise given that capacity utilization is still around 70%, well below the lowest point reached in any recession since they started tracking capacity utilization in 1967, but up a bit from its low of near 67% in June.

The Fed thinks its policies are working, but that growth is going to be slow for the foreseeable future. I have to agree with them on that. Historically, capacity utilization of 80% is normal, and of 75% represents a deep recession. Capacity utilization of 85% or more represents a boom and signs that the economy is overheating, and needs to be reigned back in by higher interest rates. We are a long way from there.

"With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time."

"With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time."

Not a syllable changed from last time. Inflation is not a problem, and it will not be for some time to come. The reason is that with high unemployment, there is no way for the wage side of a wage price spiral to gain any traction. With almost 30% of the country’s factories, mines and power plants sitting idle, businesses do not want to risk losing market share by raising prices aggressively.

"In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions -- including low rates of resource utilization, subdued inflation trends and stable inflation expectations -- are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

"To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. The amount of agency debt purchases, while somewhat less than the previously announced maximum of $200 billion, is consistent with the recent path of purchases and reflects the limited availability of agency debt.

"In order to promote a smooth transition in markets, the Committee will gradually slow the pace of its purchases of both agency debt and agency mortgage-backed securities, and anticipates that these transactions will be executed by the end of the first quarter of 2010. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted."

"In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

"To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt. The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010.

"As previously announced, the Federal Reserve’s purchases of $300 billion of Treasury securities will be completed by the end of October 2009. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet, and will make adjustments to its credit and liquidity programs as warranted."

The same basic idea in both statements, although the Fed did elaborate more on why they will keep rates low for an extended period. In other words: "Mr. Market, we mean it when we say we are not going to raise rates any time soon."

The Fed did back off its quantitative easing program slightly. It is done with the program of buying $300 billion of longer-term T-notes, and is continuing its program of buying $1.25 trillion of mortgaged-backed securities. It did, however, slightly reduce its planned purchases of Fannie (FNM) and Freddie (FRE) debt, from $200 billion down to $175 billion. In the overall context of the quantitative easing program, the reduction is trivial. It is, however, a sign that the program will not be expanded, nor is it likely to be renewed after the current program is completed by the end of the first quarter.

"Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen."

"Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen."

Everyone agreed at both meetings. There had been a few Fed types who had been making speeches about the need to bring things back to normal sooner rather than later, but when the rubber hit the road, they are still on board with the program.

Overall, the Fed seems to understand that the weak economy is the overriding problem. Yes, things are getting better, but given the sluggish pace of improvement, this is not the time to be taking away the punch bowl.

This would be in keeping with historical precedent as I pointed out here. Following the end of the 2001 recession, the Fed waited 32 months before it started to raise rates, and then it did so at a very gradual 25 basis points at a time. Following the 1991 recession it waited 35 months.

So assuming that the NBER eventually determines that the recession ended in July 2009, history suggests that the Fed will not begin to raise rates until the first quarter of 2012. The last two recessions were far milder than this one, which would argue that the Fed should stay on easy street for even longer this time around.

The problem is that keeping rates so low for so long the last time was a key factor in allowing the housing bubble to form. Still, the balance of risks seems to be on the side of an economic relapse, not of an overheating that causes inflation to soar.

Keeping rates low means that we will have a steep yield curve. A steep yield curve allows banks to make a lot of money, since their economic function is to borrow short term, and lend long term. The idea is that if the curve is kept steep enough long enough, even basket-cases like Citigroup (C) and Bank of America (BAC) will be come solvent again.

The promise of keeping rates low for a long time should also put more pressure on the dollar, which would be good for improving our trade deficit -- although at the risk of higher inflation, particularly headline inflation -- since oil prices will go up at the dollar goes down. However, given the low inflation pressures elsewhere in the economy, it really is not that big of a risk.
Read the full analyst report on "FNM"
Read the full analyst report on "FRE"
Read the full analyst report on "C"
Read the full analyst report on "BAC"
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Improving financial regulation and supervision

James Hamilton — Wed, 28 Oct 2009 03:03:58 +0000

There were some other very interesting presentations at the conference hosted by the Federal Reserve Bank of Boston last week. Fed Chair Ben Bernanke spoke on Financial Regulation and Supervision after the Crisis while Princeton Professor Alan Blinder's message was It's Broke, Let's Fix It: Rethinking Financial Regulation. Here I summarize four key reforms these speakers addressed.

(1) Capital adequacy. The key principle for preventing the "bank run" dynamics of the recent financial turmoil is to make sure that financial institutions have a sufficient cushion of equity capital to be able to absorb liquidation and delinquency losses on assets without sacrificing the institution's ability to repay short-term creditors. Equity capital is also a critical tool for addressing the core incentive problems arising from gambling with other people's money. As Chair Bernanke observed:

Through the course of the crisis, it became increasingly clear that many firms lacked adequate capital and liquidity to protect themselves as well as the financial system as a whole.

Professor Blinder elaborated:

the real leverage problems arose with (a) investment banks that operated (under a different regulatory regime [from commercial banks]) with 30 times leverage and more, and (b) gimmicks such as thinly-capitalized SIVs and conduits that (legally) avoided capital requirements...

Both Bernanke and Blinder further called attention to the problems with procyclical capital requirements. Standard capital requirements become looser when times are good, but that is exactly when it's most feasible and desirable for them to strengthen the equity cushion. Blinder advocated reverse convertible debentures proposed by Mark Flannery and the Squam Lake Working Group on Financial Regulation as a way to implement countercyclical capital requirements.

Though a conceptually different issue from equity capital, Blinder also favored requiring both mortgage originators and mortgage securitizers to retain 5% of any assets they create.

(2) Compensation. Blinder observed: "Pay plans that are structured in such a 'heads I win, tails I don't lose' way create powerful incentives for traders to go for broke gambling with OPM ('other people's money')." In his spoken remarks he added, "They did go for broke, and a lot of them achieved that objective."

Here were Bernanke's observations on the subject:

flawed compensation practices at financial institutions also contributed to the crisis. Compensation, not only at the top but throughout a banking organization, should appropriately link pay to performance and provide sound incentives. In particular, compensation plans that encourage, even inadvertently, excessive risk-taking can pose a threat to safety and soundness. The Federal Reserve has just issued proposed guidance that would require banking organizations to review their compensation practices to ensure they do not encourage excessive risk-taking, are subject to effective controls and risk management, and are supported by strong corporate governance including board-level oversight.

(3) Derivatives. Though Bernanke did not say much about the explosion of financial instruments such as credit default swaps and their role in propagating the crisis, Blinder highlighted the desirability of changes:

While the regulation of derivatives is fraught with peril, it is not hard to improve upon what we have now-- which is practically nothing. I have argued for years that the most important step the government could take would be to push as much derivatives trading as possible into organized exchanges....

The Treasury White Paper (p. 48) proposes to subject OTC derivatives to a "robust regime" of regulation that includes "conservative capital requirements," margins, reporting requirements, and "business conduct standards."

(4) Resolution mechanism. Finally, both Bernanke and Blinder stressed the need for a mechanism to supervise the liquidation of failing systemically important financial institutions. Blinder advocated:

we could develop a new resolution mechanism, perhaps patterned on what the FDIC now does with small banks (often before the bank's net worth goes negative), that would enable the authorities to wind down a systemically-important financial institution (including a non-bank) in an orderly fashion-- rather than just throwing it to the Chapter 11 wolves. This last idea is among the key ingredients of the Treasury's reform plan, has substantial support in Congress, and may well become law. If so, it would have several desirable effects.

The TBTF doctrine would morph into “too big to be put into Chapter 11," but not "too big to be seized and its management thrown out." That change alone would go a long way toward reducing moral hazard.

Taxpayers would (mostly) be relieved of the burdens of costly bailouts....

Regulators would no longer have to keep large "zombie banks" (and non-banks) on life support for fear of the systemic consequences of shutting them down.

Bernanke endorsed this reform as well:

the Congress should create a new set of authorities to facilitate the orderly resolution of failing, systemically important financial firms.... In light of the experience of the past year, it is clear that we need an option other than bankruptcy or bailout for such firms.

A new resolution regime for nonbanks, analogous to the regime currently used by the Federal Deposit Insurance Corporation for banks, would permit the government to wind down a failing systemically important firm in a way that reduces the risks to financial stability and the economy. Importantly, to restore a meaningful degree of market discipline and to address the too-big-to-fail problem, it is essential that there be a credible process for imposing losses on the shareholders and creditors of the firm. Any resolution costs incurred by the government should be paid through an assessment on the financial industry and not borne by the taxpayers.

One detail I'd stress is the need for integration of the approaches to items (3) and (4) above. One of the problems that makes bankruptcy messy for these institutions is that outstanding derivatives contracts can assume a life of their own, sucking assets out of the firm as the market moves against the firm's bets and in practice giving these contracts seniority over conventional debt. From the perspective of society's best interests I don't think such seniority can be justified. I agree with the assertion in Blinder's spoken remarks that the economic costs of the latest recession exceed the cumulative potential efficiency benefits of what he referred to as "fancy finance."

I would propose that instruments such as the credit default swaps entered into by any systemically important financial institution should be subject to a regulatory stop-loss provision. In a standard clearinghouse mechanism, each party delivers collateral against the possibility of the market moving against their original bet. If the market moves too much, the loser either must add collateral or their position is wiped out. If the institution continues to deliver new margin capital, it can become like the compulsive gambler doubling down as the firm's equity cushion essential for financial stability bleeds away. Like the referee protecting a staggering boxer, the regulator needs the authority to declare "no mas" on an institution's commitment of new capital to such positions.

Bernanke concluded with the following:

we cannot lose sight of the need to reorient our supervisory approach and to strengthen our regulatory and legal framework to help prevent a recurrence of the events of the past two years.

To which I would only add, Amen!

Euro bests dollar by 79% in this millennium

Prieur du Plessis — Mon, 26 Oct 2009 08:35:30 +0000

"... the dollar will continue to weaken as interest rates in many countries and the eurozone are higher than the current rock-bottom US rates, providing currency traders carry-trade opportunities. This will encourage more selling of the dollar and buying up stocks, commodities and other currencies, which has been the general trend since spring," said Dian Chu in this guest contribution.

Wise Words from Across the Pond – Analyst Blog

Dirk Van Dijk — Wed, 21 Oct 2009 14:41:50 +0000

Meryn King, the British counterpart to U.S. Fed Chair Ben Bernanke, had this to say in a speech yesterday:

“The United Kingdom faces two fundamental long-run challenges. First, to rebalance the economy, with more resources allocated to business investment and net exports and fewer to consumption.

"That is consistent with the need – now widely accepted – to eliminate the large structural fiscal deficit and to raise the national saving rate. It is part of a need for a wider rebalancing of domestic demand in the world economy away from those countries that borrowed and ran current account deficits towards those that lent and ran surpluses."

Everything he has to say about the UK is true in spades for the US. The US. is more dependent on consumption than is the UK and perpetually runs trade (current account) deficits. We need for the US to be consuming less and investing more in productive capacity, and then exporting more than we import.

It is the current account deficit, not the budget deficit, that leads us to be deeply indebted to the Chinese and OPEC. In any sort of rational world, it would be the large, developed, mature economies that would be exporting capital to emerging markets, not the other way around.

"Second, both the structure and regulation of banking in the UK need reform. Banks increased both the size and leverage of their balance sheets to levels that threatened stability of the system as a whole. They remain extraordinarily dependent on the public sector for support. That was necessary in the immediate crisis, but is not sustainable in the medium term."

Any bank that is "too big to fail" should not be allowed to operate as a casino. Yes, risk-taking activity is vital to the growth and vibrancy of the economy, but it should not be undertaken by banks that are backstopped by the taxpayer.

The reforms that the Obama Administration have put forth are a good first step, but only a first step. Unfortunately, as most of the nation has been focused on the Health Care battle, the lobbyists for the banks have already swooped in and begun to undermine the reforms. Yes, we might get something call financial regulatory reform, but it will not be anywhere near strong enough to prevent a recurrence of last year's events.

Requiring higher capital standards for the Tier One financial institutions, those that are "too big to fail," might do the trick, but to offset the much lower cost of capital that comes with that implicit federal guarantee of their debt, the capital requirements will have to be very high -- higher than will be politically sustainable.

A far better solution would be to declare that a bank that is "too big to fail" is "too big to exist." We need to bring back something that looks like Glass-Stiegel, the law that stabilized the banking system and prevented any real problems like these for almost half a century.

“Why were banks willing to take risks that proved so damaging both to themselves and the rest of the economy? One of the key reasons – mentioned by market participants in conversations before the crisis hit – is that the incentives to manage risk and to increase leverage were distorted by the implicit support or guarantee provided by government to creditors of banks that were seen as 'too important to fail.'

"Such banks could raise funding more cheaply and expand faster than other institutions. They had less incentive than others to guard against tail risk. Banks and their creditors knew that if they were sufficiently important to the economy or the rest of the financial system, and things went wrong, the government would always stand behind them. And they were right."

We are setting up the biggest case of moral hazard ever. If a pay-off from a bet is structured so that if things go right, you make a fortune, and if things go wrong you just break even, people will start to take crazy risks. That cannot be allowed to happen again with taxpayers being the ones who cover the bets if things go the wrong way.

Just a year after the world stood on the brink of disaster, the Street is back to handing out record bonuses. At Goldman Sachs (GS) alone, a firm with 25,000 employees world wide, the bonus pool is reportedly $23 billion.

That is equivalent to 0.16% of GDP…for the bonus pool of one firm! A firm that has benefited greatly from Federal largess over the last year.

Yes, Goldman has had a very profitable year, mostly due to their prop desk. In other words, they have done well by their risk-taking with the capital of the firm. That is all well and good, but it is not an activity that should be backstopped by the government.

Unfortunately, in the heat of the crisis, and because there was, in many cases nowhere else to turn, we moved in exactly the wrong direction, with the "too big to fail" banks becoming substantially larger -- J.P. Morgan (JPM) gobbled up Bear Stearns and WaMu, Wells Fargo (WFC) ate Wachovia, and Bank of America (BAC) swallowed Merrill Lynch.
Read the full analyst report on "GS"
Read the full analyst report on "JPM"
Read the full analyst report on "WFC"
Read the full analyst report on "BAC"
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Einhorn on the markets

Prieur du Plessis — Tue, 20 Oct 2009 09:46:35 +0000

David Einhorn, highly respected hedge fund manager of Greenlight Capital and author of "Fooling some of the people all of the time" yesterday delivered the keynote address at the Value Investing Congress. A link to his full speech is provided in this post, as well as excerpts from the talk.

Zacks Earnings Preview: Eastman Chemical, E.I. DuPont, T. Rowe Price, Western Digital and SuperValu – Press Releases

Charles Rotblut — Mon, 19 Oct 2009 12:00:49 +0000

For Immediate Release

Chicago, IL – October 19, 2009 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Eastman Chemical (EMN), E.I. DuPont (DD), T. Rowe Price (TROW), Western Digital (WDC) and SuperValu (SVU). To see more earnings analysis, visit http://at.zacks.com/?id=3207.

Every day, Zacks.com makes 4 stock picks available, free of charge. To see them, go to http://at.zacks.com/?id=5612.

This Week's Events

Third-quarter earnings season hits full stride this week with 439 companies confirmed to report. More than of a quarter of these are from the S&P 500 (135 companies).

Housing data will be the highlight on the economic calendar. The existing home sales data will be influenced by the first-time home buyers' credit. The starts and permits data could be more interesting, especially if they show fear on the part of builders about the subsidy potentially not being renewed.

Monday: October NAHB housing index
Tuesday: September housing starts and building permits, September Producer Price Index (PPI)
Wednesday: Fed Beige Book, weekly crude inventories, weekly mortgage applications
Thursday: September Leading Indicators, August FHFA housing price index, Fed balance sheet, weekly initial jobless claims, weekly natural gas inventories
Friday: September existing home sales

Fed Chairman Ben Bernanke has 2 speeches scheduled for this week. On Monday, he will talk about Asia and the financial crisis at a conference in Santa Barbara. On Friday, he will talk about the changes to the financial regulations and monetary policy at a Boston Fed conference.

Boston Federal Reserve Bank President Eric Rosengren will give opening remarks to conference attendees on Wednesday. He will speak again on Thursday to discuss whether the Fed should make fiscal stability one of its objectives. New York Federal Reserve Bank President William Dudley will moderate a panel about monetary policy on Thursday. Vice Chairman Donald L. Kohn will be at the conference on Friday, participating in a panel discussion about the international response to the financial crisis.

Philadelphia Federal Reserve Bank President Charles Plosser will discuss monetary policy at the Standford Institute for Economic Policy Research on Tuesday. Governor Daniel Tarullo is scheduled to speak on Wednesday at the Exchequer Club of Washington, D.C.

Attitudes towards earnings news appear to have shifted from celebrating positive surprises to almost demanding perfection. This week should be more telling, given the large number of companies reporting. Keep an eye on revenues, since that appears to be a stumbling block for many. Through Thursday (Oct 15) evening, the ratio of positive-to-negative revenue surprises is just 1.5:1. Conversely, the ratio of positive-to-negative earnings surprises is 6.1:1.

Companies That Could Issue Positive Earnings Surprises

Recent revisions by 3 analysts have pushed the third-quarter Zacks Consensus Estimate higher for Eastman Chemical (EMN). Analysts now expect the company to report profits of $1.13 per share, a 4-cent increase over the average forecast of a month ago. The most accurate estimate is more bullish at $1.15 per share. EMN has topped expectations for 2 consecutive quarters. Eastman Chemical is scheduled to report on Friday, October 23, before the start of trading.

Five analysts have raised their full-year forecasts on E.I. DuPont (DD) in recent weeks, including 3 during the past 7 days. The revisions have pushed the Zacks Consensus Estimate 2 cents higher to 33 cents per share. Though DD has topped expectations twice in the past 4 quarters, this call is not without risk since the chemical company's Q408 results were 4 cents below projections. DuPont is scheduled to report on Tuesday, Oct 20, after the close of trading.

A continued rise in assets under management (AUM) has analysts optimistic about T. Rowe Price (TROW). The Zacks Consensus Estimate has risen by 2 cents over the past 30 days, reaching 46 cents per share. More than half of the 19 covering analysts have increased their projections. TROW has topped expectations for 2 consecutive quarters, reversing a previous trend of disappointments. T. Rowe Price is scheduled to report on Friday, Oct 23, before the start of trading.

Western Digital (WDC) has topped earnings expectations for 7 consecutive quarters. Ahead of the hard drive maker's fiscal first-quarter report, about one-third of the covering analysts have raised their profit projections. The revisions have pushed the Zacks Consensus Estimate 6 cents higher to 89 cents per share. The most accurate is far more bullish at 94 cents per share. Western Digital is scheduled to report on Thursday, Oct 22, after the close of trading.

Companies That Could Issue Negative Earnings Surprises

SuperValu (SVU) has missed expectations twice during the last 4 quarters. This past week, 2 analysts lowered their fiscal second-quarter forecasts, causing the Zacks Consensus Estimate to fall by a penny to 36 cents per share. The most accurate estimate is even more bearish at 33 cents per share. SuperValu is scheduled to report on Tuesday, Oct 20, before the start of trading.

Charles Rotblut, CFA, is the senior market analyst for Zacks.com.

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Since 1988, the Zacks Rank has proven that "Earnings estimate revisions are the most powerful force impacting stock prices." Since inception in 1988, #1 Rank Stocks have generated an average annual return of +26%. During the 2000-2002 bear market, Zacks #1 Rank stocks gained +43.8%, while the S&P 500 tumbled -37.6%. Also note that the Zacks Rank system has just as many Strong Sell recommendations (Rank #5) as Strong Buy recommendations (Rank #1). Since 1988, Zacks Rank #5 stocks have underperformed the S&P 500 by 111% annually (-0.8% versus +8%). Thus, the Zacks Rank system allows investors to truly manage portfolio trading effectively.

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Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

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Zacks Investment Research

Stock Market News for October 12, 2009 – Market News

Zacks Market Commentaries — Mon, 12 Oct 2009 13:57:05 +0000

U.S. stocks ended modestly higher Friday, wounding up a week of solid gains as investors braced for the third-quarter financial results. Sentiments also got a boost after Federal Reserve Chairman Ben Bernanke indicated that the central bank will be ready to tighten monetary policy once the economy improves. Bernanke’s tightening comments helped the dollar regain some lost ground. Bond prices fell sharply.

After a two-week selloff, fueled in part by concerns that the seven-month old rally had gotten ahead of any economic recovery, stocks got a boost last week following better-than-estimated economic numbers and Alcoa’s (NYSE:AA) surprise quarterly profit. That helped investors set aside worries and extend the rally. Meanwhile, White House economic adviser Lawrence Summers reiterated the Obama administration’s commitment to a strong dollar, citing recent comments by U.S. Treasury Secretary Timothy Geithner.

This morning’s stock futures show markets are headed for a higher opening as the busy week of earnings commences. Ahead of the market's open, Dow Jones industrial average futures are up 59 points, or 0.6%, to 9,866. Standard & Poor's 500 index futures gained 7.30 points, or 0.7%, to 1,075.40, while Nasdaq 100 index futures rose 11 points, or 0.6%, to 1,736.50.

On Friday, the Dow Jones industrial average rose 78 points, or 0.8%, to 9,864.94 -- its highest closing level in a year. The S&P 500 index gained 6 points, or 0.6%, to 1,071.49 and the Nasdaq climbed 15 points, or 0.7%, to 2,139.28. On the New York Stock Exchange, advancing issues beat those that declined in price by a three-to-two margin. For the week, the DJIA rose 4% and the S&P 500 index gained 4.5% - their best performance since July. The Nasdaq advanced 4.5% during the week.

Last week's rally saw all but one of the S&P500 industry sector recording gains. Only telecommunications shares failed to advance, and fell 5.9%, following AT&T's (NYSE:T) announcement that it plans to allow internet-based phone calls on phones including Apple's (NASDAQ:AAPL) iPhones. The gains last week were led by basic materials (+8.4%), oil and gas (+7.6%), financials (+6.3%), industrials (+5.0%), tech (+4.9%), consumer services (+4.5%), consumer goods as well as utilities (+2.9%), and health care (+2.7%). Financials rose after a Goldman Sachs (NYSE:GS) report recommended large-cap banks. Gains in industrial shares were helped by last week’s fall in dollar and Caterpillar's (NYSE:CAT) announcement that it plans to hike prices globally in 2010. Retail shares rose after firms reported better-than-expected comparable monthly sales numbers.

This week sees the release of the first big batch of third-quarter earnings. Companies reporting their numbers include Johnson & Johnson (NYSE:JNJ), Intel (NASDAQ:INTC), JP Morgan (NYSE:JPM), Citigroup (NYSE:C), Goldman Sachs (NYSE:GS), Nokia (NYSE:NOK), Google (NASDAQ:GOOG), IBM (NYSE:IBM), Bank of America (NYSE:BAC), and General Electric (NYSE:GE).

Zacks Investment Research

Prieur’s readings (October 4, 2009)

Prieur du Plessis — Sun, 04 Oct 2009 05:50:54 +0000

This post provides links to a number of thought-provoking articles I have read over the past few days that you may also find interesting. Please also add the links to any other worthwhile articles you would like to share to the comments section.

Bernanke Proposes New Oversight – Analyst Blog

Charles Rotblut — Thu, 01 Oct 2009 15:18:37 +0000

Speaking before the House Financial Services Committee, Fed Chairman Ben Bernanke proposed a new regulatory mechanism to monitor and respond to broad risks affecting the financial system. This would consist of a panel that would exist outside of the Fed, tapping resources from all agencies with current oversight over the financial system.

The proposal is a move by Bernanke to thwart efforts to give the Fed more power. It also increases the potential penalties for taking excessive risk by imposing losses on shareholders and bondholders.

Bernanke is bringing forth some good ideas. Particularly, his call for coordination across multiple agencies is something that should fortified by regulation. Clearly, the joint actions by the Fed and the Treasury Department have helped to prevent the current crisis from becoming worse. This said, turf wars in Washington may make accomplishing this goal difficult in the future.

His proposal also calls for creating a special resolution process for winding down a failed bank or financial institution. Though good in concept, handling toxic assets remains difficult in reality. The government continues to hold large stakes in Citigroup (C) and Bank of America (BAC), with no clear exit plan existing. Taxpayers also own AIG (AIG) and may never see their investment paid back.

Which brings us to Bernanke's call to hold shareholders and bondholders accountable for a financial firm's losses. It's great in concept because capitalism works by punishing those who make bad decisions. In reality, the political pressures placed upon the oversight committee will make wiping out investors in a future failed firm difficult.

Over the short-term, today's proposal will not have meaningful impact on financial institutions. Over the long-term, it could lead to new regulations that would impact how big firms can grow.
Read the full analyst report on "C"
Read the full analyst report on "BAC"
Read the full analyst report on "AIG"
Zacks Investment Research

Bernanke Proposes New Oversight – Analyst Blog

Charles Rotblut — Thu, 01 Oct 2009 15:18:37 +0000

Long-Term Stock-Market Uptrend to Continue

Contrarian Profits — Mon, 28 Sep 2009 17:15:04 +0000

pStocks moved lower for the third consecutive day on Friday, something that hasn’t happened in more than three weeks, as the bulls just couldn’t capitalize on a short-term overbought condition. Measures of selling pressure eased as the bears rested their knuckles after a two-day pummeling./p pInvestors are worried. The big question – as always – is whether the primary uptrend remains intact./p pAnd the answer is yes./p pTo understand just what that target should be, let’s take a look at where we are right now./p pJust before Wednesday’s sell-off, measures of the supply of stocks moved to new lows, while demand moved to new highs. This means bull-market-trading rules remain in effect. But as the cyclical bull market matures a little, we need to#8230;/p

Zacks Earnings Preview: Walgreen, Xyratex, Nike, Darden Restaurants and Constellation Brands – Press Releases

Charles Rotblut — Mon, 28 Sep 2009 11:06:23 +0000

For Immediate Release

Chicago, IL – September 28, 2009 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Walgreen (WAG) and Xyratex (XRTX). To see more earnings analysis, visit http://at.zacks.com/?id=3207.

Every day, Zacks.com makes 4 stock picks available, free of charge. To see them, go to http://at.zacks.com/?id=5612.

This Week's Events

Five S&P 500 companies are confirmed to report: Constellation Brands (STZ), Darden Restaurants (DRI), Jabil Circuit (JBL), Nike (NKE) and Walgreen (WAG). A total of 27 companies are on the calendar.

We are still a week away from the "official" start of third-quarter earnings season. Alcoa (AA) will release its results on Oct 7. The majority of companies will not start reporting until the latter half of October, however.

The economic calendar is most active towards the second half of the week with the release of the ISM manufacturing survey and the monthly employment surveys.

Tuesday: September Conference Board consumer confidence survey, July Case-Schiller home price index
Wednesday: September Chicago PMI, September ADP employment survey, final Q2 GDP, weekly crude inventories, weekly mortgage applications
Thursday: September ISM manufacturing survey, August personal income and spending, August pending home sales, September auto sales, September Monster employment index, September Challenger employment survey, August construction spending, weekly initial jobless claims, weekly natural gas inventories
Friday: September unemployment and nonfarm payrolls, August factory orders

Fed Chairman Ben Bernanke will appear before the Congressional Black Caucus Foundation on Tuesday morning. Also on Tuesday, Fed General Counsel Scott Alvarez will testify before the House financial services committee, Fed Governor Kevin Warsh will participate in a panel discussion about economic policy at the Chicago Fed Bank and Philadelphia Fed Bank President Charles Plosser will speak about the economy at the Lehigh Valley Economic Outlook.

On Wednesday, Vice Chairman Donald Kohn will discuss the Fed's exit strategy at the Cato Institute. Cleveland Fed President Sandra Pianalto will speak in New York on Thursday evening.

Monday is Yom Kippur, the holiest day on the Jewish calendar. Therefore, volume should be lighter than usual.

Given the calendar, I expect most of the market's action to occur during the latter part of the week. Though the Dow failed to get much above 9,900, I continue to think there is enough short-term bullish sentiment to get the average above the 10,000 mark. This said, investors should realize that getting above 10K amounts to a group hug for the markets rather than signaling any significant change.

Companies That Could Issue Positive Earnings Surprises

Earlier this month, Xyratex (XRTX) preannounced fiscal third-quarter revenues of approximately $247 million. CEO Steve Barber credited a rebound in the economy and the storage market for helping sales. All 3 brokerage analysts raised their profit projections in response, pushing the Zacks Consensus Estimate 13 cents higher to a profit of 10 cents per share. XRTX topped expectations last quarter by 8 cents, ending a streak of 3 consecutive disappointments. Xyratex is scheduled to report on Wednesday, Sep 30, at the close of trading.

Companies That Could Issue Negative Earnings Surprises

Walgreen (WAG) has missed expectations for 3 consecutive quarters. Ahead of the company's fiscal fourth-quarter report, nearly a third of the covering brokerage analysts have cut their profit projections. The revisions have resulted in the Zacks Consensus Estimate falling by a penny to 39 cents per share. The most accurate estimate is more bearish at 37 cents per share. Walgreen is scheduled to report on Sep 29, before the start of trading.

Charles Rotblut, CFA, is the senior market analyst for Zacks.com.

About the Zacks Rank

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Federal Reserve reverse repurchases

James Hamilton — Sun, 27 Sep 2009 14:30:01 +0000

Here I offer some thoughts on Bloomberg's account that the Fed has made inquiries with its dealers about the feasibility of a significant increase in the Fed's reverse repo operations.

First, a little background. The traditional tool of monetary policy is an open market purchase, in which the Fed purchased U.S. Treasury securities that had previously been held by someone in the private sector. The Fed would pay for those securities by crediting deposits in an account that the selling bank had with the Federal Reserve. These reserve deposits of banks represent claims that the bank could use, if it wished, to withdraw green currency from the Federal Reserve. The volume of reserve deposits historically was extremely important in determining the interest rate at which banks would lend the deposits to one another overnight. The traditional understanding of monetary policy was that the Fed would use open market purchases to achieve its desired objectives for the overnight interest rate and the money supply.

If the Fed wished to implement a purely temporary increase in the volume of reserve deposits, historically the tool of choice was a repurchase agreement, in which the Fed would buy a particular security with a promise to return it at a specified future date. The purchase was again implemented by creation of reserve deposits, and when the security was returned, those deposits came back into the Fed.

The Fed began to see a new potential use for these repos after the initial banking difficulties in August 2007. Although repos were traditionally used as a device for temporarily injecting reserves, their structure amounts to a collateralized loan from the Fed to the counterparty. The Fed's objective subsequent to August 2007 was to increase the volume of its lending and support the market for certain securities that it could accept as collateral for repos. Thus the Fed utilized an expansion of repurchase agreements as one of the initial tools for responding to the crisis, simply rolling them over to create a de facto expanded lending facility.

The graph below tracks the various assets held by the Federal Reserve since the beginning of 2007. The height of the graph represents the total asset holdings at the end of each week, with the colors indicating the contribution of each category. Repos are represented by the turquoise band. This traditionally had been small and highly variable, but grew significantly in the early phases of the financial crisis. Later the Fed came to use direct loans through its Term Auction Facility in preference to repos. Since January, the Fed has been directly buying up mortgage backed securities and agency debt in the way it used to purchase Treasury securities.

**Figure 1. Factors supplying reserve funds, in billions of dollars, seasonally unadjusted, from Jan 1, 2007 to September 23, 2009.** Wednesday values, from Federal Reserve H41 release. Agency: federal agency debt securities held outright; swaps: central bank liquidity swaps; Maiden 1: net portfolio holdings of Maiden Lane LLC; MMIFL: net portfolio holdings of LLCs funded through the Money Market Investor Funding Facility; MBS: mortgage-backed securities held outright; CPLF: net portfolio holdings of LLCs funded through the Commercial Paper Funding Facility; TALF: loans extended through Term Asset-Backed Securities Loan Facility; AIG: sum of credit extended to American International Group, Inc. plus net portfolio holdings of Maiden Lane II and III; ABCP: loans extended to Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility; PDCF: loans extended to primary dealer and other broker-dealer credit; discount: sum of primary credit, secondary credit, and seasonal credit; TAC: term auction credit; RP: repurchase agreements; misc: sum of float, gold stock, special drawing rights certificate account, and Treasury currency outstanding; other FR: Other Federal Reserve assets; treasuries: U.S. Treasury securities held outright.

A separate question is what happens to all the reserve deposits created through this process. The Fed has never wanted to see the huge volume of reserves it created end up as currency held by the public, for fear this would be inflationary. It has relied on several devices to keep that from happening. One was use of the Treasury's account with the Fed, another traditional feature of Fed operations that ballooned as it became adapted to new purposes. The Fed asked the Treasury to borrow funds that it simply left in deposit in its account with the Fed. These idle reserves held by the Treasury absorbed some of the vast increase in new reserves created by the Fed.

A more important tool was that the Fed started paying interest on reserves in October 2008, and by November had increased that rate to the target fed funds rate itself. This created a very strong incentive for banks to simply hold reserves idle at the end of each day rather than lend them out on the overnight fed funds market. In effect, by paying interest on reserves, the Fed is borrowing directly from banks and using the proceeds for the various asset expansions detailed above.

The graph below shows the Fed's liabilities at the end of each week. The height of the graph is, by definition, exactly equal to the height of the previous graph at every date. The first graph tracks what assets the Fed acquired with its operations, while the second graph shows where the funds it created ended up. The surge in the Treasury account (in yellow) and excess reserves of member banks (green) explain why the huge expansion in the Fed's balance sheet has not translated so far into a massive increase in the quantity of currency held by the public (blue).

**Figure 2. Factors absorbing reserve funds, in billions of dollars, seasonally unadjusted, from Jan 1, 2007 to September 23, 2009.** Wednesday values, from Federal Reserve H41 release. Treasury: sum of U.S. Treasury general and supplementary funding accounts; reserves: reserve balances with Federal Reserve Banks; misc: sum of Treasury cash holdings, foreign official accounts, and other deposits; other: other liabilities and capital; service: sum of required clearing balance and adjustments to compensate for float; reverse RP: reverse repurchase agreements; Currency: currency in circulation.

The question under discussion at the moment is the extent to which the Fed could continue to rely on these two devices-- Treasury borrowing on its behalf and banks' willingness to simply hold the ballooning reserves-- to contain the monetary consequences of its expansion. The traditional political gamesmanship over the debt ceiling could well induce the Treasury to want to discontinue its facilitation of the expansion of the Fed's balance sheet, in which case the Fed must either reduce some of its lending or count on banks to hold even more excess reserves. Some in the Fed are assuming that they could always ensure the latter outcome, if needed, by raising the interest rate the Fed pays on reserves. But clearly the Fed has no desire at the moment to raise interest rates, so it's difficult for me to imagine them taking that step any time soon.

Where else could the Fed get the funds? Fed Chairman Ben Bernanke described his contingency thinking last July:

the Federal Reserve could drain bank reserves and reduce the excess liquidity at other institutions by arranging large-scale reverse repurchase agreements with financial market participants, including banks, government-sponsored enterprises and other institutions. Reverse repurchase agreements involve the sale by the Fed of securities from its portfolio with an agreement to buy the securities back at a slightly higher price at a later date.

Just as the Fed converted the use of repos, which had historically been used on a small scale to temporarily add reserves, into a much larger operation with which it could lend broadly on a long-term basis, it is now contemplating using the reverse repo, which had historically been used on a small scale to temporarily drain reserves, into a much larger operation with which it could borrow broadly on a long-term basis. Thus we saw the following report from Bloomberg last week:

The Federal Reserve has started talks with bond dealers about withdrawing the unprecedented amount of cash injected into the financial system the last two years, according to people with knowledge of the discussions.
Central bank officials are discussing plans to use so-called reverse repurchase agreements to drain some of the $1 trillion they pumped into the economy, said the people, who declined to be identified because the talks are private. That's where the Fed sells securities to its 18 primary dealers for a specific period, temporarily decreasing the amount of money available in the banking system.
There's no sense that policy makers intend to withdraw funds anytime soon, said the people. The central bank's challenge is to decrease the cash without stunting the economy's recovery and before it sparks inflation. Fed Chairman Ben S. Bernanke said in a July Wall Street Journal opinion article that reverse repos are one tool to accomplish that goal without raising interest rates.
"One thing the Fed has to figure out is if they can launch pilot programs without spooking the market and creating the perception that they are about to tighten," said Louis Crandall, chief economist at Wrightson ICAP LLC, a Jersey City, New Jersey-based research firm that specializes in government finance. "They are discussing things like accounting issues, and updating the governing documents to the volume of reverse repos the dealer community could absorb."

Is this a feasible interim plan for handling the liability side without increasing either the money supply or interest rates? In a mechanical sense I believe the answer is yes. But the nature of inflationary pressures that we should be watching at the moment would arise from a depreciation of the dollar relative to other currencies and increase in the dollar price of internationally traded commodities. A modest move toward a weaker dollar and slightly higher inflation would be welcome. But the concern in my mind is whether a flight from the dollar could become more precipitous and destabilizing. It may not be the most likely scenario, but it is one for which I hope there has been some contingency planning.

And if the Treasury and the Fed think they could prevent that simply by borrowing even more without raising interest rates, they are mistaken.

Bonds equities: Expect a major shift

Prieur du Plessis — Sat, 26 Sep 2009 08:51:43 +0000

This post is a guest contribution by Dian Chu, asking the very topical question of which rally will end first - equities or bonds.

Prieur’s readings (September 25, 2009)

Prieur du Plessis — Fri, 25 Sep 2009 08:43:23 +0000

Earnings Preview for Sep 28 – Oct 2 – Earnings Preview

Charles Rotblut — Fri, 25 Sep 2009 05:00:00 +0000

The economic calendar is most active towards the second half of the week with the release of the ISM manufacturing survey and the monthly employment surveys.

Tuesday: September Conference Board consumer confidence survey, July Case-Schiller home price index
Wednesday: September Chicago PMI, September ADP employment survey, final Q2 GDP, weekly crude inventories, weekly mortgage applications
Thursday: September ISM manufacturing survey, August personal income and spending, August pending home sales, September auto sales, September Monster employment index, September Challenger employment survey, August construction spending, weekly initial jobless claims, weekly natural gas inventories
Friday: September unemployment and nonfarm payrolls, August factory orders

On Wednesday, Vice Chairman Donald Kohn will discuss the Fed's exit strategy at the Cato Institute. Cleveland Fed President Sandra Pianalto will speak in New York on Thursday evening.

Monday is Yom Kippur, the holiest day on the Jewish calendar. Therefore, volume should be lighter than usual.

Companies That Could Issue Positive Earnings Surprises

Companies That Could Issue Negative Earnings Surprises

Charles Rotblut, CFA is the senior market analyst for Zacks.com.

Earnings Calendar

Here is a list of companies that we have confirmed will report during the week of Sep 28 - Oct 2. Prices are as of Thursday's, Sep 24, market close.

Company	Stock	Zacks Estimate	Year Ago EPS	Last Qtr Surprise	Date	Time	Price
Accenture Plc	ACN	$0.67	$0.58	6.3%	10/1	AMC	$35.96
Constellatn Brd	STZ	$0.45	$0.41	3.1%	10/1	BTO	$15.47
Corel Corp	CREL	$0.32	$0.12	0.0%	10/1	AMC	$2.77
CRA International Inc	CRAI	$0.39	$0.47	3.3%	10/1	BTO	$27.21
Demandtec Inc	DMAN	($0.06)	($0.05)	(62.5%)	10/1	AMC	$8.69
Global Payments	GPN	$0.71	$0.65	4.6%	10/1	AMC	$45.46
Immucor	BLUD	$0.28	$0.25	26.1%	10/1	AMC	$17.42
MSCI Inc-A	MXB	$0.19	$0.28	(4.2%)	10/1	N/A	$28.73
Resources Cnctn	RECN	$0.27	($0.04)	(125.0%)	10/1	AMC	$16.79
Smart Modular	SMOD	$0.03	$0.00	50.0%	10/1	AMC	$5.15
Standard Micros	SMSC	$0.38	($0.14)	53.1%	10/1	AMC	$22.97
Cal-Maine Foods	CALM	$0.47	$0.18	(57.0%)	9/28	BTO	$27.68
Ferrellgas -Lp	FGP	($0.61)	($0.51)	(21.5%)	9/28	N/A	$19.69
Allscripts-Misy	MDRX	$0.13	$0.13	7.1%	9/29	AMC	$18.57
Cano Petroleum	CFW	($0.04)	($0.02)	57.1%	9/29	N/A	$0.99
Jabil Circuit	JBL	$0.29	$0.02	0.0%	9/29	AMC	$12.53
Landec Corp	LNDC	$0.11	$0.07	0.0%	9/29	AMC	$6.65
Nike Inc	NKE	$1.03	$0.98	3.1%	9/29	AMC	$58.17
Omnova Solution	OMN	$0.08	$0.11	50.0%	9/29	N/A	$5.07
Sealy Corp	ZZ	$0.14	$0.05	75.0%	9/29	AMC	$3.01
Walgreen Co	WAG	$0.45	$0.39	(5.4%)	9/29	BTO	$33.65
Worthington Ind	WOR	$0.94	$0.03	(100.0%)	9/29	AMC	$15.20
Actuant Corp	ATU	$0.54	$0.16	81.8%	9/30	BTO	$15.52
Darden Restrnt	DRI	$0.61	$0.65	4.7%	9/30	N/A	$35.44
Diamond Foods	DMND	$0.16	$0.19	14.3%	9/30	AMC	$29.40
Lawson Software	LWSN	$0.04	$0.04	11.1%	9/30	AMC	$6.40
Xyratex Ltd	XRTX	$0.28	$0.10	23.53%	9/30	AMC	$8.99

BTO = Before The Market Open, AMC = After The Market Close

Zacks Investment Research

Oops, Did I Say That Out Loud?

Contrarian Profits — Thu, 24 Sep 2009 17:31:51 +0000

pA Wild and Wacky Wednesday#8230;FOMC leave stimulus and QE in place#8230;Will G-20 try to throw cold water on commodities? GATA receives a letter from the Fed#8230;And Now#8230; Today#8217;s Pfennig/p pGood day#8230; And a Thunderin#8217; Thursday to you! It#8217;s Thundering and raining here, so I felt that naming today a #8220;Thunderin#8217; Thursday#8221; was bang on! We had a wild and wacky Wednesday yesterday, with the Fed Heads playing the part of the court jester#8230; And#8230; I want to know, right here, right now, why the media isn#8217;t blasting Fed Head Honcho Big Ben Bernanke! I#8217;ll tell you why they should be, in a minute#8230;/p pOK#8230; As I said, we had a wild and wacky Wednesday yesterday, as the non-dollar currencies went for a#8230;/p

Catching Up With Richard Duncan…

Contrarian Profits — Wed, 23 Sep 2009 19:03:06 +0000

pNon-dollar currencies give back very little#8230;The Unemployed are remaining unemployed#8230; FOMC puts away the board games today#8230; China invokes a #8220;Public Morals#8221; defense#8230; And Now#8230; Today#8217;s Pfennig!/p pGood day#8230; And a Wonderful Wednesday to you! Well, the Fed Head put away the board games today, and make an announcement this afternoon#8230; Yawn#8230; Norway#8217;s Norges Bank will also make an announcement with theirs coming this morning. I still contend that the Norges Bank will keep rates unchanged and give a hint as to when their rate hike cycle will begin. If that were to happen as I think, then it would be very bullish for the krone#8230;/p pWell! The non-dollar currencies held ground gained yesterday, giving back, oh-so-little to the profit taking. The#8230;/p

Prieur’s readings (September 22, 2009)

Prieur du Plessis — Tue, 22 Sep 2009 09:06:38 +0000

This post provides links to a number of thought-provoking articles I have read over the past few days that you may also find of interest. Please also add the links to any other worthwhile articles you would like to share to the comments section.

September 21st CEOcast Weekly Newsletter

QualityStocks — Mon, 21 Sep 2009 21:05:50 +0000

Companies featured in this edition of the newsletter: ACTC, CVM, CUR, DKAM, ENZ, IMUC, IWEB, PHC, SVUL, SRCO, SVUL, XSNX Markets extended their winning streak yet again this week, as all ten sectors of the S&P 500 finished in positive territory and markets hit fresh highs for the year once again, despite the lack of [...]

FOMC Week…

Contrarian Profits — Mon, 21 Sep 2009 19:07:01 +0000

p The dollar pushes back! FOMC plays battleship? Norges Bank meets this week#8230;Precious metals give back too#8230;And Now#8230; Today#8217;s Pfennig!/p pGood day#8230; And a Marvelous Monday to you! Here we go#8230; Starting a new week all over again#8230; I have a blank page to start each day, and then 2 hours later#8230; The Fabulous Pfennig! A work of art, I must say! HAHAHAHAHAHAHAHA!/p pWell#8230; Recall on Friday, I said that the non-dollar currencies would probably just follow whatever the stocks did, since the data cupboard was empty? Well, the non-dollar currencies didn#8217;t even follow that theme, as stocks pretty much wallowed around in the mud all day#8230; The dollar began to push back at the gains the other currencies had made during the#8230;/p

Dollar Rises vs Yen, Boosted by Short Covering

Contrarian Profits — Mon, 21 Sep 2009 16:30:37 +0000

pThe dollar rose broadly on Monday, hitting a near two-week high against the yen, as traders trimmed short positions in the U.S. currency following broad losses so far this month./p pAgainst the yen, the dollar rose more than a full percent, after speculative flows pushed it higher in quiet trade in Asia, where markets in Japan, Singapore and other centres were closed for holidays./p pIn the absence of economic events or data, traders took profits on currencies which have rallied against the dollar, including the euro, up more than 2 percent so far this month./p pAnalysts said some investors were becoming concerned that short dollar positions were overstretched, suggesting that a near-term correction may be in store./p p#8220;There#8217;s already a lot of long euro/dollar#8230;/p

Prieur’s readings (September 21, 2009)

Prieur du Plessis — Mon, 21 Sep 2009 06:56:56 +0000

The Coming Commercial Real Estate Crisis

Contrarian Profits — Wed, 16 Sep 2009 20:30:54 +0000

pAs usual in Washington, it’s “Do as I say, not as I do.” While Ben Bernanke is talking up the U.S. economy, Congress and the IRS are scrambling to stop another real estate collapse./p pFirst, the political left and National Association of Realtors are in the process of extending the now famous “first time homebuyer tax credit.” The initial plan, which was passed around this time last year and allows first-time homebuyers an $8,000 tax credit, is on track to cost about $15 billion — double the projected budget./p pHeh, and just like “cash for clunkers” going massively over budget must be a sign of scorching legislative success. Thus, the new plan is to extend the tax credit into the summer of#8230;/p

Retail Sales Soar!

Contrarian Profits — Wed, 16 Sep 2009 19:50:44 +0000

pCurrencies rally on Retail Sales! China likes investments in Canada#8230;Big Ben the #8220;inflation fighter#8221;#8230;Gold climbs to $1,018! And Now#8230; Today#8217;s Pfennig!/p pGood day#8230; And a Wonderful Wednesday to you! Good news for me this morning, the pain in my left knee has subsided#8230; Now, If I could just get that swelling to go down, I#8217;d be in tall cotton! This has been quite the ordeal on the old Pfennig writer, and one that I will be glad to put in the rear view mirror!/p pWell#8230; When I turned on the currency screens this morning, the euro was trading with a 1.47 handle! WOW! It just skipped to my Lou right through the 1.46 handle, eh? It began yesterday afternoon, the dollar was#8230;/p

Stock Market News for September 16, 2009 – Market News

Zacks Market Commentaries — Wed, 16 Sep 2009 14:05:05 +0000

Encouraging economic data and Federal Reserve Chairman Ben Bernanke’s view that the recession was “very likely over" sent stocks higher for a second straight day. A better-than-expected rise in retail sales, helped in part by the government’s cash-for-clunkers program and higher gasoline prices, eased concerns that consumers were spending with restraint.

Speaking at a Brookings Institution conference, Bernanke, however, added a note of caution, saying, “Even though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time."

This morning’s stock futures indicate Wall Street would open with gains, helped by increased M&A activity, optimistic guidance from companies, and words from Warren Buffett that Berkshire Hathaway (NYSE:BRK.A) is "buying stocks right as we speak."

Yesterday, the 30-stock Dow Jones industrial average gained 57 points, or 0.6%, to 9,683.41, its highest point since October 6. The broad Standard & Poor’s 500 index edged up 0.3% to close at 1,052.63, its highest level in almost a year. The tech-heavy NASDAQ advanced 10.86 points, or 0.52%, to 2,102.64. NYSE volume picked up to 1.5 billion shares yesterday from 1.2 billion on Monday, with advancing shares outpacing decliners by a seven-to-three margin. Treasury prices declined, with the 10-year off 6/32 as its yield rose to 3.447% on increased risk demands.

Best Buy (NYSE:BBY), the country’s largest home-electronic chain, and Kroger (NYSE:KR) painted a mixed picture. Best Buy reported a 22% plunge in quarterly earnings and its shares shed more than 5% to $38.32. However, the company lifted its FY10 earnings outlook to a range of $2.70 to $3.00 per share and said it sees full-year revenue of $48 billion to $49 billion. Kroger shares dived 7.5% after the company reported weaker-than-expected earnings and cut its outlook. Health care shares declined 0.8% as President Obama reiterated his commitment to medical care reform, sending shares of Coventry Health Care (NYSE:CVH) down 7.1%, and United Health Group (NYSE:UNH) down 3.7%.

Eight of the ten S&P500 industry groups moved higher on the day. Basic material (+2.5%) and industrial (+1.1%) sector shares led the advance on improved recovery prospects and higher commodity prices. The gains in the Dow Average were led by materials and industrial companies like Alcoa (NYSE:AA) and Caterpillar (NYSE:CAT) as the index gained for the seventh time in eight days. Alcoa (NYSE:AA) shares jumped 8.1% and were the leading gainers on the DJIA; AK Steel (NYSE:AKS) shares advanced 5.7%, and US Steel (NYSE:X) shares gained 4.8%. Among industrial recovery stocks, Textron (NYSE:TXT) shares gained 6.6%, Caterpillar (NYSE:CAT) rose 6%, Deere (NYSE:DE) advanced 4.4% and General Electric (NYSE:GE) added 4.2%. Oil and gas shares rose 0.9% as weekly crude inventory numbers are expected to show a 2.4 million decline last week.

However, the dollar failed to capitalize on the positive US economic news and sank to fresh yearly lows against a basket of currencies, due to its role as a funding currency given the fall in the benchmark US 3-month Libor rate to its lowest on record and the Fed's well-publicized promise to keep interest rates low.

Zacks Investment Research

How to Prepare For China’s Coming Derivative Default

Graham Summers — Sun, 13 Sep 2009 16:00:08 +0000

In case you have not heard the news, China has announced that it will be instructing its state-owned enterprises to potentially default on their derivatives contracts. As I have written extensively in the past, the derivatives market is a massive time bomb just waiting to go off. China’s latest move may be the match that [...]

Fed’s Fake Recovery

Bill Bonner — Fri, 11 Sep 2009 19:47:45 +0000

pThe press attributed this week’s rise in gold to benign causes. The end of the world seems to have been postponed – indefinitely. emBloomberg/em reported that a clear majority of those polled thought the world economy was recovering./p pWith no more fear of the deflation devil investors feel they are in the arms of angels. Surely Ben Bernanke watches over them even when they sleep. Even the President of the United States thinks he saved the nation./p pstrongAs for Tim Geithner, he takes no chances; he sings his own praises./strong Speaking to a gathering of the G20, he congratulated them all:/p p“…facing the greatest challenge to the world economy in generations, the G-20 gathered here in London and committed to an unprecedented program of policies to#8230;/p

Never Say Never to Monetization

Mogambo Guru — Thu, 10 Sep 2009 11:17:33 +0000

pIf you want to know what kind of monetary morons we have in charge of the Federal Reserve, then you have come to the right place, because a record of sorts was set last week, in that the loathsome, disastrous Federal Reserve bought up – in the last 12 short months – $1.011 trillion in US government securities! Yikes!/p pAnd remember… This is the Federal Reserve! This is a lousy private bank operating irresponsibly, at the behest of the Congress, and whose shadowy owners include, to one degree or another, foreigners and foreign central banks that are operating by the grace of their own governments which are just as corrupt and desperate as our own, but it was the Fed that#8230;/p

Clairvoyant Economists Still Pessimistic

Mogambo Guru — Wed, 09 Sep 2009 11:56:41 +0000

pThe Economist magazine, in a column wryly titled “Pangloss Revisited”, notes that “The average deficit over the next decade in now expect to be 5.1% of GDP, compared with an average of 4% in the original budget”, and that even in the last year of the forecast, 2019, the budget deficit is supposed to be 5% of GDP! Wow!/p pAs weird as that is, it gets weirder later in the article when Peter Orzag of the White House’s Office of Management and Budget (OMB), whom the article called “Mr. Obama’s top budget man”, has “tried to put a positive spin on the situation. By 2019, he argued on his blog, America’s primary deficit (the difference between revenue and spending excluding interest#8230;/p

Head for Cover

Bill Bonner — Tue, 08 Sep 2009 20:38:34 +0000

pClowns to the left of us#8230; Jokers to the right#8230; The Simpleton’s Analysis: Consumers cut back. The economy sank. br / strongNow, government must take action. It must help people out and take up the slack./strong/p pThe downturn took $12 trillion off Americans’ net worth. The feds have pledged about $12 trillion to fix the problem./p pBut wait, where does government get any money?/p pHey, they borrow it, just like consumers did. And besides, it’s ultimately the same money – taxpayers’ money. So what’s the big diff?/p pThe big diff is the subject of today’s a href="http://www.dailyreckoning.com" class="alinks_links"Daily Reckoning/a./p pThe first big diff is that the feds don’t spend your money the way you would. Private citizens spend money they don’t have on things they want but don’t need.#8230;/p

This Recovery is an Imposter

Bill Bonner — Tue, 08 Sep 2009 11:51:11 +0000

pIt is amazing how many things have NOT happened./p pstrongProbably most incredible is that the dollar has NOT collapsed./strong It has lost ground, and was trading at $1.43 per euro on Friday, but no one laughs at you when go to exchange dollars…or offer to pay in dollars rather than the local currency./p pFor the last 10 years, the money supply in the United States has expanded at roughly twice the rate of GDP growth. And the Fed doubled its balance sheet in just the last 18 months. This last bit of information is stunning. It took the central bank nearly 100 years to build a balance sheet of $1 trillion. Then, under the leadership of Ben Bernanke, it added another $1 trillion#8230;/p

Sure It’s Legal… But Is It RIGHT?

Graham Summers — Thu, 03 Sep 2009 20:44:30 +0000

[Editorial Note - Jim Musselwhite, Publisher What follows is a perspective of our nation's financial mess that EVERY American (OK, not the fat cats on Wall Street or the idiots running the Fed and Treasury Department) can understand and appreciate. The system is broken, has been broken for decades, and there is no real sign [...]

Trouble in the Sand States

Bill Bonner — Thu, 03 Sep 2009 11:54:12 +0000

pSummer is over…and the rally may be over, too./p pstrongIt’s back to business./strong No more long lunches. No more afternoons painting windows. No more soirees in the evening./p pWe return to our lonely métier – chronicling the decline and fall of the US economy…and the Anglo-American empire too…./p pTwo bits of news signal the scale of this trend. But first, here’s one two-bit piece of news: the Dow lost 185 points yesterday. Could this mark the beginning of the end for the rally? Yes, it could. Should you be out of US stocks? Yes, you should./p pBut let’s turn back to our ‘decline and fall’ chronicles…/p pstrongFrom Florida, comes news of the first drop in population in 60 years./strong “Unemployment is soaring,” reports emUSA Today/em. “Florida is#8230;/p

Stocks Are Set to Rocket in September

Contrarian Profits — Wed, 02 Sep 2009 11:38:40 +0000

pThere’s no question that the past year-and-a-half has been disastrous for investors. Since last March, the S#38;P 500 has lost nearly a quarter of its values, and many are still too scared to put their money back in the market in the market. But according to some of the best investors in the world, now is exactly when you should turn your eye to stocks…/p pSuper-investor Warren Buffet once said that his investment philosophy was to buy stocks when others were fearful, and to be fearful when others were buying. Right now isn’t the time to be fearful along with the herd; it’s time to stock up on stocks./p pAs I predicted earlier in the year, right now the market is zooming#8230;/p

Renminbi To Become An International Currency?

Contrarian Profits — Mon, 31 Aug 2009 17:01:00 +0000

pCurrencies give back ground overnight#8230; Don#8217;t look too closely at U.S. data#8230; India posts strong GDP#8230; Lots O#8217;-data this week! And Now#8230; Today#8217;s Pfennig!br / Good day#8230; And a Marvelous Monday to you! A Wonderful Weekend was enjoyed by your Pfennig writer, with good friends, and Chamber of Commerce weather, on a beautiful lake! It#8217;s back to work today though. I don#8217;t understand why I didn#8217;t plan on taking today and staying an additional day at that beautiful lake! Oh well#8230; Time to go to work!/p pWhen I signed off on Friday morning, the currencies were enjoying a very nice rally, which remained in place the rest of the day. The Consumer Income and Spending data was very much as I describe it would be, and so#8230;/p

Making a Bad Situation Worse

Bill Bonner — Fri, 28 Aug 2009 19:32:23 +0000

pOur story continues#8230;According to the popular version, Ben Bernanke, our flawed hero, has averted a Second Great Depression. When the crisis came in ’07-’08, he calmly took out the text he had written himself: “Dummies’ Guide to Avoiding a Japan-style Deflation”#8230; or something like that. /p pThen, he followed his own theory#8230; coolly#8230; confidently#8230; cutting Fed rates down to nearly zero, pushing Congress to pass a huge ‘stimulus’ bill, and even forcing Bank of America (NYSE:a href="http://www.google.com/finance?q=BAC"BAC/a) to take over Merrill Lynch. In this last event, he is accused of deliberately hiding Merrill’s enormous losses and then threatening the BofA board with dismissal if they refused./p pBecause of Bernanke’s swift and assertive action, the nation’s banking system held together during those critical weeks#8230;/p

Bernanke is No Hero

Bill Bonner — Fri, 28 Aug 2009 11:25:28 +0000

p“They were hunters. They stayed here during the Ice Age, probably hunting reindeer,” said the archaeologist in charge of the site. “But who were they?”/p pstrong“They were Cro-Magnon…they were like us…human./strong They wore jewelry. They drew pictures. They cooked meat. And they used this cave over a period of 30,000 years…”/p pYesterday afternoon, we drove up the valley to a limestone cave owned by friends. There, a group of 20 scientists, archeologists and volunteer workers are digging down through 30,000 years of history, about 20 feet worth of dirt, rock and sediment, 5 centimeters at a time./p pWe’ll come back to the pre-historic world in a minute. First, let’s catch up on what is going on in the world of finance, right now./p pstrongYesterday, most#8230;/strong/p

Prieur’s readings (August 27, 2009)

Prieur du Plessis — Thu, 27 Aug 2009 06:31:28 +0000

This post provides links to a number of thought-provoking articles I have read over the past few days that you may also find of interest. Please also add the links to any other thought-provoking articles you would like to share to the comments section.

Don’t Count on China

Bill Bonner — Wed, 26 Aug 2009 17:30:23 +0000

pNow the summer days are dwindling down to a precious few. This morning, it is overcast and chilly here in central France. The leaves on the aspen and linden trees have turned yellow already; whenever the wind blows, they flutter to the ground as if they were trying to get away from something. /p pThis afternoon, we have been invited for a private tour of a grotto not far away. According to our information, the grotto was sealed off by falling rock hundreds of years ago. Thus it was protected and preserved remains of human habitation from 30,000 years ago./p p“Yes, there is a span of about 10,000 years in which there is little evidence of human habitation in Europe,” said the#8230;/p

Stock Market News for August 26, 2009 – Market News

Zacks Market Commentaries — Wed, 26 Aug 2009 14:25:59 +0000

Better-than-expected reports on housing and consumer confidence helped U.S. stocks record gains albeit in a tepid manner. Fed Chairman Ben Bernanke’s reappointment also added to the positive sentiments but the muted gains signaled investors were progressing with caution. Treasury prices rose after a successful auction of $42 billion two-year notes.

The Dow Jones industrial average added 30 points, or 0.3% and closed at its highest point since November 4. The S&P 500 index gained 2 points, or 0.2% to close at its highest level since November 6. The NASDAQ composite rose 6 points, or 0.3%, to 2024, its highest close since October 1. NYSE volume remained a modest 1.14 billion shares, with advancing issues ahead of decliners by a three-to-two margin.

After touching their 10-month high, crude prices retreated 3.1% to $72.05, reflecting yesterday's reported rise in stockpiles from the American Petroleum Institute, generating a 1.4% fall in the S&P's oil and gas sector. Among DJIA components ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) eased 0.9% and 0.2%, respectively.

A favorable housing report sent shares of Hovnanian (NYSE:HOV) up 6.5%, Pulte Home (NYSE:PHM) up 3.5%, and Lennar (NYSE:LEN) 2.8%. Among home improvement retailers, Lowe's (NYSE:LOW) shares gained 1.7% after it said it was entering Australian markets in a Woolworth partnership. Home Depot (NYSE:HD) shares rose 2.2%.

Consumer services shares rose 1.2% and were the leading gainers among the S&P 500 industry groups. Shares of retailers advanced with luxury-retailer Saks (NYSE:SKS) up 8.5%, Macy's (NYSE:M) up 3.5% and Sears Holdings (NASDAQ:SHLD) up 2.4%.

The Treasury sold $42 billion 2-year notes in its planned $109 billion auction for the week. Although, the response was average, with a high yield of 1.119%, Treasury prices rose on improved inflation expectations, with the longer-dated 30-year up 22/32 in price, and its yield down 4 bps to 4.22%. Three-month Libor fell to a record low of 0.38%, its lowest level since 1986, pointing to increased credit market liquidity.

In what could be a major policy matter, the government expects US debt over the next decade to almost double, as a less-vigorous-than-hoped-for economic recovery fails to offset increased spending on retirement and health care benefits. The White House expects a $9 trillion deficit over the next decade, $2 trillion more than previously anticipated, with a 2009 deficit of $1.58 trillion.

Zacks Investment Research

Another Sad Day For The Economy: Bernanke Re-Nominated By Obama

Steve Warshaw — Wed, 26 Aug 2009 04:31:04 +0000

A big piece of not so surprising news was released today; president Obama has decided to nominate Ben Bernanke for a second term as fed chairman. This is a sad day indeed, as Mr. Bernanke’s financial shenanigans have caused many economic analysts and market pundits much consternation. Frankly, Mr. Bernanke has as been outright dishonest about his financial policy. He has continuously revoked Freedom of Information Act (FOIA) requests by several news organizations claiming that the Federal Reserve is above the law, and that the FOIA doesn’t apply to him ...

Obama Backs Big Ben – Analyst Blog

Dirk Van Dijk — Tue, 25 Aug 2009 16:05:16 +0000

President Obama has decided to reappoint Fed Chairman Ben Bernanke to a second term. On balance, I think this is the right move. In many ways, his reappointment makes more sense than his original appointment.

The worst marks against Bernanke’s record come from when he was serving on the Fed board under Alan Greenspan, did nothing to stop the bubble forming and was almost willfully blind in seeing it coming. While as Chairman, he was a little slow off the mark in addressing the crisis, once engaged he took the needed steps to pull the world back from the brink of the abyss.

The role of Fed Chairman has two major components. First and foremost, he (along with the board of Governors) is responsible for monetary policy. This is the raising and lowering of the Fed Funds rate and regulating the overall money supply.

On that front, I think he has done an excellent job under the most trying of circumstances. He faced a raging wildfire of deleveraging in the financial system after the demise of Lehman Brothers and the near collapse of several other major financial institutions, including American International Group (AIG), Fannie Mae (FNM), Freddie Mac (FRE), Merrill Lynch -- now part of Bank of America (BAC) and Citigroup (C).

He responded by quickly lowering the Fed Funds rate to almost zero, and then going a few steps further by engaging in quantitative easing, or buying mortgage-backed securities and long-term T-notes. These actions dramatically increased the size of the Fed balance sheet and with it the size of the monetary base. He responded with a slew of innovative alphabet soup programs, such as the TALF program, to stabilize the system.

At the core of the problem is that deleveraging dramatically slows the velocity of money, or the rate at which it moves from one hand to another. Banks want to hold onto as much cash as possible and do not want to lend it out.

Since nominal GDP can be defined as the supply of money times the rate at which it turns over, if the money supply is not increased, then GDP will fall precipitously. This comes from the basic monetarists equation of M*V = P*Q, where M is the money supply, V is the velocity, P is the price level (inflation) and Q is the quantity produced (real output).

Once engaged, Bernanke saw the scope of the problem and unleashed a fire hose of liquidity on the problem. While the economy is clearly not in good shape, I shudder to think about the condition we would be in had he not taken these actions. Most people fail to appreciate just how close we came to financial Armageddon last fall. It was the economic equivalent of the Cuban Missile Crisis.

Sopping up all that liquidity is going to be extremely tricky, and the timing is going to have to be just right. If it is removed too soon, then the economy will slip right back into its downward trajectory.

The actions of the Fed prevented a second Great Depression, but that does not mean the threat has totally disappeared, just that the medicine is working. Stopping the medicine too soon would cause a relapse.

The best example of this in history was in the 1930’s. Few people realize that the greatest growth in GDP and industrial production in U.S. peacetime history was from 1933 through 1936. Unfortunately, worried about the potential for inflation and unprecedented budget deficits, both Monetary and Fiscal policy turned concretionary in 1937, resulting in a very nasty recession, a relapse that took WWII to cure.

On the other hand, if velocity starts to pick up and all that monetary base is still out there, then the movement on the other side of the equation will be as much or more from the P, inflation, as it is from the Q, a pick up in real economic activity. If Bernanke does not act quickly enough, inflation could easily return to mid-1970’s levels or worse.

Bernanke is betting that right now real activity is depressed enough that when V starts to pick up, the bulk of the adjustment will be in real output, or Q. With capacity utilization at near record lows, there is a very good justification for this view.

Certainly recent inflation reports have been not been on the too-hot side. Heck, we just saw the biggest year-over-year drop in producer prices on record! Changing horses in midstream is not a good idea, and until this river of liquidity is removed, we will not get to the other side.

The other major role of the Fed Chairman is to be one of the most important bank regulators. Here I would give him much weaker marks. The banks acted outrageously leading up to the crisis. They used taxpayer-backed deposits and effectively went to Las Vegas with them. Their casino of choice was highly leveraged bets on exotic forms of mortgage-backed securities.

Another favorite table game were derivatives, most notably Credit Default Swaps (CDS) which were essentially life insurance contracts on companies. When they were winning the bets, they paid out bonuses that were beyond lavish. They did not set aside sufficient reserves for when the bets turned bad.

The Fed, along with the Treasury, simply threw money at the banks with very few strings attached. The taxpayer got very little in return. This was one of the greatest transfers of wealth -- welfare, if you will -- in human history. It did not go to the poor or the sick; it went to the wealthy and the powerful. In the process, it set up a moral hazard problem of epic proportions.

Bankers now know that they can make huge bets, and if they lose, the taxpayer will cover them. If they win, they get to keep it all. This will encourage banks and other financial institutions to be even more irresponsible in the future.

An overhaul of the financial regulatory structure would help, and the recent proposals by the Obama Administration are a decent first step in that regard. Unfortunately, the proposals are more likely to be watered down in Congress than strengthened. This is exactly the sort of issue where lobbyists hold the most sway -- dry and complicated issues where a very powerful group has a huge interest in the outcome.

The net result is that down the road -- not next year or the year after, but maybe in a decade -- we will face another massive crisis in the financial system. And where the actions of the last administration with regard to the banks were beyond scandalous, the actions of the current administration towards the banks have been a huge disappointment. "Change we can believe in" has, at best, become change around the edges.

In his second term, Bernanke will have to become a much tougher regulator. Part of the regulatory reform would put even more power in the hands of the Fed as a systemic risk regulator. I agree that such a regulator is needed, and the Fed is one of the two obvious candidates for the job (the other being the FDIC).

The opposition the Fed has shown in giving up part of its regulatory power -- the consumer protection part -- is extremely disappointing, and smacks of more interest in bureaucratic turf than the interests of the American people or the economy. The Fed has done a lousy job in protecting the consumer from predatory practices at the banks, and a separate agency is desperately needed.

The experience of Alan Greenspan should warn us loudly about the lionization of a Fed Chairman. For most of his tenure, Greenspan was lionized as the “Maestro." Now it is clear that he truly was a failure whose actions led to the near total collapse of the entire world economy.

Thus, I have no desire to lift Ben Bernanke up to Mount Olympus. Still, given his excellent handling of monetary policy during the most difficult of times, Bernanke deserves to finish the job he started, and Obama is making the right move in reappointing him.
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Making The Fed Reserve Accountable!

Contrarian Profits — Tue, 25 Aug 2009 15:46:11 +0000

pCurrencies sold overnight#8230; But rebound in early morning trading#8230; China throws cold water on stock values#8230; German exports rival the Big Kahuna! And Now#8230; Today#8217;s Pfennig!br / Good day#8230; And a Terrific Tuesday to you! I returned home from San Francisco last night, and am back in the saddle today! Not the way I like to travel, where I get a day when returning home to recharge the batteries, but it is what it is#8230; I did an interview with MarketWatch yesterday morning, talking about#8230; Well, what else? The deficits, and diversification! My presentations in S.F. were well attended#8230; On Saturday, my power point froze up, but I carried on in spite of the technical difficulties!/p pYou know#8230; I really, heard a lot of people talking#8230;/p

Ben’s Back, And So is Real Estate

Investment U — Tue, 25 Aug 2009 14:22:38 +0000

Ben’s Back, And So is Real Estate by The Investment U Research Team When someone recently told us that the Obama administration would replace Federal Reserve Chief Ben Bernanke we almost all but laughed. Our logic was simple, politics aside; if Obama had replaced Bernanke it would have sent a signal to the markets that we [...]

Obama’s Right Call on Bernanke – Analyst Blog

Charles Rotblut — Tue, 25 Aug 2009 13:55:54 +0000

President Obama is reappointing Ben Bernanke as Fed Chairman. Though there will be those in Congress who disapprove, it is highly probable that Bernanke will keep his job after January 31st.

The move is part of a broader plan to keep the Obama economic team in place. A White House official told Politico.com, "The president wanted the team that has been working to rescue this economy together...This continuity is crucial."

Though Bernanke's actions have at times been controversial (e.g. the Bank of America [BAC] takeover of Merrill Lynch), reappointing the Fed Chairman is the right move. Bernanke inherited a bad set of financial circumstances and moved boldly in his attempts to limit the damage. We may never know whether his actions prevented a depression from occurring, but in a crisis situation, action is always better than no action.

The next challenge for Bernanke will be his hardest, and a real test of how many lessons he learned from his analysis of the Great Depression. The Fed Chairman must keep inflation from spiraling out of control and, at the same time, prevent a double-dip recession. This will be very difficult, as the margin for error is almost nil.

His next actions must include removing the programs that have made essentially free capital available to Wells Fargo (WFC), KeyCorp (KEY), U.S. Bancorp (USB) and many other banks.

He also needs to ensure than the freeze on lending continues to melt, or else face an even worse housing crisis -- just as D.R. Horton (DHI) and many others are now starting to find stable ground. At the same time, he may have to battle higher commodity prices, a weaker dollar and other inflationary pressures.

If Bernanke screws up, we will see a return of stagflation, or worse. If he makes the right policy moves, and gets the necessary fiscal restraint from Congress, he could successfully engineer a return to a lengthy period of economic growth.

Unfortunately, the odds are stacked against Bernanke and the entire Obama economic team. It's not that we won't see growth next year, but rather we also see potential for further economic problems in 2011 and 2012. Fortunately, the Fed Chairman appears to understand these risks, and that is precisely why he should get a second term.

Charles Rotblut, CFA is the senior market analyst for Zacks.com.
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Stocks Extend Last Week’s Rally on Risk Appetite

Contrarian Profits — Mon, 24 Aug 2009 18:24:27 +0000

pEuropean and Asian stocks extended last week#8217;s rally on Monday and crude oil marched higher after U.S. economic news and stronger-than-expected data from the euro zone spurred expectations for economic recovery./p pBut an early rally in U.S. stocks faded about midday in New York after Treasuries rose as investors swooped in to take advantage of sharp losses on Friday./p pOil rose to a 10-month high near $75 a barrel and other commodities also surged as optimism that major economies were pulling out of recession drove hopes of rebounding demand. ./p pGlobal stocks as measured by MSCI#8217;s all-country world index #60;.MIWD00000PUS#62; rose 1.2 percent and was on track for a fifth straight session of gains./p pThe yen fell while the U.S. dollar slid against commodity currencies,#8230;/p

PennyOmega.com Stock Report! 8/24/09, PWEB, ADXM, MOS, GORO, USU, SPLS

PennyOmega.com — Mon, 24 Aug 2009 17:11:31 +0000

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Dollar Edges Up vs Euro ahead of U.S. Consumer Data

Contrarian Profits — Mon, 24 Aug 2009 17:00:07 +0000

pThe dollar edged up against the euro and yen on Monday in extremely thin trade as Wall Street surrendered earlier gains and traders repositioned themselves ahead of U.S. consumer and housing data due this week./p pSolid U.S. and euro zone data and an upbeat assessment on the economy from Federal Reserve Chairman Ben Bernanke over the weekend earlier pushed investors to take on riskier investments at the expense of the the low-yielding yen and dollar./p p#8220;Conventional wisdom suggests that major currencies should trade within their recent ranges until liquidity improves after the Labor Day holiday,#8221; said Wells Fargo currency strategist Vassili Serebriakov. #8220;However, there is plenty of data in the U.S. and elsewhere to change that this week, with consumer-related numbers likely#8230;/p

European Orders Support the Euro

Contrarian Profits — Mon, 24 Aug 2009 14:34:01 +0000

pEuropean orders increase more than expected#8230; Was Cash for Clunkers necessary?#8230; Roubini sees a #8216;W#8217; not a #8216;V#8217;#8230;br / Lessons from Mary Poppins#8230;And Now#8230; Today#8217;s Pfennig!/p pGood day#8230; And welcome to another week, the last one in August! The weather here in St. Louis has shifted toward fall, which is my favorite season. Chuck is flying back home from San Francisco today and will be back in the saddle tomorrow. Both he and the big boss, Frank Trotter, sent me some great Pfennig pfodder over the weekend so lets get right to it./p pThe dollar continued to drift lower throughout the trading day on Friday, with the commodity currencies of Australia, South Africa, and New Zealand leading the way. Confidence is returning to the markets, and#8230;/p

Stock Market News for August 24, 2009 – Market News

Zacks Market Commentaries — Mon, 24 Aug 2009 14:23:18 +0000

Federal Reserve Chairman Ben Bernanke’s encouraging words about the economy and a jump in existing home sales sent US stock surging to their highest level this year and brightened hopes that an economic recovery is imminent. Treasuries tumbled and corresponding yields rose sharply higher as investors turned away from the safety of government debt. Gains were broad based with 29 of the 30 Dow Jones industrial average components recording gains. Crude oil prices climbed on the back of economic recovery hopes, hitting a 10-month high of $73.89.

US stock futures point to a moderately higher open on Monday. Dow Jones industrial average futures rose 34, or 0.4%, to 9,523. Standard & Poor's 500 index futures rose 3.30, or 0.3%, to 1,028.50, while Nasdaq 100 index futures rose 2.00, or 0.1%, to 1,637.50.

The Dow Jones industrial average gained 156 points, or 1.7%, closing above 9,500 for the first time since November 4. The S&P 500 index added 19 points, or 1.9%, closing at the highest point since October 6. The tech-heavy NASDAQ composite index added 31.68 points, or 1.59%, to 2,020.90, its highest close since October 1. On the New York Stock Exchange about four stocks rose for every one that fell.

Speaking at an annual Fed conference, Bernanke noted that "After contracting sharply over the past year, economic activity appears to be leveling out, both in the US and abroad," adding prospects for a return to growth in the near-term “appear good." However, he sounded a note of caution, warning that lending is not back to normal, and that the difficulty consumers and businesses are having obtaining loans will be a challenge.

All ten S&P 500 industry sectors closed higher on Friday, led by gains in basic materials (+2.7%), oil and gas (+2.6%), industrials (+2.3%), and financials (+2.1%). Year-to-date technology stocks have been the best of the lot managing gains of 40.4% and are followed closely by basic material shares (+40.1%), financials (+13.2%), industrials (+11.1%), and consumer goods (10.4%). On the year only telecoms (-4.2%) have suffered declines.

A rise in energy stocks sent shares of Exxon Mobil (NYSE:XOM) up 2.5% to $69.92 and Chevron (NYSE:CVX) rose 1.6% to $69.73. Shares of healthcare companies also advanced with Pfizer (NYSE:PFE) surging 5.5% to $16.64 and Merck (NYSE:MRK) gaining 5.1% to $32.56. Among financial issues, AIG (NYSE:AIG) jumped 35% to $32.85 after the company said it will be able to pay back the government. Game Stop (NYSE:GME) plunged 13% after the company reported earnings that were below analysts’ expectations.

However, notable risks remain to the fragile economy. A Sunday Financial Times piece quoted economist Nouriel Roubini as saying there remains a "big risk" of a double-dip recession, although Roubini currently sees a "U-shaped" recovery.

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Bernanke Speaks at Jackson Hole – Analyst Blog

Dirk Van Dijk — Fri, 21 Aug 2009 18:24:41 +0000

In a long speech to the annual Kansas City Fed gathering at Jackson Hole, Wyoming, Fed Chief Ben Bernanke gave a history lesson about the recent financial crisis. It is worth reading in its entirety since it reminds us of just how close we came to absolute catastrophe.

He recounts the demise of Lehman Brothers and the decisions to bail out Fannie Mae ([/url]), Freddie Mac ([url=http://www.zacks.com/stock/quote/fre]FRE) and American International Group (AIG), as well as the shotgun marriages of Bank of America (BAC) with Merrill Lynch and J.P. Morgan (JPM) with Washington Mutual.

The full speech can be read here: http://www.federalreserve.gov/newsevents/speech/bernanke20090821a.htm.

While most of the speech focused on the recent past, he gave the following assessment of the current situation:

“Overall, the policy actions implemented in recent months have helped stabilize a number of key financial markets, both in the United States and abroad. Short-term funding markets are functioning more normally, corporate bond issuance has been strong, and activity in some previously moribund securitization markets has picked up.

"Stock prices have partially recovered, and U.S. mortgage rates have declined markedly since last fall. Critically, fears of financial collapse have receded substantially. After contracting sharply over the past year, economic activity appears to be leveling out, both in the United States and abroad, and the prospects for a return to growth in the near term appear good.

"Notwithstanding this noteworthy progress, critical challenges remain: Strains persist in many financial markets across the globe, financial institutions face significant additional losses, and many businesses and households continue to experience considerable difficulty gaining access to credit.

"Because of these and other factors, the economic recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels."

I have to agree with his basic assessment that the economy is stabilizing, but that the recovery will be exceptionally anemic. As a central banker, he is obligated to speak in soft tones and not say anything that has the potential to alarm markets. If he were back teaching at Princeton, he would probably use stronger language.

Historically, sharp downturns are followed by sharp and strong recoveries. That is not likely to happen this time around. Still, we have seen some encouraging signs, most recently the pick-up in existing home sales and the tentative rebound in industrial production.

These signals probably mean that the NBER will eventually say that the recession ended around now. They will not get around to doing so until perhaps the first quarter of next year, just as they did not tell us the recession started in December of 2007 until November of 2008, when any fool could tell we were in a recession.

Bernanke only touched lightly on what was likely going forward and did not really address how the programs of the last year will be unwound -- the timing of which will be extremely difficult. If the Fed acts too quickly, we could easily be back where we were last fall. If it waits too long, inflation expectations will rise, and given the huge amount of excess reserves the Fed has injected into the system, inflation could rapidly get out of control.

Some insight into this timing would have been nice in this speech, but I didn’t find it. Still it was a useful history lesson. Here is his conclusion:

“Since we last met here, the world has been through the most severe financial crisis since the Great Depression. The crisis in turn sparked a deep global recession, from which we are only now beginning to emerge.

"As severe as the economic impact has been, however, the outcome could have been decidedly worse. Unlike in the 1930s, when policy was largely passive and political divisions made international economic and financial cooperation difficult, during the past year monetary, fiscal and financial policies around the world have been aggressive and complementary.

"Without these speedy and forceful actions, last October's panic would likely have continued to intensify, more major financial firms would have failed, and the entire global financial system would have been at serious risk. We cannot know for sure what the economic effects of these events would have been, but what we know about the effects of financial crises suggests that the resulting global downturn could have been extraordinarily deep and protracted.

"Although we have avoided the worst, difficult challenges still lie ahead. We must work together to build on the gains already made to secure a sustained economic recovery, as well as to build a new financial regulatory framework that will reflect the lessons of this crisis and prevent a recurrence of the events of the past two years. I hope and expect that, when we meet here a year from now, we will be able to claim substantial progress toward both those objectives."

The effort the build an new regulatory framework is going to be critical, and is something that the public has to be aware of. Since it is a highly complex and difficult subject, it is just the sort of thing where lobbyists can have the greatest influence.

Already the effort to create a new agency focused on consumer protection from abusive financial products seems to be floundering under intense opposition from the banking lobby. The country did an enormous favor to the banking industry last year, but in the final analysis it was in the public interest to do so (as a general proposition of stepping in, the actual implementation was FAR too nice to the banks).

It would be nice if those efforts led to changes that would prevent a reoccurrence of this disaster. So far, there is little evidence of that happening.

The regulatory overhaul as proposed by the Obama Administration would be a good first step, but needs to be strengthened as it moves through Congress. However, it seems more likely that as the bank lobby sets its teeth in, it will be substantially weakened instead.

Thus, we will face another crisis like the one we had last year, maybe not this year or next, but 10 or 20 years down the line. Let us hope that Bernanke is right and a year from now we will see substantial progress towards these objectives, but I fear that we will not.
Read the full analyst report on "FNM"
Read the full analyst report on "FRE"
Read the full analyst report on "AIG"
Read the full analyst report on "BAC"
Read the full analyst report on "JPM"
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Stock Market News for August 21, 2009 – Market News

Zacks Market Commentaries — Fri, 21 Aug 2009 14:32:27 +0000

US stock advanced for the third consecutive session on Thursday, helped by a rebound in overseas markets even as continuing weakness in the job market kept investors on a wait-and-watch mode. Financials showed strength after American International Group said it expects to repay the bailout loans. Stocks remained under pressure in the early trading but drifted higher through the afternoon as investors, encouraged by a positive reading on manufacturing front, chose to hunt for bargains. However, volume remained light.

US stock futures rose moderately Friday, pointing to a higher open on Wall Street as investors turn their focus towards Federal Reserve Chairman Ben Bernanke who speaks at the Jackson Hole conference.

The Dow Jones industrial average climbed 71 points, or 0.8% and the S&P 500 index added 11 points, or 1.1%. The Nasdaq composite (COMP) rose 20 points, or 1%. On the New York Stock Exchange, advancing stocks beat those that fell seven to three on volume of 1.05 billion shares.

In another sign that investors are being careful, treasury prices gained with the yield on the benchmark 10-year note falling to 3.43% from 3.46%. The dollar was mixed against other major currencies, while gold prices declined.

Yesterday all ten S&P500 industry sectors advanced, led by financials (+2.4%), industrials (+1.1%), and tech shares (+1.0%). Among the financial issues, AIG (NYSE:AIG) jumped 21.25% after the firm noted it will likely be able to repay government bailout funds. Citigroup (NYSE:C) soared 8.5% after analyst Richard Bove said Citi shares would triple in three years on increasing expectations sale of sour assets will enable its profitability. Also helping sentiments was news on next week's budget expectations, pointing to lowered budget deficit expectations after the elimination of a $250 billion provision for bailing out more banks.

Among tech issues, Google (NASDAQ:GOOG) advanced 3.7% after Goldman Sachs (NYSE:GS) noted higher revenue growth for the company. Goldman Sachs (NYSE:GS) also added the firm to its Conviction Buy List.

Today's corporate results include JM Smucker (NYSE:SJM) and Ann Taylor (NYSE:ANN).

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Stocks Push the Currencies Higher…

Contrarian Profits — Thu, 20 Aug 2009 19:34:35 +0000

pStocks push the currencies higher#8230;Norway pulls out of recession#8230;Jackson Hole boondoggle#8230;Oil helps rally commodity currencies#8230;And Now#8230; Today#8217;s Pfennig!/p pGood day#8230; We had more rain here last night, but the storms have cooled things off and it is starting to feel a bit like fall around here. Chuck flies off to San Francisco today to speak at the Money Show, so I will be bringing you the Pfennig for the next few days. The dollar has rallied just a bit overnight, clawing back some of the losses which occurred mid morning yesterday./p pAnd what, you might asked, caused the dollar to rally yesterday? You can re-read a bit of yesterday#8217;s Pfennig for the answer: #8220;The data cupboard has been emptied out and is#8230;/p

A Gusher of Federal Money…

Contrarian Profits — Wed, 19 Aug 2009 19:05:39 +0000

pNo currency movement to speak of#8230; Buffett calls out the deficits#8230; PIMCO does too! SNB selling francs to stem gains#8230; nd Now#8230; Today#8217;s Pfennig!/p pGood day#8230; And a Wonderful Wednesday to you! Another day with the medicine in my knee and it feels better yet today#8230; I did have to ice it last night though, I guess I#8217;m still not out of the woods here, but I can see the exit!/p pThere was very little in the way of movement in the currencies yesterday. The euro moved to 1.4150, but was brought back down to the 1.41 handle overnight. Stocks rebounded yesterday, which gave a few risk takers the intestinal fortitude to dip their toes back into the risk assets water#8230; But#8230;/p

Global Sell-Off, Long Haul Investing, A Small Cap Opportunity, Commercial Real Estate and More!

Addison Wiggin — Tue, 18 Aug 2009 17:00:57 +0000

pSellers back in control… China, FDIC, U.S. consumers trigger global sell-off#8230; a href="http://www.contrarianprofits.com/articles/author/chris-mayer/" class="alinks_links"Chris Mayer/a examines a disturbing trend among American investors#8230; Signs of the times: Bernanke frets over commercial real estate, Treasury to sell U.S. mortgages to China#8230; Greg Guenthner with a Far East opportunity growing “at an astronomical rate”#8230;/p p strong“Investing in this market is like trying to take cheese out of a set mousetrap,”/strong Chris Mayer begins today. “It’s very tempting to make a grab, but you are also fairly certain about what will happen if you do. The market’s 50% rise from its March lows is stunning. It’s like the cheese in the trap. But we also know that no market moves up like that for long. The kill bar is never far from such#8230;/p

U. of Michigan Spoils the Party…

Contrarian Profits — Mon, 17 Aug 2009 19:00:52 +0000

pRisk Aversion comes back strong! Risk assets get sold#8230; What games will be played with TIC#8217;s? 40 years since Woodstock! And Now#8230; Today#8217;s Pfennig!/p pGood day#8230; And a Marvelous Monday to you! A great weekend that was filled with watching my little buddy, Alex, play football, hosting a surprise 30th birthday party for my little girl, Dawn, and a sweep of the Padres by the Cardinals! This week gets cut short with me a the helm, as I head to San Francisco on Thursday. Chris will have the conn on the Pfennig Thursday through Monday./p pWell#8230; Who#8217;d a thunk it? Yes, who would have thought that the U. of Michigan Consumer Confidence could turn the markets upside down and spoil the party?#8230;/p

How to Survive and Prosper in the Twilight Zone Economy

Contrarian Profits — Mon, 17 Aug 2009 18:19:11 +0000

pThis morning, MarketWatch tells us there’s been “a broad-based decline” of shares in Europe. Apparently, “capital adequacy worries” over banks are the cause. We presume this is a polite way of saying banks have no money. /p pAt least the Europeans are owning up to the fact; in the U.S. investors are still pretending that the emperor’s new clothes are real. The pan-European Dow Jones Stoxx 600 index is down 1.2%, down the second day in four./p pShanghai stocks have also taken a bath. They’ve suffered their worst fall since November. This time, the worry is that the Chinese government will tighten its loosey-goosey monetary policy. According to MarketWatch, “The Shanghai Composite Index dropped 5.8% to 2,830.63, closing below the 3,000-point level for#8230;/p

Just Who’s Buying This Rally?

Graham Summers — Thu, 13 Aug 2009 00:18:08 +0000

Roughly 30% of US household wealth was destroyed by the collapse in housing and the 2008 Crash. Currently it stands at about $15 trillion, down % from $22 trillion at the 2007 peak. For simplicity’s sake, we’ll call this “assets.” Now, consider that total US household debt stands at $13 trillion ($2.5 trillion in credit and [...]

Prieur’s readings (August 11, 2009)

Prieur du Plessis — Tue, 11 Aug 2009 08:31:10 +0000

This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy. Please also add the links to any other thought-provoking articles you would like to share to the comments section.

A Big Jobs Surprise!

Contrarian Profits — Mon, 10 Aug 2009 19:00:22 +0000

p Low yielding currencies get sold#8230;High yielding currencies remain solid#8230;Further info on the inflation indexed bonds#8230;Stealth QE#8230;And Now#8230; Today#8217;s Pfennig!/p pGood day#8230; And a Marvelous Monday to you! A very nice, but hot weekend here#8230; But hey! It#8217;s August, it#8217;s supposed to be hot! Friday was an awful day for most of the currencies, and there was a HUGE surprise in the Jobs Jamboree (according to the BLS, of course!)#8230; And, at the end of updates, I#8217;ve got a story for you about stealth QE, you#8217;ll not want to miss a minute of that! So#8230; Let#8217;s go!/p pWell, Friday#8217;s Jobs Jamboree was quite interesting to say the least#8230; I had already told you about the forecasts for a HUGE drop in job losses#8230;/p

A Big Jobs Surprise!

Contrarian Profits — Mon, 10 Aug 2009 19:00:22 +0000

China Is Through Screwing Around

Graham Summers — Fri, 07 Aug 2009 12:22:01 +0000

Starting with the re-opening of formal trade arrangements in 1971, China has undergone a near unprecedented level of economic transformations. The country’s per-capita income doubled from 1978 to 1987 and again from 1987 to 1996. In those 20 years, more than 300 million Chinese ascended out of poverty with accompanying dramatic changes in lifestyle, professions, and [...]

Goldman…Goldman…Goldman…

Bill Bonner — Thu, 06 Aug 2009 17:31:21 +0000

p Goldman Sachs Would Have Collapsed If Not For Henry Paulson./p pThe Dow slipped a bit yesterday – only 39 points. Everyone is watching. They want to see how far this rally carries on. Many think it is more than a bear market bounce; they think it is for real./p pThe prevailing opinion is that quick action by the feds avoided a more serious meltdown. Ben Bernanke says he was working to prevent a “second great depression.”/p pAnd now that the crisis is past, the economy is slowly climbing out of its hole. The second quarter showed GDP falling at 1% per year in the US#8230; rather than the 6.4% rate recorded earlier in the year. Housing sales have perked up. Oil is trading#8230;/p

The Fed…The professor is nervous…why?

Alex Stanczyk — Mon, 03 Aug 2009 18:25:27 +0000

Powerful article over at www.smallgovtimes.com by Gary North. A snippet: Why Bernanke is in panic mode August 1, 2009 by Gary North Usually, when Ben Bernanke is interviewed, he has the demeanor of a college professor in the presence of freshman students. Of course, as a full professor, he did not have to teach freshmen. That is for untenured [...]div class="feedflare" a href="http://feeds.feedburner.com/~ff/YourFinancialFuture?a=dNjAING9Dpo:G4HWTDrA5dU:yIl2AUoC8zA"img src="http://feeds.feedburner.com/~ff/YourFinancialFuture?d=yIl2AUoC8zA" border="0"/img/a a href="http://feeds.feedburner.com/~ff/YourFinancialFuture?a=dNjAING9Dpo:G4HWTDrA5dU:F7zBnMyn0Lo"img src="http://feeds.feedburner.com/~ff/YourFinancialFuture?i=dNjAING9Dpo:G4HWTDrA5dU:F7zBnMyn0Lo" border="0"/img/a a href="http://feeds.feedburner.com/~ff/YourFinancialFuture?a=dNjAING9Dpo:G4HWTDrA5dU:7Q72WNTAKBA"img src="http://feeds.feedburner.com/~ff/YourFinancialFuture?d=7Q72WNTAKBA" border="0"/img/a a href="http://feeds.feedburner.com/~ff/YourFinancialFuture?a=dNjAING9Dpo:G4HWTDrA5dU:V_sGLiPBpWU"img src="http://feeds.feedburner.com/~ff/YourFinancialFuture?i=dNjAING9Dpo:G4HWTDrA5dU:V_sGLiPBpWU" border="0"/img/a a href="http://feeds.feedburner.com/~ff/YourFinancialFuture?a=dNjAING9Dpo:G4HWTDrA5dU:qj6IDK7rITs"img src="http://feeds.feedburner.com/~ff/YourFinancialFuture?d=qj6IDK7rITs" border="0"/img/a a href="http://feeds.feedburner.com/~ff/YourFinancialFuture?a=dNjAING9Dpo:G4HWTDrA5dU:l6gmwiTKsz0"img src="http://feeds.feedburner.com/~ff/YourFinancialFuture?d=l6gmwiTKsz0" border="0"/img/a a href="http://feeds.feedburner.com/~ff/YourFinancialFuture?a=dNjAING9Dpo:G4HWTDrA5dU:gIN9vFwOqvQ"img src="http://feeds.feedburner.com/~ff/YourFinancialFuture?i=dNjAING9Dpo:G4HWTDrA5dU:gIN9vFwOqvQ" border="0"/img/a /div

Get Ready for Another Crash

Bill Bonner — Thu, 30 Jul 2009 19:00:19 +0000

pComes word this morning that the a style="font-weight: bold; color: #006b99;" href="http://www.cscec.com.cn/english/index.htm" target="_blank"China State Construction Engineering company/a has gone public. strongIt’s the biggest public offering – at $7.3 billion – in more than a year/strong. It’s also China’s biggest homebuilder. And as soon as the shares hit the market yesterday they soared#8230; closing 56% higher than the IPO price. At that price, it trades at about 40 times forecast 2009 earnings. /p pWhy would you pay 40 times earnings for a homebuilder? It’s a fairly easy business to enter. No barriers to entry that a little money#8230; a few connections#8230; and a circular saw can’t overcome. With no barriers to entry, profit margins are always squeezed by competition. And growth is limited too#8230; other builders are always starting#8230;/p

Prieur’s readings (July 30, 2009)

Prieur du Plessis — Thu, 30 Jul 2009 09:40:56 +0000

This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy.

China Warns (Again), The Housing Faux-Recovery, Three Sectors to Short and More!

Contrarian Profits — Wed, 29 Jul 2009 14:00:22 +0000

pChina turns it up another notch… now “concerned about the security” of U.S. investments#8230; a href="http://www.contrarianprofits.com/articles/author/chris-mayer/" class="alinks_links"Chris Mayer/a tells the “story of today’s economy”#8230; Mainstream celebrates latest home price index… our perceptive on the housing “recovery”#8230; Three market sectors currently detached from reality#8230; The truth emerges… why Ben Bernanke really bailed out Wall Street#8230;/p p Here it comes, slowly but surely: strong“We sincerely hope the U.S. fiscal deficit will be reduced, year after year,” /strongChina’s Assistant Finance Minister Zhu Guangyao said overnight after talks with Treasury Secretary Geithner. Could he lay it out any more clearly than this? “The Chinese government is a responsible government, and first and foremost our responsibility is the Chinese people, so of course we are concerned about the security of the Chinese assets.#8221;/p pThe Chinese now#8230;/p

Fiscal Drops in the Bucket Deficit

Mogambo Guru — Wed, 29 Jul 2009 00:38:06 +0000

p class="byline"I had just finished Final Lockdown Mode (FLM) here at Rancho Mogambo Bunker (RMB) and was starting to relax, or as much as a guy can relax when a guy is naturally skittish, paranoid and fearful and whose symptoms include rabidly obsessive total denunciation of the disastrous Federal Reserve for creating so much money, the traitorous Congress that allowed it so that it could deficit-spend the money, and the moron American voters that elected and re-elected and re-elected such loathsome, incompetent people to Congress./p pI could see by the way I was getting worked up into another hissy-fit that I had not taken my medications as prescribed, a realization probably prompted by the way my wife was insistently banging on the#8230;/p

Inflationary Surprises

Bill Bonner — Wed, 29 Jul 2009 00:06:25 +0000

p class="byline"We love surprises! But only when we see them coming. We’re always wondering: how will we be surprised? What will happen that we don’t expect?/p pstrongIt’s easy to make money…if there are no surprises./strong You just put your money in something that is going up and let it go./p pBut surprises sink ships, marriages, military campaigns and investment portfolios. Things happen that you’re not prepared for…/p pA friend told of what happened to a mutual friend:/p p“I guess it was the embarrassment that bothered him most. I don’t know. He was happily married…or he thought he was. They had three children. They must have been married 10 years. And then, she announced she was a lesbian…and moved in with a woman./p p“I imagine he was devastated. He#8230;/p

Video-o-rama: Dow back above 9,000

Prieur du Plessis — Sat, 25 Jul 2009 07:22:41 +0000

This post offers a bumper compilation of the financial trials and tribulations that were captured on video during the past week.

Looking for an exit: Part 2

James Hamilton — Fri, 24 Jul 2009 04:37:54 +0000

In my previous post I commented on Ben Bernanke's recent communication of the Fed's exit strategy for getting its balance sheet and daily operations back to historical norms. I suggested that one necessary ingredient to convince the public that we will see a return to a stable monetary regime would be a credible explanation of how the United States government will be able to meet its enormous current and implicit future fiscal obligations. Today I'd like to discuss a second element that I feel is missing from the exit strategy articulated by Bernanke, and this is a compelling vision of what a healthy financial market not propped up by the Treasury and the Fed would look like.

Let me frame this issue using as an example one of the ongoing Fed-Treasury initiatives that troubles me the most, which is the Term Asset-Backed Securities Loan Facility, or TALF as it is affectionately known. According to the Fed,

The TALF is intended to make credit available to consumers and businesses on more favorable terms by facilitating the issuance of asset-backed securities (ABS) and improving the market conditions for ABS more generally.

Let's see if we can start by agreeing on some basic facts. First, the process of securitization was unquestionably enormously successful in the early part of this decade in attracting huge sums of capital from all around the world to fund loans to U.S. households and firms. Without securitization, it is inconceivable that we would have seen anything like the $4.3 trillion in new non-agency household mortgage loans issued between 2004 and 2006.

Second, surely we can agree today (though some may have still thought otherwise as recently as May of 2007) that this success was absolutely not

spurred in large part by innovations that reduced the costs for lenders of assessing and pricing risks. In particular, technological advances facilitated credit scoring by making it easier for lenders to collect and disseminate information on the creditworthiness of prospective borrowers. In addition, lenders developed new techniques for using this information to determine underwriting standards, set interest rates, and manage their risks.

I hope that instead we would agree today that the success of securitization in 2004-2006 was due to (1) misperception on the part of the buyers and raters of the ABS of the degree to which aggregate risks could be diversified by pooling disparate loans, and (2) a misplaced confidence in the implicit or explicit guarantees provided by the securitizer, by derivatives used to hedge ABS holdings, or by the U.S. government, the latter in particular introducing a moral hazard component that rendered the system seriously unstable. And I hope we'd further agree that these factors resulted in a profoundly malfunctioning credit market that caused an unsustainable run-up in U.S. real estate prices and household debt that are the primary reason we're in such trouble today.

A successful exit strategy requires a vision of where you want to go, and how it's going to be different from the place from which you just came.

So the natural questions are, do we believe that problems (1) and (2) above have been resolved, and what persuades us that securitization could succeed on anything remotely like its previous scale in the absence of features (1) and (2) above?

I'm worried that Bernanke's answer for why these problems won't recur may be that underwriters, investors and rating agencies have learned the lesson from previous mistakes.

I guess I'm looking for evidence that the Treasury and the Fed have learned the lesson from previous mistakes.

Prieur’s readings (July 23, 2009)

Prieur du Plessis — Thu, 23 Jul 2009 08:49:32 +0000

This post provides links to a number of thought-provoking articles I have read over the past few days that you may also find interesting.

Reforming Financial Regulations – Analyst Blog

Dirk Van Dijk — Wed, 22 Jul 2009 18:22:53 +0000

While most of the attention yesterday was focused on Ben Bernanke's testimony before the House Financial Services Committee (not much new came out in that one, Ben says the recovery will be anemic, inflation will not be a problem and the Fed has a plan to drain the liquidity before it causes problems), the same committee held another hearing in the afternoon focused on the reform of the financial regulatory structure. Among the witnesses were Alice Rivlin, the former #2 at the Fed in the 1990's, Mark Zandi of Moody's Economics and Simon Johnson, the former chief economist at the IMF.

Among the key points that came out of it were that there were 2 basic approaches to preventing the need for future bailouts. One focused on better regulation particularly of those who are too big to fail, and the other is to make sure that institutions don't become too big to fail (TBTF). The Obama administration proposes to go down the first path.

It would be very hard at this point to unscramble the egg and reinstitute a version of Glass Stiegel. After all, one of the ways we dealt with the problem was going in exactly the other direction, with JPMorgan Chase (JPM) taking over the remnants of Bear Stearns and Bank of America (BAC) swallowing Merrill Lynch. There was general agreement that making the list of those institutions that are TBTF public would be a mistake. Those banks would have an implicit backing of the federal government, which would give them a very big competitive advantage by lowering their cost of capital. However, even if the list were kept secret, the market would pretty quickly figure out who was on the list (with a few big but not gigantic institutions left as question marks).

Since the best way to get big in a hurry is to take outsized risks, this approach could actually worsen the moral hazard problems and make future problems more likely rather than less likely. The odds are that the banks would move more quickly than the regulators (or simply capture them) and if the incentives are there where any winnings are kept private while the losses are borne by the taxpayers, the banks will head off to Vegas every time.

One solution would be to have the capital requirements on a sliding scale. Thus the bigger a bank is the higher the percentage of its capital that would have to be held in reserve, and that the FDIC insurance premiums would also reflect the higher systemic risk that very large banks pose. This is a very good idea. It would give banks an incentive not to get too big. If they were successful and grew, they could always spin off divisions to their shareholders to make themselves smaller, and thus have lower capital requirements.

There was disagreement over the Fed being the best agency to serve as the systemic risk regulator. Clearly it did not cover itself in glory as a regulator in the lead up to the financial crisis (there monetary policy reactions to the crisis on the other hand were excellent). However, there are no clearly better placed alternatives and they already do have some regulatory functions. Assigning it to a committee of different agencies would be a recipe for disaster, with no clear lines of responsibility. Some expressed concern that it could lessen the perceived independence of the Fed, but I do not see why that would have to be the case.

Most of the participants strongly endorsed the idea of a financial Consumer Products Safety Commission. I whole heartedly agree. It, however, is likely to be fought tooth and nail by the bank lobby. To my mind, that is proof enough that it is desperately needed.

The existing regulatory structure has been a dismal failure at protecting the consumer from abusive mortgage and credit card contracts (go ahead and pull out your credit card contract, I defy any reader to understand what it says, with the possible exception of a lawyer who specializes in that area).

Protecting the consumer will always be an afterthought at agencies like the Fed. The top officials, and brains, there are going to be focused on monetary policy, not on making sure that plain vanilla mortgage products are available at all institutions that offer mortgages. Standardization of plain vanilla financial products would also help the smaller banks since it costs a lot of money to write 35 pages of fine print legalize, which a big bank can spread over millions of customers, but a small community bank could not hope to do.

While this seems like a technical and complicated issue, it is important to keep the heat on congressmen and senators to make sure that the Consumer Safety Commission comes into existence, otherwise the lobbyists will kill it in its crib.

After all, even after Sinclair published "The Jungle", the meat packing industry fought for the right to sell rancid meat to consumers. You can bet the banks will fight for the right to sell rancid mortgages a century later. They will claim that it will kill off innovation, but really, how much benefit have we gotten from innovations like option-ARMs and exploding subprime loans than get packaged into CDO squared? Wall Street reaped massive bonuses from those innovations, but could someone please explain to me just how an ordinary consumer benefited?Zacks Investment Research

Banks on the Mend? Biotech Safe Haven, CA’s Budget Crisis, DIY Funerals and More!

Contrarian Profits — Wed, 22 Jul 2009 17:00:44 +0000

pCIT dodges bullet, others report super-sized earnings… are banks really on the mend? Greg Guenther with a safe way to play the volatile biotech sector#8230; California finally plugs its budget gap… with taxes, debt and accounting fraud#8230; a href="http://www.contrarianprofits.com/articles/author/chris-mayer/" class="alinks_links"Chris Mayer/a on a rising dilemma for miners of the world#8230; Plus, even the dead can’t dodge the recession… backyard burials booming#8230;/p p You can rest easy today… the financial crisis is over./p pstrongCIT Group, the new epicenter of systemic financial risk, got thrown a lifeline this week from its bondholders. /strongAs we reported a href="http://www.agorafinancial.com/5min/china-booms-the-cit-crisis-a-bizarre-commodity-worth-stockpiling-vancouver-and-more/"Friday/a, the company needed $3 billion #8212; fast #8212; in order to stay afloat. It was rightfully denied a government bailout, but was able to strike a last-minute deal with holders of its debt. Of course, the market#8230;/p

Bernanke Sticks to His Script

Contrarian Profits — Wed, 22 Jul 2009 16:00:15 +0000

pBernanke sticks to the script#8230; Pound sterling comes under pressure#8230; China starts shopping for assets#8230; BRIC MarketSafe lights up the phones#8230; And Now#8230; Today#8217;s Pfennig!/p pGood day#8230; We had a very busy day on the desk yesterday, as our newest MarketSafe offering, based on the BRIC currencies, is making the phones ring off the hook. But while we were busy, the currency traders had another slow day as the dollar just drifted throughout the day. The return chart for the last 24 hours shows only one currency made more than a .5% move vs. the US$; and that was the South African Rand which increased .75%./p pThe markets were watching Ben Bernanke#8217;s congressional testimony through most of the day, but those waiting for a surprise were#8230;/p

Yen, Dollar Gain vs Euro on Lower Equities

Contrarian Profits — Wed, 22 Jul 2009 15:30:31 +0000

pThe yen and the dollar edged up against the euro today, Wednesday, as falls in equities and oil prices dampened investors#8217; appetite for riskier assets./p pU.S. S#38;P 500 equity futures were down 0.7 percent , which increased demand for those currencies which typically gain in times of risk aversion and weighed on higher risk currencies such as the Australian dollar./p pSterling pared earlier steep losses, however, after Bank of England minutes showed policymakers voted unanimously to maintain their quantitative easing target./p pAnalysts said Federal Reserve Chairman Ben Bernanke on Tuesday dented sentiment when he said U.S. interest rates would stay low for some time./p p#8220;The dollar has found a bit more of a stable footing, which is largely a function of what Bernanke said yesterday,#8221;#8230;/p

Stock Market News for July 22, 2009 – Market News

Zacks Market Commentaries — Wed, 22 Jul 2009 14:26:20 +0000

Federal Reserve Chairman Ben Bernanke’s assessment that the economy is showing signs of stabilization and better-than-expected earnings report from companies pushed the Dow Jones industrial average to its highest level in six months even as the session remained volatile and most stocks seesawed. Reports of losses at a number of regional banks had financials stocks under pressure. Bernanke’s prediction of rising unemployment was also a reason for the subdued tone on the Street. In his testimony on the Hill, Bernanke warned that "even if the economy begins to turn up in terms of production, unemployment is going to say high for quite a while, so it's not going to feel like a really strong economy."

The Dow Jones industrial average ended up 68 points, or 0.8% and the broader S&P 500 index edged up 3 points, or 0.4%, its highest close in 8 months. The tech-heavy NASDAQ added 7 points, or 0.4%, and recorded its 10th consecutive day of gains.

Crude prices continued to climb, advancing 74 cents to $64.81, and climbing over $65 for the first time in more than two weeks. Bond prices gained as Fed Chairman Bernanke noted that interest rates are likely to remain low for an "extended period." The 10-year rose 1 1/32 and the yield declined to 3.484%.

Gains in the DJIA were driven by a 7.7% advance in Caterpillar (NYSE:CAT) and a 6.1% jump in Merck (NYSE:MRK). Caterpillar (NYSE:CAT) reported a much smaller-than-expected earnings decline and raised its full-year guidance, fueling hopes for a global industrial recovery. However, Caterpillar’s (NYSE:CAT) stocks pared gains after it said third quarter would be the year's weakest for sales and profits.

Gains in the S&P500 were led by health care (+1.4%), oil and gas (+1.2%), and utilities (+1.1%). Three industrial groups declined, with financials off 0.8%, consumer services down 0.3%, and industrials off 0.2%. After the close, Apple (NASDAQ:AAPL) reported non-GAAP earnings to $2.14 per share, well ahead of consensus estimates of $1.17, helped by a 626% surge in iPhone sales; revenues of $8.34 billion exceeded consensus projections of $8.2 billion. Yahoo's (NASDAQ:YHOO) reported earnings of 16 cents a share, inline with last year's figures and eight cents ahead of estimates; sales declined 13% to $1.57 billion; the company’s third quarter guidance was, however, below Street estimates.

Regions Financial (NYSE:RF) and State Street (NYSE:STI) posted results which fell well short of last week's strong financial numbers. Coca-Cola (NYSE:KO) noted the US consumer remains under pressure. The three airline majors posted dismal results, as leisure travel bookings held, but business travel weakened. Southwest (NYSE:SWA) turned a profit, but said the situation was yet to improve. UAL (NYSE:UAL) said it expects a 12% drop in overall capacity in the second half. Continental (NYSE:CAL) reported a loss of $1.36 a share that was well off expectations of a 5 cent per share loss.

Zacks Investment Research

Looking for an exit

James Hamilton — Wed, 22 Jul 2009 04:37:29 +0000

In addition to testifying before Congress, Federal Reserve Chair Ben Bernanke today tried to explain the Fed's plans and options directly to the public through an op-ed in the Wall Street Journal. Here I provide some background on what Bernanke's talking about in terms of an "exit strategy" for the Fed, and offer some thoughts on his remarks.

The basic power of the Fed derives from its ability to create money, which it can use to buy assets or extend loans. We can summarize the Fed's actions in terms of either the asset side of its balance sheet (the assets and loans it holds), or the liabilities side (the money or other obligations it has created). Let's start with the asset side. Up until January of 2008, by far the most important assets held by the Fed were short-term Treasury bills. As last year wore on, the Fed significantly expanded its loans in the form of currency swaps with foreign central banks, direct lending to U.S. banks through term auction credit, and the Commercial Paper Lending Facility. Altogether such measures more than doubled the various asset holdings of the Fed by the end of the year, despite the fact that the Fed sold off 40% of its original T-bills.

**Figure 1. Factors supplying reserve funds, in billions of dollars, seasonally unadjusted, from Jan 1, 2007 to July 15, 2009.** Wednesday values, from Federal Reserve H41 release. Agency: federal agency debt securities held outright; swaps: central bank liquidity swaps; Maiden 1: net portfolio holdings of Maiden Lane LLC; MMIFL: net portfolio holdings of LLCs funded through the Money Market Investor Funding Facility; MBS: mortgage-backed securities held outright; CPLF: net portfolio holdings of LLCs funded through the Commercial Paper Funding Facility; TALF: loans extended through Term Asset-Backed Securities Loan Facility; AIG: sum of credit extended to American International Group, Inc. plus net portfolio holdings of Maiden Lane II and III; ABCP: loans extended to Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility; PDCF: loans extended to primary dealer and other broker-dealer credit; discount: sum of primary credit, secondary credit, and seasonal credit; TAC: term auction credit; RP: repurchase agreements; misc: sum of float, gold stock, special drawing rights certificate account, and Treasury currency outstanding; other FR: Other Federal Reserve assets; treasuries: U.S. Treasury securities held outright.

In 2009, the Fed has been winding down some of these programs, with significant declines in swaps, CPLF, and TAC, replaced by big increases in items such as mortgage-backed securities and agency debt. The changes over the last few months should not by any stretch be described as a return to "plain vanilla" central banking. The risk on MBS and agencies is greater than that for T-bills, and the asset level today remains 130% above its value at the start of 2007.

Where did the Fed obtain the funds with which it acquired all these new assets? To say that it did so by "printing money" would be inaccurate. The Fed doesn't lend a half trillion in term auction credit by handing out big bundles of green paper with Ben Franklin's picture on them. Instead, it creates an entry in an account that the recipient bank has with the Fed known as the bank's Federal Reserve deposits. The bank could, if it wanted, use those credits to ask the Fed for those Ben Franklin souvenirs. Instead the bank presumably used the new deposits to pay for some obligations or make some loans, either of which it would instruct the Fed to implement by transferring those reserves to some other bank. That bank in turn could use the reserves to ask for C-notes, or pass them on to somebody else through its own loans or any other expenditures.

And the buck stops-- where? In normal times, the process of banks putting any excess reserves to use would continue until there's enough expansion of banking and economic activity that ultimate recipients did want to turn those reserves into green currency. And once that happens, it would not be a misleading summary of the bottom line to say that the Fed eventually paid for its original asset purchase by "printing money".

But in the fall of 2008, the Fed did not want that to happen. It wanted to extend a trillion in new loans, but it did not want to see currency held by the public go up by a trillion dollars, out of fear the latter would be very inflationary. The Fed's thinking was that we didn't need a traditional inflationary expansion of credit, but instead needed to allocate credit to particular functions without having conventional measures of the money supply swell.

The graph below describes how the Fed did that, looking now at the liabilities side of the Fed's balance sheet. The height of Figure 2 at any date is identical, by definition, to the height of Figure 1, but whereas Figure 1 was looking at what the Fed did with its funds, Figure 2 summarizes how the Fed obtained those funds. In other words, Figure 2 looks at where the reserve deposits the Fed created ended up, and explains why the dramatic actions of Figure 1 haven't yet shown up as currency held by the public.

**Figure 2. Factors absorbing reserve funds, in billions of dollars, seasonally unadjusted, from Jan 1, 2007 to July 15, 2009.** Wednesday values, from Federal Reserve H41 release. Treasury: sum of U.S. Treasury general and supplementary funding accounts; reserves: reserve balances with Federal Reserve Banks; misc: sum of Treasury cash holdings, foreign official accounts, and other deposits; other: other liabilities and capital; service: sum of required clearing balance and adjustments to compensate for float; reverse RP: reverse repurchase agreements; Currency: currency in circulation.

One big factor has been the accounts that the U.S. Treasury holds with the Fed. Essentially, the Fed asked the Treasury to borrow some money through public auctions, which it did. Banks paid for these new T-bills by instructing the Fed to transfer to the Treasury the Federal Reserve deposits that they'd received from the Fed as a result of the programs in Figure 1. The Treasury then just left the funds sitting there in its accounts with the Fed. In effect, the Fed obtained the funds for some of its actions on the asset side not by "printing money" but instead by having the Treasury borrow funds on its behalf on the liabilities side.

However, an even bigger volume of the deposits that the Fed created are still just sitting on the banks' books. The way the fed funds market functioned in 2007, that would never have happened. Why close your bank's books for the day with funds just sitting there in an account with the Fed, earning no interest, when you could loan them out overnight instead? A big bank would never do such a thing in 2007. But they're happy to do so in 2009, in part because the overnight lending opportunities are not particularly attractive at the moment, and in part because the Fed now pays interest on those reserves. From the bank's point of view, funds left on deposit with the Fed at the end of the day aren't idle at all, under the new system adopted in the fall of 2008.

One of the points that Bernanke makes in his op-ed is that the Fed could continue to use this device, if need be, to prevent essentially any volume of its asset side activity from showing up as an increase in currency held by the public, simply by raising the interest rate the Fed offers to pay on reserves to whatever level is necessary to persuade banks to continue to hold these funds idle overnight. In effect, the Fed is through this device borrowing directly from the public to fund its asset-side activities rather than by "printing money".

Should that allay any inflationary concerns people may have about the doubling in the size of the Fed's balance sheet? In a narrow mechanical sense, perhaps. It is true that the new assets have not yet shown up as an increase in the money supply, and it is true that the Fed has the power to prevent them from doing so in the future. But my concerns about inflation are not that the Fed would lose the ability to target a particular level for the money supply, and certainly are not concerns about the next six months, where I still see deflation as a bigger worry than inflation. Instead, my concern is that the current fiscal trajectory is fundamentally inconsistent with the Federal Reserve choosing to keep inflation under control. Both devices, ballooning of the Treasury's account with the Fed and enabling the Fed in effect to borrow directly on its own, are indeed as much fiscal measures as they are monetary. But to someone worried about the increasing co-mingling of monetary and fiscal policy, that blurring of the lines is not a reassuring development.

My specific worry is that we will eventually face a crisis of confidence in the Treasury and the dollar itself. It is true, as Bernanke suggests, that raising the interest rate paid on reserves in such a setting would be a policy tool that could be used in response. But it would be an unattractive measure to the point of perhaps being impossible to use in practice, for the same reason other countries have dreaded raising interest rates in the face of collapsing real economic activity and a flight from their currency.

I fear that the United States government is mistakenly assuming that it can borrow essentially unlimited sums without undermining confidence in the dollar itself. The real question of a successful exit strategy, in my opinion, is how do we extricate ourselves from the joint fiscal commitments currently assumed by the Treasury, the Fed, the FDIC, the Medicare and Social Security trust funds, and various and sundry implicit and explicit federal guarantees?

The answer, in my opinion, is not to be found in the Treasury doing even more borrowing on behalf of the Fed or the Fed doing even more borrowing on behalf of itself.

Bernanke Defends His Policies – Analyst Blog

Charles Rotblut — Tue, 21 Jul 2009 15:41:56 +0000

Fed Chairman Ben Bernanke's prepared remarks read more like a defense of his leadership than an assessment of the economy.

In his semi-annual testimony before Congress, Bernanke spent most of his verbiage discussing the Fed's actions in responding to the financial crisis and its steps to protect the consumer. He also said that plans for an exit strategy were being developed.

Typical of the Chairman's comments was this statement: "Many of the improvements in financial conditions can be traced, in part, to policy actions taken by the Federal Reserve to encourage the flow of credit."

As far as the state of the economy, Bernanke opined that the U.S. is moving towards stabilization, but that the labor markets will remain weak. He does not anticipate inflationary pressures in the foreseeable future, and basically ruled out any rate hikes this year.

Though there was some news for bond traders, by and large, Bernanke's comments really did not provide much new insight into central bank policy. Rather, the Chairman seemed more focused on keeping his job and defending his actions.

The take-away from this morning's testimony is that Bernanke is aware of the economic environment and is prepared to react accordingly.

For stock traders, however, the focus should be on earnings announcements. We've already seen Caterpillar (CAT) and Coca-Cola (KO) top expectations this morning, and we'll see if Apple (AAPL) can continue the trend after the market close.

The S&P 500 (SPX) is above resistance, but it will take more good news on the earnings front -- not more words from Bernanke -- to send stocks even higher.

The full text of Bernanke's speech can be viewed on the Fed's web site. http://www.federalreserve.gov/newsevents/testimony/DBBB5C9F26B6440AA4A21E104A61577A.htm
Read the full analyst report on "CAT"
Read the full analyst report on "KO"
Read the full analyst report on "AAPL"
Read the full analyst report on "SPX"
Zacks Investment Research

Slots and Natural Gas: Two Small-Cap Movers

Andrew Snyder — Mon, 20 Jul 2009 22:00:22 +0000

pThe markets are moving. While the nation’s biggest companies are making the headlines, some of the smallest firms are creating the most profit potential. /p pAfter a banner week for the equities market last week, we are off to another positive start./p pAs the equities market continues to react to a slew of better-than-expected earnings reports, all eyes have turned to Ben Bernanke and his official commentary to Congress later this week. Unless the Fed chief says something entirely unexpected, bordering on economically outrageous, do not expect the markets to make a huge move in either direction./p pThis is still an earnings game. As long as investors work to adjust their expectations higher, the markets will move accordingly./p pFor the smallest of publicly traded#8230;/p

Zacks Earnings Preview: Caterpillar, Texas Instruments, Intersil, Qualcomm and Tractor Supply – Press Releases

Charles Rotblut — Mon, 20 Jul 2009 12:30:23 +0000

For Immediate Release

Chicago, IL – July 20, 2009 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Caterpillar (CAT), Texas Instruments (TXN), Intersil (ISIL), Qualcomm (QCOM) and Tractor Supply (TSCO). To see more earnings analysis, visit http://at.zacks.com/?id=3207.

Every day, Zacks.com makes 4 stock picks available, free of charge. To see them, go to http://at.zacks.com/?id=5612.

This Week's Events

Earnings season will hit full stride with reports from nearly 500 companies. Approximately 1 out of every 4 earnings release will be from a firm in the financial sector.

Large-cap stocks will once again dominate the headlines, as 139 S&P 500 members are on the docket. Caterpillar (CAT) and many other Dow components are included in this group.

The highlight of the economic calendar will be Ben Bernanke's semi-annual report on monetary policy (aka Humphrey-Hawkins). The Fed Chairman will appear before a House committee on Tuesday and a Senate committee on Wednesday.

Otherwise, there will not be much news on the economic front.

Monday: June Leading Indicators
Wednesday: weekly crude inventories
Thursday: weekly initial jobless claims
Friday: Revised July University of Michigan consumer sentiment

Atlanta Fed President Dennis Lockhart will discuss his economic outlook with the Rotary Club of Nashville on Monday. No other Fed officials are scheduled to speak.

The market really has not reacted much to better-than-expected earnings. Though a big rally did occur last Wednesday, volume outside the semiconductor group was generally light. And yesterday's afternoon rally was in reaction to comments made by Nouriel Roubini that were taken out of context.

This raises the possibility that we could see more of the same for the coming week, especially given how trades have not expressed joy over blowout earnings from some of the largest financial firms so far.

If there is going to be a move to the upside, tech will have to be the catalyst. And we do have a handful of large-cap tech companies reporting (e.g. Texas Instruments (TXN), so there is the possibility of some good daily moves.

But, investors should continue to eye volume, which continues to signal a willingness among many to simply sit on the sidelines.

Companies That Could Issue Positive Earnings Surprises

Intersil (ISIL) raised its second-quarter revenue guidance late last month. The majority of the covering analysts responded by hiking their quarterly profit projections. These revisions led to a 5-cent increase in the consensus earnings estimate, to 9 cents per share. The semiconductor company has topped expectations during 5 out of the last 6 quarters. Intersil is scheduled to report on Wednesday, Jul 22, after the close of trading.

Qualcomm (QCOM) is a riskier pick, given that it has disappointed investors for 2 consecutive quarters. But, the company did raise its fiscal third-quarter guidance last month, citing strong demand for wireless broadband. Furthermore, one analyst upped his quarterly forecast this week. The consensus estimate now calls for profits of 45 cents per share (up 2 cents from a month ago). The most accurate estimate is more bullish at 46 cents per share. Qualcomm is scheduled to report on Wed, Jul 22, after the close of trading.

Last month, Texas Instruments (TXN) updated its second-quarter forecast. This resulted in a sharp increase in the consensus estimate to 19 cents per share, the midpoint of TXN's suggested range. Could this forecast still be too conservative? Judging by the fact that 2 brokerage analysts just raised their second-quarter forecasts and the bullish results from other chip makers, the answer could well be yes. TXN has topped expectations for 2 consecutive quarters. Texas Instruments is scheduled to report on Monday, Jul 20, after the close of trading.

Tractor Supply (TSCO) anticipates reporting second-quarter earnings of $1.48 to $1.50 per share. The recent guidance was far above the consensus estimate and caused all of the covering analysts to revise their projections. Though the consensus estimate now calls for profits of $1.49 per share, there is still room for further upside given TSCO's streak of 4 consecutive positive earnings surprises. Tractor Supply is scheduled to report on Wednesday, Jul 22, after the close of trading.

Companies That Could Issue Negative Earnings Surprises

Caterpillar (CAT) has disappointed investors during 2 out of the last 3 quarters. Though the slowing pace of economic contraction should be a positive for CAT, 5 analysts have cut their second-quarter profit forecasts within the past 30 days. The revisions have caused the consensus earnings estimate to fall by 3 cents to 21 cents per share. The most accurate estimate is more bearish at 14 cents per share. Caterpillar is scheduled to report on Tuesday, Jul 21, before the start of trading.

Charles Rotblut, CFA, is the senior market analyst for Zacks.com.

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Zacks Investment Research

An Economy on Life Support

Bill Bonner — Wed, 15 Jul 2009 20:20:16 +0000

h1 class="entry-title"Waterford, Ireland /h1 pOur faith is weakening. That is, our faith that the government will be able to cause inflation, sooner or later. Let’s review our own narrative: strongdeflation now, inflation later./strong/p div class="entry-content" pstrongbr / /strong/p pIt’s very simple. Maybe too simple. After a half a century of credit expansion, we now have a credit contraction. In this sense, everything is happening as it should./p pThere was a crash and credit crunch at the end of last year. Then, the feds panicked. They fought back with monetary and fiscal stimulus. Rates were cut to nearly zero. The Fed flooded the system with cash and easy credit – buying up Wall Street’s bad investments…propping up bad banks…and guaranteeing trillions worth of bad debt. And the federal government passed a stimulus#8230;/p/div

It’s Tough Being A (Small) Speculator

IndexUniverse Staff — Thu, 09 Jul 2009 23:48:56 +0000

Dave, social exclusion is the least of your problems if you’re a speculator.

The same activity, undertaken in Russia or China in the not-too-distant past, could easily lead to a bullet in the head, or at least a 10-year stretch in the gulag.

For those of us trading in the “free” markets of the West, it’s just a matter of money. Unfortunately, getting stung by having the rules of the game changed when you’re already set in a trading position is a painful reality. It happened to me last July when I had a short position in JP Morgan shares, and the SEC’s emergency order against “naked” short selling (whatever that is) in the securities of Fannie Mae, Freddie Mac and 17 primary dealers caused a huge price spike in all those companies’ shares.

The US$10 jump in JP Morgan’s shares that resulted was enough to blow through my stops, turning a decent profit into a loss. Tough luck for me, but it’s still galling in hindsight, when you see that those short-selling restrictions didn’t do a whole lot of good for investors in Lehman Brothers, Fannie Mae or Freddie Mac, to name three of the companies on the list, and the reason for the introduction of the rules was given as the need to prevent downward pressure on the banks’ share prices.

So when you see the CFTC start to take a look at position limits in futures for all “commodities of finite supply”, watch out. Incidentally, the only commodity I can think of that is not in finite supply is helicopter Ben Bernanke’s US dollar, but I suppose it’s too much to ask for the US authorities to turn that tap off.

We’ll have to wait a bit longer to see what the CFTC comes up with, but if they are in the business of trying to stop energy price “manipulation”, why don’t they take a look at the oil price recommendations put out by Goldman Sachs since the beginning of last year?

To recap, the US bank forecast a “super spike” in the price of crude to $150-200 a barrel last May, not long before the oil price hit a peak of $147. Then, in January this year, the bank predicted a dip in prices to below $30 a barrel, just before the bottom in the crude price. On 4 June, it raised its 2009 price forecast to $85 a barrel, showing uncannily wrong timing again, since the price of WTI crude has since fallen back from over $73 a barrel to the current $60.

Suggestions that the bank has been saying one thing and trading in the opposite direction itself are not new—Forbes ran a story on this a few months ago—but are notoriously difficult to prove. Let’s just say that, if the bank’s proprietary traders had been following their own analysts’ advice, it’s unlikely that the press would be talking about record bonuses in 2009 for Goldman employees.

I’m not holding my breath that the regulators will even turn an eye to this—after all, conflicts of interest in large securities firms have long been endemic. Unless regulators are willing to bite the bullet and fully separate trading and investment banking activities from advisory ones, markets can hardly be seen as a level playing field. Eliot Spitzer had a go at changing things a few years ago, but with little success.

From past experience, unfortunately, complaints against “speculators” are likely to be used as an excuse to favour one group of market participants over another. And the small guys that invest in index-tracking products are unlikely to wield the same clout as the big players in determining how these rules are set.

$35 Billion More Treasuries To Auction

Contrarian Profits — Tue, 07 Jul 2009 14:25:59 +0000

pBias to sell dollars again#8230; More supply to choke down#8230; More thoughts on China#8230; RBA leaves rates unchanged#8230;br / And Now#8230; Today#8217;s Pfennig!br / Good day#8230; And a Terrific Tuesday to you! A beautiful day and night here in St. Louis yesterday, where was that during the 4th of July weekend? Oh well, at least I got to enjoy a couple of hours of it, outside! There#8217;s more Treasury supply for the markets to choke down, and the whispering campaign regarding China is growing louder#8230; Those things and more, in this edition of A Pfennig For Your Thoughts, Tuesday, July 7, 2009#8230; And here#8217;s our host#8230;/p pHello! Everyone! How nice it is to be with you again today! We#8217;ll start out with a recap of yesterday#8230; When I#8230;/p

Faber and Greenspan: Shills for Fed Snake Oil

Adrian Ash — Mon, 06 Jul 2009 23:00:21 +0000

pem“Just how can the Fed credibly promise to be irresponsible…?” Here’s a thought—that tiny handful of investors and analysts warning how Fed policy risks hyper-inflation are in fact doing the central bank’s work.br / /em/p pThe Fed emwants/em you to believe hyperinflation is looming. Or at least, it emshould/emwant that, if doubling its balance-sheet – purchasing and lending against investment junk – is going to work the wonders that modern central-bank theory says it can. And the Fed certainly wants you to believe it will stop at nothing to avoid deflation (”whatever means necessary” as the chairman put it a href="http://goldnews.bullionvault.com/deflation_bernanke_032320094" target="_blank"back in 2002/a)./p pSo anyone touting the a href="http://www.freemensch.com/2009/06/the-ever-present-threat-of-hyperinflation.html" target="_blank"hyperinflation risk/a in public is playing the shill, a decoy – seemingly unconnected – proclaiming the miracle powers of Dr.Ben Bernanke’s snake oil to#8230;/p

When the Bailout Fails, the Feds Will Pass Another One

Bill Bonner — Thu, 02 Jul 2009 22:00:39 +0000

pBankruptcies, Depressions and Mark Stanford with his Argentine beauty./p pEverything is working out just like we thought it would. The stock market is performing as expected. The economy is on track. Even the politicians are doing what they thought they would./p pLet’s begin with the stimulus/bailout/boondoggle/BS plan. As anticipated, it has failed. That is, the economy is getting worse, not better. It has failed the test set for it by its own creators. Back when the Obama Team was arguing for a big bailout bill, it warned that without a bailout unemployment would rise above 8% in 2009. ‘Pass this bill today,’ said Ben Bernanke, or words to that effect, ‘or there may not be a tomorrow for the US economy.’/p pCongress dutifully#8230;/p

Quote du Jour: Madoff for the Fed?

Prieur du Plessis — Thu, 02 Jul 2009 06:29:35 +0000

A comment in true Bill Bonner style ...

China Has Stopped Stockpiling Metals

Dan Denning — Wed, 01 Jul 2009 20:45:46 +0000

pChina has stopped stockpiling metals, according to reports in the Chinese media. Will this put the cap on the recent strength in base metals prices? The AFP reports that, #8220;China has been building its inventories of metals, including 235,000 tonnes of copper, over recent months, Caijing magazine reported on its website over the weekend, citing Yu Dongming, an official with the state economic planner.#8221;/p p#8220;China also bought 590,000 tonnes of aluminium, 159,000 tonnes of zinc, 30 tonnes of indium and 5,000 tonnes of titanium, said Yu, who works in the National Development and Reform Commission#8217;s industry department.#8221; Now that metals prices have rebounded, though, will the stockpiling continue, even at high prices? Or was it a case of bargain shopping at#8230;/p

Stocks Deliver Their Best Quarter in Over a Decade: So What Now?

Contrarian Profits — Wed, 01 Jul 2009 15:15:29 +0000

divWoohoo!…U.S. stocks racked up their biggest quarterly advance since 1998! The Standard #38; Poor’s 500 Index soared more than 15% between March 31 and June 30 - lifting its year-to-date performance marginally into the black, and breaking a streak of six consecutive quarterly declines for the S#38;P 500, the longest since 1970./div p class="MsoNormal"This champagne-cork-popping performance obscures a few trends that should be worrisome to the celebrants. First, the S#38;P 500 has gained no ground whatsoever since May 8, the first trading day after the Federal Reserve triumphantly announced the results of its banking sector “stress tests.” Second, the BKX Index of financial stocks has DROPPED more than 16% since May 8. (As we have noted in prior editions of the a href="http://www.agorafinancial.com/afrude/" class="alinks_links"Rude#8230;/a/p

The Ordinary Evil of Bernie Madoff

Bill Bonner — Tue, 30 Jun 2009 21:00:50 +0000

pBernie Madoff and his Finacial Crime./p pLet the punishment fit the crime!/p pPoor Bernie. The man has been ordered to spend 150 years in the hoosegow. What for? Who did he kill? A century-and-a-half seems a little excessive for a financial crime. You could hold up three liquor stores and rape a whole convent and still not get 150 years. With a little good lawyering, a history of child abuse in the family and good behavior in the big house, you’d be back on the street in 18 months./p pBut all the papers seem delighted. “Locked up for Life!” says one of today’s headlines. The judge “threw the book at him,” says another. His victims wanted him to get no mercy. The judge#8230;/p

Paulson To Testify On BAC/Merrill Merger – Analyst Blog

Zacks Market Commentaries — Tue, 30 Jun 2009 16:29:14 +0000

On Jul 16, Former Treasury Secretary Henry Paulson is expected to testify before the House Oversight and Government Reform Committee as to whether he and/or other government officials pressured Bank of America (BAC) to acquire Merrill Lynch, which resulted in a $20 billion cost taxpayers.

This will follow BAC CEO Kenneth Lewis' statements before the committee that both Paulson and Federal Reserve Chairman Ben Bernanke threatened to oust BAC's CEO and the bank's board members if they abandoned the takeover after discovering losses at Merrill.

In September 2008, BAC agreed to acquire Merrill Lynch, which resulted in the government supplying an additional $20 billion to BAC in order to cope with rising losses following the acquisition. This was on top of the $25 billion from the government's bailout program.

We would be surprised if the story behind the headlines is ever revealed.

Read the full analyst report on "BAC"
Zacks Investment Research

Words from the (investment) wise for the week that was (June 22 – 28, 2009)

Prieur du Plessis — Sun, 28 Jun 2009 08:37:06 +0000

“Words from the Wise” this week comes to you in a shortened format as I do not have access to my normal research resources while on the road in Europe. Although very little commentary is provided, a full dose of excerpts from interesting news items and quotes from market commentators is included.

On grilling the Fed Chair

James Hamilton — Sat, 27 Jun 2009 15:26:19 +0000

I got a bit angry at accounts of the latest appearance of Federal Reserve Chair Ben Bernanke before the U.S. Congress.

The Wall Street Journal reports:

Bernanke faced open hostility from lawmakers who barraged him during a Congressional hearing over his handling of the financial crisis and the central bank's role in reshaping the banking system.
Setting aside the deferential tone usually reserved for Fed chairmen, members of the House Committee on Oversight and Government Reform repeatedly interrupted Mr. Bernanke at Thursday's hearing to review the Fed's role in engineering a government aid package for Bank of America Corp. The lawmakers pored over internal Fed emails subpoenaed by the committee and projected on a screen in the hearing room.

It is one thing to have different views from those of the Fed Chair on particular decisions that have been made-- I certainly have plenty of areas of disagreement of my own. But it is another matter to question Bernanke's intellect or personal integrity. As someone who's known him for 25 years, I would place him above 99.9% of those recently in power in Washington on the integrity dimension, not to mention IQ. His actions over the past two years have been guided by one and only one motive, that being to minimize the harm caused to ordinary people by the financial turmoil. Whether you agree or disagree with all the steps he's taken, let's start with an understanding that that's been his overriding goal.

These interrogations reveal more about those doing the grilling than they reveal about Bernanke. I see this as pure political theater, and I don't like it.

If Congress wants to explore more usefully the wisdom and motives behind some of the decisions that have been made, it might want to investigate why some legislators are now pushing for Fannie and Freddie to guarantee a riskier category of mortgage condo loans.

Bank of America Dot Gov

Bullish Bankers — Sat, 27 Jun 2009 11:00:59 +0000

It is becoming clearer and clearer what it means to have government involved in the affairs of banks and businesses. Where all the initial talk was about the “moral hazard” presented by government bailing out the private sector and how this just means that in the future banks, and other organizations, will just take [...]