Let's go back to the financial crisis and the practices that brought this country to its knees. Banks developed a fancy scheme whereby they absolved themselves of all risk from the loans they made. They simply wrapped them up in a bundle and sold them to someone else. What they were doing is essentially packaging and reselling "junk."
When the news of how bad things were became known, the markets froze and collapsed. No one knew who had which securities, and if they did, they didn't know their true value.
Continue reading Banks Lobby Against Risk Retention on the Loans They Make
This past week's data point of significance for investors has to be the revised, final, fourth quarter U.S. GDP report, which indicated the world's largest economy grew 3.1% in the quarter, as well as 2.9% for 2010.
In 2009, the U.S. economy contracted 2.6% during the Great Recession -- the worst downturn since the Great Depression -- and even though the final 3.1% fourth quarter stat was better than the 2.8% previously estimated fourth quarter growth rate, the growth pace still is not strong enough.
Continue reading Inadequate Q4 U.S. GDP Growth Points to Fed's Extension of QE2
Just when we thought the banking crisis was finished, we get another jolt. The U.S. Federal Reserve denied Bank of American (BAC) permission to raise its dividend.
If you recall, Bank of America is still struggling to absorb toxic assets it acquired with its purchase of Countrywide Mortgage. It has been on a slow climb back to fiscal health. At the end of 2010 the company was still bleeding, with a net loss of $1.2 billion.
Continue reading Fed Says No to Bank of America Dividend Increase
The Federal Open Market Committee (FOMC) meets again this week to review economic conditions and set monetary policy. On whether the Fed should end quantitative easing or extend it, Atlanta Fed chairman Dennis Lockhart recently said that the Fed should remain flexible given the rising energy prices, which could be a sign of coming inflation. Either at this meeting or the next, the Fed could signal that interest rates will rise as a hedge against inflation.
Inflation will also be the focus when the Department of Labor releases the Producer Price Index (PPI) and Consumer Price Index (CPI) this week. Back in January the core PPI (which excludes energy and food costs) had its biggest jump in two years, and the core CPI had its largest uptick in more than year, the second month in a row in which consumer prices jumped.
Continue reading Week in Preview: Inflation, the FOMC and Nike Earnings
This is indeed a dramatic move. The world's largest bondholder, Pacific Invest Management Company, dubbed Pimco, sold all of its U.S. government holdings including U.S. treasuries.
At the end of February, Pimco had $236.93 billion or 12% of its holdings in the Total Return Fund in U.S. holdings. That was cut to zero.
Continue reading Pimco's Gross Sells All U.S. Government Holdings
The markets were full of contradictions last week. Take for example the turmoil in the Middle East. In past crises, investors flocked to the U.S. dollar. But not this time. The U.S. dollar futures contract fell to 76.41 last week.
Another contradiction: the U.S. jobs report was the best in two years, with 192,000 new jobs added. The stock market should have rallied strongly. Instead the Dow fell 88 points. The crises in Libya and elsewhere overshadowed the favorable jobs picture.
Continue reading Euro Trades Above $1.40 on Expectation of Higher Rates
This past week's data point of significance for investors has to be the February nonfarm payroll report by the U.S. Department of Labor, which indicated that the U.S. economy created 192,000 jobs last month -- roughly in-line with the consensus estimate.
The good news was complemented by the fact that January's job gain was revised up to 63,000 from 36,000 and December's to 152,000 from 121,000. January's low job tally was probably skewed lower by the winter blizzards and storms that hit the Northeast and Midwest; hence, it's safe to say that the economy is creating jobs. What it needs now is sustained demand to drive GDP growth, which will lead to stronger job growth.
Continue reading Ray of Light: U.S. Private Sector Hiring Increases
The U.S. dollar is coming under increasing pressure on several fronts. First and foremost is oil. Oil closed at $102 per barrel Wednesday for the first time in over two years. Oil has been driven upwards by the turmoil in the Middle East. The Libyan situation is getting worse with both sides vowing to fight on. There is unrest throughout the Arab region. The great fear for the West is that oil flows may be disrupted. The U.S. dollar usually moves inversely to oil. Today the March futures closed at 76.689, down .394
Continue reading U.S. Dollar Is Getting Hammered
While controversial, the Federal Reserve's aggressive monetary policy, called Quantitative Easing 2 (QE2), has certainly been nice for investors. Not only have equities surged, but so have commodities. Nice, huh?
But according to Bill Gross, who manages the world's largest bond fund (Pimco), things may get turbulent
when QE 2 ends in June. After all, where will the next big catalyst come from?
Continue reading Pimco's Bill Gross: Watch Out for the End of QE2
Gold has been lingering around the $1,335 per ounce for the past several weeks. This prompted many hedge funds to sell their holdings.
Then came the turmoil in the Mideast. First Tunisia and Egypt, now Libya, Bahrain, Yemen and others. That was the catalyst that gold needed. It shot to a new record high of $1,432.10 in the spot market. April gold futures settled at $1,431.20 per ounce, as reported in Reuters.
Continue reading Gold Soars to a Record High on Mideast Turmoil
After two years of steadily rising commodity prices, Federal Reserve chairman Ben Bernanke finally admits to it. Quoted in Bloomberg/Businessweek
in his testimony before Congress Bernanke said: "Sustained rises in the price of oil or other commodities would represent a threat both to economic growth and to overall price stability, particularly if they were to cause inflation expectations to become less well anchored."
"We will continue to monitor these developments closely and are prepared to respond as necessary to best support the ongoing recovery in a context of price stability."
Continue reading Bernanke Finally Admits to Inflation Gain from Commodity Prices
Amid the political and social uprisings in the Middle East, and union protests in the U.S., a recent speech by a pivotal U.S. policy maker received little attention, but it's one that investors should review.
In a speech before the recent G-20 meeting, U.S. Federal Reserve Chairman Ben Bernanke urged emerging market nations to address the flood of money streaming into their markets.
Continue reading Bernanke: Emerging Markets Need to Address Capital Flows
Back in the late 1970s, the Hunt brothers from Texas tried to corner the silver market. That drove prices to $48 an ounce. Now, 31 years later, silver is shooting higher again. The March silver futures contract closed at $32.296 per ounce, up 72 cents.
Since gold is expensive, investors are turning to silver to hedge against inflation. Many fear that the Federal Reserve will not be able to control the spike in commodity prices. The Fed is buying $600 billion of treasuries and keeping interest rates near zero.
Continue reading Silver Near a 31-Year High
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