Federal Reserve System
Warren Buffett Emphasizes Investment Risk Management With Successor Pick Todd Combs
Warren Buffett's announcement Monday that a little-known hedge fund manager, Todd Combs, will help oversee his $100 billion investment portfolio at Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) surprised investors and highlighted Buffett's emphasis on risk management for investment success.
Adding 39-year-old Combs to the Berkshire team makes him a top contender to take over Buffett's investment management duties whenever the Oracle of Omaha leaves his company.
"He is a 100% fit for our culture," said Buffett. "I can define the culture while I am here, but we want a culture that is so embedded that it doesn't get tested when the founder of it isn't around. Todd is perfect in that respect."
Is the U.S. Federal Reserve Setting the Stage for Hyperinflation?
The U.S. government wants to stimulate growth in the moribund economy by stoking the fires of inflation. But by leaving interest rates low and buying up bonds – a policy known as quantitative easing (QE) – the U.S. Federal Reserve risks debasing the dollar, which could lead to a prolonged period of hyperinflation that would send prices skyrocketing.
After their most recent meeting on Sept. 21, Fed policymakers said low inflation warranted looser monetary policy. Minutes from the meeting said central bankers were prepared to ease policy to boost inflation expectations "before long."
The Fed is seeking ways to boost the U.S. economy after keeping interest rates at record lows and buying in $1.7 trillion of U.S. securities. The next move may be another round of quantitative easing that would expand the Fed's balance sheet even further.
But as it feeds more and more money into the financial system, the central bank may very well be sowing the seeds of hyperinflation.
How Bernanke Will Keep a Fire Lit Under Stocks Until Year End – And Which Sectors Will Soar
While many investors have solid reasons to remain concerned about the broader economic picture, there are some market sectors roaring forward that no one can afford to miss – and they will continue to provide profit opportunities thanks to the work of U.S. Federal Reserve Chairman Ben Bernanke.
Stocks rattled around in 295-point range of the Dow Jones Industrial Average over the past five days like pebbles in a maraca, but ended quietly — a fraction above flat. The big-cap indexes have now posted six of their past seven closes within half a percent, hemmed in by some sort of spooky gravitational pull.
Earnings came in quite a bit better than expected for most major companies, as the cheap dollar has helped overseas sales for Caterpillar Inc. (NYSE: CAT) and McDonald's Corp (NYSE: MCD). Over in the exciting web content space, Netflix Inc. (Nasdaq: NFLX) wowed the crowd with outstanding third-quarter results, logging a sales increase of 31.0% and adding 1.9 million net new customers. That's a lot of new buyers in an economic environment that is supposed to be so terrible that the Federal Reserve thinks unprecedented medicine is required.
To read about how the Fed can keep stocks soaring, click here
Federal Reserve Policy Pushes the Dollar Ever Closer to Collapse
Much of the content of the latest U.S. Federal Reserve statement, released on Sept. 21, echoes the central bank's previous post-credit-crunch pronouncements: There is still too much slack in the economy, interest rates are still going to be near-zero for an "extended period," and the Fed will continue to use payments from its Treasury purchases to buy yet more Treasuries.
But this recent statement uses a new turn of phrase that should have Americans very upset. The Fed says "measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate." Though the wording treads lightly, it should not be taken lightly. It may signal the final push toward dollar collapse.
The Fed's dual mandate, since an amendment in 1977, has been to promote "price stability" and "maximum employment." While often discussed as if both goals are complementary facets of one mandate, they tend to have been at odds during every recession since the Great Depression.
Don't Miss Out on the Global Stock Rally
Indices across the world rose last week in what looks to be the beginning of a historic stock rally.
The Standard & Poor's 500 Index rose 1.6% last week, while the overseas developed-world large-caps – represented by the Vanguard FTSE All-World ex-US exchange-traded fund (NYSE: VEU) – rose 2.4%.
Meanwhile, the iShares Emerging Markets ETF (NYSE: EEM) rose 1.7%, the iShares FTSE/Xinhua China 25 Index (NYSE: FXI) rose 3%, the iShares MSCI Switzerland Index fund (NYSE: EWL) rose 3%, and the iShares MSCI Australia Index Fund (NYSE: EWA) rose 3.6%.
Among our favoried emerging markets and sectors, iShares MSCI Turkey Index Fund (NYSE TUR) blasted 6.5% higher, the Market Vectors Latin American Small Cap Index Fund (NYSE: LATM) rose 3.5% and Market Vectors India Small Cap Index Fund (NYSE: SCIF) rose 2.4%. The SPDR Gold Trust (NYSE: GLD) rose 2.1% and the Market Vectors Junior Gold Miners ETF (NYSE: GDXJ) rose 2.6%.
To find out how you can participate in the global stock rally read on…
As QE2 Looms, Is the Fed Focusing on the Wrong Things?
[Editor's Note: U.S. Federal Reserve promises of a new round of "quantitative easing" - an unconventional monetary-policy strategy Wall Street refers to as "QE2" - have caused commodities prices to soar 10% since just late August. But Money Morning's Martin Hutchinson fears that the Fed is worrying about the wrong set of problems.]
U.S. Federal Reserve Chairman Ben S. Bernanke is looking forward to 1932.
That's not a misprint. Actually, Bernanke is looking forward to a point when the challenges facing today's U.S. economy mirror the problems of that particular Great Depression-era year. And he wants that to happen for a very simple reason.
He knows how to solve those problems.
Unfortunately, "1932" isn't likely to arrive. And the preparations the Fed is making in the meantime are likely to deepen the United States' economic woes.
Let me show you what I mean…
To see where the central bank has gone wrong, please read on…
QE2: How New Quantitative Easing Will Launch Emerging-Market Stocks
In Wall Street circles, it's known as "QE2" – for "Quantitative Easing – Round 2."
The U.S. Federal Reserve and the Bank of England (BOE) are moving rapidly towards it, and the Bank of Japan (BOJ) has pledged to enact it.
That Bank of Japan pledge ignited a $23.50 spike in the price of gold on Tuesday. But that's nothing compared to what would happen after a Fed move. An additional easing by the U.S. central bank would cause gold and commodity prices to spike – and emerging-market stock markets to soar.
We should be prepared for this eventuality.
Will the Fed's Spending Drive Stocks Back Up to Their Pre-Lehman Levels?
The Standard & Poor's 500 Index is up more than 10% in the past month, and it finally looks like all of the thin threads of strength we've seen over the past few months are starting to twine together into a single rope that may be strong enough to pull stocks back up to pre-crisis levels.
The key threads are:
- The ECRI Weekly Leading Index has stabilized and turned higher.
- The U.S. Federal Reserve announced that it had made an epic change in its outlook, targeting deflation instead of inflation.
- Emerging markets and commodities are leading other markets higher, as we have seen for two months.
- Demand for stocks has increased while supply has decreased.
Even if you are skeptical of these developments, remember one thing: The Fed has absolutely flooded the financial system with money.
The Fed's Actions Are Boosting the Bull Cycle for U.S. Stocks
News from the U.S. Federal Reserve is keeping the bull cycle for U.S. stocks alive and well. Despite investors taking a breather this week, the outlook is good for coming months.
The Standard & Poor's 500 Index fell 0.2% since Monday, while the Nasdaq 100, shown below, fell every day of the past week for a total slippage of 1.5%. The week felt a lot better than that for my subscribers because all but one of our exchange-traded funds (ETF) bets is on overseas stocks, and most rose 1.75% to 4.7%.
So we are exiting the best September since 1939, but it closed very softly for U.S. investors as the most critical earnings season in the past year looms on the horizon.
Question of the Week: U.S. Federal Reserve Keeping Low Rates Does More Harm Than Good
[Editor's Note: Last week we asked readers if the U.S. Federal Reserve should keep interest rates near zero, as it has for almost two years. Some of our readers' responses are listed below - along with next week's question, "Is a Gold Price of $5,000 an Ounce Attainable?"]
After their meeting last week, U.S. Federal Reserve policymakers said they are more worried about deflation than inflation and vowed to look for ways to help along an economy that is experiencing worrisomely slow growth.
In fact, the central bank's rate-setting Federal Open Market Committee (FOMC) said it plans to keep the benchmark Federal Funds rate at its record-low level unchanged between 0.00% and 0.25% for the 20th consecutive month. And, using its go-to line – central bank policymakers said rates could remain that low for "an extended period."
In the near term, that appears justified. Core inflation is running at only 0.9%, below the Fed's comfort-level target of 1% to 2% – where it says the inflation rate needs to be for price stability. Fed Funds futures at the Chicago Board of Trade (CBOT) now show that traders believe there is a 54% chance the Fed won't increase short-term rates until its November 2011 policymaking meeting.
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