Federal Reserve

QE3 Still on Table, Bernanke Says in Jackson Hole Speech

The Federal Reserve is looking at more action to prop up the lagging U.S. economy, including a third round of quantitative easing (QE3), Fed Chairman Ben Bernanke said in a speech today (Friday).

Much of the speech, delivered at the Fed's annual retreat at Jackson Hole, WY, made a case for the effectiveness of the central bank's easy-money policies since 2007, including "nontraditional" actions such as QE1, QE2, and Operation Twist.

The Fed chairman said that the stimulus purchases "have provided meaningful support to the economic recovery while mitigating deflationary risks."

And in a hint to expect more of the same -- namely, QE3 -- Bernanke said that the costs of such policies, "appear manageable, implying that we should not rule out the further use of such policies if economic conditions warrant."

Bernanke also voiced concern over the sluggish economic recovery, and in particular the "painfully slow" improvement of the U.S. unemployment rate, which has changed little in 2012.

That's the sort of bad economic news that has pushed the Fed to take action in the past.

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Today's FOMC Meeting Too Early for Action

There is little doubt that the struggling U.S. economy could use some goosing, and the U.S. Federal Reserve is in a position to deliver a good boost.


But, a move isn't likely at the conclusion of today's (Wednesday) Federal Open Market Committee (FOMC) meeting.


While a fresh spate of data suggests new steps from the central bank are warranted, many economists warn that the economy doesn't need immediate action - especially since the prior moves from the Fed haven't been very effective.


Growth has clearly slowed and unemployment remains elevated, but the sluggish pace of the U.S. economy may not be slow enough to compel the Fed to make an impactful move today, and any Fed decisions will be pushed to later in the year.

Today's FOMC Meeting: Not Ready for QE3

The U.S. Commerce Department last week reported that the U.S. economy grew at a paltry 1.5% annual rate in the second quarter, down from 2% in the first. Plus, the Labor Department reported initial jobless claims ticked up in the latest week while the unemployment level remains at a sickly 8.2%.


Fed chief Ben Bernanke maintains that his team is prepared to take further action if unemployment stays high, but he remains vague on what action might be taken.


With the reeling recession in Europe and a slowdown in stalwart China, global growth has been severely dented and is weighing on the U.S. economy. Those factors increase the odds of a third round of quantitative easing (QE3), but the Fed may not pull the trigger Wednesday.



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QE3 is on Its Way – Here's How to Prepare

Federal Reserve Chairman Ben Bernanke spoke to the U.S. Senate Tuesday and yesterday (Wednesday) in his two-day biannual meeting with Congress - and failed to make any promise to institute more stimulus measures.

He did leave the door open for the Fed to do something - even if it won't commit to what that will be.

The markets rallied, although investors were disappointed that the Fed chief couldn't deliver a bigger commitment.

But make no mistake - quantitative easing, or QE3, is coming.

That is assured for one simple reason.

The U.S. government can find few buyers for its debt at current low interest rates. And as Bernanke has stated publicly, low interest rates will remain in place until at least 2014.

That means the Fed will have to continue its role of financing the budget deficit of the U.S. government through the inflation of its balance sheet.



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Fiscal Cliff: Bernanke Urges Congress to Take Action

U.S. Federal Reserve Chairman Ben Bernanke on Tuesday once again reiterated Congress' need to prevent the economy from succumbing to the "fiscal cliff" that as of now will hit taxpayers and the country in 2013.

The fiscal cliff refers to the numerous tax increases and steep spending cuts slated to go into effect Jan. 1, and will throw the already struggling U.S. economy back into a recession.

In his semi-annual monetary report to the U.S. Senate, the chief voiced his concerns. What was missing though was what Congress should actually do to hammer out a budget deal that would prevent a fiscal cliff.

"I don't have a specific recommendation, other than to think not just about the individual policies, but of the collective impact. Congress is in charge here," Bernanke said.



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Bernanke Keeps the Stock Market Waiting for QE3

Strong earnings reports could only lift the stock market today up so much as U.S. Federal Reserve Chairman Ben Bernanke would not give in to the cries for more stimulus.

Speaking to the Senate Banking Committee Bernanke gave his semi-annual monetary policy testimony and predicted slow growth for the U.S. economy. Bernanke said that reducing unemployment is going to be "frustratingly slow."

Bernanke repeated the Fed's mantra that if conditions deteriorate they will take appropriate measures when necessary. Some are beginning to wonder if QE3 will ever happen and how much worse things have to get before we see it.

The chairman did specify that if the labor market doesn't improve the central bank is prepared to act to boost growth.

Bernanke also commented that the looming "fiscal cliff" and the possibility that Europe's debt crisis will worsen remain significant risks.

He mentioned the Libor manipulation scandal and called the rate-setting system "structurally flawed." However he offered no explanation as to why the Fed didn't become more involved when it learned in 2008 that Barclays Plc (NYSE: BCS) was reporting false numbers.

Bernanke will speak again tomorrow morning before the House Financial Services Committee.

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Three Cheap U.S. Stocks with Huge Profit Potential

Bargain-hunting investors this year have been able to feast from a market buffet of cheap U.S. stocks.

Reports have surfaced in the past few months about how the Standard & Poor's 500 is offering the lowest-priced stocks in years based on price/earnings ratios.

Bloomberg in March reported that companies in the S&P 500 were trading at 14.1 times earnings, the lowest valuation of all 34 peak periods since 1989.

Then in May former U.S. Federal Reserve Chairman Alan Greenspan declared that "stocks are very cheap."

Again just last week Bloomberg noted that the S&P 500 is trading 16% below its average valuation since the 1950s.

Now, after the S&P 500 recorded its best June since 1999, investors want to know if it's still the time to buy or if the party's over. With the Eurozone debt crisis still looming and a spate of recent gloomy U.S. economic reports, market optimism has thinned.

But there are still bargains to buy.

How to Find Cheap U.S. Stocks

First, to determine if a stock is undervalued with high profit potential, and not cheap and going nowhere, investors need to scrutinize the driving factors of why a stock's price has fallen.

For instance, you must look at what's happening to the stock's sector - is there a macroeconomic or cyclical reason for the stocks to slip?

Then look at the company - is it in healthy financial shape? What are its future prospects?

Some stocks like Bank of America (NYSE: BAC) may seem undervalued when looking at tangible value, which tells us BAC is worth almost double what it is trading at now. But the company posted negative earnings per share last quarter. Analysts expect it to post a positive EPS of 16 cents this quarter and give it a forward P/E just above 8, which is cheap - but it's a stock that comes with a lot of volatility, so its low price is risky.

Others have had a long slide and may be at a bottom, such as tech struggler Hewlett Packard (Nasdaq: HPQ). CEO Meg Whitman is trying to turn the company around, but HP has lost more than half of its market value over the past year. With its forward P/E less than 5 it seems like a bargain, but there isn't a strong case for why this stock could rally.

And finally look at General Motors (NYSE: GM) or Ford Motor Co. (NYSE: F). Both currently have P/E ratios below 6 and even though the auto industry has been one of the hardest hit U.S. sectors over the past few years it looks to be on the upswing now.

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What I Wish Ben Bernanke Knew About Japan

I've called Japan my "other" home since 1989 and in that time I've seen it change in ways that ought to scare the pants off you.

I say that not to ruin your day, but because I fear we are headed down the same exact road as long as Ben Bernanke and his central banking buddies think it's easier to print money than actually stimulate real growth.

In doing so, they are re-creating Japan's "Lost Decades" here at home with years of smoldering, piss-poor growth as our destiny.

Yet it doesn't have to be that way. We can still choose a different path.

Here are 10 lessons from Japan I would share with Chairman Bernanke right now if I sat down with him:

1) All the cheap money in the world won't matter if banks hoard it and customers don't want it. You could lower interest rates to zero and it won't make a difference. Japan tried this to no avail. At this point, low rates are hardwired into the Japanese business system to the extent that any increase whatsoever is likely to cause a massive wave of corporate and personal bankruptcies. Don't let that happen here. You still have a chance to prevent this.

2) At some point somebody has to take the loss. You cannot pretend that the debt you've advanced is performing any more than the Japanese have. No matter how much money you inject into the system, the deleveraging process will continue until excess credit is bled out of the system one way or another. Defaults happened with alarming regularity before Central Banks tried to stave them off. There have been literally hundreds in Eastern Europe, Africa, Asia, and Latin America over the centuries. Spain and France failed six and eight times each in the 16th century alone.

3) Trying to manage any singular crisis will only result in a much bigger one down the road. The longer you prop things up, the worse they're going to get and the more consolidation you will see. Five of the 10 largest banks in the world were Japanese in 1990. Today the only bank to make the cut is 5th on the list (the Japan Post Bank Co. Ltd according to Bankers Accuity).

4) When politicians find it easier to borrow money than make hard policy decisions, they will because they prefer their short term re-election prospects over the long-term economic interests of the country. Japan has had 15 Prime Ministers in the last 12 years. Granted, their system works a little differently than ours, but continual reshuffling diminishes the effectiveness of any solution. Take advantage of the situation and act decisively before our elections risk a reset. You're supposedly apolitical. Prove it by acting with conviction instead of giving us more FedSpeak.



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Investing in Silver Still a Shiny Option

After the U.S. Federal Reserve's announcement last week that it would keep doing Operation Twist, silver prices dropped 4% the following day.

Adding to the white metal's decline was weakening in U.S. manufacturing, a declining Chinese factory sector and worries about the Eurozone.

It wasn't a great week.

Jeffrey Sica, chief investment officer of SICA Wealth Management LLC, said to Reuters, "When you see slowdown in China and in the United States and the debt crisis accelerate in Europe, it leads people to believe that we will have significant depreciation, especially when commodities and precious metals prices have been so tied into the monetary policy."

Since last week's decline, silver prices have been mixed and yesterday (Wednesday) they closed down 0.13% to $26.91.

The markets have a slew of economic data to review and mull over this week along with the two-day European Council meeting that begins Thursday in Brussels.

Despite last week's slump, there's still reason to be investing in silver. Its prices in the first quarter fared better than the other precious metals.

As legendary investor Jim Rogers told a financial advisor summit Wednesday, the likelihood of more central bank action around the world is bullish for silver.

"Governments print money - that's all they know," said Rogers. "So own real assets like silver... and you'll survive."

Rogers said of all the precious metals if he had to buy just one, it would be silver.

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Election 2012: President Obama at the Mercy of U.S. Economy

U.S. President Barack Obama's chances for re-election in 2012 are increasingly tied to the fate of the U.S. economy, poll results show.

Meanwhile, presumptive Republican nominee Mitt Romney hasn't gotten as much benefit from the weak economy as one would expect - a sign of his inability to connect with voters.

The past month has not been kind to the U.S. economy - or President Obama's standing in the polls.

The barrage of bad news has included:

"The economy is going through a rough patch, and that more than anything is going to determine President Obama's future," said Ipsos pollster Chris Jackson in comments on a Reuters/Ipsos poll taken in early June. "People's unhappiness with the economy carries over pretty directly to the president's numbers, and we see those weakening."

In that poll, President Obama's job approval rating slipped from 50% in May to 47%, and those saying the country is on the wrong track jumped 6 points to 68%.

Meanwhile, Romney gained 6 percentage points in the head-to-head matchup, making the Election 2012 race a statistical dead heat (Obama 45%, Romney 44%).

Although President Obama's argument that he inherited economic problems too severe to fix in three years resonates with his liberal base, the moderates and independents likely to decide who sits in the Oval Office next year aren't so sure.

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Fiscal Cliff 2013: How Investors Can Prepare

Late science fiction writer Ray Bradbury wasn't referring to investors when he said, "you've got to jump off cliffs all the time and build your wings on the way down," but he might as well have been referring to the upcoming fiscal cliff in 2013.

The fiscal cliff is a real crisis looming at year's end. The fragile U.S. economy could face an unparalleled fiscal punch of as much as $720 billion if the scheduled changes go through as planned. They include the Bush-era tax cuts set to expire Dec. 31 and billions of dollars in programmed federal spending cuts.

U.S. Federal Reserve Chairman Ben Bernanke has warned that shocks from such changes will most likely cause the economy to contract, causing a recession.

And without cooperation from Congress, there's no alternate route for the U.S. economy to take.

Ernie Gross, Ph.D., MacAllister Chair and professor of economics at Creighton University, told Forbes, "The fiscal cliff is an almost 100% certainty."

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Gold Prices: Begging for QE3

The Fed's Operation Twist announcement Wednesday slammed gold prices, and the yellow metal fell 2.5% Thursday.

Gold for August delivery ended last week down 3.8% to about $1,570 an ounce, well below its 2011 high of $1,920.30.

Before the two-day FOMC meeting, gold was up 4% year-to-date. Gold rose at the beginning of the week on hopes that the Fed would announce accommodative moves.

In the last round of easy-money moves back in January, gold rallied as high as 15% as investors flocked to the asset for protection. Since then, gold has dropped numerous times from a lack of additional news of more easing.

Gold was once again disappointed last week when the Fed said it would keep twisting, and the lack of a more aggressive maneuver failed to give a needed gold rally.

"To get gold really moving, you need a definite QE3," Sterling Smith, commodity analyst with Citi Institutional Client Group, told Kitco News. "Operation Twist is not nearly the food for a gold bull that outright QE is."

Gold Prices and Operation Twist

On Wednesday morning, the Fed announced the extension of its long-term government bond holdings by $267 billion to decrease borrowing costs while selling an equal figure of short-term securities to keep its $2.9 trillion balance sheet.

While scheduled to end this month, the Fed extended the Operation Twist program until the end of the year.

Operation Twist is derived from a Federal Reserve program that "twists" the yield curve or sells short-term securities from its holdings and buys longer-term ones in an effort to drive down longer-term yields.

Market watchers had been mixed about this happening.

Barclay's Capital saw Operation Twist as "the most likely outcome," saying it would provide additional time for the Fed to sift through and mull soft data that is "payback" from the additional warm winter hiring or a potentially lengthier prolonged slowdown, reported Kitco.

But since Operation Twist was considered the least the Fed could do, markets had priced it in already.

Jeffrey Wright, managing director and research analyst with Global Hunter Securities, said to Kitco he expected limited gains for gold on the heels of the "Twist," possibly to the $1,650 range, as the market has already been adding in the possibility for Fed action.

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Today's FOMC Meeting: Fed Votes Operation Twist to Continue

Today's FOMC meeting - which started Tuesday - ended in a widely expected manner.

The Fed announced it will extend Operation Twist, which was set to expire at month's end, until the end of 2012, in an effort to keep interest rates low.

The Fed will expand Operation Twist, which replaces short-term bonds with longer-term debt, by $267 billion.

In a statement, the FOMC said the prolongation of Operation Twist "should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative."

The Fed pointed to the U.S. economy's poor recovery as reason for more "twist."

"Growth in employment has slowed in recent months and the unemployment rate remains elevated," the Fed reported. "Household spending appears to be rising at a slower pace than earlier in the year."

The lack of more intense stimulus, namely a third round of quantitative easing, sent the Dow Jones, which had been flat all day, plummeting some 50 points in just seconds. All three major indexes treaded lower following the report. Gold, hoping for QE3, sold off some $25 an ounce.

The yield on the 10-year Treasury note rose to 1.67% just after 1 p.m. in New York from 1.62% late yesterday.

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Stock Market Today: All Eyes on the Fed

It's clear what's moving the stock market today. The market was basically flat all morning until the U.S. Federal Reserve made its highly anticipated policy announcement.

The Fed announced that it would expand Operation Twist by $267 billion through the end of the year.

"This continuation of the maturity extension program (Operation Twist) should put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative," the Federal Open Market Committee said today in a statement at the conclusion of a two-day meeting in Washington.

The committee stated that economic growth has been "expanding moderately" this year but warned that "growth in employment has slowed in recent months, and the unemployment rate remains elevated."

Meanwhile, Greek formed a coalition government consisting of New Democracy, socialist party Pasok and the Democratic Party of the Left. Antonis Samaras, leader of the New Democracy party, was sworn in as prime minister earlier today.

"Greece has a government ... that is the message that we need to send abroad," said Evangelos Venizelos, leader of Pasok.

The embattled country had gone 223 days without an elected government. One of the new regime's first tasks will likely be renegotiating its bailout terms with the European Union and International Monetary Fund.

Stocks opened slightly lower awaiting the Fed's decision, but following its announcement the market took a sharp dive before heading back upward as many investors had hoped for QE3 rather than more "Twist."

There are two companies that are leading stocks downward today, The Procter & Gamble Co. (NYSE: PG) and Adobe Systems Inc. (Nasdaq: ADBE).

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FOMC Meeting: Will Ben Print?

Most investors expect Federal Reserve Chairman Ben Bernanke to announce more stimulus when the FOMC meeting concludes tomorrow (Wednesday).

But what if he doesn't?

Money Morning Chief Investment Strategist Keith Fitz-Gerald joined Fox Business' "Varney & Co." Tuesday to discuss this outcome with host Stuart Varney.

"Keith, what happens if Ben doesn't print any money, makes no such announcement, and the Germans don't agree to let Europe print any money," asked Varney. "What happens?"

To hear what Keith said investors can expect from the Fed, and the market reaction, watch this video.
Keith also analyzed the Microsoft Corp. (Nasdaq: MSFT) announcement that it will release a tablet to compete with the Apple Inc. (Nasdaq: AAPL) iPad.

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Stock Market Today: This Bank Stock Faces More Backlash

The Greek elections did not generate any significant movement in the stock market today, which is especially bad news for one particular bank stock that's taking a lot of heat from investors.

Greece decided not to leave the euro Sunday as the pro-bailout New Democracy party narrowly won elections tallying just over 30% of the vote. Investors had feared a win by an anti-austerity movement could lead to a breakup of the euro and possibly the European Union.

That's all good news except stock markets opened lower Monday following the announcement.

Maybe investors really wanted the worst to happen concerning Greece, insuring more action by the Federal Reserve when they meet later this week. QE3 is still a possibility but it seems that some are disappointed by the Greek elections, which could just be a postponement to Greece's eventual "Grexit" from the euro.

European markets rallied following the election results, but by the time U.S. markets opened investor sentiment had become neutral. It seems that until the Fed's meeting concludes on Wednesday investors will be stuck waiting for more news out of Europe to guide them.

One sector that has been vilified recently is financial stocks, and today's headliner is Morgan Stanley (NYSE: MS).

The Wall Street Journal this morning highlighted Morgan Stanley for its leading role in Facebook's IPO debacle.

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