Federal Reserve

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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The Eurozone Bailout: Prepare for What's Next

Q: What will happen in Europe? Greece chickens out. The G20 has its hands out and wants to have Germany's standard of living. Germany should leave the EU and preserve its economy. There is no reason it should sacrifice itself to pay for the malfeasance and incompetence of everybody else. Politicians will kick the can […]

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Why Gold Prices are Ready to Rally

Gold prices hit a four-week high last week as the market waited for the highly-anticipated congressional testimony by Federal Reserve Chairman Ben Bernanke.

But gold bulls were pushed aside Thursday after Bernanke, in a speech to Congress, failed to deliver a definitive answer on monetary easing.

Deutsche Bank analysts wrote in a Friday research note via Dow Jones, "The past week has demonstrated how expectations [toward] quantitative easing can have a powerful effect on the gold price."

Now investors need to wait for the June 19-20 FOMC meeting for more clarity on what the Fed could do this year and how metals prices will be affected.

Gold prices have recovered since then, and on Tuesday the yellow metal pushed above the $1,600 an ounce mark. The weekend's news about the Spanish bank bailout and lingering concerns over the Eurozone debt crisis has increased alarm about the global economy, making gold more attractive.

But news from Europe and Fed policies aren't the only factors that can move gold prices. Here's what else is affecting the metals market now.

The Biggest Factors Moving Gold Prices

#1: Central Bankers are Buying Gold

For the first time since 1965, central bankers are purchasing gold.

According to World Gold Council, the central banks have increased their gold collections by 400 metric tons or almost 2,205 pounds in the last 12 months through March 31.

This is a rise from the previous year's 156 tons.

Look for this to continue from the central bank as the council noted it "is now confident that central banks will continue to buy gold and has added official-sector purchases as a new element of gold demand," according to Austin Kiddle in a Sharps Pixley report.

Jeff Christian, founder of New York-based commodities consulting firm CPM Group, told Barron's that central banks "will probably be continuous buyers of small volumes of gold for the foreseeable future," accounting for roughly 10% of the gold supply.

Christian noted that central bankers will avoid buying any quantity that dramatically affects the price of gold. Yet steady buying of 10% of annual supply is certain to help buoy gold prices.

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Silver Prices: Market Loses $90 Million to Ponzi Scheme

Silver prices this week dipped after U.S. Federal Reserve Chairman Ben Bernanke failed to confirm that more economic stimulus is on the way. Silver prices hovered below $29 an ounce Friday.

Meanwhile, millions of dollars that would have been invested in physical silver it turns out were instead held in a $90 million Ponzi scheme orchestrated in South Carolina.

The Commodity Futures Trading Commission (CTFC) reported Thursday it charged Ronnie Gene Wilson and Atlantic Bullion & Coin, Inc., both of Easley, S.C., with offering contracts on silver sales, but never actually purchasing any metal.

The CTFC maintains in a filing Thursday in U.S. District Court in South Carolina that Wilson and Atlantic Bullion & Coin violated the Commodity Exchange Act and CFTC regulations by operated a Ponzi scheme dating back over a decade and continuing through Feb. 29 of this year.
Wilson and Atlantic Bullion & Coin fraudulently obtained at least $90.1 million from some 945 investors, the CTFC alleges.

The CFTC received jurisdiction over the entities from Aug. 15, 2011, to Feb. 29. During that time, Wilson and Atlantic Bullion & Co are accused of deceptively obtaining at least $11.53 million from at least 237 investors in 16 states under contracts of sales to buy silver, without buying or delivering the white metal.

According to the CTFC charges, Wilson and Atlantic Bullion issued fake account statements to unknowing investors who believed they had invested in silver.

The CFTC is after compensation for scammed investors, a return of illegal gains, civil monetary penalties, trading and registration bars, and permanent injunctions against further violations of the federal commodities laws if successful in its suit.

Cases like this are why choosing where to buy silver is a decision requiring research - which we've done for you in our special report, "How to Buy Silver."

However you choose to buy physical silver, gold or other precious metals, the most important rule is to deal only with reputable dealers who have proven experience in the business and clearly stated policies and warranties - especially if you're purchasing by phone or online.

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Why to Buy Dividend Stocks Now

Before the financial crisis, prudent investors counted on CDs, U.S. Treasuries and savings accounts to provide them with decent interest income for their retirement.

But thanks to Federal Reserve Chairman Ben Bernanke's zero interest rate policy, prudence has become a tough way to fund your golden years.

With few places to find refuge and income, these cautious investors have been forced to look elsewhere-namely at dividend stocks.

Dividends, long used to pad portfolios with income, are no longer a risk-on or a boring way to invest.

Not only do dividends add value, but with a careful selection across several sectors, an investor can build a nice portfolio covering a broad range of industries.

What's more, dividend-paying stocks provide reliable returns at regular intervals, offer growth potential, and are not typically as economically sensitive as other high-beta and volatile companies.

Another bonus is that when the economy wanes and stock markets fall, dividend stocks pay investors to wait it out until things improve.

And since cash dividends are paid from a corporation's current earnings and profits, dividend investors have the added prospect that they may see their dividend payments raised as things improve.

That's why dividend stocks have been a long-term bright spot with investors clamoring for higher yields.

Nick Lawson, head of synthetics, macro and cross-selling for Deutsche Bank, told the Financial Times, "We've had a lot of people from fixed income coming into equities. I think it is straight yield. We have all been forced up the yield curve."

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U.S. Economy Showdown: Krugman vs. Bernanke

Nobel Prize winning economist Paul Krugman has some critical words for how Team Bernanke is handling the U.S. economy.

The Princeton University professor suggested on Bloomberg Television's "Street Smart" program Monday that U.S. Federal Reserve policy makers, under the guidance of Chairman Ben Bernanke, are "reckless" for refusing to pursue inflation.

Krugman argues that higher inflation could lower the staggering U.S. employment rate that has lingered for more than four years.

"The reckless thing is to allow mass unemployment to continue," Krugman said Monday. "We have had a massive failure of our political system that has come to accept that 8% unemployment is the new normal and there is nothing that can be done. We're in a low-key version of the Great Depression."

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Today's FOMC Meeting To Bring Little Change

While the U.S. Federal Reserve will have an abundance to say about the economy today (Wednesday) when it concludes its two-day FOMC meeting, little is expected in the way of change.

The Federal Open Market Committee meeting will conclude Wednesday afternoon with a statement, revised forecasts and Chairman Ben Bernanke's news conference. The Fed will most likely reiterate that it will keep short-term interest rates at record-low levels through 2014. The Fed is not expected to commence any new program to lower longer-term rates unless the economy weakens.

That would diverge from the Fed's stance just three months ago when the January FOMC meeting ended with indications that Team Bernanke was leaning toward a third round of bond buying (QE3) to pump more cash into the troubled economy. More Fed bond purchases have been proposed as a means to drive down long-term rates to encourage borrowing and spending.

Since then, data on the U.S. economy has indicated a gradual strengthening, and the ongoing European sovereign debt crisis appears less ominous than it looked at the start of the year. Those developments argue against additional Fed bond buying.

"This will be a wait-and-watch meeting," David Jones, chief economist at DMJ Advisors, told the Associated Press. "Despite all the theatrics with a Bernanke press conference and new economic forecast, I think we will get a very predictable outcome-no change in policy."

That portends the Fed will retain its plans to keep its benchmark interest rate, the federal fund rate, at record lows until at least late 2014. The Fed planted that expectation at its January meeting and said nothing to change that hope when it met in March.

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Bank Stress Tests and the All-Clear-to-Rally Signal

Earlier this week I repeated that I've been cautiously bullish (too cautious, I also said) since October.

I also told you I was optimistic that all the major indexes would break through the important psychological, headline, and large-round-number resistance levels they started flirting with two weeks ago.

Boy, was that an understatement.

On Tuesday, markets blew the lid off of any impediments in their way.

In fact, the price action was so fast and furious you'd have thought the Federal Reserve said something about keeping interest rates low, or maybe that some good news about bank stress tests had leaked out.

And to think, only one week earlier, markets had a steep fall from grace on account of Fed Chairman Ben Bernanke not saying anything about another round of quantitative easing.

What a difference a week makes.

In case you missed the psychology of the market, it went like this...



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Did Federal Reserve Bank Stress Tests Fuel Too Much Confidence?

The Federal Reserve released the results of its third round of bank stress tests yesterday (Tuesday), determining 15 of the 19 tested banks were in good enough shape to withstand a severe recession.

The Fed tested whether banks have enough capital to survive an unemployment rate of 13%, a 21% drop in home prices, slowing economic growth in Europe and Asia, and a 50% drop in stock prices.

The tests assumed that banks would face $534 billion in losses in just over two years, and measured how much capital remained. The Fed earmarked $341 billion of those losses for loan portfolios.

The results of the bank stress tests show how institutions have worked to shore up balance sheets in the wake of a crisis - but can simulations really prove that banks won't fail?



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You Asked, He Answered: Shah Gilani on China, Ben Bernanke, the Fed and Much More…

Thanks for flooding my email inbox. I asked for it… Let's start off with some comments and questions about Ben Bernanke and the Fed…. Q: I see no distinguishable difference in the relationship that government has with the Fed/Banking Systemand some individual getting involved with a ruthless loan shark. ~ James M. A: The Fed […]

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Bernanke Testimony to Congress: The World According to the Federal Reserve

The U.S. Federal Reserve Chairman Ben Bernanke testimony to Congress ended ahead of schedule today (Thursday) in the Senate, reiterating the same tame message he communicated to the House yesterday: The Fed thinks the economy will grow modestly.

"We don't see at this point that the very severe recession has permanently affected the growth potential of the U.S. economy," Bernanke told the Senate Banking Committee in his twice annual economic testimony to Congress.

Here's a look at what Team Bernanke does see in the economy:

Bernanke Testimony to Congress

No Additional Stimulus

Bernanke said elevated unemployment and subdued inflationary pressures support low interest rates into 2014, but did not give a hint of any additional stimulus measures.

Bernanke also defended previous stimulus measures, which have drawn criticism for not being worth their hefty price tags.

"If you look back at Quantitative Easing 2, so called, in November 2010, concerns at the time were that it would be a high inflationary environment, it would hurt the dollar, it would not have much effect on growth, etcetera," said Bernanke. "But since November 2010, we have had since then the QE2 and the so-called Operation Twist, we have had about 2-1/2 million jobs created, we have seen big gains in stock prices, we have seen big improvements in credit markets, the dollar is about flat, commodity prices excluding oil are not much changed, inflation is doing well in the sense that we are looking for about a 2 percent inflation rate this year."



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Why the Volcker Rule is a Cop-Out and a Joke

Right now everyone's talking about the Volcker Rule.

For heaven's sake! What's the big deal? After all is said and done, there is only one real problem with it (and I'll get to that in a minute)...

The 300-page draft Rule, named after its champion architect, former Federal Reserve chairman and inflation-fighting icon Paul A. Volcker, is an addition to the ever-evolving masterpiece of legislation (yes, I'm being sarcastic) known as the Dodd-Frank Act.

Now, draft SEC rulemaking and regulatory actions are first submitted to the public for "comment." The SEC collects all comment letters and posts them on their website.

Well, wouldn't you know it, this draft (some might call it "daft") Volcker Rule has caused a flurry of letter writing; letters were due to the SEC by no later than this past Monday evening.

All in all, this august (not the month) regulatory body received 241 detailed comment letters (that's a lot of comment letters) and an astounding 14,479 mostly form letters, as well.

Almost all of the form letters to the SEC, many of which were "personalized" by submitters, were strongly in favor of the Volcker Rule and called for strengthening it and not watering it down by allowing any exemptions.

How do I know that? (No, I didn't read them all.) They resulted from an e-alert campaign to activist supporters of the Americans for Financial Reform group and Public Citizens, who posted appeals on their websites.

Other notable comments in favor of the Rule, and weighing-in in more detail, came from Paul Volcker himself and Senators Carl Levin (D-MI) and Jeff Merkley (D-OR), who championed the Volcker Rule in the Dodd-Frank legislation and in their comments called the draft too "tepid."

The lengthiest comment letter in favor of the Rule (and of tightening it significantly) came in the form of a 325-page love letter from the Occupy Wall Street movement.

However, of those 241 detailed comment letters, most of them came from detractors.

Detractors like individual banks (who normally let their dogs and lobbyists do their biting) and industry groups, such as the Securities Industry and Financial Markets Association (Sifma) and the Center for Capital Markets Competitiveness at the U.S. Chamber of Commerce.

Powerhouse law firm Davis Polk was itself drafted by several banks and Sifma to help draft at least 10 letters on behalf of the cause ("cause" banks want to keep making big bonuses).

Detractors of the Volcker Rule warned of dire consequences for American capital markets, American corporations, the American economy, the world, and the universe beyond even our own little constellation, if the Rule is allowed to curtail their most coveted and conscientious shepherding of their clients' best interests.

Prop Trading, Market Making and the Volcker Rule

The Volcker Rule comes down to this:

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Is Gold Money?… Don't Ask Ben Bernanke, Examine the Federal Reserve

If you really care about your financial future, here's something you need to know.

It's about a story that received almost zero coverage from the mainstream press. I can't say that I am surprised.

It involves gold.

Thanks to requests by Bloomberg News under the Freedom of Information Act, the Federal Reserve has revealed unprecedented details concerning the personal holdings of its regional bank presidents.

What they found is nothing short of stunning ...

Ben Bernanke on Gold

But let me back up a little.

There's an exchange between Fed Chairman Ben Bernanke and Congressmen Ron Paul you need to hear first.

During a monetary policy report delivered to Congress last summer, Congressman Ron Paul asked Bernanke if he thought gold is money.

After a clearly uncomfortable pause Ben said, "No. It's a precious metal." [By the way, if you haven't seen Ron Paul questioning Bernanke about gold, click here. It's already had over half a million views.]

Paul went on to ask Bernanke why it is then that central banks hold so much gold. Bernanke answered that it was simply a tradition.

Well, congrats Ben, you did get that one right, just for the wrong reasons. (Deep down, you surely know the true reasons).

The fact is gold has been a monetary tradition for millennia.

Nearly 2,000 years ago Aristotle laid out what characteristics make for good money. According to Aristotle:

  1. It must be durable.
  2. It must be portable.
  3. It must be divisible.
  4. It must be consistent.
  5. It must have intrinsic value.
So it's no accident that the most common basis for money - in all of human history - has been gold.

You might want to reread that: the most common basis for money - in all of human history - has been gold. It's no accident.

After all, only gold meets all five of those requirements for sound money.

It is only in the past century that fiat money has supplanted gold or gold-backed currencies on a worldwide basis.

What makes today's central bankers and their system of printing fiat currencies and setting interest rates so special? It is hubris and nothing more.

Fiat currencies are just a relatively recent, and failing, experiment in economics. So much so, it's become exceedingly dangerous to hold them of late.

Here's why.



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