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Two Safe Ways to Profit From the "Alibaba Shockwave Effect"

In the mid-1990s, I was fortunate to meet and start working with an Upstate New York money manager named Anthony M. Gallea.

The relationship began when I attended and wrote stories about some of the investment seminars he periodically held for prospective and existing clients. He then became a “source” for some of the investment stories I periodically wrote for Gannett Newspapers. And we ultimately collaborated on a pretty successful book about “Contrarian Investing” that was published by Prentice Hall.

Along the way, Tony shared some pretty important snippets of investing wisdom…

  • FOMC members

  • FOMC Meeting: What the Fed Policy Changes Mean For You The Federal Open Market Committee (FOMC) meeting ended yesterday (Wednesday) with two important changes to Fed monetary policy.

    First, the central bank said it would increase the amount of quantitative easing by replacing Operation Twist, which ends Dec. 31, with outright purchases of long-dated Treasury bonds.

    Under Operation Twist, every month the Fed sold $45 billion in short-term Treasury bonds and notes and bought $45 billion of long-term Treasury bonds in an effort to keep long-term interest rates low.

    Because the Fed funded its purchase of long-term bonds with the sale of short-term bonds and notes, no new money was created.

    However, outright purchases of long-term bonds will create new money-$45 billion every month-and, by concentrating its buying at the long end of the yield curve, the Fed should be able to keep long-term interest rates low.

    The Fed also said it will continue to purchase $40 billion of mortgage-backed securities each month, creating a total of $85 billion in new money from these operations monthly.

    That means QE4 is here.

    Starting in January, the Fed will be more than doubling the amount of money it is pumping into the economy. Happy New Year!

    Second, the Fed set unemployment and inflation "thresholds," instead of setting a date for when the central bank expects to be able to raise interest rates. What this means is that the Fed will not raise interest rates unless unemployment is 6.5% or less or inflation is more than 2.5%.

    By setting thresholds where monetary policy might change, the Fed is attempting to improve its communications with the public.

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  • Today's FOMC Meeting Ends with Major Change After today's Federal Open Market Committee (FOMC) meeting, the Fed announced it would expand the third round of its bond buying with fresh stimulus, replacing the soon to expire Operation Twist, set to end Dec. 31.

    And in an additional unprecedented move from the central bank, interest rate decisions will now be tied to the unemployment rate and inflation.

    About a half hour into the release, the Dow Jones Industrial Average staged a near 65-point rally - but then lost that gain and ended down nearly 3 points at 13,245.45.

    Here's a breakdown of the FOMC meeting outcome.

    Today's FOMC Meeting: QE4

    As expected, the FOMC meeting ended with a replacement for Operation Twist, the expiring program introduced in 2011 of swapping short-term Treasuries for longer dated ones. The goal of Operation Twist was to lower long-term interest rates to stimulate the U.S. economy.

    The new asset purchase program is an extended arm of the Fed's familiar quantitative easing programs, and has thus been dubbed QE4.

    Now with QE3 and QE4 together, the Fed will purchase a whopping $85 billion a month of Treasury securities, stacking the Fed's portfolio with government-backed investments for an extended period.

    The buying spree will remain intact until the unemployment rate falls below 6.5% and inflation projections remain no more than half a percentage point above 2% for two years out.

    The Fed also left interest rates at rock-bottom historic lows near zero, as was also expected.

    While these moves were widely expected, what wasn't expected was the Fed's forward-looking guidance.

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  • This Week's FOMC Meeting: Why to Expect More Stimulus Investors should expect welcome news from the U.S. Federal Reserve Wednesday at the end of this week's two-day FOMC meeting.

    As central bankers gathered Tuesday for the last policy meeting of the year, expectations were high that Fed Chief Ben Bernanke and his cohorts will announce a large scale asset purchase plan to replace the soon-to-end Operation Twist, introduced in September 2011.

    The Fed hopes additional stimulus will finally boost growth and the employment level. With the current unemployment level at an elevated 7.7% -- a number that economists say will be revised higher in the coming weeks - the weak labor market remains a grave concern.

    At recent meetings, the Fed indicated that it will continue QE3, the policy of buying $45 billion in mortgage-backed securities each month until it sees a significant and sustained improvement in the employment scene - which is unlikely to come anytime soon.

    Together with Operation Twist, the two programs added some $85 billion in long-term bonds to the Fed's balance sheet each month.

    The aim, the Fed said in a statement, "should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative."

    The central bank has also stressed it would employ its other policy tools "if the labor market does not improve substantially."

    While the Fed did not elaborate on what those tools are, it maintains it still has plenty of ammo left and stands ready to pull the trigger when and if necessary.

    It looks like now is the time.

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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...

    Click here to continue reading...

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  • What's Different About this Week's FOMC Meeting The two-day Federal Open Market Committee (FOMC) meeting starting today (Tuesday) marks a historic shift in how the U.S. Federal Reserve communicates its policy decisions with the public.

    The changes center on disclosing individual FOMC members' interest-rate forecasts and economic projections. It may also release an agreed target for inflation.

    "It's a significant innovation," Jeremy Lawson, chief U.S. economist for BNP Paribas, told Reuters. "It will change the interaction between the Fed and the markets and the way people think about how the Fed is likely to behave."

    The main question will be if... Read More...