The Fed is taking its foot off the gas, stocks are reacting wildly to any news, and no one knows if the market can function independently of quantitative easing.
No one but Shah Gilani, that is.
Archives for July 2013
July 2013 - Page 17 of 18 - Money Morning - Only the News You Can Profit From
Why the U.S. Dollar is Rising - And Why It's Still Doomed
Many have wondered – and rightly so – why the U.S. dollar is rising even though the U.S. Federal Reserve has done just about everything possible to debase the currency over the past five years.
Over the past two years, the U.S. Dollar index, which measures the dollar against a basket of major world currencies, is up by more than 12.6%.
Part of the answer is that most of the world's other central banks have pursued easy money policies similar to the Fed's. In the so-called "currency wars," the U.S. dollar has one major built-in advantage.
"The U.S. has never defaulted," explained Money Morning Chief Investment Strategist Keith Fitz-Gerald. "The world may hate our guts, but when all hell breaks loose, they all love our dollar."
Also helping to explain why the U.S. dollar is rising is that it remains the world's reserve currency – the money a majority of nations use to buy commodities such as oil — and that the U.S. economy, for all its warts, is in better shape than most of the other developed economies in the world.
"The dollar the best-looking horse in the glue factory," Fitz-Gerald said.
So it wasn't too surprising that when the Fed recently hinted that it might start "tapering" its quantitative easing (bond-buying) policies later this year, the U.S. Dollar index spiked 3.1%.
But Fitz-Gerald said that investors still need to be wary of the stronger U.S. dollar going forward.
This Sept. 2 Event Could Send the U.S. Dollar Crashing
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Stay the Course with Gold as Mixed Signals Move Markets
Traders stampeded out of gold, emerging markets and bonds last month, setting record monthly outflows in June. Ever since the Federal Reserve hinted in May that signs of a stronger economy could allow for a slowdown of stimulus, markets have protested the news.
Gold has been hit hard by the tapering talk and resultant rising interest rates and liquidity drain, falling below $1,200 last week for the first time since August 2010. We're also seeing India, the world's biggest gold buyer, trying to stifle gold demand. As the government seeks to reduce its record current account deficit, it has hiked import tariffs on gold to 8 percent and introduced new constraints on rural lending against gold jewelry and coins.
Ross Norman, CEO of bullion broker Sharps Pixley, said, "It's almost as if the finance ministry is waging war on the gold sector, which would suggest that they feel they have lost control of the economy to some extent. In that environment, you would want to own gold more than ever."
Other factors fueling the liquidation were the raising of margin requirements on gold by the CME Group, the largest operator of futures exchanges in the U.S., and global liquidity concerns in the U.S. and China.
When the country with the largest GDP in the world and the country with the largest population on earth have liquidity concerns, traders run from stocks, bonds and gold, and head to cash. Even though gold traders have pulled out of their financial investments, there has been a surge in physical gold buying and central bankers have maintained their positions.
Two Bank Stocks to Buy Now Before Activist Investors Goose Share Prices
One of the most exciting long-term opportunities right now for stocks to buy involves the smaller regional and community banks – which is why activist investors have flocked to the industry this year.
These banks were hit hard during the credit crisis and economic slowdown of the past five years and have been slow to recover. Earnings growth has been sluggish – even though credit conditions have improved and real estate markets show signs of stabilizing.
The Worst Investing Mistake You Could Make Now
Many investors are understandably nervous when it comes to what the markets will do this week. Some are downright agitated.
My take? Keep calm.
The markets are doing what they need to be doing right now. The big swings we're experiencing lately are not a sign that the markets are broken. Far from it.
Big Problems: These Countries Are Facing Demographic Time Bombs
When a big economy hits the shoals, there are options.
You can take a Keynesian approach. You can take a Friedmanian approach. There are Bernankes, there are Nodas , the Austrian School, the Chicago School, expansion and contraction – however a government wants to play it, whatever the ideology, there are options and precedents for getting the economy going again.
But there are some problems, some threats that can't be addressed with an easy, take-your-pick policy. These would be the problems posed by simple demographics. Some of the world's biggest economies and most crucial players are facing true demographic crises which, if left untended, will ultimately result in their downfall. These countries are facing demographic time bombs.
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New Evidence Shows Ratings Agencies' Corruption Played Key Role in Subprime Crash
Mounds upon mounds of corruption were at the root of the subprime financial crisis.
Our hatred of the fat cat bankers who made millions off of predatory loans, and the lazy regulators, who did nothing about it and even enabled it, knows no bounds. Even more infuriating is the lack of consequences for what they did.
But somehow, a key player has managed squeak by – until now. As a result of 2 major lawsuits, incriminating documents have been piling up that prove – without a doubt – that ratings agencies like Moody's and S&P played a *huge* part in the scam.
Turns out that for years, Moody's and S&P have been "shameless tools for the banks, willing to give just about anything a high rating in exchange for cash."
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Top 5 Choices for the Next Fed Chief Leave Much to Be Desired
After President Barack Obama all but fired U.S. Federal Reserve Chairman Ben Bernanke in a recent television interview, everyone's been trying to figure out who the president will name as the next Fed chief next year.
Of course, Money Morning has long been critical of the Bernanke-led Fed, and in particular its easy money policies of recent years — namely its zero interest rates and waves of quantitative easing (QE) that have added trillions to the Fed's balance sheet.
That debt, the asset bubbles it has created and the Fed's too-cozy relationship with the Big Banks, has prompted the experts at Money Morning to question whether the Federal Reserve should exist at all.
"I believe the Fed is outmoded and should be disbanded," said Money Morning Chief Investment Strategist Keith Fitz-Gerald, who recently wrote about whether the Fed is necessary. "It's a financial body that has outlived its usefulness and is merely causing us to lurch from crisis to crisis. Barring any change in the notion of what it's there to do, get rid of it."
Still, for the time being, we're stuck with the Federal Reserve. And the next Fed chief – whoever President Obama appoints in January — will be setting monetary policy for at least the next four years.
One thing's for sure: Anyone who dislikes how Bernanke has run the central bank probably won't be happy with the next Fed chairman either.
As confounding as it seems now, it was not the liberal Democrat President Obama, but Republican President George W. Bush who first appointed Bernanke to head the Federal Reserve in 2006.
That Obama re-appointed Bernanke in 2010 made sense, as they share a similar Keynesian economic philosophy. That is, they both think the best way to help a weak economy is through massive government spending no matter how much debt piles up.
So while Bernanke may be on his way out the door, you can bet that whoever President Obama chooses as the next Fed chief will be just as much of a Keynesian as Bernanke has been – and maybe more so.
Heaven help us.
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Student Loan Interest Rates Double While Congress Takes a Vacation
Today (Monday) federally subsidized Stafford student loan interest rates doubled from 3.4% to 6.8% after Congress failed to reach that would've maintained lower rates by the July 1st deadline.
Monday also marks the beginning of the Independence Day congressional recess, sparking outrage among student advocates as Congress goes on recess without resolving this important issue.
Congress could retroactively "fix" the damage done by the soaring rate increase, but so far no deal is in sight.
The House has already passed a student loan proposal, but the Senate remains divided.
Particularly, Senate Democrats are divided amongst themselves over two different plans, and cannot yet present a strong front on the issue.
Sens. Kay Hagan (D-NC) and Jack Reed (D-RI) have a plan that would extend the 3.4% rate for another year, while also retroactively reducing the rate.
But a bipartisan group of Senators has a different, more long-term solution. They want to permanently tie student loan interest rates to the 10-year Treasury note borrowing rate.
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Stock Market Today: What History Shows Us About Second Half Performance
The stock market today got the third quarter, and second half of the year, off to a strong start with all three benchmarks logging gains right out of the gate. Shortly after the open, the Dow Jones Industrial Average jumped 104.61, or 0.70%, to 15,014.21. The Standard & Poor's 500 Index climbed 13.57, or 0.84%, […]