QE3

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Gold Prices Rise as All Signs Point to More Stimulus

By , Money Morning -

Gold prices were on the rise again today (Wednesday) as the market digests the recent spate of global economic data that could warrant more stimulus measures - and send metals prices soaring.

China reported last Friday that its July consumer price index (CPI) rose to 1.8% from the previous year, representing its lowest jump since January 2010. Industrial production declined to 9.2% from June's 9.5% thanks to slowing growth in heavy industrial production. Retail sales fell to 13.1% from June's 13.7%.

There's more: July exports increased 1% from the previous year, while imports rose 4.7%, exemplifying a weak external demand, but also a slowdown in Chinese investment.

As if this wasn't enough news to fuel a little action in the gold markets, Japan continued the trend on Monday with news that its economic growth in the second quarter had slowed down more than anticipated.

Also triggering stimulus speculation was news out of Europe that the Eurozone's economies contracted in the second quarter. The European Union's statistics office said yesterday (Tuesday) that six countries were in recessions.

"It looks like the gold market will continue to be held up by the sentiment of expected central-bank stimulation," Marex Spectron Group said in a report Tuesday. "The downside risk is limited."



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Summer Slump in Silver Prices Closer to an End

By , Money Morning -

Silver prices have suffered this year as the white metal has lost its luster as a safe haven investment, but the pullback has slowed and may be bottoming out.

Cash has gained some allure over metals, but according to FX Empire, as bullion prices near support levels buying interest has been on the rise.

In July, silver prices broke out from a three-month price slump and closed up 1.1% to $0.302.This came after fourth months of consecutive losses: 0.5% (June), 10.5% (May), 4.5% (April) and 6.2% (March).

Silver prices ended last week on a positive note, up $0.54 to $27.69. Futures and options players made bullish bets at the end of last week on the commodity based on speculation for additional stimulus from the Federal Reserve.

This week, silver prices have continued their rise. The metal's up 0.3% to $27.84 an ounce.

Can this uptrend continue? Here's what to expect from silver prices in the near term.

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No Need for Vacation When You Can Fight Over the Fiscal Cliff

By , Contributing Writer, Money Morning -

Republicans are not willing to let Democrats go over the fiscal cliff and take all of us with them - at least, not without a good fight.

Just the sound of it - going off the cliff - echoes disaster. But that is where we're heading if Congress doesn't act to extend the Bush tax cuts or avoid the automatic spending cuts that will go into effect Jan. 1.

Little can be expected to be resolved over the next month as Congress takes off for its annual five-week August recess.

However, House Speaker John Boehner (R-Ohio) vowed Wednesday to call the House back into session to cement approval if Senate takes action to prevent fiscal cliff. The GOP has made its commitment to averting the fiscal cliff crystal clear and is encouraging the Democrats to work out some kind of agreement.

"If the Senate follows the House in passing legislation to stop the entire tax hike-including the small business tax hike-in a manner that requires House approval before it can be sent to the president, it is our commitment that the House will reconvene immediately to ensure the measure is enacted at the earliest opportunity. But, in order to avert the threat to our economy, the Senate must join the House in acting to stop the entire tax increase," Boehner and three other House GOP leaders wrote in a letter to Senate Majority Leader Harry Reid (D-NV).

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Today's FOMC Meeting: We Could Wait Four More Months for Action

By , Money Morning -

The U.S. Federal Reserve continued its wait-and-see stance today (Wednesday) and remained in idle mode when it said and did little at the conclusion of its two-day Federal Open Market Committee (FOMC) meeting.

The central bank decided to leave rates unchanged, reiterated it would leave rates low through at least 2014 (not extending them to 2015 as expected) and did not announce a third round of quantitative easing.

The Fed chiefs did, however, voice that should conditions warrant, they are ready to step in and take aggressive steps to bolster the U.S. economy.

PIMCO's leader Bill Gross told CNBC that "a changing in policy landscape can be expected in a month or so."

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Today's FOMC Meeting Too Early for Action

By , Contributing Writer, Money Morning -

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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Silver Prices Ready for QE3

By , Money Morning -

Recent economic data might be enough to get the U.S. Federal Reserve to finally commit to more stimulus measures, which in the past has delivered a good run for silver prices.

The United States last week reported economic growth of just 1.5% for the second quarter of 2012, down sharply from the rates posted for the previous two quarters.

As a result, the Dow Jones Industrial Average jumped as traders anticipate more economic stimulus from the Federal Reserve, either at the Federal Open Market Committee (FOMC) meeting this week or when Chairman Ben Bernanke speaks at Jackson Hole in late August.

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Keep a Close Eye on Gold Prices Next Week

By , Contributing Writer, Money Morning -

The U.S. Federal Reserve is about to give a huge boost to gold prices, and the first push could come as soon as next week.

The parade of dismal economic reports both here and abroad has stoked hopes that more stimulus, in the form of a third round of quantitative easing, is imminent. A clear signal of when we can expect QE3 could come at next week's two-day Federal Open Market Committee (FOMC) meeting that starts July 31.

An increasing number of Federal Reserve officials are convinced the central bank must expand its stimulus operation immediately amid the recent spate of glum data signaling economic growth has hit a roadblock. Several members will push for urgent action, although some may move to delay a decision until September.

Fed Chairman Ben Bernanke told Congress last week that a fresh round of quantitative easing is an option the FOMC is mulling to try and lower the elevated unemployment level.

"We are committed to ensuring, or at least doing all we can to ensure, that we continue to make progress on unemployment," Bernanke said just last week.

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Expect QE3 After Geithner's Warnings

By , Money Morning -

In testimony yesterday (Wednesday) before the House Financial Services Committee, U.S. Secretary of the Treasury Timothy Geithner may have inched us closer to QE3 when he warned that the U.S. economy will be slammed by two major factors: the immediate danger from the Eurozone debt crisis and fiscal cliff 2013 that is fast approaching.

"The economic recession in Europe is hurting economic growth around the world, and the ongoing financial stress is causing a general tightening of financial conditions, exacerbating the global slowdown," Geithner said in his testimony.

As much of the revenue for major U.S. corporations such as Ford Motor Co. (NYSE: F), DuPont (NYSE: DD) and Cisco Systems Inc. (Nasdaq: CSCO) comes from Europe, the damage is already being felt by both employees and shareholders. Cisco, down 20.52% for the quarter, recently announced the layoffs of 1,300 workers, about 2% of its global labor force.

Geithner cited other factors harming the U.S. economy, including the rise in oil prices earlier this year, cuts to government spending and slow rates of income growth.

Possible adverse developments in the future, particularly the fiscal cliff, led Geithner to warn that, "These potential threats underscore the need for continued progress in repairing the remaining damage from the financial crisis and enacting reforms to make the system stronger for the long run."


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

By , Money Morning -

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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Bernanke Keeps the Stock Market Waiting for QE3

By , Money Morning -

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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Five Winners in the Stock Market Today

By , Money Morning -

It appears the stock market is headed for its fifth straight negative day as the markets opened lower on continued global concerns.

Any optimistic sentiments from Europe's recent summit and bailouts have passed, as Germany still is not committed to measures in the agreements.

After Spanish Prime Minister Mariano Rajoy announced surprisingly harsher austerity plans for Spain, there were riots in Madrid where more than 70 people were injured.

The stock market wasn't quite as violent, but after the U.S. Federal Reserve's minutes revealed no signs of QE3, the markets took a hit before finishing the day slightly higher. Today the market is still reeling as all three major indexes opened well in the red.

Even news of the lowest number of initial unemployment claims filed since March of 2008 could not lift the market. The Labor Department announced that initial claims seasonally adjusted came in at 350,000, down 26,000 from the previous week. Analysts had expected on average between 355,000 to 395,000 claims to be filed.

Those numbers may not be reliable, as many economists say the claims are lower due to automakers choosing to keep their plants open throughout the summer.

Typically many auto plants close for two weeks in the summer and lay off workers temporarily as the plants are prepped for new models. With higher demand this year many plants have remained open through July.

"It seems like the Labor Department is pretty adamant that this is more of a wonky seasonal adjustment than something we need to put too much stock in," Michael Hanson, U.S. economist at Bank of America-Merrill Lynch told Reuters. "The underlying trend in claims is probably still in the 370,000 range."

Those numbers are also low due to the fact that they are gathered from the holiday-shortened 4th of July week.

Even with the markets' slide today, there are still winners to be found. Here are five of the best performing stocks today:

Merck and Co. Inc. (NYSE: MRK) announced it received favorable results for its latest experimental osteoporosis drug, odancatib, and ended trials early because it worked so well. The drug is supposed to prevent bone fractures in women with osteoporosis and has been in testing since 2007.

Merck stock is up almost 4.5% as of noon.

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FOMC Meeting Minutes: Will We Ever See QE3?

By , Contributing Writer, Money Morning -

Investors were anxiously listening today (Wednesday) to see if the Federal Open Market Committee (FOMC) meeting minutes gave any hints the Fed may engage in a third round of quantitative easing (QE3) to bolster the ailing U.S. economy.

But no such clues were shared.

Last month the Federal Reserve decided to extend Operation Twist, a bond maturity extension program. But many investors wanted a third round of asset buying, or QE3, instead of more twisting.

Immediately following details of the June FOMC meeting, the Dow Jones Industrial Average, which had been choppy all day, was little changed. Then came the negative reaction and all three major indexes ticked lower, and the VIX, the "fear index," edged higher. The Dow fell as much as 90.14 points, or 0.7%, to 12,562.98 in afternoon trading.

Though QE3 is not completely out of the question, things need to deteriorate further for the Fed to even consider more bond purchasing as a means of stoking the economy, according to the FOMC meeting minutes.

Just four Fed officials referred to more quantitative easing in their individual forecasts, with two in favor and two considering another round.

Had that FOMC meeting been held today, maybe more officials would have supported a heavier stimulus measure. Since that meeting, fresh data have shown manufacturing is weak and unemployment levels are still elevated - and look to move higher.

In addition, economists have drastically reduced second-quarter growth estimates amid the weaker-than-expected numbers.

This has left scores scratching their heads asking how much worse things need to get before the Fed makes a move.

The minutes also show that several Fed officials want to create "new tools" to ease financial conditions. With little left in their cache to give the economy a much needed boost, "new tools" are warranted, but scarce at best.

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Stock Market Today: Will the Fed Finally Give In to QE3?

By , Money Morning -

The stock market today opened flat awaiting minutes from the Federal Open Market Committee's (FOMC) June meeting that will be released this afternoon.

Prior to the release of the Fed minutes, Spanish Prime Minister Mariano Rajoy announced that Spain will work immediately towards more government efficiency and austerity. After yesterday's announcement by the Eurozone finance ministers to inject Spanish banks with 30 billion euros ($36.6 billion), Rajoy declared that Spain would cut 65 billion euros or almost $80 billion from its budget in less than three years.

Rajoy said this would be done through cutting public institutions and social welfare programs such as unemployment, plus raising taxes. These decisions come a day after Spain was given an extra year to lower its deficit.

The Federal Reserve will release its minutes around 2 p.m. today and everyone will want to know if QE3 is on its way.

For over a year now investors have pined over the prospect of the Fed lifting the markets, if only for the short-term, through more quantitative easing measures. As experts have proclaimed this action would simply be another "Band-Aid" for a beaten down market.

Money Morning's Chief Investment Strategist Keith Fitz-Gerald put the effects of additional stimulus very simply.

"It has never worked since the dawn of recorded time and it will not work now," said Fitz-Gerald. "You cannot debase your currency and work your way out of this for anything but a short-term basis."

With last week's underwhelming jobs reports and signs from corporate earnings and manufacturing that the economy is slowing further, it might be hard for Chairman Bernanke and the Fed to ignore the option of QE3 any longer.

If Bernanke continues to just hint at more easing that may not be enough to lift this struggling market.

In other domestic news the trade deficit shrank 3.8% to $48.7 billion led by lower crude oil prices, bringing imports down while exports held up well, increasing 0.2%. U.S. wholesale inventories rose 0.3% but these numbers did little to soothe investor's fears ahead of the Fed minutes.

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

By , Contributing Writer, Money Morning -

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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The Fed's Mixed Messages on QE3

By , Money Morning -

Federal Reserve Chairman Ben Bernanke, speaking before the Joint Economic Committee Thursday morning, refused to hint at whether or not investors can expect another round of stimulus - either in QE3 or Operation Twist - to help the struggling U.S. economy.

Rep. Kevin Brady, R-TX, asked Bernanke to "look the market in the eye" and tell investors what to expect from the Fed. Bernanke refused to commit to a policy, but said the Fed could deliver an answer in the next couple of weeks.

Bernanke's comments indicated that the Fed would continue to monitor the U.S. economy as needed, but that no action like another round of quantitative easing was immediately necessary.

"The Committee reviews the size and composition of its securities holdings regularly and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery," Bernanke said in prepared remarks.

His non-committal comments contrasted those made a day before by other Fed members, including Vice Chair Janet Yellen and San Francisco Fed President John Williams, who indicated that more stimulus by the central bank is necessary to boost the U.S. economy.

"It may well be appropriate to insure against adverse shocks that could push the economy into territory where a self-reinforcing downward spiral of economic weakness would be difficult to arrest," Yellen said Wednesday in a speech in Boston.

Also on Wednesday Federal Reserve Bank of Atlanta President Dennis Lockhart said another round of Operation Twist could be considered.

"There is capacity to do more," Lockhart in a speech in Florida. "It is certainly an option. I'm not going to speculate on what the FOMC will do."

Bernanke's remarks followed the market's best daily performance of 2012. The Dow surged 287 points on Wednesday, closing at 12,414.79. Despite the mixed Fed messages, markets started off well Thursday, with each index rising more than 1% after The Peoples Bank of China announced it would cut its deposit and lending rates 0.25%, marking its first cut since 2008.

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