Popular Tags
Bloomberg News Suing Federal Reserve
Posted by Patrick O'Connor on 11/10/08 1:59 pm
This is a good one. The Federal Reserve is refusing to disclose not only which companies will receive almost $2 trillion in emergency aid from U.S. taxpayers, but also the types of collateral it will accept on behalf of taxpayers. That’s right. Taxpayers have to pay-up, but they don’t get any transparency.
Bloomberg News is suing the Fed to release the information under the Freedom of Information Act. Read More.
To receive email updates from Navellier All Cap Blog, click here.
Investors Need More Than a Rate Cut From the Fed
Posted by Louis Navellier on 10/28/08 9:12 am
Last Friday, Britain announced that it slipped into a recession in the third quarter. And on Thursday this week, the U.S. will likely announce that it is headed for recession, too, when the government releases its preliminary estimate for third-quarter GDP. Economists are predicting that the U.S. economy contracted by 0.5% in Q3. However, before the GDP report gets released, the Federal Open Market Committee will most likely cut interest rates on Wednesday. The futures market is predicting a 100% chance the Fed will cut the federal funds rate by 0.5% to 1%, primarily because Fed Chairman Ben Bernanke has signaled there will be an additional rate cut. Furthermore, market rates, based on the 3-month Treasury bill, remain below 1% and the Fed rarely fights market rates.
As a result, the GDP report might not have much effect on the market since a -0.5% reading is likely already priced in. But if the reading is worse than expected, we could see more weakness in stocks. That’s why we need some encouraging words from the Fed to go with a rate cut on Wednesday.
The Fed’s statement will be thoroughly scrutinized and it will help set the tone for the stock market in the days ahead. If the Fed shows fear, the stock market will likely give back much of today’s gains, especially if the GDP report is worse than expected. If the Fed gives us a silver lining, the stock market will likely extend today’s rally.
Investors need a spark that will release the trillions of dollars sitting in cash on the sidelines and stop the massive erosion in stock prices. Hopefully the Fed will step up to the plate tomorrow and cut interest rates by at least 0.50% and say something that gives investors hope.
To receive email updates from Navellier All Cap Blog, click here.
Fed Report Shows Economy Slowing
Posted by Patrick O'Connor on 9/3/08 12:52 pm
Nearly all 12 Fed districts across the nation reported signs of a slowing economy in the Beige Book report.
To receive email updates from Navellier All Cap Blog, click here.
Falling Oil Prices and Less Hawkish Fed Ignite Rally
Posted by Patrick O'Connor on 8/5/08 12:54 pm
Oil prices fell almost another $3 per barrel today, down to $118.55, and the Fed kept interest rates unchanged at the FOMC meeting, as expected. However, the market was surprised to learn Fed members voted 10-1 to keep rates steady. Most thought the voting would be closer after some Fed members publically voiced their concerns about inflation. For example, Philadelphia Fed President Plosser had been particularly hawkish in recent speeches, and he voted in favor of keeping rates steady. Only Dallas Fed President Fisher voted for a rate hike, which was no surprise. He has consistently voted for higher rates. Read More.
To receive email updates from Navellier All Cap Blog, click here.
Beige Book Underscores Dilemma for Fed Officials
Posted by Louis Navellier on 7/23/08 11:42 am
The Fed’s Beige Book report today is a bad sign and indicative that the Fed may not raise key interest rates, despite the fact that the internal disagreement between Fed officials is becoming more public.
To receive email updates from Navellier All Cap Blog, click here.
Expectations for Higher Interest Rates Have Changed Dramatically
Posted by Patrick O'Connor on 6/17/08 12:51 pm
Just one week ago the fed funds futures contract was pricing in a zero percent probability for a quarter point interest rate hike at the next FOMC meeting on August 5, but then the probability recently soared to 65%, and then to 91% on Monday. Read More.
The big reasons for the sudden change in interest rate expectations were Federal Reserve Chairman Ben Bernanke recently surprised the world by saying he supports a stronger dollar, several central banks appear to be working in concert to fight inflation, and Bernanke voiced concerns about headline inflation seeping into core inflation (prices minus food and energy).
Fortunately for the last item, today’s Producer Price Index revealed that it still appears that higher food and energy costs are not leaking into the core at the wholesale level. The PPI’s May headline result came in at a staggering 1.4%, but the core was just 0.2%, thanks largely to a 1% drop in car prices.
As a result of the PPI, the probability rate dropped to 57%. But keep in mind that the futures contract still expects a 69% chance for the fed funds rate to go up by three-quarters of a percent by November. Read More.
To receive email updates from Navellier All Cap Blog, click here.
Fed’s Beige Book Confirms Inflation
Posted by Louis Navellier on 6/11/08 1:47 pm
The Federal Reserve’s Beige Book noted that “economic activity remained generally weak in late-April and May,” but there was little indication that the economy had deteriorated further. However, the report did show increased inflation risk. See The Wall Street Journal’s Beige Book Interactive Graphic.
As a result, this report confirms that interest rates likely hit their lows recently.
Read more interest rate blog posts.
To receive email updates from Navellier All Cap Blog, click here.
Have Global Interest Rates Bottomed?
Posted by Patrick O'Connor on 6/10/08 1:41 pm
Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson have been taking the dollar’s value very seriously lately. They’re trying to stop its slide against other currencies in order to limit the commodity inflation that is threatening the U.S. and global economies.
Today, Bernanke indicated that the economy is looking better all of a sudden.
“The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so,” said the Fed chairman in a speech at a Boston Fed conference.
As a result, the dollar had another big day. In fact, it had its biggest two-day rally against the euro since 2005. Treasury yields have been surging higher as well. The 2-yr Treasury’s yield spiked 0.365% yesterday, it’s biggest one-day bounce in 12 years, and it climbed another 0.21% today.
Other central banks are taking inflation seriously, too. In fact, there appears to be a concerted effort underway to stop cutting rates and possibly begin raising them.
To receive email updates from Navellier All Cap Blog, click here.
2-yr U.S. Treasury Prices Fell the Most in 12 Years Today
Posted by Patrick O'Connor on 6/9/08 12:17 pm
2-year U.S. Treasuries took a beating today when prices collapsed and yields shot up 0.365%, the biggest one-day jump in 12 years.
2-yr notes are extremely sensitive to the Federal Reserve’s stance on interest-rate policy, and a speech today from New York Federal Reserve President Timothy Geithner at the Economic Club of New York spooked the market when he said interest rates around the globe might have to increase this year to temper inflation pressures.
To receive email updates from Navellier All Cap Blog, click here.
Fed Chairman Bernanke Surprises World with Dollar Comments
Posted by Patrick O'Connor on 6/3/08 12:51 pm
U.S. Federal Reserve Chairman Ben Bernanke unexpectedly voiced concerns about the weakening U.S. dollar and its inflation ramifications today at the International Monetary Conference in Barcelona, Spain. Read more.
“We are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations and will continue to formulate policy to guard against risks to both parts of our dual mandate,” said Chairman Bernanke. Read full speech.
Bernanke’s dollar comments were a bit unusual for a Fed chairman. Normally such comments are reserved for Treasury officials. However, the economy is reaching a point where something has to be done about the rampant commodity inflation in order to protect the economy’s long-term viability. And the dollar is an excellent place to start. After all, the greenback has been tanking for quite a while.
But should we expect a sustained rebound in the dollar now that the Fed chairman appears to be targeting such an occurrence?
The Dollar: Short-Term Rebound, But After That – No Promises
Dollar-bashers say that the U.S. dollar is in a major long-term bear market, and are advising investors to keep their exposure to the dollar at an absolute minimum. They’re also recommending that all long-term savings and investments should be denominated in select foreign currencies against which they believe the dollar is likely to fair the worst.
Critics also say that economic policy decisions by the U.S. Federal Reserve have been greasing the skids for the stock market’s demise, primarily by flooding the world with dollars and credit. M3 – the economic term for the U.S. money supply – is growing at a 12% annual clip. Relentlessly pumping the dollar into the money supply has triggered a devaluation of the greenback – and helped inflate food and energy costs as an aftereffect.
Other signs are equally ominous . . .
• Dollar devaluation in the 1930’s coincided with the biggest bear market in history.
• After the US went off the gold standard in the ‘70s, a 10-year bear market followed.
• The Crash of ’87 was preceded by a 35% devaluation of the dollar against major currencies.
That’s the bad news for the dollar. But there is some good news.
The dollar has stabilized since hitting an all-time low in mid-March. It’s rebounded nicely, albeit moderately since then. Historically, the dollar rises during periods of domestic economic strife. We’re not saying we’re in a recession, but it’s evident from the relevant data that the dollar has rallied during four of the last five U.S. recessions.
Thus, a burgeoning parade of economic forecasters say the outlook for the buck is brightening. Dr. Steve Sjuggerud, writing in a recent issue of the Investment U. newsletter, predicts the U.S. dollar should rise by 20% or more in the upcoming months.
Sjuggerud, writing from an economic conference in Switzerland, where the dollar has “crashed” and Americans pay $500 for one night in a hotel and $60 for a lunch of filet and salad, sees three key indicators that tell of better days ahead for the beleaguered U.S. currency.
Interest rates. All things being equal, the country with the higher yields will see its currency rise versus the country with the lower yield (deposits in the U.S. pay nearly 3%, while Swiss ones pay less than 1%).
Purchasing power. When one developed country’s currency is significantly out of line with another developed country’s currency, it’s like a stretched rubber band - things return to “normal” over time. (A Big Mac in Switzerland, for example, is 82% more expensive than a Big Mac in the States, according to The Economist magazine).
The underlying trend. Trends in currencies tend to stay in motion for longer than people think. Recently, the trend in the European currencies has been down versus the dollar, but so far the fall has been minimal… and there’s plenty more room on the downside in the euro and Swiss franc.
Conversely, the euro, which has run rings around the dollar in the past few years, is showing signs of slowing down, says Sjuggerud. He reasons that interest rates are lower than the United States, at closer to 2%. He also points out that a Big Mac in Europe is 25% more expensive than the U.S., but there is no good reason for it. “The Big Mac will return back to “normal” pricing in euros,” he says. “And the way that will happen is the expensive euro will lose some of its value.”
Consequently, all the “ducks are in a row” for the U.S. dollar to continue its rebound.
Of course, that’s his opinion. What might be closer to reality is that while the dollar may continue to surge (somewhat) in the short-term, long-term indications are working against any monumental U.S. currency recovery. That’s more or less Warren Buffet’s opinion. He recently told Bloomberg.com that “The U.S. dollar will keep weakening” and that he feels ``no need to hedge’’ against currency risk when buying large companies outside the U.S.
Buffet thinks the dollar will surge moderately against the euro this summer and into the fall. That’s primarily due to the fact that the Federal Reserve’s rate cuts are likely finished, and any hint of a hike in the fed funds rate in the future will boost the dollar. As stated above, the slowing U.S. economy should also bolster the dollar.
Working against the dollar’s rebound is the rising specter of inflation, which could plant the seeds for another prolonged decline in the dollar in late 2008 and early 2009.
For a more definitive look at the dollar and where it might go, check out one view from overseas.
To receive email updates from Navellier All Cap Blog, click here.
All Cap Portfolios
View Top 10 Stock Holdings, News, Charts and Fundamentals
Quick Links
Subscribe to this Blog
Sign up to get updates by email
