What to Expect from Bernanke
As the World is awaiting Jackson Hole one needs to read two important aspects of how the Fed has acted historically and what we can expect. Two very important issues to consider, are Operation Twist and Bernanke’s speech from 2002. Some important reading in order to understand how Fed is thinking;
Firstly, Operation Twist.
The Federal Reserve’s current large-scale asset purchase program, dubbed “QE2,” has a precedent in a 1961 initiative by the Kennedy Administration and the Federal Reserve known as “Operation Twist.” An analysis finds that four of six potentially market-moving Operation Twist announcements had statistically significant effects and that the program cumulatively caused a significant but moderate 0.15 percentage point reduction in longer-term Treasury yields. These results can be used to estimate QE2′s effects.
Full reading on Operation Twist, click here.
Secondly, Bernanke’s speech from 2002;
| Since World War II, inflation–the apparently inexorable rise in the prices of goods and services–has been the bane of central bankers. Economists of various stripes have argued that inflation is the inevitable result of (pick your favorite) the abandonment of metallic monetary standards, a lack of fiscal discipline, shocks to the price of oil and other commodities, struggles over the distribution of income, excessive money creation, self-confirming inflation expectations, an “inflation bias” in the policies of central banks, and still others. Despite widespread “inflation pessimism,” however, during the 1980s and 1990s most industrial-country central banks were able to cage, if not entirely tame, the inflation dragon. Although a number of factors converged to make this happy outcome possible, an essential element was the heightened understanding by central bankers and, equally as important, by political leaders and the public at large of the very high costs of allowing the economy to stray too far from price stability.
Full speech, click here.
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Short Ban Extended-Welcome to free markets
France, Spain, Belgium and Greece extend the Short Ban on Financial Stocks. Last time regulators started imposing short bans, we all know what happened. For anybody even remotely believing in free markets, forget it. We are now waiting for the ultimate saviour, Bernanke, to enter the stage. Buffet has done his fair share of the helping. Let’s see when BAC soon starts trading in negative territory….
Form the French regulator AMF;
In the meantime, the AMF will continue to closely monitor the markets and their developments. Before the end of September 2011 and upon consultation with the above mentioned regulators, the AMF will assess the opportunity to lift the temporary ban. The aim is to lift the ban as soon as market conditions allow it and, to the extent possible, in a coordinated way.
In the meantime, the AMF will continue to closely monitor the markets and their developments. Before the end of September 2011 and upon consultation with the above mentioned regulators, the AMF will assess the opportunity to lift the temporary ban. The aim is to lift the ban as soon as market conditions allow it and, to the extent possible, in a coordinated way.
Daily Gold
By Gold Core;
All major currencies have risen against gold again today as the vicious sell off seen on Tuesday and particularly yesterday continued in Asia overnight and in Europe.
Gold is trading at USD 1,723.80, EUR 1,192.10, GBP 1,052.90, CHF 1,369.50 and JPY 133,225 per ounce.
Gold at $1,700/oz Remains $800 Below the Real High (Inflation Adjusted) from 1980
Gold’s London AM fix this morning was USD 1,716.50, EUR 1,191.10, GBP 1,049.59 per ounce (sharply lower from yesterday’s USD 1,850.00, EUR 1,279.30, GBP 1,119.58 per ounce).
The expected correction was due to the very over bought nature of the gold market in the short term.
The catalyst was the mini parabolic spike seen in August, profit taking and the 27% rise in margin requirements set by the Chicago Mercantile Exchange, which followed Shanghai, where margins were also raised on gold futures.
The correction is healthy as the sharp move upwards was making some investors and diversifiers nervous.
Gold in US Dollars – January 2009 to Today with 50, 100 and 144 Day Moving Averages
In time, this will likely be seen as another paper driven sell off on the COMEX as physical supply remains limited while demand remains robust, particularly from central banks and from China, India and much of Asia.
With gold now down nearly 10% or $200 from its recent ‘peak’ value buyers are getting positioned to buy on the dip. Some may wait until we see a day or two of higher closes and the adage to never catch a falling knife is apposite.
Dollar, euro and pound cost averaging remains prudent especially given the high level of uncertainty regarding the market in the short term.
Gold in US Dollars – June 2009 to Today Showing Strong Trend Channel and Possible Fibonacci Retracement
Short term support may be seen at the psychological level of $1,700/oz but momentum traders and Wall Street players with concentrated short positions may press their advantage and manipulate prices to lower levels whereby they may close some of their short positions – pocketing a tidy short term profit.
News That Matters
Ft.com
Apple co-founder Steve Jobs has resigned as chief executive seven months after going on medical leave and asked the board to name chief operating officer Tim Cook as his successor, the FT reports. The company, http://ftalphaville.ft.com/thecut/2011/08/25/661931/jobs-resigns-as-apple-chief-executive/
Congressional analysts painted a rosier picture of the US budgetary picture for the next decade on the back of this month’s deal to increase the debt ceiling, but offered a bleaker portrait of the country’s economic recovery, http://ftalphaville.ft.com/thecut/2011/08/25/662031/us-budget-watchdog-cuts-debt-forecast-2/
British consumer confidence edged down further in July, reports Reuters. Building society Nationwide’s consumer confidence index fell by two points to 49, well below its long-run average of 79 and not far above February’s all-time low of 41 points. Consumers’ assessment of their present situation was unchanged from June, http://ftalphaville.ft.com/thecut/2011/08/25/661976/british-consumer-confidence-falls/
Gold suffered its largest two-day absolute fall in more than three decades, dropping $160 per ounce between Tuesday and Wednesday, the FT reports. Investors risked further sharp moves as the leading US metals exchange announced it will demand larger good-faith deposits to own gold futures starting after Thursday’s close. Spot gold prices fell to a session low of $1,750.55 per troy ounce,http://ftalphaville.ft.com/thecut/2011/08/25/661981/gold-drops-160-an-ounce-in-two-days/
The Obama administration is considering a proposal that would allow millions of homeowners with government-backed mortgages to refinance them at current, lower interest rates, about 4 per cent, the NYT says, http://ftalphaville.ft.com/thecut/2011/08/25/662006/us-administration-considering-mortgage-refinance-plan/
Research In Motion plans to enable models expected next year to run applications built for Google’s Android operating system, Bloomberg reports, citing three people familiar with the plan. The report says BlackBerrys that run on RIM’s new QNX software, http://ftalphaville.ft.com/thecut/2011/08/25/661991/android-compatible-blackberrys-reportedly-planned/
The market for junk bonds is enduring its worst rout since the depths of the financial crisis, says the WSJ. Demand for high-yield bonds sold by the riskiest US companies has nearly dried up, and new junk-bond offerings in August were at their lowest level since December 2008. Retail investors have been withdrawing record amounts from high-yield mutual funds, http://ftalphaville.ft.com/thecut/2011/08/25/661956/junk-bond-market-dries-up/
Hurricane Irene is “pounding” the Bahamas, Bloomberg reports, and the strengthening Category 3 major storm is on a course that may take it near North Carolina this weekend and into southern New England early next week. Irene’s top winds reached 193km per hour as it churned the south-eastern Bahamian islands. http://ftalphaville.ft.com/thecut/2011/08/25/661946/irene-batters-bahamas-heads-for-us-east-coast/
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