Archive for April, 2011
WASHINGTON (AP) – Treasury Secretary Timothy Geithner has decided to let companies continue to trade certain contracts used to guard against swings in currency values outside regulators’ view.
New rules require that many such trades happen more transparently, on exchanges where regulators can see them. But Geithner is exempting certain contracts used by companies to hedge currency rates.
The new financial overhaul law authorized Geithner to carve out such an exemption to stricter regulation.
Business groups argue that tighter oversight of such contracts would be costly and unnecessary. But critics, including some regulators, counter that the whole market for financial contracts called over-the-counter derivatives should face stricter supervision.
The value of derivatives hinges on an underlying investment, such as currencies, stocks or mortgages. Speculators who used over-the-counter derivatives helped fuel the 2008 financial crisis.
Sen. Carl Levin, who pushed for tighter regulation after the crisis, said Geithner’s decision might open the door for lax oversight in the future.
Treasury’s top markets official said the contracts already include many of the safeguards the new rules impose. Investors can find information on the price for each contract, for example. Some of the contracts are traded on electronic platforms, which are less likely to freeze up after an unexpected financial shock.
Imposing new rules would mean “introducing an additional process into what is a very well-functioning market today, and you would be putting more steps into the settlement process,” said Mary Miller, assistant Treasury secretary for financial markets.
Miller argued that even with the exemption, the market will become more transparent. Companies will have to report the contracts in real time, after they make a trade. The information will go to central databanks that regulators can see.
Still, the contracts, called foreign-exchange swaps, wouldn’t be subject to other requirements that experts say would make them more transparent.
The contracts that Geithner carved out account for about $30 trillion of the $600 trillion global market for over-the-counter derivatives, Treasury said. The new, tougher rules will apply to currency swaps, options and other contracts used for similar purposes.
Multinational corporations such as Cargill and 3M argued for the exemption. They said the new rules would have raised their costs, thereby limiting their ability to grow and create jobs.
Advocates of tighter regulation say closer oversight is needed at each stage of the process – before, during and after a trade. They say the exemptions will make some types of trades harder to oversee.
Michael Greenberger, a former official with the Commodity Futures Trading Commission, which is responsible for policing much of the derivatives market, disputed Treasury’s main defense of the exemption – that the contracts expire so fast that they don’t pose serious risks to the financial system.
“Within the next 60 months, there will be a systemic break in this market, said Greenberger, now a law professor at the University of Maryland.
The decision technically is a proposal. Treasury will accept public comments for 30 days before finalizing the exemption.
Read the entire article HERE.
April 25, 2011
by Andrew Malcolm
Great news for America’s psychiatrists, attorneys and scam artists preying on the elderly:
Now, in addition to soaring gas prices, college tuitions, inflation, home values sinking beneath mortgages, layoffs of older workers, unfinanced federal debts, increasing taxes and stubbornly high unemployment, deadlocked government, healthcare cost savings that don’t materialize and whimsical wars in meaningless places abroad, a majority of Americans now believe they won’t have enough money to live comfortably in retirement.
If there is such a thing by the time they get there. If they get there.
A new Gallup Poll out this morning finds a record 53% of Americans who aren’t retired figure by the time they reach their so-called golden years they won’t be able to afford it.
That percentage is up about 20 points since 2002.
This isn’t just some hypothetical political discussion point.
Polls and interviews show an almost palpable sense of unease across the country these days as one-time givens — a family’s home is its largest and safest investment, for instance — turn to mush in a new era of perpetual fiscal and partisan political uncertainty.
On the right hand, this could feed Republicans’ hopes to claim the mantle of change to believe in come 2012 when, among other challenges, Democrats must defend 23 of the 33 scheduled Senate contests. Initial congressional recess reports from the homefront indicate some Republicans are encountering resistance to their tough budget plans, which have +/- 0 chance of passing the Senate.
On the left hand, President Obama and Democrats are counting on inflaming such fears among future seniors to help their election cause next year when the former state senator attempts to become only the second White House Democrat to win two terms since a generation before Obama was born somewhere.
This as the GOP in Congress earnestly attempts to address the $14 trillion federal deficit by pushing for cost-saving reforms in sacred but encrusted entitlement programs such as Medicare that are rapidly outrunning the ability of the aging and shrinking workforce to underwrite them.
Lowered expectations are also creeping through the nation’s mindset.
While Washington politicians pontificate and argue over preserving Social Security as a sacred trust, fully six out of ten American workers have already decided that after an entire working life contributing from every paycheck, they will actually receive no benefits from Social Security upon retirement.
That’s the most pessimistic level in nearly a quarter-century.
Gallup has also detected a change in expectations about retirement age.
Sixteen years ago when Gallup asked that question, only 12% said they would have to work past 65. That percentage has now more than tripled (37%).
Likewise, the proportion that says it will retire before age 65 has plummeted from 47% down to 28%, who are still fooling themselves.
– Andrew Malcolm
The Gold Report
The Gold Report: When the average investor turns on the news, even on financial channels, they hear that the U.S. economy is in the best shape it’s been in for three or four years. While the experts say the recovery is slower than anticipated, they expect its slow recovery will equate to a long, slow growth cycle similar to that after World War II. You have a contrary view.
Doug Casey: The only things that are doing well are the stock and bond markets. But the markets and the economy are totally different things—except, over a very long period of time, there’s no necessary correlation between the economy doing well and the market doing well. My view is that the market is as high as it is right now—with the Dow over 12,000—solely and entirely because the Federal Reserve has created trillions of dollars, as other central banks around the world have created trillions of their currency units. Those currency units have to go somewhere, and a lot of them have gone into the stock market.
As a general rule, I don’t believe in conspiracy theories and I don’t believe anything’s big enough to manipulate the market successfully over a long period. At the same time, the government recognizes that most people conflate the Dow with the economy, so it is directing money toward the market to keep it up. Of course, the government wants to keep it up for other reasons—not just because it thinks the economy rests on the psychology of the people, which is complete nonsense. Psychology is just about the most ephemeral thing on which you could possibly base an economy. It can blow away like a pile of feathers in a hurricane.
TGR: So, you’re saying we’re confusing the market’s performance with the economy’s performance?
DC: Yes. The fact is that the economy, itself, is doing very badly. The numbers are phonied up. I spend a lot of time in Argentina. Anybody with any sense knows you can’t believe the numbers coming out of the Argentinean Government Statistical Bureau, nor can you (any longer) believe the numbers that come out of Washington D.C. The inflation numbers consider only the things the government wants to look at and are artificially low. It’s the same with the unemployment numbers. None of these things is believable.
TGR: Isn’t the unemployment figure a lagging indicator of a rebounding economy?
DC: If you look at the way unemployment was computed until the early 1980s—something that John Williams from ShadowStats does—the numbers would indicate about 20% unemployment today. Besides, even while the population keeps rising, the number of people reported as actually working is level or even lower. Most indicators of the economic establishment, in my view, don’t really make any sense. GDP, for instance, includes government spending—much of which amounts to paying some people to dig ditches during the day and other people to fill in for them at night. So-called “defense” spending is almost totally wasted capital. The practice of economics today is pathetic and laughable.
TGR: So, the economy is not rebounding?
DC: No. My take on this is that we entered what I call the “Greater Depression” in 2007. And now, because the government has printed up trillions of dollars in the last couple of years, we’re in the eye of the hurricane. We’ve only gone through the leading edge of the storm. People think this will just be another cyclical recovery like all the others since WW II. But it’s not. It’s going to wind up with the currency being destroyed. It’s going to be a disaster. . .a worldwide catastrophe.
TGR: You indicated that the government is using these mass infusions of made-up money to prop up the stock market due to the psychological factor—that people will think the economy’s doing well because the market is doing well. However, we hear that a lot of that money has been caught up in the banks. Would you comment on that?
DC: As I said, that money has to go somewhere. The banks have been borrowing from the Fed at something like 0.5% and investing it in government securities at 2%, 3% or 4%, depending on the maturity. So, much of that money has been a direct gift to the banks; and they’re basically making an arbitrage spread of 2%–4%. So, yes, that’s happening with some of the money. Still, it doesn’t all just sit in these Treasury securities. A great deal of it, inevitably, goes into the stock market.
TGR: You also said that psychology isn’t the only reason the government wants to see the stock market go higher.
DC: Right. Pension funds have a great deal of their assets in stocks. Certainly, many funds run by government entities, such as the state and city employee pension funds, are approaching bankruptcy despite the fact that the Fed has driven interest rates to historic lows, artificially pumping up both stocks and bonds. And, I might add, keeping property prices higher than they would be otherwise. When interest rates rise eventually—and they will go up a lot—it’ll be something to behold in the markets.
TGR: You mentioned John Williams who’s in your speaker lineup for the Casey Research Summit, The Next Few Years. Another of your speakers is Stansberry Associates Founder Porter Stansberry, who’s been making two points about the devaluation of the U.S. dollar. One point he makes in his The End of America video concerns the quantitative easing (QE) you mentioned—those trillions of dollars. But Porter also anticipates the U.S. government announcing a devaluation of the currency similar to what England did in 1970. Do you see that type of scenario occurring, as well?
DC: When the U.S. government last officially devalued the dollar in August 1971, it had been fixed to $35 per ounce to gold. In other words, before that, any foreign government could take the dollars it owned and trade them in at the Treasury for gold. Nixon devalued the dollar by raising it to $38/oz., and then to $42/oz. It was completely academic, anyway, because he wouldn’t redeem gold from the Treasury at any price.
But because the dollar isn’t fixed against anything now, the government can’t officially devalue it. It’s a floating market. The government’s going to devalue the dollar by printing more of the damn things and letting them lose value gradually—actually the loss will no longer be gradual, but quite fast from here on out. But it’s not going to do so formally by re-fixing the dollar against some other currency or against gold. I’m not sure Porter’s phrasing it in the best way, but he’s quite correct in his conclusion and his prescriptions as to how to profit from it. At this point, the dollar is nothing more than a floating abstraction, an IOU nothing on the part of a manifestly bankrupt government.
TGR: Another abstraction is the fact that the Treasury says the money it is printing has a multiplier effect when it gets into the U.S. economy, so it can pull those dollars back when the time comes. Is that a viable alternative to offset the devaluation caused by printing more money?
DC: You have to look first at the immediate and direct effects of what the government’s doing, and then at the delayed and indirect effects. And sure, just as it’s injecting all this money into the economy—mainly by the Fed buying U.S. government bonds—theoretically, it can take it out of the economy by doing the opposite. But I just don’t see that happening.
TGR: Why not?
DC: One of the reasons is that the U.S. government, itself, is running annual trillion-dollar deficits as far as the eye can see. I think those deficits will go higher—not lower. So, where’s that money going to come from? Where will it get trillions of dollars to fund the U.S. government every year?
China isn’t going to buy this paper and Japan will be selling its U.S. government paper because, if nothing else, it’ll need to buy things to redo the northeast part of the country. Nobody else is going to buy that trillion-dollar deficit either, so it’ll have to be the Federal Reserve. In fact, the Fed will have to buy much more and, therefore, create more money. That’s what happens.
TGR: This currency crisis isn’t unique to the U.S. You just brought up Japan. And aren’t all the European countries doing the same thing?
DC: The U.S., unfortunately, is not unique. This is going to be a worldwide catastrophe. It’s been a disaster for every country that’s done this in the past—Zimbabwe, Germany, Hungary, Yugoslavia and countries in South America—but those were within only those particular countries. In most of those cases, people never trusted their governments; so, they had significant assets outside the country in a form other than the local currency. The problem now is that the U.S. dollar is the world’s currency and all of these central banks own USDs as the backing for their own currencies. All these other countries will wind up finding that they don’t have any assets after all. That’s going to happen all over the world.
TGR: With countries around the globe facing the same issue, should anyone hold currencies?
DC: No. Sure, you need local currency to go to the store and buy a loaf of bread. But for liquid assets you’re trying to save, it’s insane to own currencies at this point because they’re all going to reach their intrinsic value. I’ve been recommending for many years that people buy gold and own gold for their savings—serious capital they want to put aside in liquid form. With gold now over $1,500/oz. and silver at $48, people who followed that advice have made a lot of money. That’s the good news. The bad news is that very few people have done so. Newbies to the game are paying $1,500/oz. for gold. It’s going higher, but it’s no longer the bargain that it was. The important thing to remember, though, is that gold is the only financial asset that’s not simultaneously someone else’s liability. That’s why it’s always been used as money and why it’s likely to be reinstituted as money.
TGR: From your viewpoint, how does a person with any wealth preserve it during this tumultuous period other than by investing in gold?
DC: Frankly, I don’t know. I own beef and dairy cattle, which are a good place to be; but that’s a business, and it’s not practical for most people. I think it boils down to gold.
TGR: But what investments should they be looking at these days?
DC: There really aren’t investments anymore. With trillions of newly created currency units floating around the world, things will become very chaotic and unpredictable shortly. It’s very hard to invest using any kind of Graham-and-Dodd methodology when things are that chaotic. Whether you like it or not, you’re going to be forced to be a speculator in the years to come. A speculator is somebody who tries to capitalize on politically caused distortions in the marketplace. There wouldn’t be many speculators, or many of those distortions in the marketplace, if we lived in a free-market society. But we don’t.
TGR: So, speculation will supplant value investing?
DC: Well, investing is best defined as allocating capital in a way that it reliably produces more capital. The government is going to make that quite hard in the years to come with much higher taxes, much higher inflation and draconian regulations. You will actually be forced to speculate. That’s a pity, from the point of view of the economy as a whole. But I kind of like it, in a way. Few people know how to be speculators, so I should be able to make a huge amount of money in the next few years. Unfortunately, it’ll be at a time when most people are losing their shirts. But I don’t make the rules. I just play the game.
TGR: As you look over the next year or two with your speculator hat on, what sectors do you expect to experience the most distortion and, therefore, offer the most opportunity for the speculator?
DC: One sure bet is the collapse of the U.S. dollar. Always bet against the USD and you’ll be on the winning side of the trade. A very direct way to make that bet is by shorting long-term U.S. government bonds because, eventually, interest rates will go to the moon, which means bond prices will collapse.
You can also look at the precious metals because, at some point, when people panic into them, their price curves will go parabolic. Mining stocks are likely to draw a lot of money, so they could go wild as they have many times over the last 40 years.
TGR: Your summit has presentations scheduled on silver, gold, currencies, Asia, real estate, agriculture and even more. What do you expect to be the major takeaway this time?
DC: What we’re facing now is something of absolutely historic importance—the biggest thing that’s gone on in the world since the industrial revolution. Many things will be completely overturned in the years to come. What’s happening now in the Arab world, with all of these corrupt kleptocracies being challenged and overthrown, is just the beginning. We haven’t seen the end of this in any of these countries—Tunisia, Egypt, Syria, Algeria. Of course, Saudi Arabia will be the big one. Everything’s going to be overturned. And all these stooges that the U.S. government has been supporting for years could very well lose their heads. It’s going to be the most tumultuous decade for hundreds of years, bigger than what happened in the 1930s and 1940s.
TGR: Any last things you’d like to tell our readers?
DC: Yeah. Hold on to your hats. You’re in for a wild ride.
Read the entire article HERE.
by Nick Olivari
NEW YORK | Fri Apr 29, 2011 4:34pm EDT
By contrast European Central Bank has raised rates, boosting the euro by 11 percent so far this year.
The U.S. dollar index .DXY hit a three-year low of 72.834 on Friday and has now fallen for five straight months, with April posting a 3.8 percent April decline.
“It’s pretty close to a one-way bet (on the dollar), but in foreign exchange markets, anything can happen,” said Chris Turner, head of foreign exchange strategy at ING Commercial Banking in London. “U.S. monetary policy is reflationary policy which is great news for the commodity currencies and frames the weak dollar.”
The euro rose about 4.6 percent against the dollar in April for its best month since September. The dollar fell 2.5 percent this month against the yen, its worst month since December.
On Friday the euro was buoyed by stronger-than-expected euro-zone inflation data that increased the chance of another ECB rate rise. Trading was thinned by a holiday in the U.K. for Britain’s royal wedding.
The euro closed around $1.4816, little changed on the day but still near its highest since early December 2009.
The U.S. Labor Department will publish its April employment report next week, and analysts at Citigroup said dollar bearishness should persist.
“It is hard to be optimistic on the (dollar’s) long-term prospects, given the Fed’s ability to surprise on the dovish side, the ongoing overhang of U.S. dollar assets among reserve managers and the concerns that have emerged on long-term U.S. fiscal prospects,” CitiFX said in a research note.
Overextended speculative positioning suggest the dollar’s decline may slow next week, according to Vassili Serebriakov, currency strategist at Wells Fargo in New York.
“However, with the Fed sending a strong dovish message, we see few significant triggers for an immediate dollar turnaround,” he said.
The Swiss franc was buoyed by upbeat comments from the Swiss National Bank’s chairman and an above-forecast Swiss sentiment survey.
The Swiss franc rose to hit a record high of 0.86256 francs per dollar on EBS. Speculators remained net long the Swiss franc to the tune of 17,841 contracts, according to CFTC data. The euro ended the week down about 1.0 percent at 1.2820 francs.
Against the yen, the dollar was down 0.6 percent at 81.07 yen. The net short yen position dropped by 15,986 contracts to 36,997 from 52,983 the week before, according to CFTC data. Most of the shift was from a decline of 14,858 total short contracts to 51,060 contracts.
Euro resistance was expected around $1.4905, the peak in December 7 2009, with a substantial options barrier at $1.5000. Beyond $1.5000, the key target was the 2009 high of $1.5145, analysts said.
One-month euro/dollar risk reversals last traded at -1.3 on Friday, according to Reuters data, with a bias toward euro puts and dollar calls, suggesting more investors are betting the euro will fall than will rise.
But the same measure traded at -1.48 on Tuesday, which indicates relatively less bearishness, the day before Federal Reserve Chairman Ben Bernanke hosted his first-ever post-policy decision news conference.
Still, euro long positions rose to 68,279 contracts in the latest week, the highest since December, 2007, according to data from the Commodity Futures Trading Commission released on Friday.
(Reporting by Nick Olivari)
Read the entire article HERE.
by Paul Ausick
April 29, 2011 at 10:30 am
One factor driving the price of silver through the roof is its use in industrial products. About half the world’s demand for silver comes from industries such as solar PV makers like Suntech Power Holdings Co. Ltd. (NYSE: STP), film manufacturers like Eastman Kodak Co. (NYSE: EK), and electronics products like plasma TVs. However, demand for silver as an inflation hedge is driving up silver prices for industries that use silver, and those higher costs contribute to slower economic growth.
About 25% of silver demand comes from investors, but they are now driving the bus as they seek a cheaper inflation hedge than gold. The iShares Silver Trust (NYSE: SLV) now holds about 11,000 metric tons of silver in its vaults. Global silver production for 2010 reached nearly 23,000 metric tons, a record high, and about 80% of global demand. The rest comes from recycling.
Global industrial demand for gold is about 10% of total demand. Almost half of gold demand comes from jewellery compared with about 25% of silver demand. Gold demand for investment totals about 40% of the world’s total demand for gold. The SPDR Gold Trust (NYSE: GLD) holds about 1,130 metric tons. Mining contributed about 60% of the world’s gold supply in 2010, with most of the remaining supply coming from recycling.
Because so much more of the silver stock is used for industrial purposes, the price of silver is (or should be) more vulnerable to changes in the business cycle. Currently, however, even as the economy improves only slightly, the price of silver keeps surging.
These price surges result from increased demand from investors, certainly, but because the silver market is so much smaller, and less liquid, than the gold market there is some talk that silver prices are being affected by traders holding massive short positions or attempting to corner the market. These rumors may or may not turn out to be true, but one thing does appear to be happening: the demand for physical silver may overwhelm the supply.
For futures traders that’s not a crisis, but it is very nearly a crisis for industrial users of silver. If they cannot find a substitute for the metal, then they will either have to pay much higher prices and either eat the loss or charge their customers more. Either way, the economic recovery takes a hit.
Kodak reported a first quarter loss of -$246 million, much of it attributable to the silver it uses to manufacture film. Suntech has introduced a solar PV cell that uses copper instead of silver, but so far the substitute accounts for only about 10% of Suntech’s production and sales.
Demand for industrial silver is expected to grow by about 6.5% annually through 2015. If the demand can be met at all it will be at a very high price. Unless of course the bottom falls out of the silver market.
Silver is trading near $49/ounce this morning, and the iShares Silver Trust is up about 1.5%, to $47.91, near the top of its 52-week range of $16.73-$48.35. The SPDR Gold Trust is up about 0.5% after posting a new 52-week high of $150.34. Gold is currently priced at $1,541/ounce.
Read the entire article HERE.
By JAVIER DAVID
APRIL 29, 2011
Wall Street Journal
NEW YORK—Investors wasted no time in sending the dollar to new three-year lows after the Federal Reserve gave them little reason to support it.
Weak U.S. growth and unemployment data quickened the dollar’s fall. Initial employment claims jumped back above the 400,000 level in the latest week. Meanwhile, gross domestic product data showed that economic growth slowed sharply in the first quarter, led by surging food and energy costs that sent a key gauge of inflation, the personal consumption expenditures (PCE) price index, soaring to its highest level in nearly three years.
Late Thursday, the euro was at $1.4821 from $1.4794 late Wednesday. The dollar traded at ¥81.54 from ¥82.04, while the euro was at ¥120.85 from ¥121.37. The U.K. pound bought $1.6640 from $1.6636. The dollar fetched 0.8733 Swiss franc from 0.8738 franc, plunging to a new record low.
The ICE Dollar Index, which tracks the U.S. dollar against a trade-weighted basket of currencies, was at 73.12 from 73.519, its lowest level since July 2008.
The Australian dollar, helped by rising interest-rate expectations and surging oil, rose to a new 29-year high at $1.0920 from $1.0872 late Wednesday.
The Federal Open Market Committee’s decision Wednesday to maintain its bias toward cheap credit loomed larger than ever for the beleaguered U.S. currency. At a time when traders are nervous about global inflation and rewarding the currencies of countries that raise interest rates, the dollar has lacked any yield advantage.
In a much-anticipated news conference, Fed Chairman Ben Bernanke tracked the FOMC statement and did little to deter dollar bears, who have profited from anti-dollar bets for months and appear willing to continue the rout.
“The FOMC statement, forecast changes and press conference all added up to a continuation of the dual-mandate mantra” of maximizing employment and maintaining stable prices, said Ken Dickson, investment director of currency at U.K.-based Standard Life Investments, which manages $250 billion in assets.
“Under this approach, easier monetary conditions will continue near term and the current weaker dollar trend looks likely to extend further,” Mr. Dickson added, given the landscape of weak employment and sluggish growth.
The immediate beneficiaries of the Fed’s easy money predilection have been the surging euro and pound. Both the euro zone and the U.K. are on a path toward tighter monetary policy, which has pushed both of their currencies to their highest levels against the dollar since late 2009.
The yen strengthened broadly after the Bank of Japan kept both its policy rate and size of its Asset Purchase Program (APP) unchanged. This encouraged some investors that had expected more liquidity—which would weaken the currency—to unwind some of those positions.
But more liquidity is the last thing the dollar needs. The Fed’s controversial asset purchases have helped bid up risk-related assets like stocks, but surging gold and a relentlessly strong Swiss franc indicate some investors are still nervous about global risks.
Meanwhile, the disappointing U.S. jobless and growth figures are raising eyebrows. The Fed is due to end its quantitative easing program at the end of June. While market watchers aren’t entirely sure of what will come next, weakening data may spur talk of a new round of easing, which would likely trigger a new round of dollar weakness.
Ronald S. Temple, a portfolio manager at Lazard Asset Management, said the Fed should preserve the option of easing anew to ward off more weakness in the economy. “We are moving from a secular era of adding to leverage to a secular era of deleveraging, and the Fed needs to have those tools at its disposal,” he said.
Read the entire article HERE.
By Scott Lanman
Apr 27, 2011 10:38 AM PT
Federal Reserve policy makers said the economy is recovering at a “moderate pace” and a pickup in inflation is likely to be temporary, as they agreed to finish $600 billion of bond purchases on schedule in June.
“The economic recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually,” the Federal Open Market Committee said today in its statement after a two-day meeting in Washington. “Increases in the prices of energy and other commodities have pushed up inflation in recent months,” and the Fed expects “these effects to be transitory,” the statement said.
Chairman Ben S. Bernanke has signaled he’ll maintain record stimulus until job growth accelerates and the recovery is robust enough to withstand tighter credit. The Fed chief has said he expects that a surge this year in fuel and food costs will have only a passing inflationary impact, differing with Fed regional bank presidents who say borrowing costs may need to rise to contain prices.
Stocks rose and the dollar weakened after the statement. The Dow Jones Industrial Average advanced 0.3 percent to 12,636.62 at 1:33 p.m. in New York. The dollar fell to $1.4706 per euro from $1.4644 late yesterday.
‘Prepared to Adjust’
The Fed, discussing its securities portfolio, said it “is prepared to adjust those holdings as needed to best foster maximum employment and price stability.” Bernanke will discuss the FOMC statement and the panel’s updated economic projections today at his first news conference, scheduled to begin at 2:15 p.m. in Washington.
The FOMC’s characterization of the recovery as “moderate” is similar to the description in the Fed’s Beige Book regional business survey this month and compares with the committee’s March 15 statement saying the economy is on a “firmer footing.”
“The Fed’s view of the world hasn’t changed very much,” Gary Stern, former president of the Minneapolis Fed, said in an interview with Bloomberg Radio. “They continue to emphasize the transitory nature of inflation” and “continue to talk about the economy improving at a moderate pace.”
The Fed left its benchmark interest rate in a range of zero to 0.25 percent, where it’s been since December 2008, and retained a pledge in place since March 2009 to keep it “exceptionally low” for an “extended period.” The central bank will keep reinvesting proceeds of maturing mortgage debt purchased in the first round of large-scale asset purchases that lasted from December 2008 to March 2010.
“The unemployment rate remains elevated, and measures of underlying inflation continue to be somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate” for stable prices and maximum employment, the Fed said. The “depressed” housing industry remains a weak spot in the economy, it said.
The Fed repeated that it will “pay close attention to the evolution of inflation and inflation expectations.”
Bond markets share the Fed’s assessment that inflation will be transitory. Traders expect inflation, as measured by the difference between Treasury Inflation Protected Securities and nominal bonds, to be 2.62 percent over the next two years and then moderate to 2.39 percent over the next five years.
Today’s FOMC decision was unanimous for a third consecutive meeting. Dallas Fed President Richard Fisher and Philadelphia Fed President Charles Plosser, both skeptics of the second round of so-called quantitative easing who voted for the statement today, have suggested they may favor raising interest rates later this year.
The Fed’s commitment to record stimulus contrasts with the interest-rate increase this month by the European Central Bank and tightening this year by the biggest emerging-market economies, including China, Brazil and India, which face faster inflation.
Bernanke will become the first Fed chairman to conduct a press briefing following an FOMC decision when he takes the microphone at the Fed’s headquarters. His counterparts in Europe, Japan, the U.K. and Canada already hold regular news conferences.
The press conference, to be broadcast on television and the central bank’s website, marks one of Bernanke’s biggest efforts to improve the Fed’s connections with the public and demystify the institution, which as recently as 1993 didn’t announce its monetary-policy decisions. Bernanke said in February that the central bank was weighing benefits of more transparency against the risk that his remarks would trigger unwanted fluctuations in financial markets.
The Fed will also release economic projections of governors and regional bank presidents at 2:15 p.m., three weeks sooner than prior practice.
Increases in employment and inflation are helping drive calls to tighten credit. Payrolls have increased by an average 149,000 a month for the past six months, while the unemployment rate has dropped by 1 percentage point since November to 8.8 percent, a two-year low.
Federal Reserve Bank of New York President William C. Dudley, the FOMC’s vice chairman, reiterated in a speech April 1 that a faster pace of job growth is “sorely needed” and that even with 300,000 new jobs per month, the labor market would still have “considerable slack” at the end of 2012.
Janet Yellen, vice chairman of the Fed’s Board of Governors, said April 11 that the increase in food and fuel costs will have only a temporary impact on prices and consumer spending, and warrants no reversal of monetary stimulus.
Food and beverage prices rose in the first quarter by the most since 2008, based on the Labor Department’s Consumer Price Index, while the cost of regular-unleaded gasoline has increased by 26 percent this year to $3.88 a gallon as of yesterday.
The increases helped slow U.S. growth to a 2 percent pace in the first quarter, according to the median estimate of analysts surveyed by Bloomberg News, from 3.1 percent in the prior period. The government releases preliminary figures tomorrow.
The Fed’s preferred price gauge hasn’t flashed a warning. The Commerce Department’s personal consumption expenditures price index, excluding food and energy, rose 0.9 percent in February from a year earlier. Policy makers have a long-run goal for total inflation of about 1.6 percent to 2 percent annually.
Economists say the Fed is at least a few months away from starting to reverse the stimulus. Most of the 44 economists surveyed by Bloomberg News from April 20 to April 25 said the central bank this year will probably halt its policy of replacing maturing mortgage debt with Treasuries. The majority of respondents also said the Fed will announce a plan next year of selling mortgage bonds and Treasuries among its assets.
Since the Fed announced the second round of asset purchases on Nov. 3, yields on 10-year Treasuries increased to 3.31 percent as of yesterday from 2.57 percent, while the Standard & Poor’s 500 Index gained 12 percent, yesterday reaching the highest level since June 2008. The dollar weakened by 3.5 percent to the lowest since August 2008 against an index of six currencies.
In a few months, “the data will probably compel them to begin a gradual process of tightening,” Larry Hatheway, chief economist for UBS Investment Bank in London, said in a Bloomberg Television interview before the decision.
“The Fed is still looking essentially at ex-food, ex- energy prices at core, ticking a little higher,” though not enough to raise interest rates now, Hatheway said.
Bernanke is still seeing objections from politicians within the U.S. and abroad almost six months after the Fed began the unprecedented second round of asset purchases to criticism from Republican politicians and government officials in Germany, China and Brazil.
Senator Mark Kirk, a first-term Republican from Illinois, sent Bernanke a letter on April 25 expressing concern about inflation. He called for an early end to asset purchases should Bernanke “also find the trends that I have now heard widely about.”
Russian Prime Minister Vladimir Putin said last week that compared with the U.S., his country doesn’t have the “same opportunity to make trouble.” The U.S. is “financing the government by using a printing press,” he said.
Some U.S. companies are benefiting from global growth. Atlanta-based United Parcel Service Inc., the world’s largest package-delivery company, yesterday raised its full-year profit forecast after increased international shipping demand pushed first-quarter earnings higher than analysts estimated.
Firms are also coping with inflation. Beaverton, Oregon- based Nike Inc., the world’s biggest sporting goods company, said last month it would raise prices. The increases will come on a “wide range of footwear and apparel styles to help mitigate the overall impact of higher input costs,” and the company will carry out “more significant price increases” in 2012, Chief Financial Officer Don Blair said March 17.
Today marked the first time the Fed’s statement was released at about 12:30 p.m. after more than a decade of aiming for 2:15 p.m. The central bank said last month it will provide the statement at 12:30 p.m. during the four two-day meetings when Bernanke has his press conferences and 2:15 p.m. for the other four one-day FOMC meetings.
Read the entire article HERE.
April 27, 2011
Board of Governors of the Federal Reserve System
For immediate release
Information received since the Federal Open Market Committee met in March indicates that the economic recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually. Household spending and business investment in equipment and software continue to expand. However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed. Commodity prices have risen significantly since last summer, and concerns about global supplies of crude oil have contributed to a further increase in oil prices since the Committee met in March. Inflation has picked up in recent months, but longer-term inflation expectations have remained stable and measures of underlying inflation are still subdued.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The unemployment rate remains elevated, and measures of underlying inflation continue to be somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Increases in the prices of energy and other commodities have pushed up inflation in recent months. The Committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations. The Committee continues to anticipate a gradual return to higher levels of resource utilization in a context of price stability.
To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and will complete purchases of $600 billion of longer-term Treasury securities by the end of the current quarter. The Committee will regularly review the size and composition of its securities holdings in light of incoming information and is prepared to adjust those holdings as needed to best foster maximum employment and price stability.
The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.
The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen.
For release at 2:15 p.m. EDT
The Federal Reserve Board and the Federal Open Market Committee on Wednesday released the attached table summarizing the economic projections made by Federal Reserve Board members and Federal Reserve Bank presidents for the April 26-27 meeting of the Committee.
The table will be incorporated into a summary of economic projections released on May 18 with the minutes of the April 26-27 meeting. Summaries of economic projections are released on an approximately quarterly schedule.
Collapse, directed by Chris Smith, is an American documentary film exploring the theories, writings and life story of controversial author Michael Ruppert. Collapse premiered at the Toronto International Film Festival in September 2009 to positive reviews.
Ruppert, a former Los Angeles police officer who describes himself as an investigative reporter and radical thinker, has authored books on the events of the September 11 attacks and of energy issues. His detractors[who?] call him a conspiracy theorist and an alarmist.
Director Smith interviewed Ruppert over the course of fourteen hours in an interrogation-like setting in an abandoned warehouse basement meat locker near downtown Los Angeles. Ruppert’s interview was shot over five days throughout March and April of 2009. The filmmakers distilled these interviews down to this 82 minute monologue with archival footage interspersed as illustration.
The title refers to Ruppert’s belief that unsustainable energy and financial policies have led to an ongoing collapse of modern industrial civilization.
The film does not overtly take a perspective on the validity of Ruppert’s positions and critics have alternatingly described the film as supportive and as critical of Ruppert’s views. Smith himself, speaking at the Toronto International Film Festival premiere, said that “What I hoped to reveal was … that his obsession with the collapse of industrial civilization has led to the collapse of his life. In the end, it is a character study about his obsession.”
THIS IS HUGE! If you are wondering where you can make a profit for your gold and silver, APMEX is actually paying YOU an overspot price so you will make a hefty profit for your metals. That is of course if you are willing to part with something that will go up in price. Expect other dealers to do the same as shortages continue.
by Tyler Durden
04/25/2011 19:22 -0400
Over the past hour Zero Hedge has been inundated with reader comments notifying us that Ampex has, validating the earlier post speculating about a possible silver shortage at the metals distributor, launched a “reverse ïnquiry” in which it will pay “you $3.00 over the current spot price of Silver for your Silver American Eagles. ANY year, ANY quantity!” and “We will pay you $38.00 over the current spot price of Gold for your Gold American Eagles. ANY year, ANY quantity!” So aside from this first public confirmation that one of the biggest wholesale retailers of precious metals is now inventoryless [sic], we can certainly see why Asia has decided to take silver down in the afterhours electronic session.
Read the original article HERE.