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March 10, 2011

3 Months From Now, US Fed Will Stop Buying

Filed under: Uncategorized — bigcapital @ 5:43 pm
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3 Months from now, US Fed Will Stop Buying.

Thursday, March 10, 2011 — http://marketpin.blogspot.com

== US Fed bond buys to finish, greenback and global stocks on radar ==

Fed’s Fisher warns could vote to stop bond buying

WASHINGTON (Reuters) – A senior U.S. Federal Reserve official warned on Monday that he would vote to scale back or stop the central bank’s $600 billion bond-buying program if it proves to be “demonstrably counterproductive.”

Dallas Federal Reserve Bank President Richard Fisher, who has repeatedly said he would not support any more bond buying after the program ends in June, said he was doubtful the purchases were doing much good.

“I remain doubtful enough as to its efficacy that if at any time between now and June, it should prove demonstrably counterproductive, I will vote to curtail or perhaps discontinue it,” Fisher said in remarks prepared for delivery to an Institute of International Bankers’ conference in Washington.

“The liquidity tanks are full, if not brimming over. The Fed has done its job,” he said.

The Fed launched its bond buying program in November to help an economic recovery that was struggling with high unemployment after the worst recession since the 1930s.

But since then, the economy has shown signs of strengthening with the jobless rate falling to a nearly two-year low of 8.9 percent in February.

Fed officials are due to meet March 15 to discuss the bond purchase program. In January, Fisher voted with the rest of the central bank’s policy-setting Federal Open Market Committee to continue it.

In comments to the bankers’ conference, Fisher said he did not feel that further monetary accommodation would help put more Americans back to work.

“It might well retard job creation, should it give rise to inflationary expectations,” he said, adding that perhaps the Fed’s policy has compromised the central bank by implying it is “a pliant accomplice to Congress’ and the executive branch’s fiscal misfeasance.”

== How About U.S dollar ? ==

Stretching out Treasury purchases past the end of June while reducing the monthly amount would help bond dealers adjust to the Fed’s withdrawal from the market, said Lou Crandall, chief US economist at Wrightson ICAP in Jersey City, N.J

NEW YORK – The Federal Reserve’s $US600 billion bond purchase program will be completed as planned, top Fed officials signalled, though they saw heightened economic uncertainty from unrest in the Middle East.

US central bank officials from Atlanta, Chicago and Dallas said they were keeping an eye on the risk higher oil prices could feed through into broader inflation, as well as their potential to hurt growth.

Atlanta Fed President Dennis Lockhart said he would not rule out more bond buys if the recovery dwindles. Dallas Fed President Richard Fisher said he would vote to end the program early if higher oil prices fed into broader inflation.

The program, announced in November to bolster a fragile economic recovery, is due to end in June. Since it began there have been signs the recovery is picking up steam.

Mr Lockhart, a policy centrist, said he was more concerned about the risk to growth from the oil price rise. He said he would be “very cautious” about increasing the size of the purchase program.

“Given the emergence of new risks, however, I prefer a posture of flexibility,” Mr Lockhart said.

He expected overall price pressures to remain subdued and warned it is too early to “declare a jobs recovery as firmly established”.

Mr Fisher, an inflation hawk, said he “fully expected” the $US600 billion program to “run its course.”

Mr Fisher told an international bankers’ conference he would vote to curtail or stop the program, however, if it proves to be “demonstrably counterproductive.”

The Fed meets on March 15 for its policy-setting meeting, at which it is expected to reaffirm its purchase plan. Fisher is a voter on monetary policy this year, Mr Lockhart is not.

In a CNBC interview, Chicago Fed Bank President Charles Evans said the Fed was closely watching rising oil prices, adding that they were “obviously” a headwind for growth.

Revolutions beginning in Tunisia and Egypt have spread to other countries in the region, including Libya and Bahrain. This has pushed the price of oil above $US100 a barrel, complicating the Fed’s objective of stimulating economic growth while keeping prices under control.

That said, Mr Evans pointed to the improving job market and said he expected economic growth of four per cent this year and next. He called the size of the purchase program “good”.

“I continue to think the hurdle is pretty high for altering our currently announced” program, Mr Evans, seen as a monetary policy dove and one of the most outspoken proponents for quantitative easing, said. Mr Evans does not have a vote on monetary policy this year.

Mr Fisher said the question will be whether the oil price rise is sustained.

“It is really a question of how that works its way through,” he said. “We have already seen very high gasoline prices. That’s one of the ways that it most affects the consumer.”

http://marketpin.blogspot.com

February 25, 2011

Fed’s Bullard says it’s time to debate completing QE2

Filed under: Uncategorized — bigcapital @ 7:52 am
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Fed’s Bullard says it’s time to debate completing QE2

Friday, February 25, 2011 – http://marketpin.blogspot.com/

BOWLING GREEN, Kentucky (Market News) – A senior U.S. Federal Reserve official said on Thursday he thinks it is time to consider tapering off or scaling back a $600 billion bond-buying program because of an improved economic outlook.

“The natural debate now is whether to complete the program or to taper off to a somewhat lower level of assets,” St. Louis Federal Reserve President James Bullard said at a Chamber of Commerce breakfast held at Western Kentucky University.

Bullard said that he expects the topic to be discussed at a Fed meeting in March. He said he would be ready to scale back the program then.

“If it was just me, I would make small changes to account for the fact that the outlook is better than it was at the time of the November decision,” he told reporters after his speech.

Bullard, an academic economist, is not a voting member this year of the panel that sets interest-rate policy. He is seen as a centrist on the spectrum of Fed officials, which ranges from opponents of aggressive actions to support growth to advocates of accommodative policies at the other.

The Fed launched its bond buying program in November to buttress a weak recovery, struggling with high unemployment after the worst recession since the Great Depression of the 1930s.

The purchases are due to end midyear, and the Fed at its most recent policy meeting showed no sign as a body of backing away, although several policymakers have questioned the need for or the efficacy of the program.

Minutes of the Fed’s January meeting showed a few officials wondering whether data showing a strong recovery would make it appropriate to consider reducing the pace or overall size of the program.

But other officials at the meeting said the outlook was unlikely to improve dramatically enough to justify any changes. There were no dissents from the Fed policy at that meeting.

Despite his confidence in the rebound, Bullard said that events in the Middle East and lingering worries about European government fiscal soundness plague the outlook.

“We’ve got plenty of concerns out there about supply developments in oil markets, and you’ve still got brewing issues in Europe with respect to their sovereign debt crisis,” he said. “But I am saying that looking at the outlook today, it’s better than it was in November.”

Bullard said that despite his rosier outlook, further easing could never be ruled out. markets-stocks

The bond purchases are the Fed’s second round of quantitative easing, dubbed QE2. Bullard said it has been an effective tool when interest rates are near zero.

“Real interest rates declined, market expectations rose, the dollar depreciated and equity prices rose,” he said.

The Fed cut short-term interest rates close to zero in December 2008.

Bullard said a jump in food and energy costs around the world could impact U.S. prices.

“Perhaps global inflation will drive U.S. prices higher or cause other problems,” he said.

U.S. inflation is near historic lows and Fed officials have until recently been worried that the U.S. economy could slip into an outright deflationary spiral. Bullard said he believes the disinflation trend has bottomed.

“Inflation expectations are higher, which I think was a success of QE2 and if we do too much and don’t pull back in time, then we can get more inflation than we intended,” he said.

Bullard said adopting an explicit inflation target would be a better way of conducting monetary policy.

Friday, February 25, 2011 – http://marketpin.blogspot.com/

February 23, 2011

What happens when Quantitative Easing (QE2) ends in June?

Filed under: Uncategorized — bigcapital @ 1:12 am
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What happens when Quantitative Easing (QE2) ends in June?

Wednesday, February 23, 2011 – http://marketpin.blogspot.com/

The Congress : “There is no need for us to support Quantitative Easing Part 3” confirmed by the Senate last week.

I remain surprised that in the business press there is little if any discussion about what will happen when Quantitative Easing II expires in June.

From a congressional standpoint, there has been discussion designed to force an early end to the program. Others have gone in the opposite direction mentioning a possible QE3.

In my view, the economy is slowly picking up. Deflation is less an issue, manufacturing activity is up, and consumers are spending a bit more. Corporate profits have exceeded expectations for Q4 2010.

On the downside, the housing market shows no signs of improving and might not have yet bottomed. Trouble in the middle East could disrupt oil shipments. China appears to be experiencing uncontrolled inflation and an asset bubble that is about to burst. Europe is experiencing continued sovereign debt issues. Some analysts believe that the UK is in stagflation. Commodity prices are increasing rapidly. Corporations have no pricing power. The US labor market will take years to repair. And finally, US Budget deficit is out of control!!!

This all points to a tenuous financial environment at the time of QE2 expiration. For 2011, YTD stock prices might be negative.

Any yet the business press seems quiet on this issue …

Read more: Count Down to Quantitative Easing Removal ends in June.

For 2011, YTD stock prices might be negative.

Which would be unlike the quantitative easing that the CABAL (Fed) have been subjecting our economy to… The CABAL chairman told us when he implemented QE1 and Q2, that it was for the good of the economy, to spur economic growth, job creation, and keep interest rates down… Well… That’s strike one, two and three… Go grab some bench, Mr. CABAL Chairman! And that’s all I can say about that right here, right now, as this is the kinder

Since the CABAL introduced quantitative easing in March of 2009, inflation has taken off, just as I told you back almost two years ago that it would… No, we’re not seeing wage inflation, or housing inflation… But get a load of these things that have increased phenomenally since March 2009.

The average price of gas is up 69%… The price of oil is up 135%… Corn is up 78%… Sugar is up 164%… And I could go on, but I think you get the picture. Now, on the other side of the employment that was supposed to improve with QE, the number of unemployed people is up 25%… The number of food stamps recipients is up 35%… The national debt is up 32%… And then the last thing they told us would improve or remain steady was interest rates… Hmmm… Well, the 10-year Treasury is up 100 basis points in the past three months alone! Sorry to be the one that had to tell you these things, but if you only watched cable media, you wouldn’t know about these things, and when the Conference Board called to survey you about how confident you were about the economy, you would be singing the praises of the CABAL for all they had done for you!

Inflation Building, Fed Should Back Off: LaVorgna

Filed under: Uncategorized — bigcapital @ 12:22 am
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Inflation Building, Fed Should Back Off: LaVorgna

As government economists and Fed apologists continue to dismiss inflation pressures, the fear that easy money and commodity pressures are about to come home to roost is building.

While Michael Pento at Euro Pacific Capital and a handful of others have been pounding the table about inflation ever since the Federal Reserve began quantitative easing, the sentiment is beginning to spread.

The latest on board is Joe LaVorgna, chief US economist at Deutsche Bank, who warns in a note sent to clients Friday that “inflation pressures are inflating.”

The threat is two-pronged: On one hand this week’s producer and consumer price numbers show pressures are building in the crude, or initial, price pipeline that will spread to intermediate and finished products in the months ahead.

On the other hand is “energy inflation contagion,” in which surging prices in that space “have shown a significant capacity to breed inflation contagion among related categories and have destabilized inflation expectations.”

Taking both threats into consideration, LaVorgna posits that the Fed should reconsider completing the entire $600 billion of Treasury buys it has planned for the second leg of QE.

Unless the brakes are put on, LaVorgna argues that core finished PPI prices will increase at an annualized 4 percent rate, and he concedes that if his calculations are wrong they are on the low side.

Finally, he warns against the pervasive mindset that commodity price increases will not cause so-called “pass-through” costs into the broader economy. The rise in CPI and PPI comes as manufacturing activity and capacity are rising, as opposed to the last bout of commodity-induced inflation when the economy was shrinking.

An excerpt from the LaVorgna note:

“We believe the rise in commodity prices is significant, because it is occurring alongside robust factory activity and a general strengthening in underlying domestic demand—a crucial difference from the 2008 run-up in commodities, when the factory sector was shrinking and demand was slowing. Therefore, monetary policymakers should be cognizant of the pipeline pressure brewing in the PPI.

“The risk is that an overstay of aggressively accommodative monetary policy could lead to even larger gains in retail goods prices down the road—the Catch 22 of Fed folks worried that higher commodities will crimp demand. Rather it is ample demand that is pushing commodities higher. Consequently, as long as monetary policy remains extraordinarily accommodative, thereby further boosting demand, we expect these trends to persist if not become more durable.”

.

February 14, 2011

U.K Inflation fears lead investors to bet on rate rises

Filed under: Uncategorized — bigcapital @ 8:36 am
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U.K Inflation fears lead investors to bet on rate rises

http://marketpin.blogspot.com/

Published: February 13 2011 18:54 | Last updated: February 13 2011 18:54 – The Financial Times

LONDON – Hundreds of billions of dollars have exchanged hands this year in bets on when the next interest rate rises will be in the UK and eurozone, as volumes have surged in these markets because of the growing threat of inflation.

Financial markets are betting that the UK will be the first to raise rates in June, followed by the European Central Bank in September and finally the US Federal Reserve in December.

Rising food and commodity prices have prompted markets to bring forward expectations of rate rises, sparking the jump in volumes as inflation has become one of the biggest concerns for businesses, consumers and investors.

The increasing focus on inflation has also triggered a debate over the accuracy of these predictions, with opinions divided over how much faith investors should place in them.

Don Smith, economist at Icap, said: “The market forecasts are as good a guide as you will get. They are in a sense multibillion-dollar predictions because of the vast amount of money behind the trades that set them.”

Some strategists also argue that rate forecasts can be self-fulfilling, as central banks do not like to surprise markets.

However, John Wraith, fixed-income strategist at BofA Merrill Lynch, said: “Market rate expectations are useful indicators, but they only tell you the consensus market view at any given point in time. Circumstances change and so do they.”

Mr Wraith thinks rates in the UK, for example, may be delayed beyond June, as policymakers are more concerned about weak growth in spite of rising inflation, which at 3.7 per cent is nearly double the Bank of England’s inflation target. There is also a view that rises in fixed-interest mortgage rates and some company loan costs are in effect tightening monetary policy for the Bank of England, which means that rates may not have to be increased as early as the market expects.

However, most strategists say the markets are more accurate today than they were in the past, as the contracts – known as overnight index swaps in the UK and eurozone and Fed funds futures in the US – used to make the predictions are more widely traded with hundreds of banks and investment funds making bets.

Brokers say rough estimates show daily turnover has risen to about $200bn in Fed funds futures and to about $20bn in each of the UK and eurozone overnight index swap markets

January 8, 2011

Surprise jobs surge boosts U.S economic outlook 2011

Filed under: Uncategorized — bigcapital @ 2:17 am
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Surprise jobs surge boosts U.S economic outlook 2011

(Reuters) – A surprise surge in private-sector employment last month to its highest level on record provided the most bullish signal in months that the U.S. economy is on the mend.

Private employers added 297,000 jobs in December, triple the median estimate by economists and up from the gain of 92,000 in November, an ADP Employer Services report, whose data goes back to 2000, showed on Wednesday.

The report undercut the prices of the U.S. Treasury securities, and helped the U.S. dollar gain against the yen and the euro. U.S. stocks opened lower though they did pare losses after the jobs news.

“Sometimes numbers come as bolts from the blue; this is one of them,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

“Nothing in any other indicators of the state of the labor market last month — jobless claims, help wanted, surveys — suggested anything like this was remotely likely.”

ISM’s index on the services sector also came in better than analysts expected, though the index’s employment component was a touch weak. Read about ISM services index.

“The data today still leaves an impression that a U.S. upside growth surprise in 2011 needs fresh assessment,” said Alan Ruskin, global head of G10 FX strategy at Deutsche Bank.

Macroeconomic Advisers Chairman Joel Prakken noted seasonal factors may have boosted the December numbers but said growth in employment was “comfortably into positive territory and seems to be accelerating.”

http://marketpin.blogspot.com/

December 31, 2010

Rogers: Europe is Doomed…but I’m Still Long The Euro (and Breakfast)

Filed under: Uncategorized — bigcapital @ 9:30 am
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Rogers: Europe is Doomed…but I’m Still Long The Euro (and Breakfast)

Via CNBC Television – December 2010

 

http://plus.cnbc.com/rssvideosearch/action/player/id/1687065072/code/cnbcplayershare

I’ve never brought a guest such an elaborate breakfast- but when legendary investor Jim Rogers wants to come on my show- I go all out. Truth be told, it wasn’t entirely Suzy Anchorwoman of me—it was secretly a good jumping off point for his favorite topic these days- inflation.

“Have you tried to buy any cotton recently? Have you tried to buy any sugar recently?” he said pointing down to the spread in front of him.

Co-hosting with me this morning on “Worldwide Exchange” over a breakfast of Diet Coke, candy and bagels, CEO of Rogers Holdings Jim Rogers was as usual all about commodities as an inflation hedge: the sugar he adores along with gold and silver

“Prices are going up. I don’t know who these guys are who say prices are not going up. I look in the real world, and I see what’s happening. And everybody watching this show knows that prices are going up.”

Knowing Rogers’ vehement opposition to printing money (he said in a recent interview that Fed chairman Bernanke is “a disaster” and that “all he understands is printing money”), I asked him about the rumors that there would be more money printing in QE3 and QE4.

“I know there’s talk of it. It’s dumbfounding,” he said. “It’s stupefying to me that we have a Central Bank in the United States that thinks all they have to do is print money. That has never worked, anywhere in the world in the long term or the medium term.

He added that US central bankers see printing money as an easy solution, “Because that’s all they know.”

On the other hand, he said that the Central Bank’s current policy of printing money is “not good for the world, but at least they’re not raising taxes.”

So he’s staying far away from debt, saying it’s all overpriced and sticking his beloved commodities along with currencies.

“I own the Euro, I’m long the Euro, and I’m staying with it,” he said even though he knows Europe is doomed.

“You need to let Ireland go bankrupt,” he told me. “They are bankrupt. Why should innocent Germans, or innocent Poles, or innocent anybody pay for mistakes made by Irish politicians and Irish banks? That is unbelievably bad morality and it’s bad economics as well.”

“Let the bank’s shareholders lose money. Let the bank bondholders lose money. Let Ireland reorganize and start over. That’s the only thing that’s going to work. Propping people up and carrying lots of zombie banks and zombie companies is not going to work.”

“Greece is insolvent, Portugal has a liquidity problem, Spain has a liquidity problem, Belgium has been faking the books for a long time, Italy’s been faking the books for a long time. The UK is totally insolvent,” he said.

EUR/CHF hits another fresh all-time low after having earlier dropped to a series of all-time lows. Pair dips as low as 1.2678 from 1.2785 late Friday, according to EBS via CQG. Investors pressuring EUR over continued worries over the region’s sovereign debt. SNB not likely to step in to stem CHF strength, says Landesbank Baden-Wurttemberg’s Martin Guth, noting he would expect the Swiss central bank to stay on the sidelines at least until the pair drops to 1.25. “So far, especially [in] last month’s interest rate decision, in my opinion they didn’t give any hints that they are about to intervene,” he says.

UBS, Switzerland’s largest bank, is one of the biggest financial institutions in the world said : “No Sharp Decline In Global Risk Appetite”; – The Eurozone sovereign debt crisis remains contained, and has not yet leaked out to affect emerging market currencies and risk appetite more broadly, said UBS, judging on the basis of its own flow data from lat week. “There was no sign of the broad-based and indiscriminate selling that would be associated with a sharp decline in global risk appetite,” it said in a note to clients.

November 19, 2010

Bernanke Fires Back At Criticism About Fed Easy Money Policies

Filed under: Uncategorized — bigcapital @ 1:01 pm
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Bernanke Fires Back At Criticism About Fed Easy Money Policies

WASHINGTON (Dow Jones)–Federal Reserve Chairman Ben Bernanke fired back at criticism from home and abroad that his easy money policies are designed to cheapen the U.S. dollar, arguing China and other emerging economies are causing problems for themselves and the rest of the world by preventing their currencies from strengthening as their economies grow.

By keeping their currencies artificially low, Bernanke argued in remarks prepared for delivery in Frankfurt Friday, China and some other emerging markets are allowing their economies to overheat and are producing what he called “a two-speed…recovery” that isn’t sustainable. Their “strategy of currency undervaluation,” he warned, had “important drawbacks” for them and the world economy.

Bernanke has come under attack for deciding to buy $600 billion in U.S. Treasury bonds in an effort to drive down long-term interest rates. Critics in the U.S say it could cause inflation. Those abroad say the flood of dollars that the Fed is effectively printing to finance the purchases is causing investors to pour money into overseas economies and could cause asset bubbles. Some have accused the Fed of trying to weaken the dollar to spur U.S. exports.

Bernanke countered that argument, saying the Fed’s policies are aimed at strengthening the U.S. economy, which in turn should benefit the U.S. dollar.

The Fed chief underlined that the U.S. dollar’s status as a safe haven during times of financial market turmoil, such as Europe’s debt crisis earlier this year, stems from the underlying strength and stability the U.S. economy has shown over the years. The fact that when global investors get nervous, they prefer the U.S. dollar to any other currency is a good thing which the U.S. wants to maintain, Bernanke signaled.

“Fully aware of the important role that the dollar plays in the international monetary and financial system, the (Fed) believes that the best way to continue to deliver the strong economic fundamentals that underpin the value of the dollar, as well as to support the global recovery, is through policies that lead to a resumption of robust growth in a context of price stability in the United States.”

Bernanke effectively acknowledged the U.S. currency does need to weaken against currencies in emerging markets because their economies are growing so much faster than economies in the developed world.

“The exchange rate adjustment is incomplete, in part, because the authorities in some emerging market economies have intervened in foreign exchange markets to prevent or slow the appreciation of their currencies,” the former Princeton professor said.

Though scholarly in tone, the Fed chairman’s message was unusually blunt in laying blame for inflationary pressures in emerging markets and tensions over currencies on countries like China.

“Why have officials in many emerging markets leaned against appreciation of their currencies toward levels more consistent with market fundamentals?” he asked. Mainly because they believe that will spur exports and boost growth, he said, but that strategy is threatening global growth.

Central banks in many countries intervene in currency markets to manage exchange rates. As dollars flood into their economies from exports, the central banks hold on to the dollars and use them to purchase assets like U.S. Treasury bonds rather than converting them into back into their domestic currencies, which would make those currencies rise in value. Bernanke noted that by selling so much yuan in exchange for dollars to keep the yuan low, China has accumulated a massive $2.6 trillion stock of U.S. dollars assets.

Countries like China that keep their currencies undervalued could face important costs at home, including a reduced ability to use monetary policies to stabilize their economies and the risks associated with excessive or volatile capital inflows. Some economists fear inflation could take off in China’s over-heating economy, or a property bubble may be developing.

Bernanke also tried to respond to domestic critics of the Fed’s recent move, laying out a case that unemployment could keep rising without action by the central bank and that inflation was too low and could fall further.

Though critics say inflation could soar because of the Fed’s actions, Bernanke said he was committed to keeping inflation at around 2%. It is now around 1%, by the Fed’s preferred measures, which strip out food and energy prices.

“On its current economic trajectory the United States runs the risk of seeing millions of workers unemployed or underemployed for years,” Bernanke warned. “As a society, we should find that outcome unacceptable.”

Bernanke got one voice of support from an important internal skeptic Thursday. Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, said in comments in Chicago, that he supported the Fed’s easing program. He had expressed some skepticism about its need and effectiveness in the past, but described the program Thursday as “a move in the right direct” though he added he didn’t think it was a cure-all for the U.S. economy, a point that Bernanke echoed in his Frankfurt comments.

(END) Newswires

November 18, 2010 21:00 ET (02:00 GMT)

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November 12, 2010

Is the Price of Gold Heading for $2,300 an Ounce?

Filed under: Uncategorized — bigcapital @ 8:53 am
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Is the Price of Gold Heading for $2,300 an Ounce?

 

Debate over the Fed’s recent QE2 maneuver has been generating some interesting volatility on commodity prices, particularly Gold. We’ve seen the US dollar gaining strength as investors anticipate the possibility of renewed inflationary growth in the US, but occasionally there is similar counter-pressure from investors working to price in the devaluation which must naturally accompany a money-printing policy such as QE2.

 

Commodity prices appear to be rising despite a strengthening USD, but there have been a few minor blips in downward movement amid growing concerns as to the effect of QE2. Moreover, the sudden weakness of the EUR in recent days, due to debt concerns in Europe’s periphery, has also added to these fluctuations in both the USD and commodity prices.

 

Previous articles have harped on the notion of a rising price of Gold, and nothing really seems to be able to change that analysis. We’ve seen Gold reach a nominal record high of $1,420 an ounce, even though its true record, after adjusting for inflation, was reached about 30 years ago.

 

What is interesting in this observation is the price reached at that time, in today’s dollars. When Gold took off in the 1980s, its value in today’s dollars was around $2,300 an ounce. If today’s price of Gold is heading in a similar direction, then right now may be the best time imaginable to open a Gold Trading Account and start making profits. What are you waiting for?

Fed to buy $105B worth of bonds in first phase

Filed under: Uncategorized — bigcapital @ 8:52 am
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Fed to buy $105B worth of bonds in first phase

The euro was little changed against other major currencies. At present, the euro is worth 1.3771 against US Dollar

WASHINGTON (AP) -Thursday, November 11, 2010- The Federal Reserve will buy a total of $105 billion worth of government bonds starting later this week as it launches a new program to invigorate the economy.

The bonds will be purchased through a series of 18 operations that start on Friday and end on Dec. 9, the Federal Reserve Bank of New York said Wednesday. The purchases are the first since the Fed announced last week that it will buy a total of $600 billion worth of Treasury bonds over the next eight months.

The Fed will buy $75 billion of government debt as part of the new program. And, it will buy another $30 billion, using the proceeds from its vast mortgage portfolio.

That totals $105 billion for the first phase of the Fed’s government bond buying. The Fed last week said it anticipates buying on average $110 billion a month.

The Fed’s announcement on Wednesday helped boost stocks and bond prices.

— The Dow Jones industrial average closed up 10.29 points to 11,357.04.

The euro was last at $1.3771 , little changed from late Wednesday in New York

— Treasurys moved higher after the auction of $16 billion in 30-year bonds and after the Fed laid out its bond-buying schedule.

In late afternoon trading, the 10-year note was up 37.5 cents on the day. The slight gain lowered the yield to 2.65 percent from 2.66 percent late Tuesday as bond prices and yields move in opposite directions. The yield on the 2-year note inched lower, from 0.45 percent to 0.43 percent. The 30-year bond traded at 4.25 percent, compared with 4.24 percent late Tuesday.

Through the bond purchases, the Fed intends to push rates even lower on mortgages, corporate debt and other loans. Mortgage rates have sunk to their lowest levels in decades just in anticipation of the Fed’s action.

The goal: Cheaper borrowing costs will lure Americans to boost spending. Lower corporate bond rates will spur business investment. Higher stock prices will boost households’ wealth, which was clobbered by the recession. Fed Chairman Ben Bernanke said such a chain of events would produce a “virtuous cycle, which will further support economic expansion.” Faster economic growth in turn would prompt companies to boost hiring.

However, some Fed officials and economists don’t think the program will do much to rev up the economy and lower unemployment, which has been stuck at 9.6 percent.

And, there’s fears inside and outside the Fed that the program could lead to new problems: runaway inflation and inflated prices for commodities, bonds or stocks, creating new speculative bubbles. Gold prices have jumped. Some investors see the precious metal as a hedge against inflation.

The Fed’s program also has struck a nerve overseas. China and other countries have complained that the Fed’s bond-buying program could hurt them. Because the Fed’s program could weaken the U.S. dollar further, that makes other countries’ currencies more expensive, cutting into their exports, and fueling inflation.

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