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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/

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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?

Dubai Loves Bernanke’s Latest Quantitative Easing

Filed under: Uncategorized — bigcapital @ 8:46 am
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Dubai Loves Bernanke’s Latest Quantitative Easing

 

 

So now we know the Fed’s plans. It will be pumping $600 billion more into the US economy through investing in  medium-term US government bonds.

 

The Gulf is licking its chops. Here’s a quote from the article below (from the Gulf News) … “The new surge in liquidity with international banks and fund managers is expected to result in increased demand for bond issues from the region. This [quantitative easing] should have most positive impact on Dubai.”

 

Sure, let US dollars flow into Dubai and lift asset prices. Let it flow into other emerging markets so the big-moneyed investors can make out. Now, remind me, how does that exactly benefit us? While the sheiks rejoice, we fall deeper into debt. From the Gulf News…

 

Quantitative easing is a way of pumping money into the economy by central banks to encourage banks to lend. The US Federal Reserve is expected to announce a new round of monetary easing later today.

 

In the context of the weak private sector credit growth in the UAE and the Gulf Cooperation Council (GCC) region analysts say the new liquidity boost from quantitative easing will increase access to international funding.

 

“While a common theme has been a continued disappointment in private sector credit growth, particularly in the UAE, Kuwait and Saudi Arabia, an important thread going forward seems to be potential increased access to external funding,” said Turker Hamzaoglu, an economist with Bank of America Merrill Lynch.

 

The new surge in liquidity with international banks and fund managers is expected to result in increased demand for bond issues from the region. “This [quantitative easing] should have most positive impact on Dubai. However, as the demand for MENA credit is not growing as fast as the global peers, the issuance supply should become a major driver of performance in the region,” said Hamzaoglu.

 

Investment bankers and fund managers say Gulf entities have nearly $100 billion (Dh367 billion) in debts maturing over the next 18 to 24 months. This is a clear window of opportunity to refinance the short maturity debts with long term funding.

 

“The fresh dose of liquidity in the market is going to breathe life into the demand side of the Gulf fixed income market. We are likely to see more issuance from the region,” said Nadi Bargouti, managing director of Shuaa Asset management.

 

Analysts say the Fed’s new round of QE is likely to support the GCC recovery, even to a much lesser extent than the rest of the emerging markets through five channels, namely a weaker dollar; lower interest rates; higher commodity prices; higher asset prices and access to cheap and abundant capital.

 

The global backdrop for the MENA markets has largely turned positive lately with the weaker dollar, falling short-term real interest rates, higher oil prices, improved risk appetite and cheaper and more abundant external funding.

 

Let me be clear: All quantitative easing does is increase our debt. Bernanke is hoping (against hope, I suspect) that somehow it will spark growth. That’s not good enough. We’re going deeper into debt over a monetary remedy which has a 2% chance of succeeding.

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