Bernanke said that to remedy the unemployment problem he will continue the Fed’s program of asset purchases. Specifically, the Fed will continue to buy and hold mortgage-backed securities (yes, they are still sloshing around the banking system) and US Treasury securities – $40 billion-plus per month. Plus, he will keep the federal funds rates at near zero.

The great change, he said, is the intense focus on the policy objective of unemployment. The committee sees no inflation threat, so it might as well turn its attention to the labor markets. The Fed loves the unemployed, you see, and wants to help them.

But here’s the disconnect. What the devil does buying bad debt from zombie banks have to do with getting people jobs? The relationship between assets purchases and policy goals is murky at best.

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I have rarely seen a stock market so beautifully poised for disappointment. Pavlov’s dogs are salivating at the thought of more free money spewing out of the Fed tonight. If the Fed disappoints you are going to wake up to a US market down 2–3% tomorrow morning.

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Forget about lost decades. Forecasts that we’ll be turning Japanese couldn’t be further from the truth.

Here’s why.

It’s simple, really. Deflation is not in the interest of anybody in power, so it’s very unlikely to happen.

The U.S. Federal Reserve’s policy move to target inflation just re-emphasises this point.

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Are You Prepared to Make This Sure Bet?

Making predictions is a tricky business.

The probability of picking six correct numbers in a 49-ball lottery is one in 10 billion.

In a two-horse race you’ve got a one-in-two chance. But there’s still no guarantee you’ll back the winning nag… even favourites get beaten sometimes.

As a stock picker, we know that all too well.

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Yesterday we discussed the prospect of the US dollar no longer benefiting from ‘safe-haven’ inflows in times of turmoil. Soon after we read that 78-year-old US hedge fund manager Julian Robertson, who runs the Tiger Funds, wasn’t too impressed with the greenback either.

‘It’s not my refuge’, he said.

Robertson was in Sydney yesterday trying to get a slice of the superannuation market for his Tiger Management Group. He told the audience that authorities were obsessed with not wanting to do anything about the US debt burden.

There’s a bull market in opinions at the moment. But not all opinions have the weight of money behind them like Robertson, a veteran of the hedge fund industry. Continue Reading

Economic figures released in the States overnight show the recovery could be picking up steam. The Institute of Supply Management (ISM) manufacturing index rose to 60.8% in January from 58.5% in December. If the ISM figure is above 50% it means manufacturing is expanding. A 60.8% figure is a strong number.

Equity markets reacted with a cheer and the S+P 500 closed above 1300 for the first time since August 2008. The rally that started in late August 2010 – after Bernanke’s speech – appears to be in full swing. Equity funds in the US have seen inflows exceeding $2 Billion for two weeks in a row. It’s the first time since June 2009. Meanwhile Bond funds are seeing outflows after two years of record inflows over 2009 and 2010.
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Recently, the US Federal Reserve downgraded its forecast for 2011 and 2012.

Initially many – economists and other people that consider themselves ‘in the know’ – suspected growth would be anywhere between 3.5 – 4.2% for 2011. However, it turns out the Fed now believes growth will be between 3% – 3.6% for 2011.

This is a massive downgrade. Continue Reading

We coughed and spluttered this morning, as we read the headline, “Stop the bailouts, says Federal Reserve chairman Ben Bernanke”

Hang on a minute, wasn’t Mr. Bernanke one of the chief architects of the bailouts? Alongside then Treasury Secretary Hank “Hank” Paulson, and then New York Fed chief Tim “Timothy” Geithner.

Of course, before we slam Mr. Bernanke as being a hypocrite, we knew what his full explanation would be even before reading the full text of his speech to the Independent Community Bankers of America Convention in Florida.

The gist of it is, ‘we can’t let banks get as big as they were, so that they don’t have to be bailed out again.’

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THE PRICE OF GOLD sank through $1200 an ounce for the first time in 3 days on Friday, falling fast to $1190 and below on news that US unemployment rose by just 11,000 last month.

Wall Street analysts had expected 111,000 job losses for November. The unemployment rate ticked down to 10.0%.

“We are bullish while [gold] achieves fresh highs, but cautious of any quick reversal,” said the latest technical analysis from Scotia Mocatta this morning, suggesting a trailing stop loss “below 1183 for short-term traders.”

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If the price of something has risen by 45.06% in the space of a year, does that mean it is a price bubble?

Not necessarily, but it’s a question worth asking.

Take a look at the chart for gold priced in US dollars below:

Even in the last two months the price has burst through the USD$1,000 level and is now trading comfortably at USD$1,164.

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Well it appears we have finally entered a correction in the market.

As is so often the case in these situations, one months’ work is erased in a matter of days. And buyers of the past month are left scratching their head and licking their wounds.

As I mentioned to Daily Reckoning readers on the 21st of October:

“The risk of entering the markets at this time is very high. Any longs should have tight stops, but any shorts need to wait until short term momentum indicators have shifted into negative territory which they haven’t as I have stated in the past. Could be a good idea to take a bit of money off the table if you are sitting on good profits from the past few months. When the music stops you will only get a chance to sell with everyone else and it will be at much lower levels in the blink of an eye.”

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You can come out of the shelters now.

Uncle Ben Bernanke has sounded the all clear.

“The recession is very likely over,” he said.

What a trusting lot we are.

The market listened in awe when he said there was no bubble in the US housing market. And they trusted the instincts of the “student of the Great Depression” when he presented his ingenious proposals to prevent the next depression.

Only great minds like Uncle Ben and George W. Bush could have formulated a plan that involved giving billions of dollars to Wall Street firms while simultaneously allowing millions of people to be thrown out of their homes.

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Buying gold appeals most when everything else fails to hold value…

SO YOU GET BACK after Labor Day as summer ends, and what do you find…?

Deposit accounts are still paying zero, the stock-market’s trading way above its average price-earnings ratio, housing could have another 15% to fall before finding rock bottom, and central bankers would be drowning in ink if they didn’t use photons to create money instead.

Little wonder a small but growing number of private investors want out.

“With this current crisis, and all the money that’s being printed, gold looks a sensible thing, more stable than currencies,” said one BullionVault user in a call on Tuesday. It’s a hedge against holding cash…”

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THE SPOT PRICE of physical gold slipped out of a tight range at the start of New York trade Tuesday morning, holding onto half of yesterday’s 1.4% rise as world stock markets reversed early gains and the US Dollar clawed back half of its near-2% loss to the Euro.

Returning from the long Easter weekend in Europe, London’s wholesale market recorded its best gold fix in almost two weeks at $895 an ounce.

But for French, German and Italian investors now ready to buy gold, the price was held back by Monday’s sharp rise in the Euro, trading flat at €670 an ounce – a 16% discount to Feb.’s all-time record high.

“In the first quarter of 2009, the Euro fell more than 5% against the Dollar,” notes Marc Chandler of Brown Brother Harriman & Co., writing at Seeking Alpha and challenging the New York Times’ weekend report that China has sharply curtailed its US-Dollar purchases.

“That alone would account for a decline of about $32.17 billion in reserves. China reported a $32.6 billion decline.”

Indeed, “If China’s Euros, Pounds, Yen and other non-Dollar reserves were managed as a separate portfolio,” agrees Brad Setser in his blog for the Council on Foreign Relations, “China’s non-Dollar portfolio would be bigger than the total reserves of all countries other than Japan.”

Even so, “the pace of growth in China’s reserves clearly has slowed. Quite dramatically,” says Setser.

Previously swelling by the equivalent of $200bn every 3 months, says Setser, China’s foreign currency reserves are now growing at barely one-fourth that pace as the world economy shrinks and exports retreat.

US retail sales today surprised analysts with a 1.1% drop for March, rather than the 0.3% growth expected.

Factory input prices, in contrast, rose on the Producer Price Index, gaining 3.8% annually when food and fuel are ignored – the Federal Reserve’s preferred measure.

“Recently we have seen tentative signs that the sharp decline in economic activity may be slowing,” said prepared notes for a speech by Fed chairman Ben Bernanke in Atlanta today.

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