Wednesday, July 13, 2011

Higher markets on mention of a new stimulus

Stocks liked to hear talks about a QE3 from the Federal Reserve, ending a 3 day slide. Dow rose 152, advancers ahead of decliners almost 5-1- & NAZ gained 40. Banks stocks were higher, but the Financial Index had a more tepid rise on worries about additional gov borrowing.

S&P 500 Financials Sector Index

Value	203.25
Change	1.60 (0.8%)

The MLP index rebounded 1+ & the REIT index was up a fraction to the 248s (close to the yearly highs). Junk bond funds were little changed & Treasuries slipped. The yield on the 10 year Treasury bond rose 2 basis points. Oil dropped after an industry report showed that U.S. supplies rose for the first time in 6 weeks as refineries cut operating rates, curbing demand.

JPMorgan Chase Capital XVI (AMJ)

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Treasury yields:

U.S. 3-month	0.025%
U.S. 2-year	0.363%
U.S. 10-year	2.927%

CLQ11.NYM

...Crude Oil Aug 11

...97.04

...

0.39

(0.4%)

GCN11.CMX

...Gold Jul 11

.......1,570.80

...

8.90

(0.6%)

Photo: Bloomberg

Ben Bernanke told Congress that a new stimulus program is in the works that will entail additional asset purchases. Bernanke said that the economy is growing more slowly than expected, & should that continue the central bank is ready with more accommodative measures. "Once the temporary shocks that have been holding down economic activity pass, we expect to again see the effects of policy accommodation reflected in stronger economic activity and job creation," he said. "However, given the range of uncertainties about the strength of the recovery and prospects for inflation over the medium term, the Federal Reserve remains prepared to respond should economic developments indicate that an adjustment in the stance of monetary policy would be appropriate." Can you spell, "Uh-oh"?

Fed Prepared With Stimulus If Needed: Bernanke

Gold Advances to a Record, Debt, Growth Concerns Spur Demand

Photo: Bloomberg

Gold climbed to a record as concerns about debt crisis in Europe spurred demand for the metal as a protection of wealth. The thought of a QE3 will bring even higher prices for gold.

China Economy Grows 9.5%, Exceeding Economists’ Estimates

Photo: Bloomberg

China’s economy & industrial output expanded more than predicted, as China maintains momentum after monetary tightening to cool inflation. GDP rose 9.5% in Q2 from a year earlier, following a a 9.7% gain in Q1. Industrial output advanced 15.1% in Jun, the most since May 2010, even after the central bank boosted lending rates 5 times since Oct & lifted bank reserve requirements to a record. Premier Wen Jiabao said yesterday that stabilizing prices remains the top priority, after food costs soared in Jun. “This data should dispel concerns over a hard landing in China,” said Wendy Liu. The Shanghai Index rose 1.3%, reducing the YTD decline to 0.5%, driven by concern that monetary tightening will choke off growth.

China’s Economy Grows 9.5%, Besting Estimates

Irish 10-year bonds slumped for a 6th day, sending yields to another record, after Ireland became the 3rd country in Europe to have its credit rating cut below investment grade. While European debts are gloomier, the inability of the US to raise the debt limit is going from bad to worse. There is a lot of talk slopped around by politicos who don't have a clue about numbers on what a default could lead to. Basically, the gov is a business that takes in less than it spends every month (that's why there is a whopper size deficit). The monthly shortfall is at least $100B. If the gov can not borrow more money in Aug, the president will decide how to ration the limited funds. Everybody else will have to wait as was the case in Cal recently. Life will go on (as it did in Cal), but financial markets will get very ugly. Any QE3 will aggravate the budget deficit, making a dreadful situation worse. But today's markets are ignoring these worries. For the time being, gold remains the best looking investment.