Quantitative Easing Program Confirmed by Federal Reserve Friday, Oct 22 2010 

Not content on waiting to reveal to the markets after the conclusion of the November 3rd Federal Reserve meeting, the St. Louis Fed just published an article in the latest Monetary Trends entitled Is More QE in Sight?

A short summary of the article extols the virtues of the first Quantitative Easing program which, according to two recent studies, lowered yields on 10 year Treasuries by approximately 100 basis points.

The article focuses on two successes, the decrease in long-term interest rates and an increase in aggregate spending. The first is that by purchasing securities from the public the interest rate risk is lowered and market rates fall by the size of the risk premium. The purchases are and have been funded by the creation of new deposits rather than the sale of short-term assets.

The second success is less clear in that the Federal Reserve realizes that business spending has been slow due to uncertainty surrounding the economic climate, not high interest rates and that businesses have not been constrained from borrowing and credit is available.

It appears from the one page article that the Federal Reserve’s new QE2 program will be what the market expected in that the Fed will print money and using said money to buy long-term securities.

How successful the program will be is up for debate since the biggest hurdle surrounding the QE2 program is the uncertainty in the residential and business climate.

In a recent poll consumers were asked what they would do with a 10% raise and the top answer was to save or pay down debt, the opposite of what the Federal Reserve desires or needs to happen. The more people choose saving and debt reduction over consumption the more likely we are to continue in the current environment.

Gold Bullion – On the verge of a major breakout? Wednesday, Sep 8 2010 

Historically, the argument against Gold was that it provided no yield to investors. Stocks, bonds, and cash all provide some sort of yield so Gold as an investment has no merit.

But that view appears to be changing, with volatility in the equity markets, bonds now providing little or no yield (witness the US treasury yield curve and IBM’s latest offering), and money markets and cd’s providing scant yields Gold is looking much more attractive as a place to park cash.

Seasonally, the fourth and first quarters of a year are the most bullish for Gold.

In countries such as China and India which are experiencing strong economic growth Gold is looked at as a store of value. In both countries imports of Gold are rising as citizens view Gold as lucky and a store of value.

Recent news out of Europe indicates market participants are increasingly worried about the stress tests performed on European banks as they are increasingly being viewed as not that stressful at all.

In the US the economy appears to be slowing into a 1-2% growth range, with a budget deficit of over a trillion dollars, new spending proposals, and the Federal Reserve instituting a Zero Interest Rate Policy (ZIRP).

So while we look over the world we see two major areas with slow growth, Europe and the US, and investors rushing to Gold as a safe haven to protect against problems in the banking sector and at the sovereign level.

In Asia strong economic growth is allowing investors to diversify their wealth by purchasing and giving Gold as gifts.

While we may be near a major resistance level, Gold has provided investors with a safe haven in times of trouble. Since its rally from the 2008 lows Gold has seen rising support levels as investors buy on any dip.

Technically, the weekly charts have six straight weeks of upward price movement and may make a slight pullback at this major resistance level. Silver is also outperforming Gold as well which is often a sign that a pullback in both markets is forthcoming.

Investors would be wise to buy Gold on any dips and be ready to allocate some capital before the next leg up starts.

Next week: Gold Equities – Where is the Bull?

Disclaimer
Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This article and the author is not responsible for typographic errors or other inaccuracies in the content. This article may not be reproduced without credit or permission from the author. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided “AS IS” without any warranty of any kind. Past results are not indicative of future results.
PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile. This is not intended to be investment advice or a solicitation to purchase any of the securities listed here. I will not be held liable or responsible for any losses or damages, monetary or otherwise that result from the content of this article.

Four year Presidential Cycle and the Equities market Tuesday, Aug 31 2010 

US equities have had a difficult time since April of this year as fears over a double dip recession, a stubbornly high unemployment rate, and the possibility of slowing corporate profit growth have weighed on the markets. In addition, small investors are pouring money into bond funds sending yields crashing through the floor while equities are being labeled as risky investments.

But one of the great trading cycles is getting ready to flash a contrarian buy signal to the markets.

The four year Presidential Cycle looks for higher returns during the last two years of a Presidential term than the first years. The expectation is that as a President takes office he begins to implement his proposals and investors, hunker down waiting to see the results. During the final two years the President becomes more concerned with his re-election and will ‘prime the pump’ in order to secure re-election.

As we move through the second year of the Presidential Cycle a low is put into place which often leads to a solid rally into the third year.

I would like to bring to everyone’s attention an important article written by Bill Hester of the Hussman Funds entitled Business Cycles, Election Cycles and Potential Risks.

The chart on Election Cycle Returns shows that during year 2 of the Presidential Cycle the first quarter is up on average while the second and third are down leading to a rally in the fourth quarter which lasts into 2011.

So far in 2010 the stock market is following the chart perfect with a move up in the first quarter followed by pullbacks in the second and third quarters of the year.

We may be near a bottom in the equity markets as September is the worst month on average for equities. We are likely to see some continual downside pressure to equities during the September time frame as continued weak economic reports and concerns over third quarter profits will dominate the news flow.

The AAII Investor Sentiment Index last week reached levels which foreshadow the beginning of an upcoming rally in the equity markets.

Yields on corporate bonds and Treasury securities are at extremely low levels on an historical basis while dividend yields on high quality blue chip equities are at very attractive levels. Small investors would do well to begin preparing for the next big rally by having some cash on hand ready to allocate when the next buying opportunity approaches in the coming months.

While the news flow for equities may be negative small investors should look ahead to the light at the end of the tunnel signaling an upcoming rally, one which may catch many market watchers by surprise.

Disclaimer
Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This article and the author is not responsible for typographic errors or other inaccuracies in the content. This article may not be reproduced without credit or permission from the author. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided “AS IS” without any warranty of any kind. Past results are not indicative of future results.
PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile. This is not intended to be investment advice or a solicitation to purchase any of the securities listed here. I will not be held liable or responsible for any losses or damages, monetary or otherwise that result from the content of this article.