Personal Finance

PIMCO's Gross: QE3 is Back On If Job Reports Are Weak

Posted by Bloomberg

on Thursday, 26 April 2012 16:44

By: Bloomberg 

Bill Gross of PIMCO spoke to Bloomberg TV's Trish Regan this afternoon and said that he is doubtful of another round of quantitative easing in June, but "if we see some weak employment reports over the next two months, then QE3 is back on." He also said that there's a risk of a double-dip recession "if liquidity disappears."

Gross went on to say that "euro land is a dysfunctional family...more dysfunctional than Democrats and Republicans in Washington, DC."

Courtesy of Bloomberg Television WATCH VIDEO HERE

Gross on whether he's betting on another round of quantitative easing:

"I don't at the moment. I am willing to listen and I did listen intently at the press conference and to prior speeches from Janet Yellin and Mr. Dudley in New York. The big three at the Fed I think have moved closer to the middle in terms of the need for additional QE. They in the market are going to wait for the next eight weeks for two key employment Friday reports between now and then, as well as tomorrow's GDP number, which I think should be judged in my opinion by nominal growth as opposed to real growth. The Fed does not target nominal GDP. They target inflation though. They want lower unemployment, which requires 3% real growth. So the 2 plus the 3 equals a 5% nominal GDP growth target, which the Fed really wants to shoot for. So watch tomorrow's numbers and don't be dissuaded by the 2.5% number or the 3% real growth number. It's the nominal growth number that is key."

On whether the Federal Reserve will resist an additional round of quantitative easing:

"I think so. The Fed does want unemployment to come down. It has been coming down. As a matter of fact, it's lower than their prior projections were. There's little doubt in my mind that a target for unemployment of at least 7% and perhaps lower is what they're shooting for and that is going to require, 6, 12, 18 months, in my view. It might and probably will require, maybe not on June 30, additional quantitative easing. Quantitative easing is basically writing checks. The Fed's been writing checks, the ECB has been writing checks, the Bank of England has been writing checks, even the Bank of Japan has been writing checks. This is $2-3-4 trillion worth of check writing that has supported financial markets, but in turn has allowed for employment growth and lower unemployment. I really think that it's required. I don't welcome it from the standpoint of the negative consequences, but I think it is required."

On whether he would rule out QE3 down the road:




Stocks & Equities

Are The Markets At A Logical Bottom?


on Thursday, 26 April 2012 16:40


As we mentioned Tuesday, the reaction to Wednesday’s Fed statement is important to the market’s intermediate-term direction. However, Apple’s (AAPL) strong earnings have provided investors with a reason to step up to the buyer’s plate. From Bloomberg:

    Apple Inc. (AAPL) profit almost doubled last quarter, reflecting robust demand for the iPhone in China and purchases of a new version of the iPad, allaying the growth concerns that sliced shares 12 percent in two weeks.

Since Europe continues to be the possible “fun sponge” for the bullish party, and Germany tends to pay the uncomfortable European clean-up tabs, the German DAX Index has served as a good proxy for the tolerance for risk assets. Germany has had a strong start to trading on Wednesday. Later in this article, we review the longer-term technical backdrop for the German stock market.

Picking market tops and bottoms is difficult at best. It is better to think in terms of a probabilistic bottom or top. One way to help discern if it is probable for a market to move higher is to look at long-, intermediate-, and short-term trendlines on both an absolute and relative basis.

When reviewing the charts below ask yourself, “Does this market seem to be at a logical point where a reversal could take place?” If the answer is “yes”, then we become more open to a possible buying opportunity. A few weeks ago we identified 1,363 as a possible point of inflection for stocks. The S&P 500 has been testing 1,363 for two weeks. On April 10, the S&P 500 closed at 1,358, which thus far has represented the lowest close during the current pullback. While we want to see some real conviction from buyers, the chart below seems to have a reasonable probability of producing a reversal to the upside.




Bonds & Interest Rates

The Burgeoning Scam Market

Posted by Bill Bonner

on Thursday, 26 April 2012 10:12

By Bill Bonner

“Monetary policy cannot fulfill each and every market expectation.”

So said the head of the Bundesbank, Jens Weidmann.

Why not, investors want to know.

Mr. Weidmann was talking to The Wall Street Journal. He was explaining why Germany was sticking to its guns. They don’t use that expression in Germany. But you know what he meant.

“The crisis can be solved only by embarking on often-painful structural reforms,” he insisted. “If policy makers think they can avoid this they will try to.”

Mr. Weidmann is talking about the present. He is also describing the future. In the old world there is a backlash growing against the Germans and their financial guns. Austerity doesn’t seem to work. Countries try it. They cut spending. They fire people. They get nothing from it. Their budgets are still far out of balance, with deficits way above the 3% limit demanded by the European Union. Unemployment goes up. GDP goes down. Unhappy mobs start breaking windows. Why bother?

Look what is happening in Britain, for example. The Telegraph reports:

The unexpected 0.2pc contraction in UK growth followed a 0.3pc fall in gross domestic product (GDP) in the fourth quarter of 2011, signalling a technical recession and Britain’s first double-dip since 1975.

Economists had expected the Office for National Statistics data to show the economy grew by 0.1pc between January and March.

The Prime Minister said the figure was “very, very disappointing” but added that that it would be “absolute folly” to change course and jeopardise Britain’s low borrowing rates. He told Parliament:

“We inherited from [Labour] a budget deficit of 11pc. That is bigger than Greece, bigger than Spain, bigger than Portugal [...] The one thing we mustn’t do is abandon spending and deficit reduction plans, because the solution to a debt crisis cannot be more debt.”

Of course, you might look at these facts and conclude that they are not trying hard enough. Instead of making smallish cuts…why not make big ones? Why not actually balance government budgets so that they can tell German central bankers to drop dead?

Everyone agrees that that would be too radical. It would invite “social upheaval.” Apparently, actually living within your means is no longer politically or socially acceptable. You have to live beyond your means… The only question is ‘who will pay for it?’ The answers to that question are not easy. When debt levels were low, the answer was probably ‘future generations of taxpayers.’ At today’s debt levels it is unlikely that the debt will ever reach future generations. And with so much of the debt now being taken up by the central bank the burden shifts, from lenders to borrowers, taxpayers and consumers. Good debts may fall on debtors…even those who are not even born yet. But bad debt and inflation float down like leaves…blown by the winds…and eventually dropping down on innocent passers-by.

READ MORE: The Burgeoning Scam Market



Personal Finance

Doug Casey on Argentina and Today's Evita

Posted by Doug Casey

on Thursday, 26 April 2012 07:26

Doug Casey, Chairman
(Interviewed by Louis James, Editor, International Speculator)

L: Doug, we've had a lot of people write in with questions about Argentina since the government moved to nationalize YPF. First, I have to tell readers that we saw la presidenta going off the deep end some time ago and sold all the Argentina plays in our portfolio. But you live there, have invested there, and are a famous contrarian – so what do you think? Is the market's understandable reaction to the expropriation overdone, making it time to buy, or would you still stay out of Argentina plays?

Doug: I'd first like to distinguish between living in a country and investing in a country, which are two totally different things. As a general rule, I'd say that right now I have very little interest in investing in companies doing business in Argentina – though I've got to say that the Argentine stock market is yielding about six percent in dividends and selling at about eight times earnings. That makes it one of the cheapest markets in the world. It's been heavily discounted due to corruption, government stupidity, and a generally poor business environment.

L: So is that discount appropriate or overdone? I suspect that Argentine companies are in no danger of being nationalized, so they might be excessively discounted. On the other hand, the folks behind the curtain, pulling the levers on the machinery of the state in Argentina are clearly fools or knaves – I'm not sure any business is safe in Argentina.

Doug: Unfortunately, that's true. Argentina's politicians have been just terminally stupid ever since Juan Perón. Even though he was a criminal personality, an overt admirer of Mussolini, and openly sympathetic to Hitler, Perón has become such a cultural icon that you can't do anything in Argentina today without at least calling yourself a Perónist. It's rather like in the US, where, if you don't think that FDR was a hero for getting the US out of the Great Depression, you're persona non grata. Perón is Argentina's Roosevelt.

More recently, former president Nestor Kirchner – late husband of Cristina, the current president – was a total disaster. All of his policies were completely wrong-headed and destructive, but he had the good luck to get elected just as the commodities boom got under way, and demand for Argentine agricultural and mineral products soared. That paid for a lot of social spending and made him look like a hero, even though everything he did was the exact opposite of what needed doing.

This is true of Cristina too, but she's actually outdone her husband in implementing economically suicidal policies. Every single week, her government does something that's bizarre, counterproductive, or absurd. The most recent and serious blunder, of course, was the nationalization of YPF – but just a few weeks ago, her government tried to ban the importation of books. It wasn't because they cared what was in the books, it was part of the effort to limit imports in general.

L: I read about that – the excuse was that foreign printers might use ink that could be dangerous. I remember thinking that was crazy, and she does seem to check into hospitals a lot...

Doug: They had to back down on the books. That would have been just too much, to deprive a very literate country of about 85% of books in Spanish and almost 100% of those in other languages. Although it would have been a boon for Kindle – something they probably didn't even think about. But importing anything to Argentina is a huge hassle these days.

Nationalizing YPF actually make no sense on any basis. She says she did it because the company didn't invest enough in Argentina – but there's a reason for that: the current regime has made it very dangerous to conduct any sort of productive business in Argentina. As a result of its policies, Argentina has gone from being self-sufficient in oil and gas – and an exporter – to being an importer. She's telling everyone that nationalizing YPF will result in more investment in Argentina and hence more production, but that's a fantasy. Like any national oil company, YPF under its new management is going to be horribly inefficient and riddled with graft and corruption. If they do somehow generate any earnings, they'll just be wasted by the government on social programs that buy votes but don't make any lasting improvement in the country.

Of course, YPF started out as a parastatal in the '20s, so the company has always been a political football. Under Perón it accumulated scores of thousands of unneeded employees. In Argentina they're called "gnocchis," after the heavy, doughy, inexpensive pasta that kind of just lies on your plate and does nothing. In fact, Argentines traditionally eat gnocchi on the last day of each month, partly because it's cheap and money is short at month's end and partly because it's a joke about useless government employees. The average guy in Argentina is well aware of how corrupt the system is. It's why Argentines are always making jokes about themselves – lots of black humor.

On the other hand, there's an explanation for these actions other than insanity. Rumor in Argentina has it that when Nestor was first elected, the Kirchners had a net worth on the order of ten million dollars. That's not a lot for a governor...

L: [Chuckles] Yes, what a couple of slowcoaches; any self-respecting Latin-American politician ought to have been able to abscond with at least a hundred million.

Doug: [Laughs] Yes, at least a hundred million. Over his entire term, Carlos Menem is said to have walked away with as much as $15 billion. Why should anyone settle for less?

L: So you're suggesting that maybe she's not crazy, but rather a successful political entrepreneur who may yet set a new record at enriching herself at the expense of the people she claims she's trying to help?





It seems Ben Proves me wrong!

Posted by Jack Crooks

on Thursday, 26 April 2012 07:18

By Jack Crooks

“Beam me up Scotty.”  

- Star Trek                                               

Once again it seems the Fed Chairman Bernanke didn’t disappoint the stock bulls.   I expected otherwise.  Wrong again I was.  I continue to be amazed by Ben’s logic here.   

He says he wants to produce some inflation through monetary policy so the US economy doesn’t get caught up in a Japanese-like deflationary spiral.  But in the process of creating inflation, which is in commodity prices primarily, thanks to the implicit weak dollar policy (driven by the Treasury and deftly executed by the Fed), he hurts consumers and businesses with many of these policies even though he tells us he is really saving them.   

So, let me see if I get his right:  

    Pay those who save nothing on their deposits

    Then further reduce their purchasing power by creating inflation

    Continue to punish the interbank lending market (because of zero interest rates); therefore, banks have no incentive to lend to other banks that may actually have real economy lending opportunities.

    Pretend the US labor market is healing, when it is now starting to weaken again, and unofficial unemployment and under-employed rate is off the charts, proving that something is very wrong with existing policy.

    Then proceed to tell us how much this policy is working, and just in case there is a slowdown, tell us we will get more of this same policy that is working so well.

My head hurts after writing that.   

But we do know who this policy helps—the financial economy; which consists of some very smart people who know where their bread is buttered and just so happen to have a lot of extra money lying around to make campaign contributions. Hmmm…   

So Ben, you are telling us to forget about: 




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