Hair Trigger Ben
Research for Online Investors

01/26/12

Yesterday the Federal Open Market Committee concluded their two-day meeting.  The market was proceeding as we expected; soft and looking to settle into a slow descent to consolidate the gains from the last four weeks, but the Bernank couldn’t leave well enough alone.

The Fed extended “exceptionally low interest rates” through the end of 2014; previous estimates had been mid-2013.  They also extended “Operation Twist” another three months to the fall of 2012.  Initially, the market yawned.  Then Bill Gross with PIMCO, the world’s largest bond fund, appeared on CNBC and described the Fed’s statement as “QE2.5.”

This was like waving a red flag in front of a bull.  Within seconds, the market took off higher.  My screen lit up like a cheap neon sign at an all night speak-easy!

What the Fed indicated is that elderly savers are going to continue to pay for the real estate crash.  Big Ben is not afraid to steal retirement income interest from savers to try to resuscitate the U.S. economy.

During his press conference after the FOMC statement was released, Bernanke said “the inflation rate over the longer run is primarily determined by monetary policy…the committee judges that inflation at the rate of two percent…is most consistent over the longer run with our statutory mandate.”  (approx. 3:00 minute mark)

During questions from the press (at the one-hour market) Bernanke was asked how he would address those who though the Fed was destroying two percent of their dollars every year?  Bernanke answered the two-percent target was necessary to avoid deflation and “the argument that the value of your dollar declines two-percent a year…that it is not a really a very good one unless you are one of those people that does their lifetime savings under a mattress.  Most people invest in various kind of instruments…interest rate will compensate you for inflation.”

Duh…Editor’s note to the Bernanke:  Ten-year Treasury bonds current yield 1.93%

You can watch the press conference at the Federal Reserve website or read the FOMC statement.

Analysts interpreted the extension of time for low interest rates as an admission by the Fed the risks to the U.S. economy are worse than previously thought.  Or…it could be that some of the new voting members of the FOMC are more inclined to intervention.  Thomas Simons of Jefferies & Co. said “It sounds like the finger is on the trigger.”

Michael Foroli of J.P. Morgan said “Probably the main take-away from the press conference is the sense conveyed by Bernanke that it would not take much of a disappointment in growth or inflation to get the Fed to start another round of QE.  In fact, from his answers it’s not even clear any disappointment would be necessary to see more QE.”

The reasons for bullish sentiments are core inflation is presently running 1.7% and unemployment is above 8%.  Inflation is lower than the Fed’s new target of 2% and unemployment is high enough to infer that another round of quantitative easing is ‘inevitable’ according to Reuters.

Not my words, theirs.

Mailbag:
Capitalism is one thing - greed and stupidity are quite another. How can the GOP have the support of the Evangelical Right and yet be so un-Christian. The decision on the pipeline was wrong and way too political but trying to appease the GOP and many of the Dems is an impossible task.—subscriber C.C.

John’s reply:  Capitalism is all about people pursuing their personal goals out of "greed."  Just like Michael Douglas said in Wall Street.  Watch Milton Friedman video at our website under Investor Resources.  It is not ‘un-Christian’ to believe in personal charity & responsibility and small government.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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