Money Everywhere
Research for Online Investors

02/14/12

Retail sales grew at a tepid 0.4% rate last month.  This was half the increase expected by economists.  Business inventories continued to grow at 0.4%  The numbers raised questions because “Core Retail Sales” reported a 0.7% increase.  Core Sales excludes auto sales, but auto dealers reported good January sales with Chrysler up 44%, Ford reported a 7% increase, General Motors was down 6% but Toyota was up 47%.  Go figure.  CNBC went so far as to suggest the government contract statistical reporting to private firms.

To hear Steve Liesman suggest the government was inept at anything was music to my ears.  Regardless, the economic report put a negative spin on the market open.  Futures had been positive, but moved negative on the weak Retail Sales report.

The eurozone finance ministers were scheduled to meet tomorrow to review Greece’s compliance with the bailout terms presented by the troika.  The meeting has been cancelled.  Greece does not have the signed document from all political leaders endorsing the austerity measures and has not enacted legislation to cut 325 million Euros that was supposed to be cut from pensions.

The finance ministers are going to have a conference call, but participants seem adamant that Greece comply with all demands, period.

Moody’s downgraded six European countries sovereign debt yesterday after the markets closed.  The rating agency also warned they may cut their AAA rating of France, Australia and Britain (FAB).  Moody’s outlook for the FAB country’s was changed to negative because of “a number of specific credit pressures that would exacerbate the susceptibility of these sovereign’s balance sheets.”

Moody’s affirmed its continued rating for Germany as AAA as well as the EFSF that must borrow money to fund the bailouts for weak eurozone countries.  Moody’s action follows Fitch downgrades of Belgium, Cyprus, Italy, Slovenia and Spain in January.  Standard & Poor’s cut the French, Australian and the EFSF AAA credit ratings in January.

The Bank of Japan announced $128 billion dollars worth of quantitative easing this morning.  The Japanese Yen has been on a tear for the last ten months.  It had risen 9.1% since last April.  The Yen dropped 1% this morning against the dollar.  Japanese exporters were crying for relief.  Currency valuations made Japanese products more expensive.

The Bank of England (BOE) announced $78 billion dollars in quantitative easing last week.  This brings Britain’s total QE in the last year to over $500 billion dollars.  The BOE statement reasoned the pace of the country’s economy was slowing and according to the BBC ‘without another stimulus from QE, inflation was likely to fall from its current 4.2% to below its 2% target.’

So the BOE is revving QE to keep inflation above 4% lest it fall to less than 2%?

The European Central Bank (ECB) is offering another round of Long-Term Re-Financing (LTRF) later this month.  The first offer to banks of three year loans at 1% saw $637 billion dollars flow out.  This was done just before Christmas, and with perfect hindsight began the rally we have enjoyed for six weeks.  Some have estimated the next round could top $1 trillion.

It seems money is being printed by almost every central bank.  Our Federal Reserve is not engaging in Quantitative Easing at the present time…or are they?  The Fed is in the middle of “Operation Twist” whereby they are selling short term notes and buying longer term bonds to squeeze the interest rate spread.

Operation Twist also involves reinvesting all proceeds from interest and maturing bonds.  How effective is it?  Home mortgages are at all time lows as long-term treasury interest rates have fallen.  These low interest rates have forced money out of fixed term bonds and into dividend paying equities.

People that live on the income from their retirement savings cannot survive on the current yield of 0.8% yield on five-year treasury bonds.  Would you invest $100,000 for five years to receive $800 annually?

Evidently, neither you nor your neighbors are very excited about giving the government money for such paltry returns.  Tyler Durden wrote in Zero Hedge, the Fed has been buying long term bonds hand over fist.  The Fed has bought 91% of all 20 and 30 year bonds and 64% of 8 to 10-year bonds issued by the Treasury.  With 51% of all purchases of 6 to 8-year bonds, the Fed is crowding out other buyers on any issuance except the short term notes.  Since the Fed has announced “exceptionally low rates” of 0.0% to 0.25% until 2014 where does a fixed term investor go?

The bottom line for you as an investor is there is quantitative easing occurring under every rock and in almost every central bank.  The market looks lower today.  We expect a correction.  This is a buying opportunity.

Pull out your list of solid companies you want to own.  Do your fundamental analysis.  Know what you want.  Then do your technical analysis and understand where your good buy prices are.

Then sit on your hands and watch.  Use the information you have gained from your research to back up the truck at the proper time.  It is coming.  Don’t buy on the way down.  This process may take some time.  The Greek crisis is not over.  Wait for a confirmed bottom then act.

Editor’s note: Today is Valentine’s Day.  Do something nice.  You are never too old to act like a kid.

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.

MarketToday Archive

Back to Top