MLR - Premarket Pulse September 4, 2012
Federal Reserve Board Chairman Ben Bernanke called the stagnation in the U.S. labor market a "grave concern" and said he was open to using more quantitative easing as needed to help. In a speech at the Fed's Jackson Hole retreat, Bernanke did not pre-commit to taking action but did reinforce the case for more asset purchases. He downplayed the costs of quantitative easing and said the program has worked to "provide meaningful support" to the recovery. Bernanke called current growth "tepid" and said the economy was "far from satisfactory." "Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability," Bernanke said.
After Bernanke's speech, the general markets recovered some of Thursday's loss on higher volume, bond prices headed higher, and both gold and silver had pocket pivots in as measured in the highly-liquid precious metals ETFs, the SPDR Gold Shares (GLD) and iShares Silver Trust (SLV) ETFs, respectively. Both GLD and SLV have moved sharply up through their 200-day moving averages which should serve as support on the downside.
So far, the market remains in a short two-week consolidation of its sharp gains from the first half of August. A breakout through the 3100 level on the NASDAQ Composite Index and the 1420 level on the S&P 500, roughly, would be the first sign of a potential new leg that could carry the market to the highest levels it has seen since the lows of March 2009. Seasonally speaking, September and October are kinder to gold than stocks though as a headwind to both gold and stocks, the global economy is slow and deteriorating. But promises of QE3 on deck could continue to prop both stocks and gold.
While the market awaits QE3, the questionable solvency of state governments and the impact statewide defaults could have on US bank reserves motivated Warren Buffett to announce he was dumping municipal bonds just as Soros, not so coincidentally, was dumping financial stocks.
In economic news, a survey of consumers about their view of the U.S. economy improved in August, according to a report issued Friday. The University of Michigan-Thomson Reuters' consumer-sentiment gauge rose to 74.3 in August, compared with initial reading of 73.6. Economists surveyed had expected the index to edge up to 73.8 from 72.3 in July.
And on Tuesday, short term Spanish and Italian government bonds rallied sharply, dragging down yields and steepening yield curves Tuesday, a day after European Central Bank President Mario Draghi indicated a new bond-buying plan could embrace debt with maturities of up to three years without violating the prohibition on central-bank financing of government borrowing. Meanwhile, Moody's has downgraded the European Union to negative from
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