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The Wall Street Greek blog is the sexy & syndicated financial securities markets publication of former Senior Equity Analyst Markos N. Kaminis. Our stock market blog reaches reputable publishers & private networks and is an unbiased, independent Wall Street research resource on the economy, stocks, gold & currency, energy & oil, real estate and more. Wall Street & Greece should be as honest, dependable and passionate as The Greek.



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Seeking Alpha

Wednesday, August 31, 2011

Analyst Recommendations 08-31-11

analyst recommendations

The latest day’s analyst recommendations include several upgrades of homebuilder shares by UBS (NYSE: UBS), taking two stocks to buy and one to hold. Standpoint Research downgraded three companies Wednesday. Upgrades continue to outnumber downgrades as the recent drop in stocks has created opportunity in the opinion of several firms.

Analyst Recommendations

UPGRADES

Company

Analyst’s Firm

From

To

CenturyLink (NYSE: CTL)

Hudson Square

Hold

Buy

CONSOL Energy (NYSE: CNX)

Davenport

Neutral

Buy

D.R. Horton (NYSE: DHI)

UBS

Neutral

Buy

Lennar (NYSE: LEN)

UBS

Neutral

Buy

Meritage Homes (NYSE: MTH)

UBS

Sell

Neutral

Nu Skin (NYSE: NUS)

Wedbush

Neutral

Outperform

Tesoro (NYSE: TSO)

RBC Capital

Sector Perform

Outperform

Windstream (Nasdaq: WIN)

Hudson Square

Hold

Buy

DOWNGRADES

Company

Analyst’s Firm

From

To

Coventry Healthy (NYSE: CVH)

Standpoint

Buy

Hold

MetroPCS (NYSE: PCS)

Standpoint

Buy

Hold

Sabesp (NYSE: SBS)

Standpoint

Buy

Hold

TriQuint Semi (Nasdaq: TQNT)

Barclays

Overweight

Equal Weight

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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Not So Fantastic Factory Orders

factory ordersThe market grew enthusiastic Wednesday on Factory Order growth that exceeded economists’ views. That’s because any news that contradicts with data showing softness in manufacturing, consumer mood or any other recently questionable economic measure offers hope. However, closer inspection of the data and a minute of critical thought should lead to the determination that this factory order report is not so fantastic.

manufacturing bloggerOur founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers: NYSE: BA, NYSE: RTN, NYSE: DGI, NYSE: GY, NYSE: GD, NYSE: GR, NYSE: NOC, NYSE: HON, NYSE: LMT, NYSE: COL, NYSE: LLL, NYSE: ERJ, Nasdaq: FLIR, Nasdaq: BEAV, NYSE: TDG, NYSE: SPR, NYSE: CAE, NYSE: ATK, NYSE: HXL, NYSE: TGI, NYSE: ESL, NYSE: MOG-A, NYSE: HEI, NYSE: TDY, NYSE: CW, Nasdaq: CVCO, NYSE: SKY, Nasdaq: NOBH, Nasdaq: PHHM, NYSE: MHK, Nasdaq: IFSIA, NYSE: AIN, NYSE: UFI, NYSE: ITW, NYSE: TYC, NYSE: CMI, NYSE: KUB, NYSE: IR, NYSE: DOV, NYSE: ITT, NYSE: FLS, NYSE: PLL, NYSE: DRC, NYSE: SPW, NYSE: GDI, NYSE: IEX, Nasdaq: NDSN, NYSE: GGG, NYSE: ATU, Nasdaq: MIDD, NYSE: ABB, NYSE: ETN, NYSE: NJ, NYSE: ROK, NYSE: AME, NYSE: RBC, NYSE: TMB, Nasdaq: WGOV, NYSE: CAT, NYSE: DE, NYSE: CNH, Nasdaq: JOYG, Nasdaq: BUCY, Nasdaq: AGCO, NYSE: EMR, NYSE: PH, NYSE: ROP, NYSE: PNR, NYSE: WM, NYSE: RSG, Nasdaq: FAST, NYSE: VMC, NYSE: MDU, NYSE: MLM, NYSE: OC, NYSE: VAL, NYSE: PCP, NYSE: X, NYSE: RS, NYSE: NVR, NYSE: DHI, NYSE: PHM, NYSE: TOL, NYSE: HOV, NYSE: CRH, NYSE: CX, NYSE: EXP, NYSE: FLR, NYSE: MDR, Nasdaq: FWLT, NYSE: ICA, NYSE: SWK, NYSE: TKR, NYSE: KMT, NYSE: LUK, NYSE: MAS, NYSE: WY, NYSE: PWR, NYSE: CBI, NYSE: EME, NYSE: SNA, NYSE: TTC, NYSE: GM, NYSE: F.

Not So Fantastic Factory Orders



Factory Orders rose 2.4% in July, ahead of economists’ views for 2.0% growth, giving life to stocks Wednesday. July’s growth offered hope in the place of the concern brought on by June’s revised order decline of 0.4% (revised from -0.8%). It also offered respite from the general worry brewed up by the recent Philly Fed Survey alarm, which exacerbated manufacturing sector concern.

However, July’s Factory Order growth will not perfectly relieve market pressures. It was, after all, mostly on high ticket transportation orders. Excluding transportation, new orders increased just 0.9%. Transportation equipment orders were up 14.8%, and durable goods orders rose 4.1%. This is good news of course, but it is important to note that nondurable goods orders were up 1.0% and that we are talking about July. More recent data, including the Philly Fed and ISM data, seem to indicate August may have been significantly less enthusing, if not downright depressing.

As I surveyed the list of industries reported upon individually, I noted many percentage changes with minus signs before them. For example, while primary metal goods orders were up 9.9%, machinery orders were down 0.2% and industrial machinery was short 13.8%. Where non-defense aircraft and parts orders were up 43.4%, computer and electronic products orders were off 3.4%. Electrical equipment, appliances and components orders fell by 2.3% and furniture and related products orders were flat. It’s possible that demand from Japan, driven by its rebuilding effort post its catastrophic earthquake, helped to lift some categories while others languished.

The Chicago Purchasing Managers Index was also reported Wednesday, and its Business Barometer Index deteriorated to a mark of 56.5, from July’s 58.8 level. This survey measures all business in the Chicago region, and a mark above 50 signifies there is regional strength in the Midwest. Perhaps this is the result of emerging market demand for autos and other goods manufactured in the U.S. In any event, it’s clear that the Midwest is holding up better now than the East Coast.

The Factory Orders data showed that inventory continues to build. In fact, inventory of manufactured durable goods was up nineteen consecutive months, and is currently at its highest level since the series was first published on a NAICS basis in 1992. Even while inventories were higher though, the inventory-to-shipments ratio improved to 1.32, from 1.33 in June. So premature inventory build would not seem to be a major problem, unless orders are cancelled.

While the market celebrates what’s worth a cheer, I cannot help but to advise readers to note the divergence between industries illustrated within the report. Also, given that since July, consumer confidence has deteriorated further and faith in the American economy has been shaken, we cannot necessarily party heartily before August and September’s results are shown. I have concern that an eventual loss of the temporary boost from Japanese rebuilding demands and also slowing emerging market demand for goods globally, which have been supports against a suspect American recovery, threaten to alter the trend in factory order growth in the months ahead. Indeed, I beckon you to beware that recession is a significant threat, and advise that I find this latest factory order data less than fantastic.

This article should interest investors in Boeing (NYSE: BA), Raytheon (NYSE: RTN), Digital Globe (NYSE: DGI), GenCorp (NYSE: GY), General Dynamics (NYSE: GD), Goodrich (NYSE: GR), Northrop Grumman (NYSE: NOC), Honeywell (NYSE: HON), Lockheed Martin (NYSE: LMT), Rockwell Collins (NYSE: COL), L-3 Communications (NYSE: LLL), EMBRAER (NYSE: ERJ), FLIR Systems (Nasdaq: FLIR), BE Aerospace (Nasdaq: BEAV), TransDigm (NYSE: TDG), Spirit Aerosystems (NYSE: SPR), CAE (NYSE: CAE), Alliant Techsystems (NYSE: ATK), Hexcel (NYSE: HXL), Triumph Group (NYSE: TGI), Esterline Technologies (NYSE: ESL), Moog (NYSE: MOG-A), Heico (NYSE: HEI), Teledyne (NYSE: TDY), Curtiss-Wright (NYSE: CW), Cavco (Nasdaq: CVCO), Skyline (NYSE: SKY), Nobility Homes (Nasdaq: NOBH), Palm Harbor Homes (Nasdaq: PHHM), Mohawk Industries (NYSE: MHK), Interface (Nasdaq: IFSIA), Albany International (NYSE: AIN), Unifi (NYSE: UFI), Illinois Tool Works (NYSE: ITW), Tyco International (NYSE: TYC), Cummins (NYSE: CMI), Kubota (NYSE: KUB), Ingersoll-Rand (NYSE: IR), Dover (NYSE: DOV), ITT Corp. (NYSE: ITT), Flowserve (NYSE: FLS), Pall (NYSE: PLL), Dresser-Rand (NYSE: DRC), SPX (NYSE: SPW), Gardner Denver (NYSE: GDI), IDEX (NYSE: IEX), Nordson (Nasdaq: NDSN), Graco (NYSE: GGG), Actuant (NYSE: ATU), Middleby (Nasdaq: MIDD), ABB (NYSE: ABB), Eaton (NYSE: ETN), Nidec (NYSE: NJ), Rockwell Automation (NYSE: ROK), Ametek (NYSE: AME), Regal Beloit (NYSE: RBC), Thomas & Betts (NYSE: TMB), Woodward Governor (Nasdaq: WGOV), Caterpillar (NYSE: CAT), Deere (NYSE: DE), CNH (NYSE: CNH), Joy Global (Nasdaq: JOYG), Bucyrus (Nasdaq: BUCY), Agco (Nasdaq: AGCO), Emerson Electric (NYSE: EMR), Parker Hannifin (NYSE: PH), Roper Industries (NYSE: ROP), Pentair (NYSE: PNR), Waste Management (NYSE: WM), Republic Services (NYSE: RSG), Fastenal (Nasdaq: FAST), Vulcan Materials (NYSE: VMC), MDU Resources (NYSE: MDU), Martin Marietta Materials (NYSE: MLM), Owens Corning (NYSE: OC), Valspar (NYSE: VAL), Precision Castparts (NYSE: PCP), United States Steel (NYSE: X), Reliance Steel (NYSE: RS), NVR (NYSE: NVR), DR Horton (NYSE: DHI), Pulte (NYSE: PHM), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), CRH (NYSE: CRH), CEMEX (NYSE: CX), Eagle Materials (NYSE: EXP), Fluor (NYSE: FLR), McDermott International (NYSE: MDR), Foster Wheeler (Nasdaq: FWLT), Empresas ICA (NYSE: ICA), Stanley Black & Decker (NYSE: SWK), Timken (NYSE: TKR), Kennametal (NYSE: KMT), Leucadia National (NYSE: LUK), Masco (NYSE: MAS), Weyerhaeuser (NYSE: WY), Quanta Services (NYSE: PWR), Chicago Bridge & Iron (NYSE: CBI), EMCOR (NYSE: EME), Snap-on (NYSE: SNA), Toro (NYSE: TTC), GM (NYSE: GM) and Ford (NYSE: F).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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Tuesday, August 30, 2011

Equity Analyst Actions 08-30-11

equity analyst actionsThe day's equity analyst actions were limited in number. Even equity analysts take vacations, and so through this pre-Labor Day period, actions should be limited, barring the catalysts of market or equity action.

Equity Analyst Actions


UPGRADES

Company

Analyst’s Firm

From

To

AMC Networks (Nasdaq: AMCX)

Barclays

Underweight

Equal Weight

Pulte Group (NYSE: PHM)

Ticonderoga

Neutral

Buy

DOWNGRADES

Company

Analyst’s Firm

From

To

Emerson Electric (NYSE: EMR)

Argus

Buy

Hold

LDK Solar (NYSE: LDK)

Needham

Buy

Hold

NuPathe (Nasdaq: PATH)

Needham

Buy

Hold

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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Business Review 08-30-11

business reviewA lousy start to the day, the result of plummeting consumer confidence, was rescued by reported apparent interest at the Federal Reserve to stimulate the economy. The Dow closed up fractionally, as the market was enthused by some FOMC board member interest in new economic stimulus. Gold was up $49 or 2.8% through late afternoon trade, to $1838, as nascent economic hope seems sure to deteriorate toward reality. WTE Crude oil futures were up 1.6%, to $88.70. The Dollar Index was up fractionally to $73.98. Find our full business review below.

1111Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Business Review



Tuesday’s major news driver was an abysmal bit of data from the Conference Board. Consumer Confidence dropped into oblivion, as it marked lows not seen since the darkest days of the financial crisis. The Consumer Confidence Index dropped to 44.5 in August, down from 59.2 in July. Economists were looking for a reading of 52.5 this month. It was deflating, since it followed Monday’s strong consumer spending data, where Personal Outlays were measured higher by 0.8% in July.

The latest same-store sales data produced by the International Council of Shopping Centers (ICSC) showed sales rose 0.1% in the week ending August 27. The prior week’s report showed sales fell by 1.0% week-to-week. Sales improved by 3.0% year-to-year through each of the last two weeks, but on a real basis, taking inflation into account, we’re looking at a pathetic state of consumer activity nonetheless. Redbook reported the year-to-year sales pace at 4.0% this week, better than the 3.6% seen last week. We are entering the height of back-to-school shopping season, so this latest consumer data is especially disheartening, however, actual spending does not always reflect the consumer mood.

The S&P Case Shiller Home Price Index showed another month of home price strengthening. Measuring the month of June this time, S&P Case Shiller reports its 10-City Index rose 1.1% on an unadjusted basis. Seasonally adjusted, prices were flat month-to-month. On a year-to-year basis, home prices fell 3.9% in June. However, because this data is so old, it fails to reflect the reality we’re seeing in other data points, where prices are marking gains against year-to-year comparable periods.

It was just a week ago that the FHFA offered another month of home price rise on a month-to-month basis (+0.9%). As the bar has lowered, home prices have found stable ground, but with the economy on the skids, uncertainty holds for housing.

State Street (NYSE: STT) reported a sharp drop-off in investor confidence in August. The bank’s metric, its Investor Confidence Index, fell 12.9 points to a mark of 89.6, the result of our nation’s fiscal fumbling and the negligent downgrade of our sovereign credit by Standard & Poor’s. As a result, the North American index dropped 13.9 points, as the European measure fell 4.6 and Asia slipped fractionally.

The Federal Reserve’s Federal Open Market Committee (FOMC) issued the minutes of its August 9 meeting.

The EPS schedule highlighted reports from 1-800-Flowers.com (Nasdaq: FLWS), Barnes & Noble (NYSE: BKS), China Finance Online (Nasdaq: JRJC), Concurrent Computer (Nasdaq: CCUR), Daegis (Nasdaq: DAEG), Dollar General (NYSE: DG), DryShips (Nasdaq: DRYS), DSW (NYSE: DSW), Edap TMS (Nasdaq: EDAP), Gordman’s Stores (Nasdaq: GMAN), Jeffersonville Bancorp (Nasdaq: JFBC), Lantronix (Nasdaq: LTRX), Noah Education (NYSE: NED), Overland Storage (Nasdaq: OVRL), Pittsburgh and West Virginia Rail (AMEX: PW), PVH Corp. (NYSE: PVH), Rada Electronic Industries (Nasdaq: RADA), First Marblehead (NYSE: FMD), Unilife (Nasdaq: UNIS), Vera Bradley (Nasdaq: VRA) and more.

The Day’s Most Active Stocks Included:

WINNERS

LOSERS

CoreLogic (Nasdaq: CLGX)

NuPathe (Nasdaq: PATH)

Seanergy Maritime (Nasdaq: SHIP)

Atlantic Coast Federal (Nasdaq: ACFC)

Sinovac Biotech (Nasdaq: SVA)

National Bank of Greece (NYSE: NBG)

Primo Water (Nasdaq: PRMW)

B+H Ocean Carriers (AMEX: BHO)

BTU Int’l (Nasdaq: BTUI)

NTS Realty (AMEX: NLP)

Monster Worldwide (NYSE: MWW)

CNinsure (Nasdaq: CISG)

Corinthian Colleges (Nasdaq: COCO)

Central European Distribution (Nasdaq: CEDC)

New Energy Systems (Nasdaq: NEWN)

Carolina Trust (Nasdaq: CART)

Novavax (Nasdaq: NVAX)

Granite City Food & Brew (Nasdaq: GCFB)

Richmont Mines (AMEX: RIC)

Peoples Education Holdings (Nasdaq: PEDH)

Imperial Sugar (Nasdaq: IPSU)

DAQQ New Energy (NYSE: DQ)

FelCor Lodging (NYSE: FCH)

China Auto Logistics (Nasdaq: CALI)

Barnes & Noble (NYSE: BKS)

Gulf Resources (Nasdaq: GURE)

Frontline (NYSE: FRO)

Lizhan Environmental (Nasdaq: LZEN)

The KEYW Holding (Nasdaq: KEYW)

Donegal Group (Nasdaq: DGICB)

Beazer Homes (NYSE: BZH)

Media General (NYSE: MEG)

SatCon Technology (Nasdaq: SATC)

MoSys (Nasdaq: MOSY)

Excel Maritime (NYSE: EXM)

Retractable Technologies (AMEX: RVP)

BioLineRx (Nasdaq: BLRX)

T3 Motion (Nasdaq: TTTM)

Global Geophysical (NYSE: GGS)

Sterling Financial (Nasdaq: STSA)

GMX Resources (Nasdaq: GMXR)

Trunkbow Int’l (Nasdaq: TBOW)

Sequans Communications (Nasdaq: SQNS)

VASCO Data Security (Nasdaq: VDSI)

Delcath Systems (Nasdaq: DCTH)

EMCORE (Nasdaq: EMKR)

SMF Energy (Nasdaq: FUEL)

Vision Sciences (Nasdaq: VSCI)

Celsion (Nasdaq: CLSN)

Stratus Properties (Nasdaq: STRS)

QuinStreet (Nasdaq: QNST)

Life Partners (Nasdaq: LPHI)

Dehaier Medical (Nasdaq: DHRM)

Penson Worldwide (Nasdaq: PNSN)


Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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Business in Brief 08-29-11

business briefThe week after Hurricane Irene started with some solid consumer spending news. The Personal Income & Outlays data for July was released in the early AM. Personal spending rose 0.8% in July, higher than the 0.5% gain seen by economists surveyed by Bloomberg. This followed a revision to June’s spending, taking it up to negative 0.1%, from minus 0.2%. Personal income increased 0.3% over June, which was in line with economists’ views. The Core PCE Price Index increased 0.2%, in line with consensus, but up from the 0.1% increase marked in June. This is an inflation gauge, and is up 1.6% year-over-year, hotter than the 1.4% measure taken in June.

Pending Home Sales were reported for the month of July down 1.3%, versus expectations for a 1.0% drop. It’s a shame Washington couldn’t get its act together, or we might have seen some continuation of the 2.4% growth reported the month before.

Monday’s EPS offered reports from Better Online Solutions (Nasdaq: BOSC), Casella Waste Systems (Nasdaq: CWST), China Cord Blood (NYSE: CO), CNinsure (Nasdaq: CISG), Contango Oil & Gas (AMEX: MCF), Culp (NYSE: CFI), Donaldson (NYSE: DCI), Espey Manufacturing & Electronics (AMEX: ESP), Global Education and Technology (Nasdaq: GEDU), LDK Solar (NYSE: LDK), Prospect Capital (Nasdaq: PSEC), SWS Group (NYSE: SWS), Winn Dixie (Nasdaq: WINN) and several others.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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Sunday, August 28, 2011

Top Ten Most Likely Ways for a New Yorker to Die in a Hurricane

hurricane Irene NYC people on beach photoWe had so much fun with this, we came up with eleven. I’m a New York City resident and had some fun being creative, exaggerating about the colorful reactions and activities of my brethren here in the Big Apple. What else are you going to do when cooped up indoors for so many hours with just basic television to watch?

Top Ten Most Likely Ways for a New Yorker to Die in a Hurricane



  • 11 - Mesmerized by local TV news coverage and dying of starvation after forgetting to eat
  • 10 - Drowned at hurricane party… bobbing for apples
  • 9 - Bottling and/or drinking East River water for survival
  • 8 - Seeking West Coast surfing conditions in East Coast hurricane
  • 7 - Opportunely trying to finally score Book of Mormon tickets
  • 6 - Ball actually drops at Times Square
  • 5 - Residences on Rikers Island overrun by storm surge
  • 4 - Struck by projectile while protesting for Gay Divorce
  • 3 - Being a Bloomberg groupie suddenly got dangerous
  • 2 - Choosing the worst of all possible days to visit Roosevelt Island
  • 1 - Trampled to death in aisle 4 seeking slice bread

Top ten list should interest The New York Times (NYSE: NYT), Gannett Co. (NYSE: GCI), A.H. Belo (NYSE: AHC), Daily Journal (NYSE: DJCO), Journal Communications (NYSE: JRN), Lee Enterprises (NYSE: LEE), Media General (NYSE: MEG), E.W. Scripps (NYSE: SSP), McClatchy Co. (NYSE: MNI), The Washington Post (NYSE: WPO), Dex One (Nasdaq: DEXO), Martha Stewart Living (NYSE: MSO), Meredith (NYSE: MDP), Private Media (Nasdaq: PRVT), Reed Elsevier (NYSE: ENL), Reed Elsevier Plc (NYSE: RUK), Dolan Co. (NYSE: DN), Disney (NYSE: DIS), DreamWorks Animation (NYSE: DWA), Cinemark Holdings (NYSE: CNK), Regal Entertainment (NYSE: RGC), RealD (NYSE: RLD), Lions Gate Entertainment (NYSE: LGF), Rentrak (Nasdaq: RENT), Carmike Cinemas (Nasdaq: CKEC), LYFE Communications (OTC: LYFE.OB), New Frontier Media (Nasdaq: NOOF), Public Media Works (OTC: PUBM.OB), Independent Film Development (OTC: IFLM.OB), Point 360 (Nasdaq: PTSX), Seven Arts Pictures (Nasdaq: SAPX), Affinity Medianetworks (OTC: AFFW.OB), Time Warner (NYSE: TWX), News Corp. (Nasdaq: NWSA), Vivendi (Paris: VIV.PA), Liberty Starz Group (Nasdaq: LSTZA), McGraw-Hill (NYSE: MHP), Pearson Plc (NYSE: PSO), John Wiley & Sons (NYSE: JW-A, NYSE: JW-B), Scholastic (Nasdaq: SCHL), Courier (Nasdaq: CRRC), Noah Education (NYSE: NED), Peoples Educational Holdings (Nasdaq: PEDH), Barnes & Noble (NYSE: BKS), Amazon.com (Nasdaq: AMZN), Books-A-Million (Nasdaq: BAMM) and Borders (NYSE: BGP).

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Friday, August 26, 2011

Bernanke's Jackson Hole Speech 2011

Bernanke Jackson HoleWhat follows is an unaltered copy of Federal Reserve Chairman Bernanke's Jackson Hole speech on August 26, 2011. We offer this timely redistribution to our readers, due to the great importance assigned to it by financial markets.

Commentary here by Markos Kaminis: It is our opinion that the absence of constructive action by the Fed, which was somewhat begged for by markets, combined with ongoing economic deterioration and the potential impact of Hurricane Irene on the economy will return markets to bearish leaning, and renew gold's strength, absent the fervor of bubble-blowing speculators initially. That said, the Fed's plan for a two-day meeting in September indicates some action could occur at that time, but the specter of dissension among Fed Board members counters that hope as well. And besides, the Fed may simply be unable to stop the bleeding, as consumer, investor and purchasing managers have been frozen by uncertainty exacerbated by Washington. At this point, economic contraction may be inevitable for Q3 and recession possible for the second half of 2011.


Relative tickers: NYSE: DIA, NYSE: SPY, Nasdaq: QQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: NYX, Nasdaq: NDAQ, NYSE: ICE, Nasdaq: ETFC, Nasdaq: SCHW, Nasdaq: AACC, NYSE: AMG, NYSE: AMP, Nasdaq: AMTD, Nasdaq: BGCP, NYSE: BK, NYSE: BLK, NYSE: CIT, Nasdaq: CLMS, NYSE: CME, NYSE: CNS, Nasdaq: COWN, Nasdaq: DHIL, Nasdaq: DLLR, Nasdaq: DUF, Nasdaq: ECPG, Nasdaq: EF, NYSE: EFX, Nasdaq: EPHC, NYSE: EVR, Nasdaq: EZPW, Nasdaq: FBCM, Nasdaq: FCFS, NYSE: FII, NYSE: FMD, NYSE: FNF, Nasdaq: FNGN, Nasdaq: FXCM, NYSE: GBL, Nasdaq: GCAP, Nasdaq: GDOT, Nasdaq: GFIG, NYSE: GHL, Nasdaq: GLCH, NYSE: GS, Nasdaq: IBKR, Nasdaq: INTL, Nasdaq: INTX, NYSE: ITG, NYSE: IVZ, NYSE: JEF, NYSE: JMP, NYSE: JNS, NYSE: KBW, NYSE: KCG, NYSE: LAZ, NYSE: LM, Nasdaq: LPLA, AMEX: LTS, NYSE: MA, NYSE: MCO, NYSE: MF, NYSE: MGI, Nasdaq: MKTX, Nasdaq: MRLN, NYSE: MS, Nasdaq: MSCI, NYSE: MTG, Nasdaq: NEWS, NYSE: NFP, NYSE: NNI, Nasdaq: NTRS, Nasdaq: NTSP, NYSE: OCN, NYSE: OPY, Nasdaq: OXPS, Nasdaq: PICO, NYSE: PJC, NYSE: PMI, Nasdaq: PNSN, Nasdaq: PRAA, NYSE: RJF, Nasdaq: SEIC, NYSE: SF, NYSE: SFE, NYSE: STT, NYSE: SWS, Nasdaq: TROW, NYSE: V and Nasdaq: VRTS.

Bernanke's Jackson Hole Speech 2011



Chairman Ben S. Bernanke

At the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming

August 26, 2011

The Near- and Longer-Term Prospects for the U.S. Economy

Good morning. As always, thanks are due to the Federal Reserve Bank of Kansas City for organizing this conference. This year's topic, long-term economic growth, is indeed pertinent--as has so often been the case at this symposium in past years. In particular, the financial crisis and the subsequent slow recovery have caused some to question whether the United States, notwithstanding its long-term record of vigorous economic growth, might not now be facing a prolonged period of stagnation, regardless of its public policy choices. Might not the very slow pace of economic expansion of the past few years, not only in the United States but also in a number of other advanced economies, morph into something far more long-lasting?

I can certainly appreciate these concerns and am fully aware of the challenges that we face in restoring economic and financial conditions conducive to healthy growth, some of which I will comment on today. With respect to longer-run prospects, however, my own view is more optimistic. As I will discuss, although important problems certainly exist, the growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years. It may take some time, but we can reasonably expect to see a return to growth rates and employment levels consistent with those underlying fundamentals. In the interim, however, the challenges for U.S. economic policymakers are twofold: first, to help our economy further recover from the crisis and the ensuing recession, and second, to do so in a way that will allow the economy to realize its longer-term growth potential. Economic policies should be evaluated in light of both of those objectives.

This morning I will offer some thoughts on why the pace of recovery in the United States has, for the most part, proved disappointing thus far, and I will discuss the Federal Reserve's policy response. I will then turn briefly to the longer-term prospects of our economy and the need for our country's economic policies to be effective from both a shorter-term and longer-term perspective.

Near-Term Prospects for the Economy and Policy
In discussing the prospects for the economy and for policy in the near term, it bears recalling briefly how we got here. The financial crisis that gripped global markets in 2008 and 2009 was more severe than any since the Great Depression. Economic policymakers around the world saw the mounting risks of a global financial meltdown in the fall of 2008 and understood the extraordinarily dire economic consequences that such an event could have. As I have described in previous remarks at this forum, governments and central banks worked forcefully and in close coordination to avert the looming collapse. The actions to stabilize the financial system were accompanied, both in the United States and abroad, by substantial monetary and fiscal stimulus. But notwithstanding these strong and concerted efforts, severe damage to the global economy could not be avoided. The freezing of credit, the sharp drops in asset prices, dysfunction in financial markets, and the resulting blows to confidence sent global production and trade into free fall in late 2008 and early 2009.

We meet here today almost exactly three years since the beginning of the most intense phase of the financial crisis and a bit more than two years since the National Bureau of Economic Research's date for the start of the economic recovery. Where do we stand?

There have been some positive developments over the past few years, particularly when considered in the light of economic prospects as viewed at the depth of the crisis. Overall, the global economy has seen significant growth, led by the emerging-market economies. In the United States, a cyclical recovery, though a modest one by historical standards, is in its ninth quarter. In the financial sphere, the U.S. banking system is generally much healthier now, with banks holding substantially more capital. Credit availability from banks has improved, though it remains tight in categories--such as small business lending--in which the balance sheets of potential borrowers remain impaired. Companies with access to the public bond markets have had no difficulty obtaining credit on favorable terms. Importantly, structural reform is moving forward in the financial sector, with ambitious domestic and international efforts underway to enhance the capital and liquidity of banks, especially the most systemically important banks; to improve risk management and transparency; to strengthen market infrastructure; and to introduce a more systemic, or macroprudential, approach to financial regulation and supervision.

In the broader economy, manufacturing production in the United States has risen nearly 15 percent since its trough, driven substantially by growth in exports. Indeed, the U.S. trade deficit has been notably lower recently than it was before the crisis, reflecting in part the improved competitiveness of U.S. goods and services. Business investment in equipment and software has continued to expand, and productivity gains in some industries have been impressive, though new data have reduced estimates of overall productivity improvement in recent years. Households also have made some progress in repairing their balance sheets--saving more, borrowing less, and reducing their burdens of interest payments and debt. Commodity prices have come off their highs, which will reduce the cost pressures facing businesses and help increase household purchasing power.

Notwithstanding these more positive developments, however, it is clear that the recovery from the crisis has been much less robust than we had hoped. From the latest comprehensive revisions to the national accounts as well as the most recent estimates of growth in the first half of this year, we have learned that the recession was even deeper and the recovery even weaker than we had thought; indeed, aggregate output in the United States still has not returned to the level that it attained before the crisis. Importantly, economic growth has for the most part been at rates insufficient to achieve sustained reductions in unemployment, which has recently been fluctuating a bit above 9 percent. Temporary factors, including the effects of the run-up in commodity prices on consumer and business budgets and the effect of the Japanese disaster on global supply chains and production, were part of the reason for the weak performance of the economy in the first half of 2011; accordingly, growth in the second half looks likely to improve as their influence recedes. However, the incoming data suggest that other, more persistent factors also have been at work.

Why has the recovery from the crisis been so slow and erratic? Historically, recessions have typically sowed the seeds of their own recoveries as reduced spending on investment, housing, and consumer durables generates pent-up demand. As the business cycle bottoms out and confidence returns, this pent-up demand, often augmented by the effects of stimulative monetary and fiscal policies, is met through increased production and hiring. Increased production in turn boosts business revenues and household incomes and provides further impetus to business and household spending. Improving income prospects and balance sheets also make households and businesses more creditworthy, and financial institutions become more willing to lend. Normally, these developments create a virtuous circle of rising incomes and profits, more supportive financial and credit conditions, and lower uncertainty, allowing the process of recovery to develop momentum.

These restorative forces are at work today, and they will continue to promote recovery over time. Unfortunately, the recession, besides being extraordinarily severe as well as global in scope, was also unusual in being associated with both a very deep slump in the housing market and a historic financial crisis. These two features of the downturn, individually and in combination, have acted to slow the natural recovery process.

Notably, the housing sector has been a significant driver of recovery from most recessions in the United States since World War II, but this time--with an overhang of distressed and foreclosed properties, tight credit conditions for builders and potential homebuyers, and ongoing concerns by both potential borrowers and lenders about continued house price declines--the rate of new home construction has remained at less than one-third of its pre-crisis level. The low level of construction has implications not only for builders but for providers of a wide range of goods and services related to housing and homebuilding. Moreover, even as tight credit for some borrowers has been one of the factors restraining housing recovery, the weakness of the housing sector has in turn had adverse effects on financial markets and on the flow of credit. For example, the sharp declines in house prices in some areas have left many homeowners "underwater" on their mortgages, creating financial hardship for households and, through their effects on rates of mortgage delinquency and default, stress for financial institutions as well. Financial pressures on financial institutions and households have contributed, in turn, to greater caution in the extension of credit and to slower growth in consumer spending.

I have already noted the central role of the financial crisis of 2008 and 2009 in sparking the recession. As I also noted, a great deal has been done and is being done to address the causes and effects of the crisis, including a substantial program of financial reform, and conditions in the U.S. banking system and financial markets have improved significantly overall. Nevertheless, financial stress has been and continues to be a significant drag on the recovery, both here and abroad. Bouts of sharp volatility and risk aversion in markets have recently re-emerged in reaction to concerns about both European sovereign debts and developments related to the U.S. fiscal situation, including the recent downgrade of the U.S. long-term credit rating by one of the major rating agencies and the controversy concerning the raising of the U.S. federal debt ceiling. It is difficult to judge by how much these developments have affected economic activity thus far, but there seems little doubt that they have hurt household and business confidence and that they pose ongoing risks to growth. The Federal Reserve continues to monitor developments in financial markets and institutions closely and is in frequent contact with policymakers in Europe and elsewhere.

Monetary policy must be responsive to changes in the economy and, in particular, to the outlook for growth and inflation. As I mentioned earlier, the recent data have indicated that economic growth during the first half of this year was considerably slower than the Federal Open Market Committee had been expecting, and that temporary factors can account for only a portion of the economic weakness that we have observed. Consequently, although we expect a moderate recovery to continue and indeed to strengthen over time, the Committee has marked down its outlook for the likely pace of growth over coming quarters. With commodity prices and other import prices moderating and with longer-term inflation expectations remaining stable, we expect inflation to settle, over coming quarters, at levels at or below the rate of 2 percent, or a bit less, that most Committee participants view as being consistent with our dual mandate.

In light of its current outlook, the Committee recently decided to provide more specific forward guidance about its expectations for the future path of the federal funds rate. In particular, in the statement following our meeting earlier this month, we indicated that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013. That is, in what the Committee judges to be the most likely scenarios for resource utilization and inflation in the medium term, the target for the federal funds rate would be held at its current low levels for at least two more years.

In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus. We discussed the relative merits and costs of such tools at our August meeting. We will continue to consider those and other pertinent issues, including of course economic and financial developments, at our meeting in September, which has been scheduled for two days (the 20th and the 21st) instead of one to allow a fuller discussion. The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate to promote a stronger economic recovery in a context of price stability.

Economic Policy and Longer-Term Growth in the United States
The financial crisis and its aftermath have posed severe challenges around the globe, particularly in the advanced industrial economies. Thus far I have reviewed some of those challenges, offered some diagnoses for the slow economic recovery in the United States, and briefly discussed the policy response by the Federal Reserve. However, this conference is focused on longer-run economic growth, and appropriately so, given the fundamental importance of long-term growth rates in the determination of living standards. In that spirit, let me turn now to a brief discussion of the longer-run prospects for the U.S. economy and the role of economic policy in shaping those prospects.

Notwithstanding the severe difficulties we currently face, I do not expect the long-run growth potential of the U.S. economy to be materially affected by the crisis and the recession if--and I stress if--our country takes the necessary steps to secure that outcome. Over the medium term, housing activity will stabilize and begin to grow again, if for no other reason than that ongoing population growth and household formation will ultimately demand it. Good, proactive housing policies could help speed that process. Financial markets and institutions have already made considerable progress toward normalization, and I anticipate that the financial sector will continue to adapt to ongoing reforms while still performing its vital intermediation functions. Households will continue to strengthen their balance sheets, a process that will be sped up considerably if the recovery accelerates but that will move forward in any case. Businesses will continue to invest in new capital, adopt new technologies, and build on the productivity gains of the past several years. I have confidence that our European colleagues fully appreciate what is at stake in the difficult issues they are now confronting and that, over time, they will take all necessary and appropriate steps to address those issues effectively and comprehensively.

This economic healing will take a while, and there may be setbacks along the way. Moreover, we will need to remain alert to risks to the recovery, including financial risks. However, with one possible exception on which I will elaborate in a moment, the healing process should not leave major scars. Notwithstanding the trauma of the crisis and the recession, the U.S. economy remains the largest in the world, with a highly diverse mix of industries and a degree of international competitiveness that, if anything, has improved in recent years. Our economy retains its traditional advantages of a strong market orientation, a robust entrepreneurial culture, and flexible capital and labor markets. And our country remains a technological leader, with many of the world's leading research universities and the highest spending on research and development of any nation.

Of course, the United States faces many growth challenges. Our population is aging, like those of many other advanced economies, and our society will have to adapt over time to an older workforce. Our K-12 educational system, despite considerable strengths, poorly serves a substantial portion of our population. The costs of health care in the United States are the highest in the world, without fully commensurate results in terms of health outcomes. But all of these long-term issues were well known before the crisis; efforts to address these problems have been ongoing, and these efforts will continue and, I hope, intensify.

The quality of economic policymaking in the United States will heavily influence the nation's longer-term prospects. To allow the economy to grow at its full potential, policymakers must work to promote macroeconomic and financial stability; adopt effective tax, trade, and regulatory policies; foster the development of a skilled workforce; encourage productive investment, both private and public; and provide appropriate support for research and development and for the adoption of new technologies.

The Federal Reserve has a role in promoting the longer-term performance of the economy. Most importantly, monetary policy that ensures that inflation remains low and stable over time contributes to long-run macroeconomic and financial stability. Low and stable inflation improves the functioning of markets, making them more effective at allocating resources; and it allows households and businesses to plan for the future without having to be unduly concerned with unpredictable movements in the general level of prices. The Federal Reserve also fosters macroeconomic and financial stability in its role as a financial regulator, a monitor of overall financial stability, and a liquidity provider of last resort.

Normally, monetary or fiscal policies aimed primarily at promoting a faster pace of economic recovery in the near term would not be expected to significantly affect the longer-term performance of the economy. However, current circumstances may be an exception to that standard view--the exception to which I alluded earlier. Our economy is suffering today from an extraordinarily high level of long-term unemployment, with nearly half of the unemployed having been out of work for more than six months. Under these unusual circumstances, policies that promote a stronger recovery in the near term may serve longer-term objectives as well. In the short term, putting people back to work reduces the hardships inflicted by difficult economic times and helps ensure that our economy is producing at its full potential rather than leaving productive resources fallow. In the longer term, minimizing the duration of unemployment supports a healthy economy by avoiding some of the erosion of skills and loss of attachment to the labor force that is often associated with long-term unemployment.

Notwithstanding this observation, which adds urgency to the need to achieve a cyclical recovery in employment, most of the economic policies that support robust economic growth in the long run are outside the province of the central bank. We have heard a great deal lately about federal fiscal policy in the United States, so I will close with some thoughts on that topic, focusing on the role of fiscal policy in promoting stability and growth.

To achieve economic and financial stability, U.S. fiscal policy must be placed on a sustainable path that ensures that debt relative to national income is at least stable or, preferably, declining over time. As I have emphasized on previous occasions, without significant policy changes, the finances of the federal government will inevitably spiral out of control, risking severe economic and financial damage.1 The increasing fiscal burden that will be associated with the aging of the population and the ongoing rise in the costs of health care make prompt and decisive action in this area all the more critical.

Although the issue of fiscal sustainability must urgently be addressed, fiscal policymakers should not, as a consequence, disregard the fragility of the current economic recovery. Fortunately, the two goals of achieving fiscal sustainability--which is the result of responsible policies set in place for the longer term--and avoiding the creation of fiscal headwinds for the current recovery are not incompatible. Acting now to put in place a credible plan for reducing future deficits over the longer term, while being attentive to the implications of fiscal choices for the recovery in the near term, can help serve both objectives.

Fiscal policymakers can also promote stronger economic performance through the design of tax policies and spending programs. To the fullest extent possible, our nation's tax and spending policies should increase incentives to work and to save, encourage investments in the skills of our workforce, stimulate private capital formation, promote research and development, and provide necessary public infrastructure. We cannot expect our economy to grow its way out of our fiscal imbalances, but a more productive economy will ease the tradeoffs that we face.

Finally, and perhaps most challenging, the country would be well served by a better process for making fiscal decisions. The negotiations that took place over the summer disrupted financial markets and probably the economy as well, and similar events in the future could, over time, seriously jeopardize the willingness of investors around the world to hold U.S. financial assets or to make direct investments in job-creating U.S. businesses. Although details would have to be negotiated, fiscal policymakers could consider developing a more effective process that sets clear and transparent budget goals, together with budget mechanisms to establish the credibility of those goals. Of course, formal budget goals and mechanisms do not replace the need for fiscal policymakers to make the difficult choices that are needed to put the country's fiscal house in order, which means that public understanding of and support for the goals of fiscal policy are crucial.

Economic policymakers face a range of difficult decisions, relating to both the short-run and long-run challenges we face. I have no doubt, however, that those challenges can be met, and that the fundamental strengths of our economy will ultimately reassert themselves. The Federal Reserve will certainly do all that it can to help restore high rates of growth and employment in a context of price stability.



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