Sell These Energy Stocks Today

By The Greek:

I believe that a Federal Reserve cut to its 2013 economic forecast Wednesday should serve as a driver of concern about cyclical energy demand. If I am correct, these energy ideas should see near-term weakness. Thus, I believe capital could be preserved by a temporary reduction in holdings here. Over the longer term (one-year), I favor energy for geopolitical and economic reasons, but I believe a nimble trade here could prove to be value-added.

I recently discussed long/short considerations for Exxon Mobil (XOM) in a stock specific article. However, as I considered the issue, I believe it has broader reaching impact than to just Exxon Mobil, and that investors in the five widely held energy stocks discussed here would also benefit from the investment thesis.

Stock	Year-to-Date Performance
Exxon Mobil (NYSE: XOM)	+3.0%
Chevron (NYSE: CVX)	+11.3%
ConocoPhillips (NYSE: COP)	+3.4%
BP (NYSE: BP)	Unch.
Halliburton (NYSE: HAL)	+14.6%

As you can see, the upward gains of the energy equipment and services and exploration and production companies have been outsized in comparison to the integrated behemoths. They tend to be more cyclical in nature, with exploration and development activity weighing heavily on demand and the price of the commodities. As a result, they are likely to exaggerate downside performance as well.

Stock	Year-to-Date Thru 3/19	Beta
Halliburton (HAL)	+14.6%	1.8
Schlumberger (NYSE: SLB)	+7.2%	1.8
Baker Hughes (NYSE: BHI)	+10.8%	1.8
Transocean (NYSE: RIG)	+16.9%	2.0
Chesapeake Energy (NYSE: CHK)	+27.3%	1.3

However, the entire energy sector should be impacted by a reconsideration of global economic activity. Each of these stocks should be negatively impacted by any such downgrade to U.S. economic expectations as discussed in my previous work, Fed Warning – Expect a Sharp Cut to the Economic Forecast.

In short, my expectation is that the Fed will revise its 2013 economic outlook significantly lower Wednesday. The basis of this view is multifaceted. I believe the fourth quarter GDP growth disappointment was born of the government’s fumbling of the fiscal cliff and debt ceiling issues. Economic growth was just 0.1% in Q4 2012, versus expectations for 0.5% growth. There’s strong possibility that the same issue impacted Q1 2013, though to a lesser degree. I do not believe the issue was adequately accounted for within the Fed’s December 2012 published economic forecast.

Also, we know from the Fed and the Budget Office that the sequester spending cuts will likely burden economic growth by 0.6 percentage points this year. We also know that the Fed expects a 1.5 percentage point burden in total from the sequester cuts and from the expiration of the payroll tax break and on other implemented austerity-like measures. These figures do not appear to be accounted for within the previous Fed forecasts, since December’s forecast was only cut slightly versus September’s, to a 2.3% to 3.0% growth range. If the Fed revises the economic outlook today, the shares of cyclical stocks and other major energy names should retrench along with oil and gas prices.

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.

Fed Statement, Economic Projections and Bernanke's Press Conference

Release Date: September 13, 2012

For immediate release

Information received since the Federal Open Market Committee met in August suggests that economic activity has continued to expand at a moderate pace in recent months. Growth in employment has been slow, and the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment appears to have slowed. The housing sector has shown some further signs of improvement, albeit from a depressed level. Inflation has been subdued, although the prices of some key commodities have increased recently. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely would run at or below its 2 percent objective.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed additional asset purchases and preferred to omit the description of the time period over which exceptionally low levels for the federal funds rate are likely to be warranted.

Also published today:

• Statement Regarding Transactions in Agency Mortgage-Backed Securities and Treasury Securities
• Economic Projections Materials
• Transcript of Prepared Remarks of Chairman Bernanke

Article should interest investors in SPDR Dow Jones Industrial Average (NYSE: DIA), SPDR S&P 500 (NYSE: SPY), PowerShares QQQ Trust (Nasdaq: QQQ), ProShares Short Dow 30 (NYSE: DOG), ProShares Ultra Short S&P 500 (NYSE: SDS), ProShares Ultra QQQ (NYSE: QLD), NYSE Euronext (NYSE: NYX), The NASDAQ OMX Group (Nasdaq: NDAQ), Intercontinental Exchange (NYSE: ICE), E*Trade Financial (Nasdaq: ETFC), Charles Schwab (Nasdaq: SCHW), Asset Acceptance Capital (Nasdaq: AACC), Affiliated Managers (NYSE: AMG), Ameriprise Financial (NYSE: AMP), TD Ameritrade (Nasdaq: AMTD), BGC Partners (Nasdaq: BGCP), Bank of New York Mellon (NYSE: BK), BlackRock (NYSE: BLK), CIT Group (NYSE: CIT), Calamos Asset Management (Nasdaq: CLMS), CME Group (NYSE: CME), Cohn & Steers (NYSE: CNS), Cowen Group (Nasdaq: COWN), Diamond Hill Investment (Nasdaq: DHIL), Dollar Financial (Nasdaq: DLLR), Duff & Phelps (Nasdaq: DUF), Encore Capital (Nasdaq: ECPG), Edelman Financial (Nasdaq: EF), Equifax (NYSE: EFX), Epoch (Nasdaq: EPHC), Evercore Partners (NYSE: EVR), EXCorp. (Nasdaq: EZPW), FBR Capital Markets (Nasdaq: FBCM), First Cash Financial (Nasdaq: FCFS), Federated Investors (NYSE: FII), First Marblehead (NYSE: FMD), Fidelity National Financial (NYSE: FNF), Financial Engines (Nasdaq: FNGN), FXCM (Nasdaq: FXCM), Gamco Investors (NYSE: GBL), GAIN Capital (Nasdaq: GCAP), Green Dot (Nasdaq: GDOT), GFI Group (Nasdaq: GFIG), Greenhill (NYSE: GHL), Gleacher (Nasdaq: GLCH), Goldman Sachs (NYSE: GS), Interactive Brokers (Nasdaq: IBKR), INTL FCStone (Nasdaq: INTL), Intersections (Nasdaq: INTX), Investment Technology (NYSE: ITG), Invesco (NYSE: IVZ), Jefferies (NYSE: JEF), JMP Group (NYSE: JMP), Janus Capital (NYSE: JNS), KBW (NYSE: KBW), Knight Capital (NYSE: KCG), Lazard (NYSE: LAZ), Legg Mason (NYSE: LM), LPL Investment (Nasdaq: LPLA), Ladenburg Thalmann (AMEX: LTS), Mastercard (NYSE: MA), Moody’s (NYSE: MCO), MF Global (NYSE: MF), Moneygram (NYSE: MGI), MarketAxess (Nasdaq: MKTX), Marlin Business Services (Nasdaq: MRLN), Morgan Stanley (NYSE: MS), MSCI (Nasdaq: MSCI), MGIC Investment (NYSE: MTG), NewStar Financial (Nasdaq: NEWS), National Financial Partners (NYSE: NFP), Nelnet (NYSE: NNI), Northern Trust (Nasdaq: NTRS), NetSpend (Nasdaq: NTSP), Ocwen Financial (NYSE: OCN), Oppenheimer (NYSE: OPY), optionsXpress (Nasdaq: OXPS), PICO (Nasdaq: PICO), Piper Jaffray (NYSE: PJC), PMI Group (NYSE: PMI), Penson Worldwide (Nasdaq: PNSN), Portfolio Recovery (Nasdaq: PRAA), Raymond James (NYSE: RJF), SEI Investments (Nasdaq: SEIC), Stifel Financial (NYSE: SF), Safeguard Scientifics (NYSE: SFE), State Street (NYSE: STT), SWS (NYSE: SWS), T. Rowe Price (Nasdaq: TROW), Visa (NYSE: V) and Virtus Investment Partners (Nasdaq: VRTS).

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.

The Fed Better Not Let Us Down

If the Federal Reserve were to fail to act, I expect we would see a good deal of the stock market gains made since June unravel before our eyes. The Fed must act today, because expectations are so deeply built into valuations that such a failure could be a catalyst for a crash, and a crash in itself can cause a recession. Of course, the Fed is not called to support stocks, but it is in its interests to protect employment and guard against inflation. In order to protect employment, not just aid it, the Fed must support the economy and economic certainty, which is currently in question.

I’ve noted my view that what the Fed has to offer is analogous to a child’s floatie for the management of an economic storm. Nonetheless, the market has high hopes today for Federal Reserve action. So even as I view the Federal Reserve only peripherally effective at this point, and mostly just supportive; and even as I argue that central banks are working their way toward putting the world in a place vulnerable to external shock damaging to global fiat currency (favoring gold), I say today, the Fed better not fail us.

Since early June, when real hopes in the Fed began to build, the SPDR S&P 500 Index ETF (NYSE: SPY) has gained 13%. Stocks, as seen by action in the SPY and in the moves of European shares (seen in the iShares S&P Europe 350 Index (NYSE: IEV)), got an extra lift when Mario Draghi issued his famous statement at the end of July. I labeled then a mess of his own making because of the time it is taking for ECB follow through to actually occur.

Earlier this week, the German court action to ratify Germany’s approval of the European Stability Mechanism (ESM) finally gave credence to Draghi’s conviction. Today, the Federal Reserve has an opportunity to solidify hope, and to support the life of stocks and the very relative economic relationship between the market and the economy. The chart of cyclical stocks like Caterpillar (NYSE: CAT) offer insight into how far we might fall, if not further, if the Fed lets the market down today. The same goes for the cyclical financials like Citigroup (NYSE: C) and Bank of America (NYSE: BAC).

Much hangs in the balance as you can see. If the Fed lets us down today, you can expect a significant market downslide. I even believe a Fed miscue could drive a mini-crash given the level of expectations built into stocks, which otherwise seem to lack good reason for their rally since June.

In my estimation, it really only buys the market some time. If global economic conditions were to hold steady in the meantime, or only deteriorate slightly further, then perhaps yet another Fed action (and ECB action) might give the world a minute more to wait for it. However, it is my view that over the longer term, it will become increasingly evident that we are just at the start of a new recession. As the data continues to come in through that span, I think reality will sink in. And given that my geopolitical concerns appear to finally be proving tangibly relative, my conviction about global recession is increasing. At that point, the only lasting beneficiary of central bank actions will be gold and relative securities like the SPDR Gold Series Trust (NYSE: GLD), and other precious metals and agricultural commodities; also companies serving agriculture like Monsanto (NYSE: MON). Real estate and other hard assets should also see price increase, but on fiat currency decrease. Still, for now, the Fed better not let us down.

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.

Fed Offers a Floatie for an Economic Storm

The day’s huge employment situation report offered disconcerting information to the discerning, as a surface level improvement in the unemployment rate proved quite suspect after review of the detail (see my report: Jobs Report Favors Change). Equity futures immediately started to reconsider green territory established before the release of the data, but that didn’t last long. The market then headed decidedly higher, brushing off important economic deterioration in favor of something else.

Our 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.

What is holding equities above water is hope. Specifically, it’s hope that the Federal Open Market Committee (FOMC) will issue a new phase of quantitative easing or some other creative form of policy (ala the ECB) at its announcement next week. Certainly, the bad news today for the economy increases the odds of Federal Reserve action, and the market is betting on that.

The SPDR S&P 500 ETF (NYSE: SPY) was up fractionally through midday Friday, after marking a 2% gain Thursday on the ECB announcement. Shares of cyclical industrials and financials are leading the way higher, with the Industrial Select Sector SPDR (NYSE: XLI) and the Financial Select Sector SPDR (NYSE: XLF) up 0.7% and 1.0%, respectively. Individual leaders included Caterpillar (NYSE: CAT) and Bank of America (NYSE: BAC), up 3.5% and 4.2%, respectively. But is the basis for rise capable of offering more than just hope? If not, it should not be long before the gains just detailed reverse.

Mortgage rates are at record lows, and yet lenders like BofA and J.P. Morgan Chase (NYSE: JPM) aren’t issuing loans at a blockbuster rate at all. In fact, Bank of America has been reining in its loan portfolio, due to the risk it carries. So, lower rates are not likely to help much more, as the key problem is qualifying potential home buyers for a mortgage after the damage done to their credit records through the financial crisis. On top of that, the burden of the current economic environment continues to weigh on all of us, especially the underemployed. And just try getting those who would like to move to take a loss on the real estate they already own. And while the new home market seems to be benefiting today, if you look at the production of large public builders like PulteGroup (NYSE: PHM) and Toll Brothers (NYSE: TOL), their gains have come within a slowly recovering and still vulnerable overall real estate market. Truth be told, gains have been significantly driven by the construction of multi-family projects geared for new rentals.

The real fix can only come with time, and by fiscal change, if not genius to get us out of this mess. My perspective of Washington is that genius is in rare supply, while egos and division are running rampid. Besides, even if Washington had all the answers, our economy would remain burdened by the deterioration of Europe and its impact globally.

Earlier this week, ahead of the announcement that fired up stocks on Thursday, I suggested investors take advantage of the coming rally into the ECB and FOMC announcements. While I stand committed to that today, as stocks continue to make me look smart, I do not believe the rally will last long after the Fed’s announcement is published. That’s because its powder will have been used, or not, and the onslaught of economic data deterioration will continue thereafter. Neither will the bombardment of political criticism stop against the economy and its keepers. Meanwhile, the ECB’s plan still faces a German Constitutional Court threat. Questions will continue to mount regarding just how much impact the central banks can have, and eventually, the tone of conversation might turn to the potential new damage bank actions could have. So, while you have the Fed and ECB to thank for your retained gains today, I think they’ll find themselves thankless soon enough.

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.

Buy Stocks Now Ahead of FOMC & ECB Actions

Over the next several weeks, given the developments at the European Central Bank (ECB) and the U.S. Federal Reserve, traders should take stocks higher. A look at the three month chart shows the impact of deteriorating economic data globally, but daily action indicates trader interest and hope in further central bank assistance. Therefore, heading into what looks like a likely issuance of new quantitative easing from the American central bank and supportive bond purchases from the Europeans, the next several weeks trading have support.

Our 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.


Charts by Yahoo Finance

The 3-month chart of the SPDR S&P 500 Index ETF (NYSE: SPY) shows a flattening of a longer term bullish trend. However, the choppiness in between has mostly been driven by speculation about ECB and U.S. Fed policy action to support. The clearest example of this came when ECB President Mario Draghi strongly stated the ECB would support the euro in late July. That set European stocks on fire, and it came at a time when the region needed some sort of catalyst.



The iShares S&P Europe 350 Index (NYSE: IEV) is up 6.3% since that fateful day. Unfortunately, as time passed, the market began to see that Draghi’s words may not carry with them the will of the euro zone. Bundesbank President Jens Weidmann remains as a key objector, and German Chancellor Angela Merkel declared Germany’s objection to Draghi’s plan today.

The details of the plan are leaking out, but it is expected to be formally presented tomorrow, September 6, 2012. It is thought that the ECB will purchase sovereign short-term bonds of terms of one to three years. While unlimited, those purchases are expected to be offset by sales elsewhere in the system in order to sterilize their impact to euro money supply. That would address my concerns that the central banks of the world, plus factors not yet incorporated into consensus thinking, threaten to make fiat currency worth significantly less over time. Because of the rumored construct of this plan, and assuming it would be approved, the action would ease concerns about the region’s chances of experiencing full recovery. This should lend more support for stocks globally, with a focus on Europe.

Federal Reserve Chairman Bernanke’s Jackson Hole speech last weekend left most market participants (as I see it) feeling more comfortable about the prospect of Fed action in September. I don’t think the rumblings from the GOP convention about Bernanke not being extended an invitation to stay under a Romney administration will serve to keep the independent Federal Reserve from acting in favor of markets and the economy in September. If I was told I would lose my job under certain circumstances, I’m not sure political perception would matter any longer in my decision making. Bernanke has all the more reason to act now in September.

The latest economic data reported yesterday, showing the ISM Manufacturing Index contracted deeper into the red, only demands further action from those who can so flail. The Dow Jones Industrials took a hit on the economic news, but would find support with central bank action as depicted here. The Dow Jones Industrial Average ETF (NYSE: DIA) is higher this morning, after a rough time of it yesterday, and that is likely a sign of what’s to come over the forward few weeks. Hard hit industrial stocks like Caterpillar (NYSE: CAT), General Electric (NYSE: GE) and Deere (NYSE: DE), which fell yesterday, are strongly higher today, I believe on this prospect. So, while the market is lazily returning to its regular speed, you might have an opportunity to set short short-term long bets today. I qualify the buy recommendation to the short short-term, because I see economic results only deteriorating after the central banks act.

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.

A Mess of Mario Draghi's Own Making

European Central Bank (ECB) Chairman Mario Draghi pulled out of his planned appearance at the Kansas City Fed’s Jackson Hole Symposium this weekend. The ECB chief has been under the spotlight since declaring that the euro would not fail and the ECB would not fail it. His appearances since have been highly heralded, as markets wait for follow through. I warned about his scheduled appearance just yesterday, saying, “The euro is likely to face a test after its recent rally, especially if Mario Draghi can only offer more talk without follow through, as I expect this weekend.” So it would appear that Draghi has taken some age old wisdom to heart, and that would be, “If you don’t have something nice to say, don’t say anything at all.”

Our 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.

Mario Draghi's Mess

“The ECB chief has been under the spotlight since declaring that the euro would not fail and the ECB would not fail it.”

Federal Reserve Chairman Bernanke will address the Jackson Hole crowd, and the world, this Friday morning at 10:00 AM EDT. Seeing as the Fed boss typically plays by the book, he really should not usher in any new Fed policy this week. Rather, he and the rest of the Federal Open Market Committee (FOMC), to which he is bound, will issue policy as prescribed in September following much deliberation and process.

Considering Draghi was scheduled to partake in a panel discussion on Saturday, it would appear that he would likewise not offer much new news. Draghi, like Bernanke, also has a prescribed process to follow and all sorts of other red tape to work through before issuing policy, and especially before launching any new initiative. This makes it highly unlikely that he could do anything more than disappoint the high expectations of the market this weekend. But, he only has himself to blame for the predicament he finds himself in today.

Shaky markets were reassured by his July 26th statement to a London investment conference marking the start of the Olympics. Draghi’s now infamous declaration read, "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough." Markets mostly focused on the “it will be enough” part, and unfortunately tossed the “within our mandate” portion aside for later chewing. Continuing on an upward trajectory begun in early June, the SPDR S&P 500 (NYSE: SPY) climbed another 3.8% from July 26 through August 28. The SPDR Dow Jones Industrials Average (NYSE: DIA) gained 2.0% and the PowerShares QQQ (Nasdaq: QQQ) has risen 7.9%. Obviously, Draghi has had more influence on the direction of the euro and European shares. You can see the stabilizing impact of Draghi’s statement clearly in the chart of the euro/dollar comparison.


Chart by Yahoo Finance

Draghi’s impact is also prominently behind the more significant gains of European stocks, in comparison to U.S. shares since July 26. The iShares S&P Europe 350 (NYSE: IEV) has gained 7.0% through August 28. ETFs of the hardest hit nations of Europe have done even better; those are the nations that would benefit from ECB purchases of their debt.

ETF SECURITY	CHANGE JULY 26 – AUG. 28
iShares MSCI Spain Index (NYSE: EWP)	+19.6%
iShares MSCI Italy Index (NYSE: EWI)	+15.4%
Global X FTSE Greece 20 (NYSE: GREK)	+11.5%
iShares MSCI France Index (NYSE: EWQ)	+8.9%
iShares MSCI Germany Index (NYSE: EWG)	+8.6%

But since Draghi’s statement, he’s found himself backtracking and qualifying comments. His announcement about missing Jackson Hole to focus on an otherwise busy work schedule was clearly carefully constructed to manage expectations. Spanish yields have expanded since the news broke that he would not appear at the central bank event. However, his reason for not making it, because of workload, implies he’s possibly working on something that might support the euro and the region generally. It’s quite a mess he’s found himself in, and one our own Fed chief does his best to avoid. It is not central bank concern to manage equity market expectations, but stock investors follow closely the words of those who impact the cost of corporate funding. So, wise bankers carefully word every statement so as to keep speculators from reading into anything.

Draghi’s infamous words did exactly the opposite. I suppose the leaders of Europe are happy about that today, since the euro has stabilized, yields have eased, and European equity portfolios have fattened. However, the devils in the game at play will eventually take the candy away and replace it with nails. It’s a game best not entered, and one I’m sure Mario Draghi wishes he did not step into. If this is not yet so, I’m certain that someday he will regret it.

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.

Fed FOMC Monetary Policy Release August 2012

What follows is the verbatim copy of the August 1, 2012 Federal Reserve Federal Open Market Committee (FOMC) Monetary Policy Statement.

FOMC Monetary Policy Release

For immediate release

Information received since the Federal Open Market Committee met in June suggests that economic activity decelerated somewhat over the first half of this year. Growth in employment has been slow in recent months, and the unemployment rate remains elevated. Business fixed investment has continued to advance. Household spending has been rising at a somewhat slower pace than earlier in the year. Despite some further signs of improvement, the housing sector remains depressed. Inflation has declined since earlier this year, mainly reflecting lower prices of crude oil and gasoline, and longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually. Consequently, the Committee anticipates that the unemployment rate will decline only slowly toward levels that it judges to be consistent with its dual mandate. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee anticipates that inflation over the medium term will run at or below the rate that it judges most consistent with its dual mandate.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates 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 late 2014.

The Committee also decided to continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. The Committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who preferred to omit the description of the time period over which economic conditions are likely to warrant an exceptionally low level of the federal funds rate.

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Bernanke Vs. Economy

The direction of the market today and moving forward will be determined by which factor the market views more critical. Will it be the prospect of new creative stimulus employed by the Federal Reserve Chairman, Ben Bernanke, or will it be the ominous slowing of GDP growth.

Our 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.

Bernanke Vs. GDP

At the hour of publishing here, I can only state expectations for economic growth of 1.2% for the second quarter, the slowest pace in a year, according to economists surveyed by Bloomberg. The range of views extends from 0.9% to 2.4% on a real basis, and represents a significant slowdown from the first quarter’s similarly slowing pace of 1.9%. The American economy is a big ship, and before she can stop or turn, she must slow. Well, the slowing is starting to get real for investors, and so all eyes are keyed on the pilot’s quarters.

Some say the efforts and the economic guidance of the Federal Reserve have helped to stave off a second great depression, and others argue that the efforts of the Fed are fruitless, and in fact lead us into bigger mess, ala the stock market and real estate bubbles of the last two decades. The next bubble appears to be in U.S. treasuries, but if that one blows, well then it all might be over. If interest in U.S. treasuries disappears, the depression that follows will be rivaled by no other time in U.S. history, in my view. In that case, with the dollar devalued, perhaps only gold will draw interest. Gold has in fact been my favorite investment idea for nearly 10 years now, and the performance of the SPDR Gold Trust ETF (NYSE: GLD) reflects the direction toward the disastrous end I just depicted.

I’ve been arguing that the Fed is out of bullets for five years now. What it has been fighting with is band-aids, but the wound has not healed behind its temporary cover. As a result, I see confidence in the Fed chief fading. You can see rally in the SPDR S&P 500 (NYSE: SPY), SPDR Dow Jones Industrials (NYSE: DIA) and the PowerShares QQQ (NYSE: QQQ) in anticipation of Fed speak. Still, when we look ahead, we see a cliff’s edge getting closer and closer. Our pace seems to slow at times, and it seems we might turn at times, but it’s all an illusion, because we continue to head toward that cliff.

Regarding cliffs, the Fed Chief rightly points to fiscal policy for the medication the economy and the market needs to heal. And as the “fiscal cliff” approaches, our doctors continue to quarrel about how the surgery should be performed. Americans should be demanding of their Congressmen today to resolve the issues that will otherwise be pushed forward to the midnight hour.

Fear of the fiscal cliff is keeping businesses and individuals from planning and spending today, and it will increasingly cause trepidation for stocks. We cannot expect our banks to do anything but sure up capital, and so they do. Yet, in Congress, our leaders prefer to criticize Bank of America (NYSE: BAC) and J.P. Morgan (NYSE: JPM), and to interrogate them on the issues that have plagued them recently. That is fine; but also fertilize the ground with sound fiscal policy and give them the tools to fuel economic growth. Otherwise, our nation’s greatest companies will suffer, because Europe and China will not be enough nor able to sustain them. So, General Electric’s (NYSE: GE) goods will find fewer buyers and Wal-Mart’s (NYSE: WMT) prices will not be cheap enough. The evidence of this is clear by the latest quarterly performances of Starbucks (Nasdaq: SBUX), McDonald’s (NYSE: MCD) and Yum! Brands (NYSE: YUM), which each disappointed investors due to shortfalls in their Chinese business.

So, in the battle royal pitting the latest GDP data against the Fed champion, GDP must win. Our only responsibility is to make him into a good champion.

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.

Bernanke’s Best Debbie Downer Imitation

Federal Reserve Chairman Ben Bernanke did his best imitation of SNL character Debbie Downer Tuesday morning, driving stocks immediately lower before the market laughed him off. Bernanke delivered the Fed’s semi-annual Monetary Policy Report to Congress including his personal testimony to the Senate Banking Committee Tuesday morning. As you can see by the action of the SPDR S&P 500 (NYSE: SPY), he had a significant impact.

Our 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.

Bernanke Downer

Stocks had actually gapped open higher on hope that Bernanke might speak of further quantitative easing or new mechanisms to spur employment and economic activity. The SPDR Dow Jones Industrial Average Index (NYSE: DIA) and the PowerShares QQQ (Nasdaq: QQQ) acted in concert with the SPY.

The Federal Reserve Chief disappointed investors in his opening statements as he spoke of a likely slower rate of economic growth for the second quarter of 2012. The first reporting of second quarter GDP is set for Friday of next week. He went on the discuss the stall in the labor market over the course of the second quarter, with an average increase of just 75K jobs through the last three months. He talked about still tight borrowing conditions for businesses and households, something Bank of America (NYSE: BAC) may have something to say about Wednesday morning when it reports its earnings. He said the contribution of the housing market to the recovery was less than usual during these latest strange days. Still the shares of the SPDR S&P Homebuilders (NYSE: XHB) and major builders like Toll Brothers (NYSE: TOL) rose on the day’s news of improved builder confidence.

Reassuring his concerned national audience, Bernanke said headwinds should diminish over time, allowing the economy to grow somewhat more rapidly and the unemployment rate to decrease. However, he warned, given that growth is projected to be less than satisfactory to draw many new entrants into the labor force, the recovery will be labored.

The Fed chief also spent a good deal of time warning Congress about the risk of pushing expiring fiscal legislation to its famous cliff’s edge, now widely known as the “fiscal cliff.” Just allowing the issue to stew could stall economic activity, as it restrains business plans for expansion. Then there’s the risk of stirring the sleeping dragon, Standard & Poor’s (NYSE: MHP) of the infamous downgrade of U.S. sovereign debt. Paraphrasing, S&P’s reasoning for its downgrade last time around, it was due to our government’s inability to work responsibly for the better good. All these things work to destabilize the footing for stocks, and that’s exactly what they did Tuesday morning.

After curiously being questioned about the Libor scandal, Bernanke answered the misplaced query with more concerning speak, saying he could not guarantee Libor pricing was reliable today. Barclays (NYSE: BCS) and other global banks continue to be weighed by an ominous cloud that threatens to rain down expensive regulatory settlements and costs to the ongoing operations of banks.

Still, solid earnings reports from Coca-Cola (NYSE: KO) and Goldman Sachs (NYSE: GS) reassured a worried market. The Consumer Price Index (CPI), which was reported this morning, served to scare nobody, though we warned that inflation may return. The SPDR Gold Shares Trust (NYSE: GLD) showed no fear of that, though, retreating a half point on the day. The iPath GSCI Crude Oil TR Index (NYSE: OIL) gained 0.8% on the day, though, as the U.S. Navy fired upon a threatening vessel in the Persian Gulf, killing one individual Monday. Integrated energy company, Exxon Mobil (NYSE: XOM), was up 0.8% on the day in concert with oil.

Industrial Production growth was reported stronger than expected in June, up 0.4%, against economists’ expectations for a 0.3% increase, based on Bloomberg’s survey. However, the prior month decline was revised lower; that allowed the same level of activity as expected to result in a higher growth rate. Still, the market seemed to miss that point, driving the shares of industrials higher on the day, with the Industrial Select Sector SPDR (NYSE: XLI) up 0.4%, and shares of GE (NYSE: GE) and Caterpillar (NYSE: CAT) up 0.7% and 0.9%, respectively.

On Wednesday morning, Chairman Bernanke will do it all over again, this time testifying before the House Financial Services Committee. The Fed remains ready to act, but the question is, can its bullets do any more damage. In conclusion, it may be exactly that potential damage that many market participants increasingly fear. Whether the Fed might do damage in the end if there are unintended consequences to its actions down the road (aka inflation) is a question gaining more volume as the days pass.

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.

FOMC Meeting Minutes - June 19-20, 2012

The Federal Open Market Committee (FOMC) meeting minutes for the June 19-20 meeting of 2012 were released at 2:00 PM EDT today. We are providing them here for our own subscribers via this link:

FOMC Meeting Minutes June 19-20, 2012 Meeting