Weekly Wrap: Bernanke and the Fed Do the Twist
After stock investors went five for five last week, they are looking to Ben Bernanke and the Fed to spur further buying. The Federal Open Market Committee will conduct a two-day meeting Tuesday and Wednesday and is expected to clarify the current zero percent interest rate policy, after taking the unprecedented step in August to maintain low rates low until 2013.
Ben & Co may also announce an additional boost for the economy, by dusting off an old strategy and making it their own. The 1961 policy, known as "Operation Twist" was intended to push down long-term borrowing costs, while allowing short-term rates to drift higher, thus encouraging investors to take more risk by lending at longer maturities. (The San Francisco Fed released a February paper on the topic.)
There are a couple of ways the Fed could do the Twist: the "Half Twist", would direct proceeds from existing bonds on the balance sheet into longer-dated Treasury securities, while the "Full Twist" would involve active sales of short-dated bills and longer bond buys.
Will the twist prompt a fresh burst of economic growth and new jobs? Probably not in a meaningful way, but with the jobs bill tied up in DC and the European debt crisis smoldering, it could push investors into riskier assets, so the stock market could see a short-term bounce. Time will tell whether the economy will catch up to that particular bet.
Investors were temporarily soothed last week after five central banks (the Fed, the ECB, the Bank of England, the Bank of Japan and the Swiss National Bank) pumped US dollars into the European banking system. The central banks have treated some of the short-term symptoms of the European illness, but they have not yet cured the big problem: the spreading disease of debt that infects the PIIGS (Portugal, Ireland, Italy, Greece and Spain) and the bad loans made by European banks to the PIIGS.
And so investors enjoyed a one-week remission, as large US stocks had their biggest weekly point and percent gain since the week ended July 1st.
- DJIA: 11,509, up 4.7% on week, down 0.6% YTD
- S&P 500: 1216, up 5.3% on week, down 3.3% YTD
- NASDAQ: 2622, up 6.2% on week, down 1.1% YTD (Biggest weekly percentage gain since the week ended July 17, 2009)
- October Crude Oil: $87.96, up 0.8% on week (up 6.9% over the last four weeks)
- December Gold: $1814.70, down 2.4% on the week (down 3.3% over the last two weeks)
Total bank failures for 2011 = 71 (0 new bank failures over weekend)
FACTOIDS OF THE WEEK: How We Doin'? (Census Bureau)
- US median HH income 2010 = $49,445 (down 2.3% from 2009 and 3rd consecutive annual drop)
- First time since 1997 that households made less than $50,000
- Annual income is now roughly where it was in 1996, adjusted for inflation
- Women workers made nearly $37,000 in 2010, up slightly from 2009
- Women still make only 77 cents for every dollar earned by comparably employed men
- The poverty rate (family of four earning less than $22,314) = 15.1% (up from 14.3%)
- 46 million Americans live in poverty, the largest number on record dating back to 1959
Mon 9/19:
10:00 Housing Market Index
Tues 9/20:
8:30 Housing Starts
FOMC Begins
Weds 9/21:
8:30 Existing Home Sales
2:15 FOMC Announcement
Thurs 9/22:
8:30 Weekly Jobless Claims
10:00 FHFA House Price Index
10:00 Leading Indicators
Fri 9/23:
