No QE3, Rate to Remain Low Until At Least Mid 2013

And the US stock market goes all over the place. Dow was -60, but a mere second ago it had been -90. Then it was -60, and now +58. I believe the order is out to the traders and algo bots: "Don't you dare let the market end up in red." Occasionally my stock screen that has companies in different industries lights up all at the same time in green, except for those inverse ETFs, which indicates to me that they are buying up the indices (or futures on it or options on the futures or options on double- and triple-long ETFs on indices...).



Three Fed FOMC members (Richard Fisher, president of the Dallas Fed, Charles Plosser of Philadelphia and Narayana Kocherlakota of the Minneapolis Fed) dissented, who wanted to keep the rate low for "an extended period" without mentioning the time frame.



From Bloomberg (8/9/2011):

The Federal Reserve pledged for the first time to keep its benchmark interest rate

at a record low at least through mid-2013 in a bid to revive the flagging recovery after a worldwide stock rout.

The Federal Open Market Committee discussed a range of policy tools to bolster the economy and said it is “prepared to employ these tools as appropriate,” it said in a statement today in Washington. Three members of the FOMC dissented, preferring to maintain the pledge to keep rates low for an “extended period.”

The decision represents the biggest effort since November to spark the U.S. economy and revive confidence while stopping short of initiating a third round of large-scale asset purchases. Chairman Ben S. Bernanke and his colleagues acted after reports showed the economy was slowing and an unprecedented downgrade to the U.S. credit rating sent stocks tumbling from Sydney to New York.

.....

The vote was 7-3. Richard Fisher, president of the Dallas Fed, Charles Plosser of Philadelphia and Narayana Kocherlakota of the Minneapolis Fed all dissented. It was the first time under Bernanke that three FOMC members dissented.

(The article continues.)

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Asian Markets Sink on US Debt Downgrade, London Burns

Hong Kong's Hang Seng Index currently down 788 points (it was worse), or down almost 3.9% (from Yahoo Finance):



Shanghai Composite down 4%

Singapore Strait Times Index down 4.2%

Jakarta down 4.3%

Seoul down 4%

BSE 2.5%



Relatively modest loss ("relative" is the keyword) are:

Australia's All Ordinary down 1.8%

Japan's Nikkei down 2.1%



Gold (spot) hit the record high of $1,703.50 (from kitco.com).



US market futures are down, but off the low (from bloomberg.com):

Dow futures down 250

S&P futures down 27

Nasdaq futures down 46



In Europe, FTSE futures down 99. There was a report of riots in London.



While I was busy reporting the end of the world as the Japanese knew it, the world as the rest of the world had known ever since October 2008 was slowly getting unhinged, and now it is visibly, acceleratingly, irreversibly unhinged.



The US Federal Reserve will hold the FOMC meeting on Tuesday and Wednesday, and some analysts think the Fed has no choice but declare QE3 (and 4, 5, 6, .....n), mostly because there's not much else they could do. Why they should do anything is another question, but the justification for carrying out QE2 (from November 2010 to June 2011) was to give the US government "a break" so that the government has time to shape up and do something about the economy that was decelerating. Of course nothing happened.



The PPT and the NY Fed have a work cut out for them before the US market opens.

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OT: Gold on the Move, Again (Thanks Ben, and Gold Is Money)

(These days, OT - other topic - means anything other than Fukushima... But this blog WAS once a financial blog..)

Gold jumped to a record high near $1,590 as the Federal Reserve chairman Ben "Black Hawk Helicopter" Bernanke indicated a further stimulus (digital printing of the Federal Reserve notes, fiat money) to create more inflation. (Remember, to him and the like-minded Fed economists who despise anyone without a PhD in (Keynesian) economics, inflation is growth, and a rising stock market is the economy.)

From Reuters (7/13/2011):

(Reuters) - Gold surged to a record near $1,590 an ounce on Wednesday as the possibility of more Federal Reserve stimulus coupled with Europe's deepening debt crisis fueled bullion's longest winning streak in five years.

Bullion's gains accelerated after Federal Reserve Chairman Ben Bernanke said the Fed is ready to ease monetary policy further if economic growth and inflation slow much more. Silver rallied nearly 6 percent, moving in tandem with commodities, U.S. stock markets and risk assets.

....Gold option volatility rose sharply on Wednesday, as bullion investors bet that underlying future contract prices could extend a record rally on signs of more Federal Reserve stimulus coupled with Europe's worsening debt crisis.

COMEX gold options floor trader Jonathan Jossen said one investor sold a huge position in $1,600 December call options and then bought twice as much in $1,750 December calls. Heavy call purchases suggest buyers expect underlying gold futures to rise further.

That option strategy is called "call backspread". Someone's expecting a very big and volatile move and wants to profit very handsomely.

In the meantime, the Fed chairman was put in a very uncomfortable position trying to deny gold is money but say totally fiat Treasury bills are financial assets.

From Forbes blog (Agustino Fontevecchia, 7/13/2011):

Chairman Ben Bernanke faced-off with Fed-hating Representative Ron Paul during his monetary policy report to Congress on Wednesday. The head of the Fed was forced to respond to accusations of enriching already rich corporations while failing to help Main Street, while he was pushed on his views on gold. When asked whether gold is money, Bernanke flatly responded “No.”

...As Bernanke began to sermon Rep. Paul on the history of the Fed (“we are here to provide liquidity [in abnormal situations],” the Chairman said), he was interrupted.

“When you wake up in the morning, do you think about the price of gold,” Rep. Paul asked. After pausing for a second, Bernanke responded, clearly uncomfortable. that he paid much attention to the price of gold, only to be interrupted once again.

“Gold’s at about $1,580 [an ounce] this morning, what do you think of the price of gold?” asked Rep. Paul. A stern-faced Bernanke responded people bought it for protection and was once again cut-off, with Ron Paul once again on the offensive.

“Is gold money?” he asked. Clearly bothered, Bernanke told the representative, “No. It’s a precious metal.”

After Paul interrupted him to note the long history of gold being used as money, Bernanke continued,”It’s an asset. Would you say Treasury bills are money? I don’t think they’re money either but they’re a financial asset.”

...The interesting exchange served as one of the few times Bernanke has been publicly pushed off his comfort zone by an elected official. Rep. Ron Paul brought up the issues that he’s famous for, namely, a sort of allegiance between the Fed and the nation’s most powerful institutions, the illusion of fiat money, and the gold standard. Bernanke, angered and bothered, had no option but to respond.

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