Wednesday, March 20, 2013 - Not Today

Mark your Calendar, April 5 & 6 and make your reservations for the 2013 Wealth Protection Conference in Tempe, AZ. For conference information visit www.buysilvernow.com or click here or call 480-820-5877. This year's conference features Roger Weigand, Nathan Liles, David Smith, Mark Liebovit, Arch Crawford, Ian McAvity, Bill Tatro, and I will speak on Friday. There is an expanded Q&A session with all speakers on Saturday. I hope you can attend. 

Not Today

by Sinclair Noe

DOW + 55 = 14,511
SPX + 10 = 1558
NAS + 25 = 3254
10 YR YLD +.03 = 1.94%
OIL + 1.14 = 93.30
GOLD – 6.10 = 1607.70
SILV - .09 = 28.92

Looking back, we all remember the crisis of 2008, money markets broke the buck, Bear Stearns bombed as Cramer cried buy, buy, buy; Lehman imploded; and Hank Paulson scribbled a 3 page note and begged, literally begged Nancy Pelosi on bended knee to bailout the banksters.

And then in 2009, the strangest thing happened. The stock market bottomed and started moving higher. There were challenges along the way, here's a partial list: the Latvian financial crisis, the Dubai debt crisis (those were both in 2009), the flash crash in 2010, the Greek crisis and the first bailout in May 2010, Ireland crisis in November 2010, the Arab Spring actually started in December 2010, the war in Libya in February 2011, the Japanese tsunami was just 2 years ago, the Portuguese debt crisis, the US credit downgrade in the summer of 2011, the Spanish bailout in June 2012, the fiscal cliff to start the new year, followed quickly by the sequester, and now the Cyprus Bank Heist.

And for the past four years, the stock market has remained calm, even complacent at times; the VIX is not far from historical lows right now. Kind of like a strange uncle visiting for Thanksgiving; he falls asleep on the couch; every now and then he wakes up, and gets another plate full of pie ala mode. It's a sleepy market that just keeps growing bigger and bigger; waking up now and then to feed at the Federal Reserve's free money trough.

Of course, it has been and continues to be the actions of global policy makers more than anything else that has propelled stock prices higher these last few years. The Fed has fired up the helicopters and tossed out money to try and resuscitate economic growth. These efforts have certainly yielded some meaningful positives, for not only did we recover from the brink of a full-scale global financial meltdown, but the housing market did not die – it lives; and corporate earnings have returned to pre-crisis levels, and the economy staggers forward with sluggish growth; and unemployment..., well let's just say, it could be worse.

So if you're wondering about the future for the stock market, you really don't have to look much further than the Federal Reserve's balance sheet. Overlay a chart of the S&P 500 with a chart of the total assets the Fed reports on its books. And you'll see that when the Fed pauses monetary stimulus, the markets stall; and when the Fed juices the markets, they run. This stock market investing isn't really complicated.

So, the big question is when will the Fed take away the punch bowl?

Not today.

The Federal Open Market Committee wrapped up its two day session with Bernanke announcing continued support for the economy. The Dow rallied 91 points to hit an intraday record high of 14,546, and we finished up 55 at 14, 511, not quite the record high close of 14,539. Meanwhile, the S&P 500 is within 6 points of the all-time closing high set back in October 2007. The scary part here is that all the big investment banks have already jumped on the bull market bandwagon. The most bearish analysts have succumbed. I'm not sure who is left to buy. The Euro-crisis du jour wasn't enough to slam stocks. So, I guess we wait another few weeks for the “Sell in May Signal”. And besides, the Fed is still waging war on savers, so you can't retreat to your CDs.

Bernanke said the Fed is seeing improvements, but he wants to make sure those improvements are not temporary. A major focus for the Fed is the labor market, which has not yet found the virtuous cycle. Bernanke said: “We will also look at things like growth to try to understand whether there is sufficient momentum in the economy to provide demand for labor, going forward.., We have seen periods before where we have had as many as 300,000 jobs for a couple months. Then things weakened again.”

In their latest forecasts also released today, Fed officials still didn’t see the jobless rate reaching a key level until 2015. The Fed said that the economy is growing at a moderate pace but there are still downside risks to the outlook. The Fed will continue to buy $85 billion a month in bonds and mortgage backed securities, more or less; they will keep interest rate targets at near zero; and Bernanke confirmed the FOMC will stop buying bonds long before they raise interest rates, but again – not today.

Bernanke said the stock market wasn't overvalued but it's not something the Fed targets and he hopes those words don't come back to haunt him. He thinks there is a need for fiscal policy to contribute to economic growth; he says the Fed tries to identify and attack bubbles but they can't be expected to pop asset bubbles all by themselves. He said: “Too Big To Fail is not solved and gone. It’s still here." He talked about some of the tools policy makers could use to address the problem, including Dodd-Frank rules forcing the biggest banks to hold more capital or pay regulators a little more than smaller banks.

"If we don't achieve the goal" of solving too big to fail with these measures, Bernanke said, "we will have to take additional steps. It is important."

The conversation comes at a time of increasing bipartisan agreement that something must be done about banks whose size threatens the economy, although the question of what to do about it remains in doubt. Big banks' size gives them an advantage over smaller banks because the market thinks they will be bailed out if they get into trouble. That same sense of invincibility, along with lower borrowing costs, could lead big banks to take bigger risks, threatening another crisis.

Bernanke said the Fed is bigger than he is and it will survive his departure, and he doesn't have any concrete plans to leave the Fed, and then he exited, stage left.

Over on Capitol Hill, the Senate  approved legislation to lock in $85 billion in broad federal spending cuts as part of the sequester. Although it hardly qualifies as fiscal stimulus, the move avoids a government shutdown next week and keeps the doors open through September; at least some of the doors.

So, everything is copacetic, unless something happens. What will happen? Who knows? Will Cyprus be the straw that breaks the camel's back? Doubtful, but you never know. It is turning into a crazy story. The storyline involves a relatively stable economy; the Cypriot's had some debt but not as bad as the Germans. The Cyprus problem is with the banks. And then the Euro-commissioners and the IMF figured there was a problem with Russian mob money-laundering through Cypriot banks, so they decided to steal deposits. That went over like a lead balloon, so they revised the plan and announced they would only steal deposits from accounts over 20 thousand-euro. And then the Cyprus parliament voted against the whole thing. And then the Russians stepped up and announced Gazprom, the Russian oil company would provide a $4 billion-euro bailout in exchange for exploration rights to offshore gas deposits in the Mediterranean Sea. Actually, the fate of this proposal is uncertain. Gazprom refused to confirm it even made an offer.

So, the Cypriots have to decide whether to let the IMF, and the Euro-commissioners and the Germans steal their bank accounts or to let the Russians steal their natural resources. They seemed to have decided that they won't just bend over and accept the terms of any old bailout; and that means they could default on their banks' debts and maybe leave the euro zone. And that could be a very bad thing indeed, raising fears about an unraveling of the whole dumb enterprise.

And just in case you think I'm not paying attention, let's include a quick version of banksters behaving badly:

Citigroup will pay $730 million to settle a lawsuit accusing it of misleading investors about the quality of bonds and preferred stock it sold ahead of the financial crisis. The investors charge that Citi was effectively insolvent at the time, but went ahead and sold bonds and stock anyway. Citi naturally denies any wrongdoing; $730 million of not wrongdoing.

Mortgage finance company Freddie Mac is suing more than a dozen banks for losses from the manipulation of the benchmark interest rate known as Libor. Bank of America, JPMorgan Chase, UBS and Credit Suisse are among the banks named as defendants in the lawsuit. Freddie Mac, which invested in mortgage bonds and swaps tied to U.S. dollar Libor, claims the banks colluded to rig the benchmark from 2007 to 2010. The inspector general of the Federal Housing Finance Authority, which oversees Freddie Mac and Fannie Mae, said the two government-controlled mortgage companies may have suffered more than $3 billion in losses as a result of Libor manipulation.