Tuesday, March 30, 2010

Birinyi Raises Full-Year S&P 500 Forecast to 1,325

Birinyi Associates Inc. raised its year-end forecast for the Standard & Poor’s 500 Index to 1,325 because of rallies by General Electric Co., Citigroup Inc. and Microsoft Corp.’s shares.

The estimate from the research and money-management firm founded by Laszlo Birinyi implies a 13 percent advance from today’s closing price and a full-year increase of 19 percent. Today’s report cited 2010 gains exceeding 20 percent for GE and Citigroup as well as Microsoft rising above $30 last week.

Birinyi said the S&P 500’s reversal of losses on March 22 shows that markets are exhibiting strength. The benchmark index for U.S. stocks lost as much as 0.6 percent after the biggest overhaul of the health-care industry in four decades and concern about Greece’s budget deficit, as well as Tiffany & Co., the world’s second-largest luxury jewelry retailer, reporting less profit than the average analyst estimate. The S&P 500 rose 0.5 percent that day and went on to advance a fourth straight week. (more)

Central Banks Stashing Away Gold at Brisk Pace

Central banks around the world added 425.4 metric tons of gold to their reserves last year, the biggest increase since 1964, according to the World Gold Council.

That represents a 1.4 percent gain to put their holdings at 30,116.9 tons in total. The increase was the first since 1988.

Central banks in India, Russia and China were among those boosting their gold reserves last year, as the precious metal jumped 24 percent, hitting a record of $1,226 an ounce in December.

Central banks now possess 18 percent of all gold ever mined. (more)

Greenspan: Bond Yield Rise Foreshadows High Rates

Former Federal Reserve Chairman Alan Greenspan warns that the spike in Treasury yields is a “canary in the mine” that may foreshadow higher interest rates, as investors have avoided three major Treasury auctions this week.

Prices of U.S. government debt fell on Thursday following a weak auction of $32 billion in seven-year Treasury notes. The high yield on the auction came in at 3.37 percent, above the market's expectations, according to market data.

Thursday's auction capped a week of $118 billion in new supply which attracted dismal investor interest. The government has been auctioning a steady stream of bonds for months to fund its economic stimulus efforts.

The higher yields indicate investors’ fears about a “huge overhang of federal debt which we have never seen before,” Greenspan told Bloomberg. “I’m very much concerned about the fiscal situation,” he said. (more)

It's Official - America Now Enforces Capital Controls

It couldn't have happened to a nicer country. On March 18, with very little pomp and circumstance, president Obama passed the most recent stimulus act, the $17.5 billion Hiring Incentives to Restore Employment Act (H.R. 2487), brilliantly goalseeked by the administration's millionaire cronies to abbreviate as HIRE. As it was merely the latest in an endless stream of acts destined to expand the government payroll to infinity, nobody cared about it, or actually read it. Because if anyone had read it, the act would have been known as the Capital Controls Act, as one of the lesser, but infinitely more important provisions on page 27, known as Offset Provisions - Subtitle A—Foreign Account Tax Compliance, institutes just that. In brief, the Provision requires that foreign banks not only withhold 30% of all outgoing capital flows (likely remitting the collection promptly back to the US Treasury) but also disclose the full details of non-exempt account-holders to the US and the IRS. And should this provision be deemed illegal by a given foreign nation's domestic laws (think Switzerland), well the foreign financial institution is required to close the account. It's the law. If you thought you could move your capital to the non-sequestration safety of non-US financial institutions, sorry you lose - the law now says so. Capital Controls are now here and are now fully enforced by the law. (more)

Jim Rogers Speaks About the Dollar Index and Euro

Sell-off in US Treasuries raises sovereign debt fears

The yield on 10-year Treasuries – the benchmark price of global capital – surged 30 basis points in just two days last week to over 3.9pc, the highest level since the Lehman crisis. Alan Greenspan, ex-head of the US Federal Reserve, said the abrupt move may be "the canary in the coal mine", a warning to Washington that it can no longer borrow with impunity. He said there is a "huge overhang of federal debt, which we have never seen before".

David Rosenberg at Gluskin Sheff said Treasury yields have ratcheted up 90 basis points since December in a "destabilising fashion", for the wrong reasons. Growth has not been strong enough to revive fears of inflation. Commodity prices peaked in January and US home sales have fallen for the last three months, pointing to a double-dip in the housing market. (more)

Stocks Soar, but Many Analysts Ask Why

The unemployment rate remains locked in a range that recalls the economic doldrums of the early 1980s. Housing is stuck in a ditch, with foreclosures rising. And consumers are still reluctant to part with the little cash they do have.

Yet the stock markets are partying like it's 2003, when hiring was brisk, real estate was booming, wallets were fat -- and the major stock indexes started a four-year rally that would double their value and push them to new heights just before the financial crisis hit.

Judging from stock prices alone, one would think the economy was poised for a roaring comeback. But the federal government plans to unplug the economic life-support programs that stimulated production, kept interest rates low and placed a thick cushion under the real estate market. (more)

Fed Spent Over $1 Trillion Buying Debt

However, this week market support from the Federal Reserve is supposed to end. If it keeps to its schedule, the Fed’s program to purchase mortgage-backed securities and Fannie/Freddie debt concludes on Wednesday, the last day of March.

“This is likely to be a big thing,” warns The Richebacher Society’s Rob Parenteau. “The Fed has bought over $1 trillion on government-sponsored entity (GSE) debt from the private sector. Private sector investors have taken the money the Fed has created. “Given the yield on near cash instruments, we believe investors have turned around and invested the proceeds from their GSE sales to the Fed in risky assets. We also believe some of these investors have replaced their GSE positions with Treasury bonds.

“So directly, the Fed has bid GSE prices up and suppressed GSE-related interest rates (think mortgage rates). Indirectly, the Fed’s money creation in the QE ops has suppressed Treasury yields and boosted prices of risky assets. At month end, then, a major prop beneath asset markets will go poof.

“Do you see that line in the powering through $1 trillion on April Fools’ Day? That represents the Fed’s QE purchases of GSE debt… and that is going to do a 180 -- it is bound for zero. What happens, then, when broker dealers, households and money market funds go to sell their GSE debt after March 31 and there is no Fed on the other side of the trade, with a bunch of blank checks, prepared to buy the GSE debt?

“Can you say train wreck?”

Chart of the Day: Social Security