In a statement released yesterday the FOMC outlined their plan to purchase $40 billion worth of mortgage bonds every month. The Committee also announced its intention to continue purchasing long-term debt in an effort to put downward pressure on long-term interest rates. The program means that the Fed will add around $85 billion to its $2.8 trillion balance sheet every month until economic conditions improve. The program has a more or less open-ended time frame. The Fed will evaluate the strength of the economy and will continue to ease until economic conditions, mainly unemployment, improve.
Apple (AAPL) hit a new all time high today of 696.98. iPhone 5 pre-orders opened today selling out in less than a minute. The tech giant now has a market cap of over $648 billion. The iPhone 5 is scheduled to be shipped next Friday.
Consumer prices index saw its biggest gain in 3 years. Retail sales were higher for the second month in a row.
Earnings next week:
Tuesday- FedEx
Wednesday- Auto-Zone, General Mills, Adobe Systems, Bed Bath and Beyond
Fed’s current strategy of buying long-term securities and selling short-term is ineffective. Further policy accommodation is warranted, and the fed will expand purchases of securities while extending the current federal funds rate and:
The Fed will purchase 40 billion dollars a month of mortgage backed securities, which will be in an increase in holdings of long term securities of about 85 billion dollars a month till 2013
The goal is to increase downward pressure on mortgage rates and long term rates in general, providing support to the housing sector by encouraging home purchases and refinancing
If the Fed does not see improvements in economic and financial developments in the upcoming months they will continue purchasing MBS as well as additional asset purchases as appropriate, called unlimited quantitative easing
The Fed will continue to control prices but is focused on unemployment
Policy will continue passed recovery, to provide assurance to households and businesses, the target rates are 0% to 0.25% through mid-2015
Projecting unemployment rates of 6.0 – 6.8 by 4th quarter 2015
Projected inflation of 2% a year
Fed earnings are remitted to the treasury and will help reduce federal deficit and debt
With that news, the DOW was up 206.51, 1.55%, to 13,539.86, S&P up 23.43 or 1.63% to 1,459.99. Overnight, Dow and S&P futures gained 63.00 points and 7.25 points respectively. Crude oil futures are up 1.79% to 100.07. Yesterday before the announcement, our trade pick at KOTM was to purchase a call fly on GLD, a Gold ETF. After the 12 pm announcement, GLD rose 3.41 points, a 2.03% gain, and continued to gain points overnight up another 0.44 points. As the policies around the world try to keep up with the Fed announcement, investors will be looking for stable currency. I am expecting buyers to continue pushing Gold prices up, and GLD to move up into a range of 174.00 to 178.00 and higher by 2013.
What happens if Fed policy fails? Bernanke explicitly stated that the Fed will continue its easing until employment gets better, with no real time frame. At some point, if unemployment and GDP are not improving, uncertainty about whether or not the Fed can effectively change the economy will make for a strong bear market. Don’t lose sight of the Fed’s progress over the next twelve months.
Alex Kalish has a master’s in economics from Suffolk University.
There is plenty of news to play to today. The Jobless claims Report and Producer Price Income Reports are set to come out at 8:30 AM EST, the FOMC Forecasts at 2:00 PM EST, followed by the Bernanke’s press conference at 2:15 PM EST. Last week, there were 365 thousand new jobless claims reported and projections have a growth in claims to 370 thousand with a possible high of 380 thousand. The Producer Price Index, which measures the average change in prices received by domestic producers, is projected to increase 1.4%, but only 0.2% not including food and energy.
The Fed estimates released today will cover GDP growth in 2012 and 2013, inflation and unemployment. The market’s movement over the past couple weeks suggests that investors and traders expect an announcement of intervention, and the only tool the Fed has left is a quantitative easing. I expect heavy movements late in the day today or early tomorrow morning during higher trading volume.
The Apple (AAPL| 669.79) iPhone 5 event has finally passed and consumers are left with an upgraded version of the iPhone 4. AAPL was up $9.20 at the end of the day after many volatile movements, hitting new highs and lows throughout the day, a $15 range. In pre-market trading today, AAPL is up again another $5.71 to around 675.50, which is less than ten points from its all-time high hit at the end of last week. One company that should be highlighted during all the hubbub about the iPhone 5 is Nokia.
Nokia Corporation (NOK| 2.75) has had a tough year with a 52-week range of 1.63 – 7.38. NOK has been in steady decline since the beginning of the year. In pre-market trading today, NOK is up 1.82% and expect it to continue to grow if iPhone fanatics get bored with the new upgraded model. If you have seen the Lumia, you know that Nokia has built a beautiful product worthy of competing with the best smartphones. The new Lumia phones are said to run on the windows phone 8 operating system. An earnings report is expected around mid-October, estimating a $-0.12 EPS. I might look away from a short play on NOK, but a long-term and cheap OTM call spread would be a play that interests me.
Alex Kalish has a master’s degree in economics from Suffolk University.
AIG is a half of a point higher in pre-market trading. AIG has a 52-week high/low of 35.36/19.18. The stock hit its yearly low at the end of September last year. Since July, the stock has floated above thirty dollars and in the last 3 weeks has been pushing thirty-five dollars, up almost 5% in the last month. AIG reported second quarter growth in early August, growing its insurance operating income 26%. Six major analysts have downgraded AIG’s outlook, as the Fed, possibly holding back dividends among other controls, will regulate AIG.
On Friday, Google (GOOG | 706.15[+6.75%]) broke above the $700 price line, a new four year high. The 52-week range for GOOG is now 480.60 – 712.25, a range of about $230. In pre-market trading GOOG is down less than a tenth of a point, with an overnight high of $709.72, currently sitting at $708.84.
US indices futures are all down. Dow futures have dropped 21 points, NASDAQ futures down five and a half, and the S&P futures down 3.25. News from the National Bureau of Statistics yesterday had exports rising lower than expectations and imports to china decreasing. Consumer credit reports come out today and international trade balance for the US is announced tomorrow.
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